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Arms deal conjures up investment billions
Government is projecting a counter-trade windfall of about R50-billion in the wake of an arms binge, writes HENRY LUDSKI
The value of the counter-trade expected to flow from the purchases was this week put at more than R50-billion by Shamin Shaikh, Defence Force chief of acquisitions. It is also expected to create about 30 000 jobs in the manufacturing sector. Shaikh said Defence Minister Joe Modise and Trade and Industry Minister Alec Erwin had set out to use the defence purchase to leverage foreign investment. "It's been a good gamble by the two ministers which has paid off," said Shaikh. Cabinet is expected to make a final decision next month on what will be the biggest purchase of foreign-made equipment to date. The extent of the investment, which Shaikh says far exceeds SA's expectations, is expected to weigh heavily in favour of Cabinet giving the Defence Force's acquisition plan the go-ahead. This week's stronger rand, coupled with political instability in southern Africa, are others factors which have strengthened the hand of the Defence Force, which considers the proposed procurements as its best shot at modernising SA's defence capability. SA plans to buy three submarines, four corvettes, five maritime helicopters, 40 light utility helicopters, 38 advanced fighter aircraft, 24 trainer aircraft and 54 main battle tanks. In return it is expecting the biggest injection of direct investment yet into the new SA. The industrial participation deals on offer from the countries vying for the Defence Force contracts are expected to provide a boost to the beleaguered SA defence industry and industrial manufacturing sector.
Shaikh said the Defence Force had already made its final recommendations about which offers Cabinet should accept. However, Trade and Industry was "fine tuning" the investment value of the industrial participation deals on offer. In a significant departure from its original intention, government has steered clear of linking the industrial participation deals to social development programmes. Instead, it has gone for a broad range of hard manufacturing industries focused on exports. These include stainless steels and titanium mills, the manufacture of clothing, textiles, jewellery, cellular phones, chemicals and commercial helicopters; automotive, electrical, satellite industry and aircraft engine components. Shaikh said the industrial participating deals would "take care of the local defence industry" - 40% of the work and sourcing equipment would be done in SA. Since arms manufacturers from shortlisted countries Britain, Canada, France, Sweden and Spain and Italy submitted their final offers about four months ago, the rand has lost about 20% relative to the dollar, the currency denomination of all procurement deals. This, together with a slashed defence budget, has already led to the Defence Force substantially scaling down its force requirements and purchasing plans. Shaikh said one of the purchases had already been dropped from the list of purchases being proposed to Cabinet, but refused to disclose what had been shelved.
Jakkie Cilliers, defence analyst, said many of the purchases the defence force proposed a year ago in terms of its "preferred force design option" had now become unaffordable. Although the industrial participation deals were legally binding agreements, figures about their investment value "had to be taken with a pinch of salt". The industrial participation proposals on new investment, job creation, technology transfer and black economic empowerment were evaluated against a list of 22 priority areas compiled by the Department of Trade and Industry. Companies were required to show how they would commit at least 50% of the value of the tender to the defence industry and the rest to non-defence industries.
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