Arms deal jobs: What City Press found

2014-03-30 16:58
The commission is investigating allegations of corruption in the controversial multi-billion rand arms deal. (AFP)

The commission is investigating allegations of corruption in the controversial multi-billion rand arms deal. (AFP)

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Athandiwe Saba, Paddy Harper and Jeanne van der Merwe investigate.



Promised: 2 100 jobs

Found: Seven when it was sold

One of the companies we visited was Gemco, a manufacturer of false teeth, which was established in 2004 by BAE Systems, the arms manufacturer that sold the Gripen fighter jets and Hawks trainer jets to South Africa for what the department of trade and industry report said was $7.2 billion.

Sixty-five percent of Gemco was owned by two men – Seth Phalatse and a business partner.

The company was supposed to have created 2 100 jobs, but was sold in 2010 with seven people on its staff.

In the mid-1990s, Phalatse was a non-executive director of Armscor and in 2000, after the arms deal had been concluded, he was appointed as chair of the board of Armscor, the arms procurement wing of the defence force.

Phalatse told City Press that this appointment only lasted for “a couple of days”.

Phalatse was also a non-executive director of the controversial textbook and educational supplies company EduSolutions.

He relinquished his seat last year.

He is also a non-executive member of International Ferro Metals (IFM), a mining company that received two loans from the offset programme.

Phalatse says he did not benefit in any way from his dealings with the companies involved in the arms deal.

“When I was in Armscor, I had no dealings with the arms deal negotiations or anything. I have not benefited from IFM as we have no shares there. Unfortunately, Gemco was just not viable at the time and you don’t want to become insolvent because of one business. So we sold,” he said.

International Ferro Metals and its ferrochrome project

Promised: altogether 19 050 jobs

Found: 6 950 could be verified

IFM, a ferrochrome beneficiation facility, is based in Mooinooi, North West. It received a R38.1 m loan from BAE Systems.

It received a further R212 m loan from the German Frigate Consortium, which supplied corvettes to the navy for $2 bn, according to the department’s report.

The loan, the London office of IFM says, was paid off.

IFM was supposed to have generated 19 050 jobs from both loans, but management says they have records of 6 950 jobs.

IFL spokesperson Fiona Micallef-Eynaud said the company has no record of the other 12 000 indirect jobs created.

“We cannot confirm something that didn’t happen under our watch. We aren’t saying the jobs weren’t created, but we just don’t have those records.”

Yachtport SA

Promised: 126 jobs

Found: 15 permanent (350 during construction)

The yacht repair facility in the Small Craft Harbour in Saldanha, north of Cape Town, was completed in 2010. It employs 15 people and subcontracts to specialist yacht-building subcontractors.

Development and construction were funded by Man Ferrostaal, one of the successful bidders in the German Submarine Consortium. The installation has the biggest yacht lift in Africa and can handle yachts weighing up to 100 tons.

Managing director Brian Blackbeard said more than 70 boats with an average value of $500 000 have been shipped from here, generating R350m in export sales to the South African yacht building industry.

Blackbeard said Ferrostaal’s investment was R30m, with a pre-development spend of R1m.

During construction, the facility created 150 jobs, and he estimates that as many as 350 people were benefiting through subcontracting.

Uri Vehicle Manufacturing

Promised: 150 jobs

Found: Nine

Another company created with offset money is Uri, which manufactures low-cost border patrol vehicles.

Fana Hlongwane, the advisor to Joe Modise, who was the minister of defence at the time the arms deal was signed, used to be a director of the company but resigned more than a year ago, said CEO Christo Stockenstrom.

In its report, the department of trade and industry said Uri employed 150 people.

When City Press arrived at its premises in a sparsely equipped warehouse in Pretoria, there were two people working on one vehicle, four others were having lunch and three more were sitting in the manager’s office.

Stockenstrom did not respond to follow-up questions about the number of employees the company had.


Independent Wire

Promised: 300 jobs

Found: No response

It is easier to enter a Medium C prison than it is to get permission to visit the Independent Wire premises, which is in the same compound as ArcelorMittal.

But the Independent Wire warehouse does not look as high-tech as the department’s report says it is.

French arms company Thales supposedly established a state-of-the-art galvanised wire producing plant for the wire company for $899 000.

This was supposed to have produced 300 new jobs. But on the premises, there is a large rusting warehouse and very few people.

The original plant was built in 1994, and it was acquired by Allens Meshco in 1998.

After numerous calls to confirm the number of employees, the firm has not responded.

Industrial Development Corporation (IDC)

Promised: 3 510 jobs

Found: No response

The IDC, which reports to the department of economic development, received a combined sum of $80m to create a credit facility that would provide funding for small and medium-sized enterprises. The millions received were supposed to create 3 510 new jobs.

The corporation has been going strong for more than 70 years and in the past five years has supported entrepreneurs with a reported R26bn in financing.

The corporation’s board includes Zwelinzima Vavi.

The IDC did not respond to questions on the number of jobs created.

Tenesa Solar Panel Manufacturing

Promised: 180 jobs

Found: Undetermined

The Cape Town manufacturer listed under Thales’ offset investments was bought by US company SunPower.

The company is based in Ottery, Cape Town, and various solar panels are on display in its reception area.

The department of trade and industry’s report says the $5.5m investment created 180 new jobs.

City Press put these numbers to the company’s owners in the US, but received no response by the time of going to print.

Ferromarine Africa and Ferromarine Cape

Promised: 5 160 jobs

Found: Undetermined

The Ferromarine Africa fabrication yard is located next to the Saldanha Bay iron ore terminal.

The facility was built to house factories that manufacture equipment for offshore oil and gas mining rigs, and which can accommodate 714 on-site personnel.

The department’s report said the investment value of this project and the related Ferromarine Cape oil repair facility was €11m and the project created 5 160 new jobs.

Development and construction were funded by Man Ferrostaal.

Managing director Brian Blackbeard said the German company invested R10 million in predevelopment costs, R150m on construction and a R25m rental guarantee to the Transnet National Ports Authority.

During construction, it employed more than 900 workers.

However, he said the opening of the yard in late 2007 coincided with the beginning of the global economic crisis, and until last year there was no activity there.

Late last year, leases were concluded with three new tenants, including Oil Spill Response, a multinational that plugs leaks in undersea oil wells.

Ferromarine Cape, in the Table Bay Harbour, is a repair facility for offshore oil and gas drills.

Filk Gold

Promised: 345 jobs

Found: Undetermined

The Cape Town gold chain project in which Augusta invested in during 1997 is now called OroAfrica. It manufactures gold chains for the export market.

According to an Organisation for Economic Cooperation and Development research report, the investment by Filk in OroAfrica in 1997 amounted to $1.5m.

Filk is an Italian jewellery company and reportedly the biggest manufacturer of machine-made gold chains in the world.

When Anglo American bought into the company in July 2000, the Cape Town factory employed 170 people and processed about six tons of gold a year.

OroAfrica director Steven Nathan did not respond to e-mailed questions about how many people the factory now employs.

The department’s report says a $7m investment created 345 jobs.

Biological Control Products

Promised: 237 jobs

Found: Undetermined

The company near Pinetown, KwaZulu-Natal, was given just more than $3m for researching and producing agricultural pest control products.

It was supposed to create 79 new jobs and 158 indirect jobs.

Founded in 1995, it appears to be something of a success, becoming one of South Africa’s leaders in fungicides for agricultural use.

The firm was sold to Becker Underwood, a multinational pest control operation, in 2010.

Becker Underwood was itself sold to BASF, which runs BASF Pest Control Solutions, in August last year.

According to staff at the company, it now employs about 30 people at its Durban plant, and a second pesticide sales division operates in Gauteng.

Greenheat SA

Promised: 75 jobs

Found: Undetermined

The Durban company manufactures gel fuel, and the increase of its capacity through investment created 75 jobs.

The company is a subsidiary of Millennium Gelfuel, owned by Zimbabwean Eric Barrett, who opened Greenheat in 2000 to supply organic fuel gels to the UK and US markets.

The plant in Tongaat, north of Durban, was fully operational when City Press visited last week.

Staff were busy packing pallets of fuel gel for distribution. There were about 10 workers visible on site.

The manager was unwilling to provide any information about the company and referred requests for comment to Barrett, who is in Zimbabwe on business until the end of the month and unavailable for comment.


Dispack SA

Promised: 60 jobs

Found: 0

Dispack was sold shortly after the German Frigate Consortium was supposed to have fulfilled its obligation to create 60 jobs.

In its report, the department said the consortium had started a joint venture with a local company in the field of industrial and environmental services.

But when City Press visited Dispack’s offices, we found that it is now a shell company that was bought by Turquoise Moon in 2007.

The current management say it’s just a holding company with no connection to any companies born of the arms deal.

City Press understands that in 1997, a subsidiary of arms manufacturer and consortium ThyssenKrupp bought 49% of Dispack but sold it off 10 years later.

St Lucia Sawmill

Promised: 108 jobs

Found: the company went bankrupt

Another failed offset is the St Lucia Sawmill in KwaZulu-Natal, which supplied wood to the furniture industry.

It was supposed to have created 108 jobs. None of those jobs exist today.

The company supposedly received R2.9m for the purchase of a timber drying kiln from AgustaWestland, which supplied the maritime helicopters for £108m, according to the department’s report.

The sawmill went bankrupt in 2004 after losing its supply contract with what was then Mondi Forestry.

Former manager Freddie Grobbelaar said the mill worked with the "bare essentials" necessary for milling.

He said no proper kilns for drying wood had been bought as per the offset agreement, but staff had built equipment using concrete blocks and locally manufactured radiators.

“Those weren’t high-tech imported kilns. They were made here with concrete blocks and radiators. All we did was push the wood through to dry it. If they spent money, it was definitely not on equipment for this site,’’ he said.

Grobbelaar said that when he became manager in 2004, the company was already having financial problems and went bankrupt shortly thereafter.

The company employed 301 people in its prime but by the time it went bust, he and 185 others lost their jobs.

Y Digital

Promised: 90 jobs

Found: 0

City Press was unable to find the company that the department of trade and industry says created 90 jobs.

Its last-known address is the trendy 44 Stanley Avenue in Johannesburg.

We spoke to three people involved in digital companies in the area, but no one had heard of Y Digital.

The phone number last registered remains on voice mail. The department’s report says the company was established by BAE Systems.

Hosaf Recycling

Promised: 189 jobs

Found: 0

This company was situated in the heart of Alberton’s industrial area until 2011, when it was sold to Kubili Recycling.

The current managers, however, say they know nothing of the arms deal or why the owners of Hosaf recycling decided to sell.

Hosaf also sold its recycling plant in Cape Town, but its Durban plant remains in operation.

Repeated calls to the Durban office went unanswered.

The department’s report says the plant created 189 jobs with €1.1m from the German Submarine Consortium for the recycling of plastic bottles.

However, employees at Kubili say they have no idea what happened to those employed by Hosaf before 2011.

Exchange rate: $1 = R10.58; £1 = R17.61; €1 = R14.55

Read more on:    johannesburg  |  arms deal

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