In hindsight, arms deal was not total success - Erwin

The government, with the benefit of hindsight, would have done things differently in trying to create economic growth through the 1998 arms deal, former trade and industry minister Alec Erwin said on Monday.

Testifying at the arms procurement commission, chaired by Judge Willie Seriti, he said: "The policy was not a total success but it was a success in our view and that success was better than the nothing that would have resulted from doing nothing through fear of the risks."

The commission was established follow a public outcry about suspected corruption by state officials related to the procurement of arms.

Mr Erwin said the national industrial participation programme was designed to yield economic benefits from foreign investments in South Africa — or "offsets" — by arms deal suppliers.

It was projected that offsets would see R10bn foreign investment and create 65,000 jobs. According to a Department of Trade and Industry report released in October last year, only 13,690 jobs were created while the deal led to foreign investment worth R6bn.

Mr Erwin was a member of the inter-ministerial committee established in 1998 to oversee the arms deal, worth R30bn at the time of procurement.

He said the focus of South Africa’s industrial participation policy was on finding and creating opportunities for economic growth, and the arms deal — being the largest procurement process by the government at the time — seemed to present the appropriate opportunity to test the government’s industrial policy imperatives and strategies.

Mr Erwin said he would have preferred the programme to have contained a few large projects that could have strengthened South Africa’s defence, aerospace and motor industries. "We were not able to get the larger projects. Instead of dealing with larger and significant projects, we dealt with many small projects."

Mr Erwin said an expectation that the policy would be a complete success was unrealistic. He said industrial participation programmes were driven by governments as major economic actors, and their procurement was very significant.

He said supplying governments was a significant economic advantage for arms companies, or an "economic rent".

"Governments understand this well and use it for many policy objectives. Essentially, they try and secure the rent from the supplier to achieve other objectives. The supplier is able to allow this capture in order to keep their preferred position as a supplier."

Mr Erwin said that in preparation for the nondefence industrial participation, the department had set up committees to assess sectors to invest in and feasible projects. "In summary, the key areas that emerged from this were around metal beneficiation and exports from advance manufacturing. This made most sense. It is in this context that the steel mill and other projects emerged."

The commission was adjourned until Tuesday to allow counsel for Lawyers for Human Rights (LHR) to prepare to cross-examine Mr Erwin because it had received his statement only on Monday morning. LHR represents three witnesses who are due to testify before the commission — Andrew Feinstein, Paul Holden and Hennie van Vuuren.

Its counsel, Annemarie de Vos SC, said that the organisation wanted the arms deal’s affordability report tabled before the interministerial committee in 1999 to be declassified.

In his statement, Mr Erwin said the financial obligations arising from the deal were thoroughly interrogated in a report that was tabled before the committee.