The official opposition Democratic Alliance says the near-record current account deficit recorded in the second quarter of 2004 of R49-billion — 3,7% of gross domestic product — “is cause for concern”.
Shadow finance minister Raenette Taljaard said there are at least four reasons for this jump in the figures: a reversal in the trade account surplus of R15,2-billion (Q1) to a R5,5-billion deficit (Q2); a larger-than-expected import of crude oil (up from 30 barrels to 60 barrels); the delivery of the third of the South African Navy’s new corvettes purchased in terms of the Strategic Defence Procurement; and the delivery of at least five new Airbuses in terms of South African Airways’ (SAA) aircraft upgrade.
“While the vagaries of the United States dollar is one of the primary causes of the movements in the exchange rate of the rand — apart from the clear role played by the continued interest rate differential between South Africa and its major trading partners — the addition of a large current account deficit to the mix will certainly have an impact on the exchange rate of the rand.”
The rand was trading at R6,68 to the dollar on Monday.
“It is clear that the acquisition of the equipment purchased [as part of] the arms deal, as well as the fleet upgrade of South African Airways, will have a fundamental impact on the current account over the lifespan of the respective procurements.”
Taljaard noted that the more expensive elements of the arms procurement — the Hawks and Gripens — have a procurement lifecycle that runs with delivery dates to 2012.
“It is therefore clear that these products will make their presence felt in our current account figures and that government has to create a clear reporting line for the progress achieved in the industrial participation [IP] projects related to these procurements.
“When the arms deal was concluded, the affordability studies before government warned of a number of risk factors and the manner in which the benefits flowing from the industrial participation projects associated with the deal would have to be harnessed to limit the impact of the procurement on the current account.”
As the South African Cabinet prepares to receive an in-depth study on the IP delivery in terms of the arms deal procurement, it is becoming clear that the inward investments and export earnings projected in the arms deal are woefully insufficient to limit the financial impact of the products’ arrival, she argued.
Meanwhile, she said: “When SAA decided to opt for Airbus and cancel the Boeing acquisition process, there was never a full and clear report from government on the impact of the Boeing IP and how the cancellation affected the Boeing IP.
“There has not been a full and clear report on the IP targets set for Airbus in terms of the delivery of the new fleet acquisition’s industrial participation component.
“The impact of these two large procurements on the current account raises clear questions on the overall performance of the industrial participation policy of government and about the level of transparency that accompanies the IP policy itself.”
Parliament should receive a full report on all the IP projects associated with government procurements that have been concluded and that have a value above the minimum IP threshold, she argued.
“The public have a right to know whether government’s IP policy is working or not.
“Given the magnitude and importance of the arms deal IP to our balance of payments and the fact that 2004 marks the first milestone of assessment of delivery on IP obligations by arms suppliers, the DA will formally write to the auditor general requesting a special audit of the IP in the arms deal in order to follow up on his report in this regard in the 2003 annual report of the DTI [Department of Trade and Industry].” — I-Net Bridge