South African Arms Deal

The Strategic Defence Package, popularly known as the Arms Deal, was a major defence procurement programme undertaken to re-equip the South African armed forces for the post-apartheid era. It is commonly associated with the large-scale corruption that is alleged to have taken place during and after the procurement process. Some critics have said that the Arms Deal was a defining moment or turning point for the African National Congress (ANC) government, less than five years into its tenure.

Following decades of sanctions and a major review of its functions and strategy, the Department of Defence sought to modernise its defence equipment and prepare to participate in a broader range of peace-keeping, defensive, and possibly offensive operations outside South Africa's borders. In 1998, Parliament and the cabinet of President Nelson Mandela, both dominated by the ANC, approved a Defence Review Report which entailed large scale procurement of defence equipment. In December 1999, the government signed contracts with European countries for the procurement of corvettes, submarines, trainer aircraft, fighter aircraft, and helicopters worth about R30 billion, primarily for the use of the South African Navy and South African Air Force. Because of the financing arrangements and exchange rate fluctuations, the true cost of the contracts – only finally paid off in October 2020 – is estimated at far more, although the government's total expenditure on the package has never been disclosed.

From the outset, the Arms Deal was criticised on multiple fronts. Some critics questioned the justifiability of the scale and cost of the package, while others questioned the strategic usefulness or prudence of specific contracts under the package. Most public attention, however, was focused on allegations that improper procurement processes had been followed. Each of the five major programmes of the package ultimately became subject to such allegations, which often extended to allegations of profiteering by ANC politicians, including through fraud, corruption, bribery, racketeering and/or money laundering. At least three former cabinet ministers – Joe Modise, Siphiwe Nyanda, and Stella Sigcau – and two former Presidents – Thabo Mbeki and Jacob Zuma – have been accused of improperly benefiting from the contracts. Few of the allegations have been proven or prosecuted, and most were dismissed by the Seriti Commission, a judicial inquiry which ran from 2011 to 2016 and whose findings were overturned in 2019. The only individuals convicted on charges relating to the deal were former ANC Chief Whip Tony Yengeni and Zuma's financial advisor Schabir Shaik, although a criminal case is ongoing against Zuma and one of the Arms Deal subcontractors, Thales.

Background

Strategic review After the end of apartheid in 1994, the South African National Defence Force (SANDF) replaced the apartheid-era South African Defence Force (SADF). Much of the country's defence equipment would reportedly face block obsolescence before the end of the decade, and, in previous years, the South African Navy had reportedly already lost a significant portion of its conventional capacities. Sanctions, and eventually a United Nations arms embargo, applied on exports to South Africa had meant that the apartheid government relied heavily on the domestic arms industry, primarily through the state-owned Armscor. However, with the end of the Cold War and of various regional conflicts, the defence budget fell substantially after 1989, forcing reductions to capital expenditure on defence.

After 1994, major defence acquisitions were treated not as merely technical decisions but as political and economic decisions, subject to Cabinet and parliamentary approval as well as to approval by three separate bodies within the Department of Defence. The first post-apartheid Minister of Defence, Joe Modise, requested parliamentary approval for the acquisition of Spanish corvettes as early as 1994, but this was refused pending a threat assessment and strategic review of the country's broad military arrangements. Accordingly, the Ministry of Defence initiated a consultative process to establish the future outlook of SANDF. This process of public participation – also subject to the approval of Parliament and Cabinet – culminated in a White Paper on Defence in 1996, a Defence Review Report in 1998, and a White Paper on Defence-Related Industries in 1999.

The 1996 White Paper and 1998 Defence Review agreed, in line with the Constitution, that SANDF's primary function was to defend the territorial integrity and people of South Africa – in contrast to the posture of SADF, which towards the end of apartheid had been involved in internal political conflicts. Both reports also agreed that SANDF should adopt a "strategic defensive posture." However, whereas the 1996 White Paper emphasised a wide definition of "security," acknowledging that South African security was not primarily a matter of military strength and that there were no immediate military threats to the country, the 1998 Defence Review also included a commitment to enhance the ability of SANDF to mount offensive operations using conventional forces if required. Thus, of the four options devised, Parliament and the Cabinet approved the approach which would reduce SANDF's manpower but increase its capital intensity, entailing a major programme of defence procurement to update SANDF's ageing equipment. The Defence Review was approved with the caveat that all procurement would require separate parliamentary approval, but that condition was ultimately not met – in December 1999, the final Strategic Defence Package was merely presented to Parliament.

Procurement process In announcing its plans for defence procurement, the government emphasised the extent of the offset offers that it had received from multiple foreign suppliers from an early phase, presenting offsets as an opportunity to spur investment, industrialisation, job creation (the final package was expected to create 61,629 jobs), and economic growth. However, the Congress of South African Trade Unions expressed concern. According to journalist R. W. Johnson, the deal was also opposed, primarily on financial grounds, by Ministers Trevor Manuel, Joe Slovo, and Jay Naidoo, while Deputy President Thabo Mbeki, who has been described as a "champion" of the deal, supported Modise in favour of it.

The basis for the process of deciding between bids was an evaluation by four committees (technical, finance merit, defence industrial participation, and national industrial participation), who scored each out of 300. Those evaluations were then forwarded across a series of other bodies, primarily within the defence establishment and of increasing seniority, each of which made recommendations to the next level, ultimately culminating in a set of recommendations to Cabinet. On 18 November 1998, the Cabinet approved the department's recommendations of preferred suppliers for the armaments packages, at an estimated cost of roughly R29.77 billion. This was not a final decision to procure at the estimated cost, but a decision to proceed with negotiations with those suppliers. On 15 September 1999, the Cabinet approved the acquisition of the final packages, and contracts were signed with the relevant companies on 3 December 1999.

Final package

Procurement The cabinet announced that the total cost of the package was R29.992 billion, and it comprised: +Procurements under the Strategic Defence PackageProgrammeCountrySupplierProductQuantityValueCorvetteBlohm + Voss

Howaldtswerke-Deutsche Werft

Thyssen Rheinstahl TechnikGFC Meko A2004R5.473 bnSubmarine FerrostaalGSC 209/1400 MOD3R4.289 bnLight utility helicopterAgustaA10930R1.532 bnLead-in fighter trainer aircraftBAE SystemsHawk24R9.952 bnAdvanced light fighter aircraftBAE Systems SaabJAS 39 Gripen28R3.728 bn The costs cited in the table above, which were announced by the Cabinet at the time of the signature of the contracts, exclude finance charges, escalation clauses, and foreign exchange fluctuations. Thus the R29.992 billion figure should not be taken as representative of the actual cost of the contracts over the term of their payment. The actual cost has been estimated at R90 billion by 2008, and at R142.864 billion by the time the package was paid off in 2020 (in 2020 prices). The government has not disclosed the total amount that it spent on the package. In July 2016, News24 reported on invoices it claimed had been sent to Armscor by the arms companies and leaked by Anonymous; however, Armscor said that the leaked figures were inaccurate. On the other hand, the contracts also purportedly entailed offsets of R100 billion.

Four Super Lynx 300, supplied by the United Kingdom, had also been on the 1998 list of preferred programmes, but fell out of the final package. However, the department separately purchased them in 2003. This contract can be seen as an indirect result of the original package – by purchasing the corvettes, the government effectively committed to purchase maritime helicopters in the future. The Super Lynx were deployed on the new German corvettes from 2008.

Financing The defence companies who supplied the equipment were paid between 2000 and 2014, while the South African government (through the National Treasury as debtor) continued paying off related loans until October 2020. The major financiers of the package, some of whose loans were underwritten by their governments, were the following international banks (with amounts provided by Manuel, who was the Minister of Finance at the time): +Loans used to finance the Strategic Defence PackageLenderCountryProgrammeValueBarclaysAircraft$2.5 bnCommerzbank Corvettes and submarines€1.058 bnSociété GénéraleCorvette combat suite€188.06 mnMedioCredito Centrale Helicopters$199.79 mn

Strategic criticisms The Arms Deal was subject to criticism on several different fronts. Although the majority of the ensuing controversy centred on corruption allegations and concerns that fair procurement processes had not been followed , the deal was also criticised from an early stage on grounds relating to its cost and underlying strategy. For example, critics point to the Affordability Report published by the Treasury in August 1999, which found that the Arms Deal presented a sizeable economic risk. They say that the scale of the acquisitions was hard to justify, given that South Africa did not face any direct military threats.

Even when the need for such a large-scale defence acquisitions package is acknowledged, some have questioned whether the right equipment and the right suppliers were selected. For example, the decision to acquire submarines and fighter aircraft appeared imprudent to those who believed that SANDF's primary role would be to conduct peace-keeping operations and police support operations, neither of which would require additional conventional military capabilities. The most immediate maritime threats were those of smuggling and illegal fishing from foreign trawlers, making the acquisition of four modern German submarines appear ill-judged. Similarly, the southern African airspace was generally entirely peaceful, and the Air Force already possessed highly capable Cheetahs. The BAE Hawk trainer aircraft also cost twice as much as the Italian alternative, which was preferred by the Air Force itself.

Although the Seriti Commission found otherwise, it has also been claimed that the offsets included in the final contracts failed to materialise or brought less benefit than promised.

Corruption probes

De Lille dossier