Aug-Sept 2014 K.indd

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AUG/SEPT 2014 • www.cosatu.org.za

It is not clear to what extent offsets have bene fi ted the SA economy in large procurement contracts involving among others the World Cup, Gautrain and procurement of vehicles for the State. It is clear that offsets cannot be used as substitute for government’s role to industrialise the economy utilising its own resources and people and not foreign companies. However, we will have to await the Judge Seriti Commision fi ndings on the Arms deal in order to fi nally answer the question of whether offsets were achieved, consequences for companies that failed to deliver the offsets if any and to what extent and whether jobs were created. The fi ndings would assist the government to sharpen industrial participation as a tool of industrial policy. However, industrial participation is a limited tool as it is depended on government tenders. The Commission will also investigate the allegations of corruption which will be dif fi cult to prove because some of the witnesses are not able to disclose the sources of their information and as result their evidence may be regarded as hearsay and not helpful to the commission. It would also be a dif fi cult task to determine whether government was right or wrong as the decision to enter into the arms deal was a political -policy choice. A sustainable solution is to block imports, encourage exports and stop the purchase of foreign produced goods alternatively to require foreign companies to establish the plants in SA.

Some of the defence offsets in the arms deal included local assembly of weapons, local development of weapons systems, and the use of local technology in systems, and subcontracting to Denel for equipment and testing. The national offsets under the NIPP policy included investment in; solar panels, the manufacturing of medical waste containers and the provision of medical waste management services (which has allegedly failed), the manufacturing of aluminium tubes for motor-car radiators, the production of pressed metal for sub-economic housing, the manufacturing of gold chain and the manufacturing of leather seat-covers for cars. Financial dif fi culties by Denel may be indication that some of offset were not met (F Harrison Explaining NIPS and DIPS). A call to cancel some of the arms deal contracts for failure to meet their offset credits has been rejected on the basis that this would be negatively viewed by the international community in particular credit agencies. The challenge on the use of offset policy is administrative capability and monitoring to ensure that they are indeed delivered as promised. According to the media reports the arms deal was projected to develop R110 billion in investments or offsets and 65000 jobs but only created 6 billion rand in actual investment and 13690 direct jobs. Offsets may incentivise sellers to increase their prices so as to protect their level of pro fi tability.

country. The imported content value amounts to R80 million. In terms of the NIPP the seller will incur an industrial participation obligation of 30% of the import content which means that the seller will need to generate offset credit to the value of R24 million (80x30%). The seller will be required to submit business reports to the DTI and relevant procuring departments on how it would achieve the offset credits equal or exceeding R24 million. (Z Rustomjee’s evidence to the Seriti Commission). Multipliers are used to calculate offset credits and this method may arti fi cially increase investment by foreign suppliers of goods and is open to abuse. All investment projects qualify for a multiplier of 2, that is, any amount invested will be multiplied by two. Multipliers are encouraged as a means to entice companies to invest in local business entities by way of funding, equity or loans which would result in additional business activity and possible job creation. include outsourcing of production of components to be included in the same arms or equipments that are being sold to the arms buying country. In this way a country is able to develop local military industrial capability. Indirect offsets relate to the requirement to invest in the economy generally including conditions to increase sale of SA produced goods in other countries, local ownership, local labour, transfer of skills and technology. Offsets may be direct and indirect. Direct offsets would

ECONOMY