The South African arms deal

IssueSeptember - November 2003
Feature by Terry Crawford-Browne

The South African “arms deal” has been described as “the betrayal of the struggle against apartheid” and as “the litmus test of South Africa's commitment to democracy and good governance”. The scandal has become the millstone around President Thabo Mbeki's presidency.

An opinion survey conducted last year by South Africa's leading pollster found that 62% of ANC voters want the arms deal cancelled, 19% want it cut and only 12% support it. On no other issue, including Aids, was the government found to be so out of touch with the electorate.

The arms deals were government-to government arrangements made without regard either for the people of South Africa or the country's security needs. They were driven by the European armaments industries and governments. Germany would win the warship contracts. Britain and Sweden would win the warplane contracts. Italy is to supply 30 helicopters.

The Navy has been committed to vessels it can't use, and the Air Force to aircraft its chiefs didn't want. The latter were overruled by the former Minister of Defence, the late Joe Modise, who required a “visionary approach” to favour BAe Systems and the South African state-owned armaments company, Denel.

Even before the contracts were signed,there were allegations of corruption around Modise and his political cronies,and of kick-backs to ANC campaign funds. Whistleblowers amongst ANC intelligence operatives insisted that the arms deal was merely one aspect of Modise's efforts to transform the ANC's military wing, Umkhonto-we-Sizwe, into a new financial elite. Inter-related transactions were said to include:

  • oil deals
  • tollroads
  • the Cell C cellphone contract
  • the Coega deep water harbour project near Port Elizabeth
  • smartcard technology
  • drug and weapons trafficking, and
  • diamond and money laundering


The whistleblowers were referred to the Heath Special Investigation Unit, which found their evidence corroborated other inquires. Judge Heath was later dismissed by President Mbeki and, similarly, a parliamentary investigation was gutted by political interference by the executive. Another investigation headed by the Auditor General exonerated the government of “improper or unlawful conduct”, yet also found that every aspect of the arms deal was riddled with tendering irregularities.

The ANC's chief whip in parliament has been sentenced to four years' imprisonment for fraud relating to a massive discount on a Mercedes Benz 4x4. And Deputy President Jacob Zuma is at present under suspicion that he solicited aR500,000 (#45,000) per annum bribe to quash an investigation into activities of Thomson CSF/Thales, the French armaments company.

Normal commercial practice holds that contracts tainted by corruption are null and void. Organisations such as Transparency International find that armaments are the most corruption-prone industry.

Given the crisis of poverty facing South Africa, the arms deal cannot be reconciled with the EU Code of Conduct on Arms Exports whose criteria include consideration of socio-economic conditions in recipient countries.

Who is responsible?

Under no circumstances can European governments plead ignorance about the poverty so prevalent in South Africa. They hide behind a rationale that since South Africa is now a democracy, it would be arrogant to refuse requests for the arms exports they so aggressively promote.

Saddam Hussein can be regarded as having been the creation of the international armaments industry. President Jacques Chirac was so closely involved with French weapons sales during the 1980s that he was nicknamed “Monsieur Irak”. The royal yacht Britannia was reported to have doubled as a floating British armaments exhibition when Queen Elizabeth visited Cape Town in March 1995.

When allegations arose that BAe Systems had paid #1 million to various South African politicians as a “first success fee”, they were referred for investigation to the British Secretary for Trade and Industry, Stephen Byers. Byers delegated the task to the London Metropolitan Police who, with desultory indifference,reported back that there was insufficient evidence to pursue the matter.

It was, however, learned that the British government was at that time under heavy pressure from BAe Systems to stall on ratification of the OECD Conventions Against Bribery of Foreign Officials. It was apparently then not illegal in Britain to bribe officials of foreign countries and, accordingly, there was no crime to investigate!

When Prime Minister Tony Blair visited South Africa in January 1999, he was informed that church leaders were resolutely opposed to the arms deal. The response on his behalf declared, “South Africa has the right to take its own decisions on its defence requirements and secure maximum job creation through industrial participation programmes.”

A legal challenge

It is, however, one thing to smell corruption - another to prove it. With support of church leaders, trade unionists, NGOs and other representatives of civil society,Economists Allied for Arms Reduction-- South Africa (ECAAR-SA) has taken another approach in its litigation to cancel the arms deal.

ECAAR is an international NGO established in 1988, and now has affiliates in twelve countries including Britain and South Africa. Of the very distinguished economists on its board of trustees, nine are Nobel laureates. Its purpose is to promote objective economic analysis and appropriate action on global issues relating to peace, security and the world economy. The Anglican Archbishop of Cape Town, Njongonkulu Ndungane, is a patron of ECAAR-SA.

Almost two years ago--more than five years after the arms deal saga began--and having exhausted all other remedies,ECAAR-SA filed a court application for nullification of the loan agreements that give effect to the transactions. It has done so as a class action suit on behalf of poor people in South Africa in terms of section 38 of the Constitution.

Unbelievably, there is no parliamentary or executive authority for the arms deal which, presumably, makes it illegal. Our litigation however, focuses upon constitutional arguments that public power vested in the executive and other functionaries must be exercised in an objectively rational manner. Action that fails the minimum threshold of rationality is inconsistent with the requirements of the Constitution, and is therefore unlawful even if well intentioned.

The South African constitution adopted in 1996 is regarded as being perhaps the world's most progressive constitution for it goes beyond classical notions of democratic rights. It applies to all law, and binds the executive, the legislature,the judiciary and all organs of state to include commitment to socio-economic rights. The Constitutional Court is tasked as the final arbitrator to ensure that human rights are upheld as the culture that holds the country together.

Strategically irrational

Firstly, the arms deal is strategically irrational: A glance at any world map con-firms that South Africa's geographic isolation makes it perhaps the country least threatened by foreign military invasion. Only the United States has the capacity to undertake a naval attack. The very real threat to South Africa's security is internal, and relates to the crisis of poverty inherited from the apartheid era.

Here the Constitution is instructive. It declares:

National security must reflect the resolve of South Africans, as individuals and as a nation, to live as equals, to live in peace and harmony, to be free from fear and want and to seek a better life.

It is a commitment to human security relating to people--in contrast to traditional notions of military protection of the sovereign. Jobs, housing, education, health services, crime prevention and the environment are of far greater relevance to South Africans than the need to pre-vent attacks by neighbouring states.

Nonetheless, the Minister of Health absurdly declares that there is no money for AIDS because South Africa must buy submarines to deter a prospective attack by the United States. The xenophobia of apartheid-era South Africa has, sadly, increased in the democratic era.

Military leaders, from an unexpected perspective, recently informed parliamentary committees that the costs of the arms deal are financially paralysing the SA National Defence Force. There is no funding, they claim, to maintain existing equipment, let alone to undertake peacekeeping operations elsewhere in Africa. Frigates, submarines and high-tech fight-er aircraft would be quite useless for peacekeeping operations.

Economically irrational

Secondly, the arms deal is economically irrational: It is premised upon thoroughly discredited ideas that expenditure of R30 billion on armaments would translate into offsets worth R110 billion to create 64,165 jobs. The arms deal was loudly touted by government spin-doctors as a unique opportunity to fast-track industrial development and job creation.

Offsets are prohibited in civil trade arrangements under World Trade Organisation rules because they distort market forces. They are notoriously impossible to monitor and, accordingly, are an invitation to corruption. The armaments industry however, has negotiated exemptions from such prohibitions by citing national security considerations.

The Constitution, again, sets out the parameters for government procurements. They are required to be conducted “in accordance with a system which is fair,equitable, transparent, competitive and cost-effective.” The arms deal dismally fails these tests. It was as transparent as mud, wildly uncompetitive and certainly not cost-effective.

Illustrating the irrationality of linking economic development to offsets has been the bizarre saga of buying three German submarines against the promise of a billion-dollar stainless steel plant. Government announcements boasted that against expenditure of R5.2 billion on three sub-marines, the offset benefits would amount to R30.3 billion to create 16,251 jobs.

Even the most illiterate peasant know better than to fall for the arms industry patter of spend “R1 and get R6” back. Sadly, South Africa's politicians were gullible, and fell for it. The stainless steel plant failed to materialise. It morphed briefly into a condom factory to create 520jobs but this, too, has subsequently been cancelled. What is evident is that the arms deal was driven not by the needs of South Africans, but by the European armaments industry. In Germany the political influence of the steel industry, with former Chancellor Helmut Kohl, was paramount, whilst in Britain the manipulative roles of BAe Systems were supreme. Even government spokesmen now concede that the job target of 64,165 jobs was grossly overstated. At best, perhaps 2,500 jobs might result from the arms deal, but attempts to monitor the offsets are blocked by bureaucratic insistence that the con-tracts are “commercially confidential”.

Financially irrational

Thirdly, the arms deal is financially irrational: Whilst offsets drove the arms deal and induced our politicians to believe that it was “affordable”, warnings about its financial implications were ignored and brushed aside. An affordability study presented to cabinet ministers in August 1999 in considerable detail drew their attention to the financial risks. The study declares:

It should be stressed that, given the unique size of the packages and the tenor of the associated financial agreements, the impact of the package expenditures will extend far beyond the procurements themselves. Any decision on these procurements and the magnitude of their claim on the budget will inevitably also constitute a decision about the future level of defence spending in South Africa, hence about how this priority weighs against government's other spending priorities.

The ministers were warned that spending on the arms deal could crowd out socio-economic priorities such as education, health and welfare. They were also warned about the foreign exchange risks.

South Africa's currency, the rand, has a history of depreciation over more than 40 years. The arms deal contracts are not denominated in rands, but in euros, sterling, Swedish krona and dollars. The arms deal was costed at R6.25 per US$, and was publicly announced as costing R30billion. Within two years the cost escalated to R53 billion.

Even these figures exclude finance costs, escalation costs, management fees and export credit agency premiums, all of which were withheld from public scrutiny. No one knows what the costs will be by 2019 when the final payments are due.

The government's financial consultants projected rand/dollar exchange rates ofR13.96 by 2010, and of R26.25 by 2019. Even on these unduly conservative projections, South African taxpayers will face a foreign currency liability of about R158billion by 2010. And when the final payments are due in 2019, the costs of tharms deal are likely to have escalated to about R370 billion.

In such a scenario, South Africa will face financial and social chaos like Argentina or Zimbabwe. There will be no funding available for education, health services, housing or the socio-economic commitments contained in the Bill of Rights. South Africa's experiment with democracy will collapse.

“National security” (again)

Literally over the internet, ECAAR-SA obtained copies of the BAe Systems-Bar-clays Bank-British government-South African government loan agreements that gives effect to the war plane contracts. These were signed by the Minister of Finance, Trevor Manuel, on 25 January, 2000. The government's counsel conceded in court in March 2003 that these documents are authentic.

The government's initial response to ECAAR-SA's application in November2001 for cancellation of the arms deal was to argue that the loan agreements stand independently of the arms deal. This illogical argument is tantamount to saying that the purchase of a house has nothing to do with its mortgage.

The government's next argument was that the affordability study (of which ECAAR-SA has the executive study but not the full report) was irrelevant to the issue. Then the study itself became so highly confidential and privileged to the Cabinet that its disclosure would jeopardise national security.

In conceding in March this year that the British loan agreements are authentic,the government's counsel also drew the Court's attention to their default and penalty clauses. The covenants and encumbrances are disastrous, and are likely to cripple South Africa and its people. Indeed, the loan agreements can be compared to the ensnarement of third world debt obligations that have brought the rest of Africa to collapse.

The terms are such that the Minister of Finance has ceded control over South Africa's economic and financial policies to European banks and governments, and to the International Monetary Fund. Such reckless behaviour, ECAAR-SA believes,is surely unconstitutional.

The litmus test

Judgement that the agreements signed by the Minister are unconstitutional would,we assume, collapse the arms deals--it being unlikely they would continue with-out payment.

In terms both of South African and international law, the Constitution takes precedence over any international agreements. Accordingly, judgement that the arms deal is unconstitutional will mean that European rather than South African taxpayers will have to bear the costs of cancellation. Hopefully, Europeans will then question why their governments are so heavily complicit in the arms trade.

The Cape High Court in March 2003ordered the President, the Minister of Finance and the Government of the Republic of South Africa within ten court dates to make discovery of “the documents containing the advice of the International Offers Negotiating Team and the Financial Working Group, referred to in paragraph 36 of the answering affidavit in the main application” (ie the full affordability study that went to Cabinet in August 1999).

Five months later ECAAR-SA has still not received those documents. We are now preparing papers against the Minister for contempt-of-court. Regrettably,disregard of court orders has become a habit with the ANC government.

The arms deal has truly become “the litmus test of South Africa's commitment to democracy and good governance”. The question ahead is whether the judiciary will have courage to apply the checks-and balances required by the Constitution.

Failure to do so, ECAAR-SA believes, will signal to the international community that South Africa will follow countries such as Zimbabwe into chaos. It would bean appalling betrayal of people around the world who believed that commitment to human rights would be the priority of post-apartheid South Africa.

Success will mark a new paradigm of civil society holding governments to account.