The Mail&Guardian on Friday rejected as “nonsense” a statement by a senior department of trade and industry (DTI) official challenging the newspaper’s report that the government was vastly inflating figures for offset investments resulting from the arms deal.
The DTI on Thursday rejected the Mail&Guardian report, saying the value of the investments were misunderstood.
“There has been no over-inflating, and no reduction in the value of investments, but there has been a misunderstanding of the real value of beneficiating gold,” DTI chief director Lionel October said in a Sapa (South African Press Association) report.
Mail&Guardian Editor Howard Barrell said that, judging by the Sapa story quoting October, “the DTI official is the one who is confused, not us”.
On Thursday, the Mail&Guardian reported that the value of industrial participation (IP) deals arising from South Africa’s multi-billion rand arms deal was “melting away”.
It said billions of rands in exports, claimed as offsets, were made up of raw material exports that would have left the country anyway, and investments claims were hugely inflated.
Many of the offsets had been exposed as shams, built on loopholes in the rules, the report said. The government has said it can expect about R140-billion in offsets from companies that win contracts in the arms deal.
According to Sapa, October said the newspaper had “confused time periods” when stating that the value of BAe-Saab’s IP to upgrade a gold refinery had shrunk from $2,3-billion to $595-million.
He said the first amount was the value of the offset credits for the entire 11-year period, while the figure of $595-million was for the first milestone, or 2004.
“It appears from the Sapa report that it is the DTI official who is confused, not us,” said Barrell.
October’s statement appears to confirm that the $70-million gold beneficiating investment is providing BAe-Saab with $2,3-billion in offset credits, said Barrell.
“Nothing October has said contradicts the story,” added Barrell, “October appears from the Sapa report to be trying — rather clumsily — to put a different spin on the unpleasant truth our report establishes.”
BAe-Saab won the contract to supply South Africa with Hawk trainer and Gripen fighter aircraft. October said beneficiation was an important part of government’s strategy, and offered substantial added value.
“South Africa is trying to move away from just exporting raw materials… in the long term it is definitely in the interests of the country,” said October.
Just one jewellery factory could create 500 jobs, he said. In its report, the Mail&Guardian said BAe-Saab had been allowed to claim “virtually the full $300 an ounce, not the value the refining adds of a few dollars an ounce”.
The newspaper also says a key weakness in the offset rules was the way in which investments were calculated. Only 30% of the claimed investment had to come from offshore, meaning little foreign exchange would flow into the country.
However, if an arms company could argue it facilitated loans for the investment, it could claim the full investment as “offset credits”, the newspaper said.
According to Sapa, October said a company received credit for investing in a project, as well as for attracting funding from other companies for that project.
He claimed the Mail&Guardian had confused export value and credits regarding an offset investment in a silicon panel plant in Cape Town.
But the Mail&Guardian rejected October’s accusation that it had confused the figures, saying that it had merely quoted the figures supplied by October’s own department.
According to the Mail&Guardian, Thales — part of a consortium providing corvettes for the navy and which invested in the plant — is claiming export credits of $105-million over seven years on an investment of $6-million.
This was in spite of the fact that the silicon panel factory added only about 20% value to an imported product before re-export.
The newspaper also said BAe-Saab received offset investment credits of $90-million, as well as $81-million for timber exports, despite putting only $6-million into a planned Mpumalanga forests and sawmill operation.
BAe’s involvement was hailed by government, although Anglo American and a United States company had apparently formed a joint venture a year before to pursue the project.
The arms deal will come under scrutiny in Parliament next week when MPs debate various committee reports on the probe into the deal, released late last year.
Trade and Industry Minister Alec Erwin is expected to address the National Assembly on concerns surrounding the IP deals.
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