State ‘made sure it could afford arms deal’

Former finance minister Trevor Manuel says he was convinced that the arms package selected by the South African National Defence Force was affordable and within the government’s fiscal envelope.

Mr Manuel, who was minister of finance from 1996 to 2009, was testifying before the Arms Procurement Commission on Wednesday, which is investigating allegations of fraud, corruption, impropriety or irregularity in the strategic defence procurement packages (SDPP), known as the arms deal.

The Treasury went to great lengths to ensure that the government could borrow at the most favourable terms and that the loan agreements could be restructured or the loans repaid earlier than expected, Mr Manuel said.

One of the key questions raised at the commission was whether the government had abandoned its constitutional mandate by funding the defence force and neglecting other more meritorious government expenditure.

Mr Manuel said after the Cabinet took a decision to procure the arms for the defence force in November 2008 and committed R29.9bn towards the arms deal, he was tasked with looking into the most practical, efficient and affordable method of servicing the expected financial obligations.

After the 1994 democratic elections, moves were afoot to assess what the desired capabilities of the new defence force should be, Mr Manuel said.

In this regard, in June 1995 the then department of defence released a white paper for public comment. The paper was meant to provide the basis for a defence review that would entail comprehensive planning on matters such as force design, force levels, armaments, equipment and funding.

Mr Manuel said former president Nelson Mandela had noted in February 1997 that among the issues in the Defence Review was the defence force’s requirements for equipment. According to Mr Manuel, Mandela had noted that: "The question here is not whether, but how, to meet these requirements and how much the country can afford."

Mr Manuel said the force design, force levels, armaments, equipment and related issues were, and continued to be, the preserve of the defence force.

"I was advised, and accepted, that National Treasury did not have the particular skills to offer advice on the technical capability of the equipment procured."

He said the Treasury, under his guidance, was one of the departments with a constitutional obligation to ensure any funding intended for the arms deal was affordable and budgeted for.

Under apartheid the defence force budget was 4.5% of gross domestic product (GDP) and the new government sought to reduce this, said Mr Manuel.

The Treasury was able to produce the first fiscal surplus within a decade of the arms deal starting. Some of this success in financial and fiscal planning could be attributed to the role the Treasury had played in ensuring that spending by the department of defence did not increase beyond 1.7% over the term of the strategic defence procurement packages.

He said the maximum of 1.7% of GDP provided for the defence department included financing for both the acquisitions and operations of the defence force.

"The 1.7% of GDP is significantly below the international norm, especially for a developing country," Mr Manuel said.