October 2003
Much has been written and said about the Strategic Arms Procurement Package undertaken by the ANC-led government. Popularly known as 'the arms deal', this process has been the subject of more disinformation and rumour than facts. This note aims to outline the key issues involved and answer some of the unsubstantiated claims made by opposition parties, the media and sundry commentators.
The new Constitution of South Africa, adopted in 1996, requires that South Africa has a defence force "to defend and protect the Republic, its territorial integrity and its people".
But the question which faced the country after the 1994 democratic elections was what form should this defence force take and what capacity would it need to fulfil the requirements of the constitution.
In a decisive break from the past, a comprehensive process was undertaken between February 1996 and April 1998 to determine the kind of defence force needed and how it should be equipped. This produced the Defence Review, which was tabled and approved in Parliament in April 1998. This had the support of all parties.
Among other things, the Defence Review detailed the equipment needs of the South African National Defence Force (SANDF). It pointed to the need to provide strategic equipment for a number of arms of service of the SANDF to retain an effective defence capability. Without this replenishment of the main arms of service of the SANDF, its operational capabilities would have been structurally impaired
There are many who are opposed to defence purchases and have lobbied very actively against the deal. Such debate is in the nature of our new democracy. But the Constitution, the Defence Review and the policy of South Africa's democratically-elected government all support the need for an adequately equipped defence force.
The decision to procure equipment for the SANDF was a carefully considered and thoroughly researched and analysed decision. It was made in the interests of maintaining an effective and modern defence capability. This policy decision was taken in the full cognisance of the competing needs of our funds and every effort was made to balance the competing claims on our funds. It is the duty and prerogative of government to make such policy decisions.
In the light of the developmental challenges facing us, government was acutely aware of the various competing calls on our limited resources. This is why the ANC-led government has undertaken massive fiscal and budgetary reform to ensure prudent expenditure of limited resources. All departments have to prepare three-year medium-term expenditure programmes to ensure resources are available for the programmes planned by government into the future.
Because spending on the arms deal would be spread over more than a decade, a specific budgeting process was used and Cabinet adopted a three-phased decision making process for the Strategic Procurement.
The process to procure the equipment needed by the SANDF was conducted in an open and transparent manner, unlike decades of previous purchases.
A decision was taken to consolidate all the purchases into a single Strategic Procurement package, which was a major step in creating transparency. The procurement process was explicitly set out and was not merged into annual budgets of the Defence Department or some secret fund as was the case in the past.
The agreement on the need for the purchase of strategic equipment was however subject to certain constraints in regard to the affordability of the packages. This immediately led to downscaling of the full acquisition proposals of the Defence Review.
The deal represented a strategic package rather than piecemeal procurement and a systematic process of industrial participation obligations was developed in line with the National Industrial Participation Program (NIPP) adopted by Cabinet in April 1997. This means that in all public sector procurements where the imported content will exceed $10 million the chosen supplier must invest resources, technology and skills back into South African industry, with black economic empowerment as an important objective. However, the NIPP can never be used to justify the decision to purchase. It arises only when that decision has been taken.
There were four national government departments involved in all decisions. The National Treasury dealt with budgetary implications, financial affordability and macro fiscal and economic implications. Trade and Industry dealt with the industrial participation and assisted with certain economic implications. Public Enterprises dealt with aspects relating to state-owned enterprises. The Department of Defence dealt with the technical defence requirements, defence industrial participation and the specific budget of the Defence vote.
There were also four independant evaluation groups, each with a mandate and scoring system comprised of unique value systems for assessment. A committee of the ministers of these departments was chaired by Deputy President Thabo Mbeki (later as President). This committee decided on and prepared the final recommendations to Cabinet.
It is apparent from the unique nature of this process that any corruption in the awarding of the prime contractors and many major subsystems would have to have infiltrated central departments and ministers of the South African government. The deal was structured in this manner precisely to reduce the prospects for corruption as they would have no prospect of influencing the deal.
On the recommendation of the Committee of Ministers, Cabinet decided to conduct further negotiations with the short listed bidders. Once again the negotiators had a mandate to address affordability questions. It was also decided to appoint a Chief Negotiator, Jayendra Naidoo, to coordinate the negotiations and report to the President and the ministers.
This was a unique and quite conscious aspect of the process. In the light of endless unsubstantiated and outlandish accusations being made by unknown sources government was wise to take these precautions.
After extensive negotiations involving the technical structure of the equipment, industrial obligation requirements and the financing of the deal a final report was prepared. The report dealt with a wide range of matters. Of decisive importance was a report on an assessment of the economic, fiscal and financial impacts of the packages. It assessed the risk across a number of dimensions and the final affordability of the deal in the light of the intense negotiations conducted. This was done by the Department of Finance with the assistance of other government departments, external economists and a local university. This report and the various options available was presented to the Ministerial Committee and circulation was tightly controlled.
It is unlikely that any previous expenditure by government has been so thoroughly analysed.
Government involvement in the procurement process was limited to primary contracts. The government is the buyer - or procurer - and the primary contractors are suppliers of the equipment being bought. The primary contractors would then enter into secondary contracts with sub-contractors to provide the components required to supply a complete solution to government. Government was not involved in the selection of sub-contractors.
Following a Special Review of the procurement process by the Auditor-General in September 2000, parliament's Standing Committee on Public Accounts (SCOPA) raised a number of issues of concern which were contained in its 14th report to the National Assembly. It suggested an independent and expert forensic investigation look into these issues.
A joint investigation was therefore undertaken by the Auditor-General, the Public Protector and the National Director of Public Prosecutions, which submitted its report to Parliament in November 2001.
There was also a request to the President from the Special Investigating Unit (SIU) headed by Judge Willem Heath to issue a proclamation to enable the unit to be included in the investigation. The President declined the request because to do so would be against the "spirit and essence" of a Constitutional Court judgement that the composition of the SIU was unconstitutional by virtue of being headed by a judge. The SIU had, in addition, not provided any information that suggested an unlawful appropriation of public funds.
Following an intensive investigation by the Auditor-General, Public Protector and National Director of Public Prosecutions a report was produced detailing their findings.
The report indicated that the decisions of Cabinet on the acquisition of equipment was indeed based on the Defence Review Process, detailing the country's security assessment and the ensuing responsibilities of the National Defence Force with regard to security, marine resources, international obligations and so on.
"No evidence was found of any improper or unlawful conduct by the Government. The irregularities and improprieties … point to the conduct of certain officials of the government departments involved and cannot … be ascribed to the President or the Ministers involved in their capacity as members of the Ministers' Committee or Cabinet. There are therefore no grounds to suggest that the Government's contracting position is flawed".
The report noted that: "there may have been individuals and institutions who used or attempted to use their positions improperly … to obtain undue benefits in relation to these packages". These, the report said, applied in particular to the secondary contracting process.
The Directorate of Special Operations (Scorpions) was charged with further investigating these matters, so that the law could take its course.
The report detailed procedures in the acquisition process that are in line with international best practice. This ranges from the policy process, to the structures that were set up, the assessment of the utility and cost of the packages and the industrial participation programme. Also critical in the assessment was reference to the strategic considerations that Cabinet, on occasion, had to take into account.
In assessing the cost of the acquisition, the following issues need to be remembered:
On the matter of the sub-contracting process, the report reiterates that while state structures may have an interest in the reliability of the package as a whole, "[t]he final decision about which subcontractor should be used remains the responsibility and the right of the main contractor". In this regard, a number of allegations have been made, particularly with regard to acquisitions for the Navy.
In relation to electronic systems for corvettes and allegations by a particular company, the report notes that the process undertaken was not unreasonable and therefore would not have impacted on the integrity of the decision.
After making comparisons among a number of countries on industrial participation programmes, the report established that we conform to the best in the world. In a number of areas, the negotiated package is well in excess of minimum requirements. It did however find that this could have been tighter, and the recommendation that further legal opinion needed to be sought to ensure that the contractors meet their obligations.
With regard to the observation by SCOPA, that "the contracts contained clumsy language, incorrect references" and so on, the report finds that the contracts were "understandable, well defined and the drafting … of a high standard".
Further, the report found the approach in respect of obligations "to be reasonable", and that the facts in this regard would allay the concerns raised in the Special Review by the Auditor-General as well as the 14th report of SCOPA.
Was government wrong to undertake the arms deal in the first place? No. It has a constitional obligation to ensure the defence force is adequately equipped. The arms deal was informed by a lengthy and comprehensive assessment of the country's defence needs, which had the support of almost all parties in Parliament.
Was it a waste of resources that should have gone to development? No. Government went to great lengths to balance the cost of the arms procurement against the other pressing demands on the country's resources, and took a number of steps to minimise the cost. Because of the approach taken by government, the equipment was secured at very favourable rates.
No. The arms procurement process was probably the most transparent, thoroughly researched and effectively managed major procurement in this country's history.
No. The investigation found no evidence of corruption relating to the selection of primary contractors by government.
The investigation found that other individuals may have attempted to obtain "undue benefit" particularly in the awarding of the sub-contracts by the primary suppliers - in which government was not involved. These matters have been taken up by the Scorpions, and the normal legal process must take its course.
Was the current Deputy President, Jacob Zuma, ever involved in the arms deal? No. He was not on the Committee of Ministers, nor even in the national cabinet during the most of the period the procurement process was taking place.
Clearly there are people who have an interest in presenting the arms deal as riddled with corruption and deeply flawed. This ranges from people who are against the purchasing of arms as a matter of principle; to opposition parties who want to portray the ANC government in a bad light; to losing bidders who have a score to settle or would like to see the decisions reversed. But why the media should be such an active participant in this campaign of misinformation is a matter that requires closer inspection.