Interest on loans among expenses left out of arms deal

2014-06-10 00:00

THE interest on loans of billions of rands was not taken into consideration when the government signed off the order for military hardware in the arms deal.

The deal included 26 Gripen fighter aircraft and 24 Hawk lead-in fighter trainer aircraft for the air force, and frigates and submarines for the navy.

Former chief government negotiator in the arms deal, Jayendra Naidoo, yesterday told the Seriti Commission in Pretoria although the modelling exercise for the military purchases was highly professional and took into account the anticipated inflation and exchange rate depreciation, the interest on the loans did not part of the consideration. He also admitted he did not know where the number of 65 000 job opportunities stemming from the arms deal had originated.

Naidoo told the commission their estimate was that about 20 000 direct jobs would be created by the arms deal.

He was appointed chief negotiator on the defence packages by then deputy president Thabo Mbeki on December 9, 1998. Naidoo reported directly to Mbeki, who subsequently became president. In his main testimony Naidoo said he had at all times kept Mbeki and a committee of ministers fully informed on the affordability, the risks and every other development in the purchase of arms.

The committee of ministers involved then defence minister Joe Modise, former finance minister Trevor Manuel, former trade minister Alec Erwin, and former public enterprises minister Stella Sigcau

Mbeki and Manuel will themselves testify in front of the commission in the near future.

Naidoo said the real cost of the arms deal was not taken into consideration when the final contracts were signed.

“We initially estimated the cost at R29 billion. We did not include interest on the loans which were incurred for [the arms purchases] in this price. The Department of Finance would know better what the total costs would be with the interest added.”

The total cost to South Africa of the arms deal is currently estimated at R46 billion. Naidoo said when the cost estimate was presented to cabinet in 1999, other costs like is transport, insurance, tax, project management, were also not considered.

Naidoo however said from the period after government had selected bidders, up to the final signing of contracts, “the negotiation process was handled with great intensity and professionalism”, adding that the arms deal was the most affordable one for the country.

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