Select Committee on Foreign Affairs Minutes of Evidence

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 and inducements.


  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 billion—nearly 12 times as much as would be spent on combating HIV/AIDS.

  7.  The 1999 deal comprised the following items:

    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 R4.728 billion;

    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.


  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 bear.


  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 future—in fact, decisive prominence—to 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

October 2003

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