Written evidence submitted by the Campaign
Against Arms Trade
1. The Campaign Against Arms Trade (CAAT)
is working for the reduction and ultimate abolition of the international
arms trade, together with progressive demilitarisation within
arms-producing countries. Recognising that its aims will not happen
overnight, CAAT's campaigns often focus on particular countries
or deals. One of the latter is the huge deal between European
military companies and South Africa.
2. It is for many reasons in the interest
of the United Kingdom that the Republic of South Africa should
be stable, democratic and increasingly prosperous. It is therefore
rather surprising that the Committee's agenda appears to omit
consideration of two major impediments to these objectives: the
HIV/AIDS epidemic and the diversion of South Africa's resources
from health and other developmental programmes to military expenditure.
3. HIV/AIDS in South Africa is not only
a human tragedy of huge proportions but a grave blow to the country's
economic prospects, in that it kills or incapacitates large numbers
of people in their most productive years and burdens it with very
many sick or orphaned children. Whereas Uganda, one of the originally
worst affected countries, has succeeded in halving the rate of
infection, the government of South Africa has been notoriously
slow to take effective action, which would include the provision
of drugs, especially those which inhibit the transmission of the
virus to the unborn, the distribution of free condoms and a massive
campaign of public information.
4. The South African government has undoubtedly
been badly advised about the nature and causes of the disease;
but one main reason why it accepted that advice and has only reluctantly
changed course is the very high cost of the necessary measures.
It is all the more regrettable that it should have embarked on
a programme of expensive arms procurement from UK and other European
suppliers. The UK government may not be able to do much about
HIV/AIDS, but it can and should refrain from encouraging South
Africa to spend large sums of desperately needed money on irrelevant
and unnecessary purchases. South Africa is of course a sovereign
democracy which must set its own priorities, but it should be
allowed to do so without external, self-interested persuasions
5. In 1994 the incoming South African government
inherited a military budget of about R10 billion a year (then
worth about £1 billion). For some years this was held steady,
but in 2001 projections forecast expenditure of R17.667 billion
in 2003-04. If realised, this would represent an annual increase
of 15%, of which only one-third would be due to inflation. By
contrast the health budget would go up by only 6% annum.
6. The actual budget for 2003-04 was R20.05
billion. Of this, R8.844 billion was allotted to a "Special
Defence Account", much the greater part of which was devoted
to a package of arms purchases from the UK and other European
countries. When the package was negotiated in 1999 it was priced
at R30 billion, or £3 billion, but by 1993 the estimated
cost had risen to R52 billion, spread over 14 years. In 2003-04
the programme would cost the South African taxpayer R3.9 billionnearly
12 times as much as would be spent on combating HIV/AIDS.
7. The 1999 deal comprised the following
four frigates and three submarines to be supplied
by German shipbuilding consortia for R11.2 billion;
28 Gripen fighter aircraft from the Anglo-Swedish
company SAAB for R10.875 billion;
24 Hawk lead-in trainers from BAE Systems for
four Super Lynx naval helicopters from the UK
company GKN Westland for R0.787 billion;
40 utility helicopters from the Italian Agusta
company (in which GKN Westland has an interest) for R2.168 billion.
8. No persuasive military case has been
made for these purchases, apart from the utility helicopters.
South Africa has no enemies and there is no power within thousands
of miles that could do it harm. Its military needs, by common
consent, are for border control and possibly regional peace-keeping
operations. These activities call for light weapons, transport,
radio, not state-of-the-art fighters or large warships. But the
Army's requirements were deferred from the original package, and
the follow-up package now under consideration focuses on armoured
fighting vehicles, including 95 main battle tanks (to be deployed
against what opposition?) and ground-to-air defence systems (to
shoot down what enemy aircraft?).
9. UK companies, mainly BAE Systems, stand
to receive a little over £1 billion from the contracts already
signed: £300 million from the Hawk sales, about £700
million from a half share of the Gripen sales, and £78 million
from the Lynx helicopters. In addition, Alvis plc (now the owners
of Vickers), having acquired a 75% stake in the South African
armoured-vehicle maker OMC, is well placed to secure the prospective
order for tanks; and it is likely that the air-defence system
will be built round the Starstreak missile, manufactured by Thales
in its Belfast plant.
UK GOVERNMENT PROMOTION
10. None of these present and future orders
would have been possible without the support of the UK government.
Ministers like to present their role in arms-trading as a merely
permissive one; they issue export licences when there is no compelling
reason not to. In reality, however, the Government plays a much
more active part than that. In addition to the work of the Defence
Export Services Organisation, there is the support given to arms
contracts by the Export Credits Guarantee Department. The ECGD
Annual Report for 2000-01, listing guarantees issued during the
year, shows that the trainer/fighter aircraft for South Africa
were covered for £1,679.9 million. This is 49% of the total
for all the guarantees issued in that financial year. Although
there is no official confirmation, the amount of the cover seems
to indicate it covers all 52 aircraft.
11. The arms deal was at first strongly
resisted by the South African Treasury, but it was won over in
part by exceptionally favourable financial terms. Not only are
payments to be spread over 14 years, but they are being financed
by loans from European banks, mainly Barclays and Commerzbank;
and thanks to the ECGD cover Barclays has been able to charge
only half the normal commercial rate of interest.
12. Even more important has been the political
and diplomatic effort. Like the Al-Yamamah deals with Saudi Arabia
and the recent sale of Hawks to India, the UK's military exports
to South Africa are the result of aggressive selling by ministers,
from the Prime Minister downwards. In the years of the new regime
in South Africa there was strong resistance to arms exports and
arms imports, both on moral and on financial grounds. The militarists
gained the upper hand during 1996 and 1997, and it is believed
that discussions held by Thabo Mbeki, then Deputy President, with
Chancellor Kohl in 1996 and Tony Blair in 1997 were a major factor
in this shift. The press was told that the UK deal was "clinched"
by Tony Blair during his visit to Pretoria in January 1999. In
effect, like Al-Yamamah, the deal is government-to-government.
13. The procurement package is heavily skewed
towards UK interests. The South Africans originally intended to
buy a single kind of plane, either a dedicated fighter or a fighter-trainer.
They ended up buying both the Hawk and the very expensive Gripen,
although the Hawk has, or could be given, a combat capability
that would make the Gripen redundant. Moreover the Italians and
the Czechs have dual-purpose planes much cheaper than the Hawk.
14. In July 1997 the new Labour government
announced criteria against which it would assess applications
for military export licences and this was followed by the EU Code
of Conduct on Arms Exports which was adopted in June 1998. (In
October 2000 the two similar sets of criteria were brought together
as the Consolidated EU and National Arms Export Licensing Criteria.)
These criteria include a commitment by the UK government to look
at the adverse effects on development when deciding whether or
not to issue an arms export licence.
15. This should have prevented the UK government
from licensing the arms deal with South Africa, let alone encouraging
it. Although the development criteria have never yet been used
to refuse an export licence, there was surely an open-and-shut
case for applying it here. With a per capita GDP of $2,530 in
2001, South Africa is not among the poorest countries in the world,
but it is far from being among the affluent either, and it has
massive problems of unemployment and disease which should take
precedence over the build-up of military power. No good purpose
will be served by diverting resources needed for tackling these
problems and by casting on a fragile country burdens that it cannot
16. The arms deal has been defended on the
ground of the "offset" programme that accompanied it,
and that programme was certainly a major factor in winning support
for it within the South African government. In January 1999 Tony
Blair promised that in return for its purchases from the UK South
Africa would obtain "up to £4 billion in associated
investment and trade". The negotiated package included offsets
of R70 billion in return for R30 billion of sales, and held out
the prospect of 65,000 jobs. The R70 billion comprised R38 billion
in counter-purchases, including the work to be done by South African
subcontractors on the imported ships and planes, and R31 billion
in investment, or "industrial participation", both in
military and non-military projects.
17. Offsets are in general contrary to international
law. A loophole has been provided for those related to military
sales, but they are inherently ambiguous and suspect. The investments
linked to sales are not necessarily the ones the purchaser would
have chosen. In this case the biggest single item, a German project
for a steel plant and deep-water harbour in the Eastern Cape was
dropped after a storm of protest, as being environmentally damaging
and economically redundant. It was replaced by plans for a condom
factory, which would have been genuinely useful; but this does
not seem to be materialising either. Moreover, if the purchases
and investments were an optimal use of capital, they would presumably
have been made anyway, and so are not genuine offsets. If they
were not optimal, why were they made? It can only be assumed either
that the companies have been leaned on by their governments or
that they have some ulterior motive. Most probably they hope to
secure long-term benefits from the control of South African industry
that their investments will bring.
18. This is especially clear in the case
of investments by arms companies. On the face of it, there is
no sense in a bargain which commits the companies to outlays of
more than double the prospective receipts. But by taking a stake
in the indigenous arms industry they could look forward, among
other things, to the economies to be achieved from transferring
production to low-cost countries. South Africa is said to be near
the top of the list in the MoD's plans for outsourcing of military
procurement, and BAE Systems and other companies will want to
be in a position to control and profit from that process. Contradictions
have already appeared. South African sales of ammunition threaten
the income of BAE Systems' subsidiary Royal Ordnance, and thus
constituency interests in Scotland and northern England.
19. Foreign investment was also seen as
the salvation of the South African arms industry. The incoming
government in 1994 made the decision to preserve the large, and
in some fields highly proficient, industry built up during the
apartheid era, in the hope of developing a profitable export trade.
It soon found, however, that the industry did not have the capital
needed to break into the international market in any major way,
and so would have to go into partnership with foreign companies.
The offer of investment by BAE Systems and others was thus a major
inducement. Again, however, the linkage with arms purchases was
not really necessary. Companies such as Alvis, Thales and EADS
have been taking large stakes in South African arms companies
without any direct reference to sales.
20. Part of the deal was that BAE Systems
would take a 30% share in the state-owned arms company Denel.
Negotiations over this transaction were long drawn out, and in
April this year they were abruptly terminated by the South Africans.
It is not clear whether BAE Systems was offering too low a price,
or whether there has been a fundamental shift of policy. Perhaps
it has been realised that "partnership" with such a
giant as BAE Systems would be a very unequal affair.
21. The programme of arms purchases negotiated
in 1998-99 became contractual between November 1999 and May 2000.
It might now be difficult to cancel or alter it, although a legal
challenge by Terry Crawford-Browne is currently going through
the court system. The UK government could, however, refrain from
supporting the second round now under discussion and involving
tanks and air-defence systems. More importantly, the whole episode
highlights the need to give greater prominence in futurein
fact, decisive prominenceto social and economic criteria
for the evaluation of arms sales.
22. The arms deal undoubtedly had wider
political aspects, which may link it with themes set out in the
Committee's agenda. In the first place, what South Africa wants
more than anything else is easier access to the European market
for its products; and it was said that, in his discussions with
Mbeki, Tony Blair proffered his good offices in that matter, with
some tacit linkage to arms purchases. It would be interesting
to know what progress has been made.
23. The UK government should never again
allow the demands of the arms manufacturing companies to be given
precedence ahead of adherence to its own criteria when considering
arms export licences. Criterion Eight of the Consolidated Criteria
clearly states that the Government will consider: "The compatibility
of the arms exports with the technical and economic capacity of
the recipient country, taking into account the desirability that
states should achieve their legitimate needs of security and defence
with the least diversion for armaments of human and economic resources."
24. The UK government should end Export
Credit Guarantees for goods being purchased by overseas military
or security forces, or armaments-manufacturing bodies. This would
include cover for the construction of military bases.
Campaign Against Arms Trade