Arms deal offsets ‘seriously flawed’

Trade and industry director general Lionel October told Swedish television that South Africa was “naive” when it came to negotiating offset agreements (known as industrial participation) linked to the 1999 arms deal.

“I think South Africa was naive and was not clear about its objectives in this ­programme, so the offset was badly structured,” October said in a Swedish investigative feature, Dokument Inifrån, broadcast on Thursday evening.

He said the bulk of the projects were not within the core defence expertise of the companies selling the arms and were “seriously flawed and not sustainable”.

“That is the real weakness of the programme,” he added: “I think it was badly structured and conceived. It was a lesson for all parties.”

October’s comments contrast with his guarded but upbeat statement in February at the Seriti commission of inquiry, when he said: “I think that this programme achieved a material benefit for the country … as I said it’s not the perfect instrument but it was the best tool we had at the time …”

Broken promises
The hour-long Swedish show homes in on what it portrays as the broken promises of helping to “build up” South Africa that were tied to the sale of Swedish Saab JAS Gripen fighters.

Saab, in partnership with Britain’s BAE Systems, which supplied Hawk jet trainers, accounted for the lion’s share of the offset obligations generated by what, in 1999, was a R30-billion deal.

October concedes that the way ­offset credits were generated and calculated often bore no relation to what happened on the ground.

In one exchange October is asked: “So basically, what SAAB-BAE could do is say we are going to create this many jobs, and not create a single job and still be off the hook?”

He replies: “As soon as they show they have put money in the project, they get the credit … Whether the project fails or succeeds is not important because you get points up front. That is the great weakness of the programme. You have no legal binding or commitment.”

The broadcast is also highly critical of a $10-million offset investment in a controversial purported HIV and Aids treatment system called Hivex.

Hivex, a company with arms deal middleman Fana Hlongwana as a director, promoted a device invented by two Russians, who claimed it could neutralise the HI virus with electromagnetic radiation.

With money from the arms companies, Hivex was able to fund a “phase two study” by the Nelson R Mandela School of Medicine at the University of KwaZulu-Natal. Hivex wanted to prove that the treatment worked. The broadcast shows how a summary of that study was used by Hivex to market the treatment until the company was forced to stop operating in KwaZulu-Natal in 2012, ­following repeated complaints by the Treatment Action Campaign.

The full research report has never been released but, for the first time, the Swedish journalists obtained a copy. They asked one of Swedish Aids researchers, Professor Anna Mia Ekström, to analyse the report.

She notes: “It is a carefully written report showing that Hivex does not have any demonstrable effect on HIV. Neither on the amount of virus in the blood, nor on the immune system.”

The Swedish reporters confronted Saab’s press officer, Sebastian Karlsson, about funding this alleged “quackery”. He disagrees: “There are different views on this … it was something the customer wanted us to do.”

In the broadcast, Pierre Schori, a close assistant of former Swedish prime minister Olof Palme and the minister for development co-operation at the time of the arms deal, looks back on Sweden’s role with sadness: “It was a huge improper investment, both from the Swedish side … and for South Africa itself.”

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The M&G Centre for Investigative Journalism (amaBhungane) produced this story. All views are ours. See for our stories, activities and funding sources.

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Sam Sole Author
Guest Author
Sam Sole
Sam Sole works from South Africa. Journalist and managing partner of the amaBhungane Centre for Investigative Journalism. Digging dirt, fertilising democracy. Sam Sole has over 17731 followers on Twitter.
Stefaans Brummer
Stefaans is an old hand at investigations. A politics and journalism graduate, he cut his reporting teeth at the Cape Argus in the tumultuous early 1990s; then joined the Mail & Guardian as democracy dawned in April 1994. For the next 16 years a late-1990s diversion into television and freelancing apart, the M&G was his journalistic home and launch pad for award-winning investigations focusing on the nexus between politics and money. Stefaans has co-authored exposés including Oilgate, the Selebi affair, Chancellor House and significant breaks in the arms deal scandal. Stefaans and Sam Sole co-founded amaBhungane in 2010. He divides his time between the demands of media bureaucracy which he detests, coaching members of the amaBhungane team, and his first love, digging for dung.

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