![Sample our Politics & International Relations journals, sign in here to start your FREE access for 14 days]({"type":"image" , "src" : "/sda/5947/TOC-Subject-Sample-2021-Politics-International-Relations.jpg"})
Notes
The authors are grateful to the National Research Foundation (South Africa) for support.
1 Jurgen Brauer and Paul Dunne (eds.), Arms Trade and Economic Development: Theory, Policy, and Cases in Arms Trade Offsets (London: Routledge 2004).
2 P. Batchelor and P. Dunne, ‘The Restructuring of South Africa’s Defence Industry’, African Security Review 7/6 (1998) pp.27–43.
3 SIPRI, SIPRI Yearbook (Stockholm/Oxford: SIPRI/OUP 1999).
4 SIPRI, SIPRI Yearbook (Stockholm/Oxford: SIPRI/OUP 2004).
5 John Lovering, ‘The Defence Industry as a Paradigmatic Case of “Actually Existing Globalisation”’ in Judith Reppy (ed.), The Place of the Defense Industry in National Systems of Innovation (New York: Cornell UP Studies Program, Occasional Paper 2000).
6 Elisabeth Skons and Reinhilde Weidacher, ‘Arms Production’, in SIPRI (note 3) Ch. 10.
7 Ann Markusen, ‘Understanding American Defense Industry Mergers’ in Akira Hattori (ed.), Ajiani Heiwao Motarasu Keisaikousou [The Security and Economy of Asia] (Tokyo: ECAAR‐Japan Secretariat 1999).
8 Batchelor and Dunne (note 2).
9 E. Skons, S. Bauer and E. Surry, ‘Arms Production’ in SIPRI (note 4) Ch. 11.
10 Paul Dunne, ‘The Defence Industrial Base’ in Keith Hartley and Todd Sandler (eds.) Handbook in Defense Economics (Amsterdam: Elsevier 1995) Ch. 14, pp.592–623.
11 As the Scott report showed for the UK. See ⟨http://news.bbc.co.uk/onthisday/hi/dates/stories/february/15/newsid_2544000/2544355.stm⟩.
See also Gerald James, In the Public Interest (London: Warner Books 1996) on the experience of Astra; and David Leigh, Betrayed (London: Bloomsbury 1993) on Matrix Churchill.
12 Stephen Martin, The Economics of Offsets (Amsterdam: Harwood 1996).
13 Future weapons systems are not simply determined by government, they are dependent on what technologies are available in the pipeline and what companies feel is manageable. They are obviously state dependent.
14 Peter Batchelor and Sue Willett, Disarmament and Defence Industrial Adjustment in South Africa (Stockholm/Oxford: SIPRI/OUP 1998).
15 Ibid.
16 Paul Dunne, ‘The Making of Arms in South Africa’, Economists Allied for Arms Reduction (ECAAR) Review (New York: ECAAR 2003); Paul Dunne and Peter Batchelor, ‘Industrial Participation, Investment and Growth: The Case of South Africa’s Defence Related Industry’, Development Southern Africa 17/3 (Sept.) pp. 417–35.
17 Denel, Denel Annual Report 1996/7 (Erasmusrand: Denel 1997).
18 The group announced a net profit of R24.1m for the financial year March 2000–2001. Export revenues during this period grew from 38 per cent of total revenue to 46 per cent. The Star, 10 July 2001.
19 Interview, Mr Johan van Dyk, Denel, Erasmusrand, Oct. 2004.
20 Denel, Denel Annual Report 2004 (Erasmusrand: Denel 2005) p.3.
21 Batchelor and Dunne (note 2).
22 For instance, a $22.5 million ‘commitment fee’ for a prospective arms sale of $1.4 billion to Saudi Arabia plus a commission fee of 20 per cent for were paid in 1996 without a formal contract with the Saudi government being concluded. Denel has pursued this prospective deal for the past ten years without any success. A Department of Justice government investigation, hampered since 2002, has been given permission to proceed with scrutiny of potential South African recipients of the ‘kickback’ from this deal. These include former directors and officials of Denel, the late defence minister Joe Modise, and other politically‐connected facilitators. Mail & Guardian, 15–21 April 2005.
23 Reunert, Reunert Group Annual Report for 2003 (Johannesburg: Reunert 2004) p.32.
24 Report posted on 3 Feb. 2005 ⟨www.grintek.com/news.htm⟩.
25 Ibid.
26 Saab bought out the minority shareholders of Grintek, and took an overall stake of just over 70 per cent, with the empowerment group the Kunene Brothers retaining a 29.7 per cent stake. The company was then de‐listed from the Johannesburg Stock Exchange. ‘The deal in future’, Business Day, 18 Nov. 2005.
28 BAE Systems apparently offered in the region of between R500 million and 50 million pounds sterling for a strategic equity partnership of between 20 and 30 per cent in Denel Aerospace and Denel Ordnance (Martin Creamer’s Engineering News, 31 July 2001). This offer was seen as somewhat low by the South African negotiating team. BAE Systems also requested that Denel’s board of directors be reduced from its present 11 members, that it be given seats on the board, and that certain BAE Systems staff should be placed in strategic management positions in the business groups (Interview with Denel executive, name withheld, Pretoria, 8 Sept. 2001).
29 Interviews with Denel executive and defence consultant, Pretoria, names withheld, 8–9 Sept. 2001.
30 Although Denel appears to be exiting its non‐core business, its board has decided to keep property divisions Bonaero Park, Denel Properties and Aero Properties, as well as Specialized Protein Products, the R140 billion soybean processing plant in Potchefstroom Irenco, the third party manufacturer of electronic and plastic injection moulding products, and Dendustri, the engineering services provider, would also be kept, for the short term at least. However, as Botha pointed out the group would ‘manage out low‐value property from the portfolio and grow the division with high return properties’. (The Star, 10 July 2001). For instance, Denel Properties (Denprop) added the Waterkloof Ridge shopping centre to its portfolio in March 2001. This follows the opening in Feb. 2001 of Denprop’s Castle Walk office park in Pretoria (Pretoria News, 28 March 2001).
31 This is reflected in efforts to scale down the small arms producer Vector, which is unprofitable and facing a class action law suit in the US along with certain other small arms manufacturers (African Armed Forces Journal, 31 May 2001).
32 Interview with Mr Jean‐Bernard Cocheteux, CEO of Turbomeca, in African Armed Forces Journal, 31 Jan. 2001.
33 Sunday Times Business Times, 6 Aug. 2005.
34 There were changes over time in the nature and scope of the projects with some high‐profile projects giving way to lower‐order and less attractive ones. Richard Haines, ‘Defence Offsets and Regional Development in South Africa’, in Brauer and Dunne (note 1). Ch. 19, pp.299–320.
35 To illustrate, the number of credits for job creation should equal the estimated value of salaries and wages. New investments, research and development, and links with previously disadvantaged persons (either as shareholders or contractors) earned double credits.
36 Interview, Dr P Jourdan, Director, Special Projects, DTI, Pretoria, 30 May 2000. Dr Jourdan is now CEO of Mintek.
37 The DIP component of this defence procurement is informed largely by the strategic considerations of Armscor and the Dept. of Defence of maintaining defence capability and ensuring the long‐term existence of the private and public sectors of the South African defence industry. Interview with Ms Brenzia Potgieter, Armscor Pretoria, 7 June 2002.
38 Interview with freelance defence consultant, Mr Dave Verster, Martin Creamer’s Engineering News, 25 May 2001.
39 This has not deterred government, however, from undertaking and/or considering new IP deals of both a civilian and defence‐related nature. Deals include the purchase of new large Airbus jet transports, and the re‐equipping of the Army which includes a substantial order for tanks and armoured vehicles.
40 Batchelor and Dunne (note 2).
41 Paul Dunne and Guy Lamb, ‘Defence Industrial Participation: The Experience of South Africa’, in Brauer and Dunne (note 1). Haines (note 34) Ch. 19.
42 Of a R200 million contract only R6.4 million of work materialised, and of this latter amount there is apparently a sum outstanding. Interview with Mr Richard Young, CEO, C2 I2, Struisbaai, Western Cape, 16 June 2004.
43 The company specialises in electronic warfare systems. The executive manager pointed out that they were proactive in chasing work, and did not wait for obligors and prime sub‐contractors to get in touch with them as was apparently the case with certain defence companies. Their relationship with SAAB Tech – a joint venture arrangement set up by Avitronics helped provide access to certain overseas markets which were hitherto closed. And in areas where the SAAB‐Tech has met with adverse reactions, Avitronics has been able to utilise its independent credentials to try to gain new markets. Interview with Mr Eddie Noble, Chief Executive Manager, Avitronics (Maritime), Cape Town, 17 June 2004.
44 While they have had steady orders in regard to the corvettes, submarines, and the LIFT, Hawk and Light Utility Helicopter (LUH) parts of the aircraft components of the SDP, the sums have been modest. Larger commencing contracts have been reduced dramatically. Also, contracts have been confined to Direct DIP work, and despite various visits by representatives of the obligors no Indirect DIP work has eventuated. In addition, one of the offset contracts intended for Tellumat was swapped for another contract with another company. There is a sense that the ‘tide has gone out’ on DIP contracts. Given the initial expectations regarding DIP and IDIP work the company put a great deal of effort into the new potential business. Among other things, a new division was set up and two mechanical engineers recruited. Also, a promising independent international‐export drive begun in the mid‐1990s was halted. Interviews with Mr Marc Anderson, General Manager, Tellumat, Cape Town, 15 June 2004; and Mr Brian Ferguson, Marketing and Sales Manager, Tellumat, Cape Town, 15 June 2004.
45 They anticipated more business. In their experience, the R&D and engineering staff of the obligors were reluctant to relinquish projects and technology, and tended to under‐price these components in tendering and contracting processes. With South African companies facing a range of add‐on costs and general discounting of their bid offers, the South African firms had to be significantly lower on their pricing than their international counterparts. Interview with Mr James Verster, CEO, RRS, Stellenbosch, 17 June 2004.
46 These programmes are being wound down, but the company has managed to keep operational by running a parallel ‘civilian’ operation in turbo‐diesel engineering, and by retaining a core staff along with a network of sub‐contractors, who are part of the mechanical engineering sub‐sector of the provincial economy. The company has an export profile and useful in‐house technology for non‐military and military purposes and it is thus somewhat surprising that this firm has not been approached by one of the obligors. Interview with Mr Johan Delport, Delkon, Brackenfell, Western Cape, 18 June 2004.
47 Interview with Mr Peter Handley, Thales South Africa, Johannesburg, 15 June, 2003.
48 Interview with Dr Richard Young, C2I2, Struisbaai, 16 June 2004.
49 Richard Haines and Gwendolyn Wellman, ‘Value Chains and Institutional Imperatives in Regional Industrial Development: A Consideration of the Implementation and Impact of Defence Offsets in the Western Cape’, Africanus 34/1 (2005) pp.25–43.
50 After four years only 38 per cent of the promised DIP contracts were received, instead of 66 per cent as envisaged. This gives a total of R3 billion, while it should now have been R7 billion. Some of the contracts were even called ‘100 per cent loss‐making contracts’ by Victor Moche, the former Denel chief executive. Rialize Ferriera, ‘Preliminary Report on the Defence Industrial Participation (DIP) Programme’, (Interim confidential report for Denel, Pretoria, Jan. 2005).
51 Interview with Mr Johan van Dyk, Denel, Pretoria, Erasmusrand, Oct. 2004.
52 Business Day, 26 Oct. 2000.
53 It was also mooted that Denel manufacture tail sections and ailerons for other RAF aircraft.
54 A progressive technology transfer is mooted to allow for the eventual manufacture of the helicopters in South Africa, although there is a dispute between Denel Aviation and Agusta regarding the necessary technology transfer and orders placed for work required to build the helicopters.
55 The contract involves the supply of surface‐to‐air and surface‐to‐surface missile systems by Denel Aerospace, the manufacture of the 35mm dual purpose gun by LIW and the remainder of the work is allocated to Somchem (Somerset‐West Chemicals). The exact work packages are still to be finalised and international opportunities are being investigated. Armscor, Armscor DIP Report (Erasmusrand: Armscor 2004) p.10.
56 Haines (note 34).
57 Rialize Ferreira and Richard Haines, ‘Industrial Participation and Defence Offsets in Gauteng’, Paper presented to Annual Congress of South African Sociological Association, University of the North, July 2005.
58 See Brauer and Dunne (note 1).
59 Wally Struys, ‘Offsets in Belgium: between Scylla and Charybdis’ in Brauer and Dunne (note 1) Ch. 11, pp.167–71.
60 Jurgen Brauer and Paul Dunne, ‘Arms trade offsets and development’, Africanus 35/1 (2006) pp.13–24.
61 Ron Matthews, ‘Defence Offsets and Development: The Case of Saudi Arabia’, Unpublished Paper, Cranfield University, UK, 2000.
62 Batchelor and Dunne (note 2).
63 Matthews (note 61).
64 Mail & Guardian, 26 May – 1 June 2000; and 2–8 June 2000.
65 Interview, Mr Pieter Labuschagne, Group Manager, Trade in Arms Control, Denel, Erasmusrand, 1 June 2000.
66 RSA Government, ‘Press release on the Economic and Fiscal Impacts of the Procurement’, Pretoria, 1999.
67 IDASA, Submission on the Medium Term Budget Policy Statement: IDASA Budget Brief (Cape Town: Institute for Democratic Alternatives in South Africa 1999) pp.1–3.
68 Batchelor and Dunne (note 2).
69 Haines (note 34); Haines and Wellman (note 49).
70 Batchelor and Dunne (note 2).
71 See e.g. Dunne and Lamb (note 41); Haines (note 34); Haines and Wellman (note 49).
72 Brauer and Dunne (note 1).