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The arms deal affordability report: What did the ministers know?

Sarah Evans

Ministers due to testify at the arms commission will not answer fraud and corruption allegations but could be asked about a mysterious report.

Phase two of the arms deal commission will deal with the allegations of malfeasance, but the witnesses that will be called will be those exposing the rot. (Madelene Cronje, M&G)

The ministers who will testify at the arms procurement commission this week will not answer questions on fraud and corruption alleged to have plagued the arms deal. Yet all hope is not lost, as the mysterious affordability report of 1999, which apparently advised Cabinet against the arms deal, remains within the ambit of phase one. 

The ministers could theoretically be asked about it, shedding light on a document that until recently remained classified and largely out of the public eye.

On Tuesday, former deputy defence (and later, intelligence) minister, Ronnie Kasrils, will continue giving evidence. Arms deal activist Terry Crawford-Browne is due to cross-examine Kasrils. Former minister of defence – now Congress of the People leader – Terror Lekota, is due to testify after Kasrils, possibly on Wednesday. Former finance minister Trevor Manuel is scheduled to testify on Thursday and Friday.

Former president Thabo Mbeki is the next witness to testify, although the dates for his evidence have yet to be confirmed. This will bring phase one of the commission’s proceedings, which deals primarily with the rationale behind the deal, to a close.

Phase two will deal with the allegations of malfeasance, but the witnesses that will be called during this phase will be those exposing the rot, the so-called “whistleblowers”, and not those implicated in the allegations. These whistleblowers include City of Cape Town mayor Patricia De Lille, who lifted the lid on the corruption allegedly accompanying the arms deal in Parliament and Gavin Woods, a former ANC MP and former chairperson of the Standing Committee on Public Accounts (Scopa), who resigned as a result of the arms deal.

Arms commission spokesperson William Baloyi confirmed on Monday that De Lille’s dossier, the one presented to Parliament, would be used during the airing of evidence in phase two.

Interest or tax
But phase one does allow room for some tough questioning for the ministers, particularly around the issue of affordability, as demonstrated by Lawyers for Human Rights (LHR) on Monday. The LHR coaxed a key admission from Jayendra Naidoo, government’s chief negotiator during the arms deal negotiations: Naidoo said that the initial price of the arms deal, punted by government in 1999, of R29-billion, did not include interest or tax that would accrue.

In fact, a 1999 affordability report suggests that Cabinet knew the investments stemming from the offsets would not result in the economic utopia government suggested at the time.

The ministers due to testify during the last leg of the commission’s first phase could provide answers as to why government ignored its own affordability study.

Naidoo told the commission on Monday that the report combined the negotiating team’s calculations and made recommendations to Cabinet. These former Cabinet ministers are therefore the only witnesses left who could explain the report’s significance. Additionally, if any of the ministers concede that government knew the offsets might not create the thousands of jobs promised, or that the arms deal could in fact hurt the economy long-term, now is the ideal time for lawyers at the commission to ask them why they did not raise concerns at the time.

In an extract from The Devil In The Detail – How the Arms Deal Changed Everything, Paul Holden and Hennie Van Vuuren outlined key features of the affordability report: the calculations were based on complex algorithms, into which figures were inserted, and a variety of scenarios were calculated. This was to estimate the impact on the South African economy if the arms deal went ahead, if it went ahead but the offsets failed, and various other economic scenarios.

The report concluded that if the risks associated with the arms deal did not materialise, the arms deal would have a “limited … impact on the macro-economy”.

“First, it is abundantly clear that even if offsets were fulfilled and interest rates remained low, the impact of the arms deal on the economy was broadly negative. Indeed, this is even acknowledged in the report: ‘If the risks do not materialise, the arms expenditure programme has a limited, though non-negligible, impact on the macro-economy. This is true even for the highest [R25-billion] expenditure level.’ This is clear from the most optimistic scenario, in which the gross domestic product growth contracts more than it expands in the period between 2000 and 2008,” wrote Holden and Van Vuuren, also witnesses at the commission. 

But there is evidence that the report was of little consequence to Cabinet, which appeared determined to push ahead with the deal in spite of whatever forewarning the report provided. The report was presented to Cabinet in August 1999, just two months before the deals were signed, and years after negotiations first began. 

Van Vuuren and Holden noted: “Interestingly, this timeline suggests that the cost of the arms deal was never a major concern for key decision-makers. By the time it was presented, for example, former defence minister Joe Modise had already initialled a number of key arms deal contracts, whereas the Cabinet, as early as 1998, had made a number of statements to the effect that they had chosen the primary contractors to be used in the arms deal. This all gives credence to the claim that, while the arms deal was being negotiated, the cost of the purchase and its macroeconomic impact were of little concern.”


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