Draft reports ignite smouldering embers

Summary - Joel Netshitenzhe, head of the government communication and information service, confidently asserts that renewed suspicions about the arms-deal are much ado about nothing. His optimism may be premature, however. Suspicions of corruption were rekindled recently by the release of the draft documents that preceded the final report of the joint investigation into the arms deal. The draft documents differ in significant ways from the final report. Several political analysts have concluded that the changes were made at the behest of members of the cabinet sub-committee that negotiated the arms deal. A number of opposition politicians endorse this conclusion and the Democratic Alliance (DA) has called for a judicial commission of inquiry into the matter. The special investigators - the auditor general (Shauket Fakie), the public protector and the national director of public prosecutions - admit that they met with members of the cabinet sub-committee prior to writing their final report. However, Fakie contends that this was a routine meeting to clarify issues. Netshitenzhe notes that the draft documents emanated from an aggrieved South African defence contractor, Richard Young, who lost out to a rival bidder to supply the combat suite for four new corvettes. But that does not discount the possibility that Young has a case, particularly as the chief of acquisitions in the arms deal, Shamin ‘Chippy’ Shaik, is the brother of Durban businessman Schabir Shaik, who had a stake in the company that won the subcontract. Gavin Woods (IFP), former chairman of Scopa (the standing committee for public accounts), believes the draft documents provide evidence that ‘significant and material changes’ were made to the final report. He also believes the meetings between Fakie and president Mbeki during the investigation were inappropriate as Mbeki was head of the cabinet sub-committee which was ‘central to the arms deal’ and thus under investigation. The draft documents run to more than a thousand pages. Thus vigorous editing was required to produce the final report, which is less than 400 pages. Intriguing handwritten notes by an unknown person appear on several of the draft documents. One of these, headed, ‘Add to overall conclusion’, reads: ‘1. The joint investigation team found no evidence of impropriety, fraud or corruption by cabinet or government. 2. Government co-operated with the investigation team and assisted them with their endeavours.’ The first sentence, only slightly modified, appears in the final report. Of pivotal importance is the identity of the writer and whether he was issuing an instruction in his own capacity or relaying an instruction from a higher authority. The possibility that the instruction emanated from the cabinet sub-committee cannot be excluded. Several omissions from the final report may also be important. The draft documents state that Joe Modise (defence minister during the procurement phase of the arms deal) pressed the case for British Hawk and Swedish Gripen fighter aircraft above a less expensive Italian plane and ‘caused the Hawk to be selected’, in part by insisting that cost not be one of the criteria by which rival bids were appraised. In a review of the selection process published in September 2000, the auditor general, Shauket Fakie, described the use of a non-costed comparison as a 'material deviation from the originally adopted value system'. The final report, however, describes the choice as ‘unusual’ but ‘neither unlawful nor irregular’. Another intriguing disclosure contained in the draft documents is the existence of two sets of minutes for a crucial meeting at which the cabinet sub-committee decided whether to opt for the Hawk-Gripen or the Italian Aermachii tender. According to the final report, the sub-committee recommended the Hawk-Gripen option with no dissenting voices. The draft documents record that the sub-committee decided that both options should be placed before cabinet pending an investigation into which would deliver the most benefits to local industry. The arms deal, the cost of which stands at about R50 billion today, was sold to the public on the grounds that it would pay for itself through off-set investments in the South African economy by the contracting companies, optimistically valued at around R110 billion. However, several companies have failed to meet their target dates on investments and Victor Moche, CEO of the state-owned manufacturing company Denel, describes the programmes as ‘practically 100 per cent loss-making contracts’. The words of Joe Slovo shortly before his death in January 1995 bear repeating: ‘We need to be told clearly what the purpose is of all the high-tech, high-cost weapons systems… and why the current equipment is not sufficient. There (is) little doubt in my mind that South Africa’s greatest defence will be a satisfied population.’

With the insouciance of a worldly mandarin who is confident of his case, Joel Netshitenzhe, head of the government communication and information service, predicts that rekindled suspicions over the integrity of those responsible for the multi-billion rand arms deal will be short-lived.1

He offers a counsel of caution to those who anticipate that the latest suspicions will increase inexorably. He advises them to consider the fate of the figure from Greek mythology, Icarus, who soaring skyward with wings made from wax and feathers, flew too close to the sun, fell into the Aegean Sea and drowned. Netshitenzhe predicts that opponents of the arms deal, having had “a field day” impugning the honesty of the auditor general and questioning the bona fides of the government, will eventually be forced to retreat into silence by the fragility of their premises and falsity of their reasoning.

A primary reason for the revitalised suspicions of corruption and chicanery is the release of another tranche of the draft documents that preceded the final report of the joint investigation into the arms deal. Presented to parliament in November 2001, the joint investigation is the work of three high-powered investigators, the auditor general, the public protector and the national director of public prosecutions. The draft documents diverge from the final report. The final report contains findings and explanations that are absent from the draft reports, while, in an inverse process, conclusions and observations in the draft documents are omitted from the final report.

With Tim Cohen of Business Day and Sam Sole of the Mail & Guardian taking the lead after obtaining copies of the latest draft documents, several political analysts have inferred that most, if not all, of the additions and omissions were made at the behest of members of the special cabinet sub-committee that supervised the procurement of the state of the art weapons, including aircraft, submarines and ships.2 An array of opposition politicians have endorsed these deductions, with the Democratic Alliance calling for a judicial commission of inquiry to establish once and for all whether the draft reports were changed substantially because of political pressure from government.

There is no dispute over whether the investigators met members of the cabinet sub-committee headed by president Thabo Mbeki. Aside from Mbeki, the sub-committee included the ministers of finance, defence and trade and industry. Far from denying that consultations took place between the investigators and the special cabinet committee, the auditor general, Shauket Fakie, insists that he was obliged to do so by the Auditor General Act and what he labels “the doctrine of legality.3 He nevertheless denies that the report was substantially revised at the request of Mbeki or his ministers. While admitting that adjustments were made to accommodate “verifiable facts” and “explanatory information” from government, he contends “editorial changes” to draft documents is normal practice during the “finalisation process” of an investigation.4

Netshitenzhe endorses Fakie’s argument noting that it is a routine requirement for the auditor general’s staff to meet with senior government managers during an investigation to “clarify issues” and to make factual corrections, if they are required. Beyond that, Netshitenzhe notes that the draft documents emanate from an aggrieved South African defence contractor who lost out at the eleventh hour to a rival bidder to supply the combat suite for the four new corvettes on order for the navy. He charges that the contractor, Richard Young, CEO of C²I², is “propelled by self interest” and seeking to mobilise public opinion to buttress his bid in a R150-million damages claim against the government.

Neshitenzhe’s argument needs to be appraised in the context of two central counterpoints, however.

Young’s status as an aggrieved party does not exclude the possibility that he has a case in suspecting that he is the victim of an unjust decision5, the more so because the brother of the chief of acquisitions in the arms deal had a stake in the company which ousted C²I² as the preferred bidder for the combat suite subcontract. The brothers in question are Durban businessman Schabir Shaik (who had a stake in Thompson-CSF and its South African subsidiary, African Defence Systems) and Shamin “Chippy” Shaik (the former chief of acquisitions who resigned from the defence force after the three-member joint investigating team reported that he had not recused himself from the procurement committee hearing where his brother’s interests were at stake).

Moreover, to move on to the second of the counterpoints, the government is not a disinterested party in the dispute. Allegations that the special cabinet committee that presided over the procurement of arms — or members of it — may have been negligent in guarding against corruption, or, worse still, complicit in corrupt dealings, define it as a frontline protagonist in the arms deal controversy. The government’s thwarting of a proposed investigation into the alleged irregularities by the parliamentary standing committee for public accounts (SCOPA), through its control of the African National Congress majority on the committee, identifies it as a party to the dispute over the arms deals. Its refusal in 2001 to include the special investigating unit under Judge Willem Heath in the joint investigating team raises further questions about its role in the arms deal.

The comment on the exclusion of Heath’s special unit from the investigation by the presenter in a BBC 4 discussion programme on the arms deal is worth recalling. He states that Heath’s unit “enjoyed wide powers, including the right to apply to a special court to have procurement contracts set aside,” whereas the auditor general, the public protector and the national director of public prosecutions, are “all members of government departments and potentially susceptible to political pressure”.6 A statement by Heath on the same programme is startlingly blunt: “There were clear signs that members of the procurement team were involved in irregularities… The clear inference is, taking into account their conduct, that they had been receiving money or that relatives of theirs have been on the receiving end of money”.7 His statement directly challenges the vigorous and co-ordinated defence of the

probity of the procurement process by government leaders, including Mbeki and deputy president Jacob Zuma, from January 2001 onwards.8

The conclusion to be drawn from these opposing perspectives and arguments is that the arms deal is a strongly contested political issue. The release, under threat of imprisonment for contempt of court, by Fakie of the latest batch of draft documents to Young has already intensified the contestation. A political battle over the draft documents has begun. Netshitenzhe’s dismissal of media interest in the draft documents as much ado about nothing should be juxtaposed with the view of the former chairman of the standing committee for public accounts, Gavin Woods of the Inkatha Freedom Party. He writes that “on initial examination” they provide evidence that “significant and material changes” were made to the final report.9 His evaluation of the draft documents should be seen in the context of his contention that the meetings between the auditor-general and the president during the investigation were inappropriate as the role of the special cabinet committee chaired by Mbeki was “central to the arms deal” and thus under investigation by the joint investigating team.10

Appraisal of the draft documents is not an easy task as they run to more than 1000 pages. Bearing in mind that the final report is relatively short — less than 400 pages — a vigorous editing process would of necessity have preceded publication of the final report, the more so as the draft reports of the three investigators would have had to be synthesised into a single comprehensive publication. The situation is further complicated by another problem. While there are interesting handwritten notes on some of the draft documents, the handwriting is not easily legible, the identity of the writer unknown and the remarks characterised by brevity rather than lucidity.

Perhaps the most interesting of the handwritten notes is one on a foolscap sheet of paper filed with a wad of pages emanating from the auditor general’s office. The note is in the same handwriting as the annotations in the margins. Headed: “Add to overall conclusion”, the two sentence note reads: “1. The joint investigation team found no evidence of impropriety, fraud or corruption by cabinet or government. 2. Government co-operated with the investigation team and assisted them with their endeavours”.

The first sentence is the most important. It is included, in slightly modified form, in the concluding chapter of the final report entitled Key Findings and Recommendations. The modified insertion reads: “No evidence was found of any improper or unlawful conduct by the government”. The relevant paragraph of the final report then refers to “irregularities and improprieties” contained in earlier chapters, declaring that they point to the conduct of “certain officials” of government departments and cannot “be ascribed to the president, or the ministers involved in their capacity as members of the ministers’ committee, or cabinet”. Thus, the final report avers, “There are no grounds to suggest that the government’s contracting position is flawed”.11

A number of questions arise. The most important concern is the identity of the writer of the note on the foolscap sheet of paper and whether he (all the key role players in the arms deal are men) was issuing an instruction in his own capacity or whether he was relaying an instruction from a higher authority (the auditor general, a member of the special cabinet committee or president Mbeki himself). There are no clear answers as yet. The possibility that it emanated from the special cabinet sub-committee or a member of the committee cannot be excluded, however. The question of the provenance of the instruction is of pivotal importance to the whole arms deal controversy. If the joint investigators freely arrived at that conclusion, the exoneration of government from blame has to be taken seriously. If, however, it was added on orders from government, the exoneration is hardly worth the paper it is recorded on.

Either way a question remains: if the government is not ultimately responsible for the behaviour of government officials during the procurement with public money of highly expensive weapons, who is?

Another note, written on the cover sheet of the draft report on the public hearings conducted by the public protector, deserves specific attention. Under the heading “President” it includes the following two items: “1. Country emerging. 2. Defend integrity of inv (investigating) agencies”. The heading implies that president Mbeki was concerned that the integrity of the investigating agencies (the offices of the auditor general, the public protector and the national director of prosecutions) should be defended. On the face of it, there is nothing untoward about that, particularly as two of the three agencies concerned (the offices of the auditor general and the public protectors) are defined in the constitution as institutions designed to defend South Africa’s constitutional democracy and enjoined to “exercise their powers and perform their functions without fear, favour or prejudice”. If, however, the agencies concerned were not exercising their power “without fear, favour or prejudice” and protecting the government instead of the constitution, defence of their integrity is interpretable as using them to shield a cover-up exercise from public scrutiny.

Omissions from the final report may be as important as the additions. Several arguably crucial findings in the draft reports have been excluded from the final report. Some relate to Joe Modise, who served as defence minister during the procurement phase of the arms deal and, until his retirement in June 1999, as a member of the cabinet sub-committee responsible for deciding which arms manufacturers would be awarded the contracts to supply the weapons.

The omissions pertain to the:

• Objections recorded by senior defence force personnel to the purchase of new jet-propelled fighter aircraft, irrespective of their origin.
• “Fundamental flaws” in the selection of the Anglo-Swedish bid via BAe systems and Saab to provide trainer and fighter aircraft, instead of the initially preferred — and substantially cheaper — bid by the Italian manufacturers of the Aermacchi MB339.
• Prominent role of Modise in pressing the case for British Hawk and Swedish Gripen fighter aircraft above the rival Italian plane, even though, as the final investigative report notes, the cost of the Hawk was twice that of the Aermacchi MB339 while its increased performance was a mere 15 per cent higher. In a telling phrase, one of the draft documents states that Modise “caused the Hawk to be selected” (in part by insisting that cost be discarded as one of the agreed selection criteria by which rival bids were appraised).
• “Materially flawed” evaluation of the proposals for defence industrial participation (DIP) submitted by the winning German-led consortium to supply submarines, with resultant “potential prejudice to unsuccessful bidders”.12

Apart from his position of defence minister when BAe and Saab got the nod ahead of the rival Italian bidder, Modise merits special attention because of his insistence that the BAe/Saab bid should as evaluated on a non-costed basis. There is another reason: the speed with which he became a businessman with links to the armaments industry after his retirement in June 1999 and his emergence as a potential post-retirement beneficiary of the companies he had approved as weapons suppliers in the arms deal.13 It is relevant to recall that, firstly, BAe gave a substantial donation to the MK War Veterans Association at about the time that its bid for the fighter aircraft contract was under consideration, and, secondly, that Modise, as the former commander of the ANC underground army, Umkhonto we Sizwe or MK, had close links with the MK War Veterans Association.14

Modise has long been suspected for these reasons as the most likely member of the cabinet sub-committee to have succumbed to the inducements on offer by the contracting companies, though it should be noted that before his death in December 2001 Modise dismissed charges that he had been suborned as “lies and gossip”. The statements in the draft documents about his prominent role in pressing the case for BAe-Saab do nothing to allay those suspicions, however. On the contrary, they strengthen and invigorate scepticism about the final report’s avowal that no member of the cabinet subcommittee can be blamed for the irregularities and improprieties unearthed by the investigators during their scrutiny of the arms deal.

A further observation is in order, one that concerns the auditor general. In his Special Review of the Selection Process, published in September 2000, Fakie describes the use of a non-costed option to determine the successful bidder for the contract to supply fighter aircraft as “a material deviation from the originally adopted value system”. He further notes that it involved “a significantly higher cost”.15 The final report indicates an apparent change of mind by Fakie. It describes the decision as “unusual” but “neither unlawful nor irregular”. It concludes that cabinet was entitled to opt for the BAe-Saab bid.16 Juxtaposition of the two apparently divergent appraisals raises the question of whether Fakie was persuaded on the basis of “verifiable facts” that the Hawk-Gripen combination was a rational and legitimate choice taking all factors into account or, alternatively, whether he was pressurised during the consultation process into abandoning his original assessment.

The draft documents contain yet another intriguing disclosure: the existence of two sets of minutes for a crucial meeting where the cabinet subcommittee took the decision whether to opt for the BAe-Saab (aka Hawk-Gripen) tender, or that of the Italian Aermachii. Only one set of minutes is contained in the final report of the joint investigating team. The final report records that the cabinet subcommittee recommended the Hawk-Gripen option to cabinet, without any hint of dissenting voices. A draft document, however, records a second outcome: instead of recommending the more expensive Hawk-Gripen deal, the cabinet subcommittee reportedly decided that both options — the Hawk-Gripen and the Aermachii MB339 alternative — should be placed before cabinet pending a thorough investigation into which would bring the most benefits to the local aerospace industry.

Refracted through the prism of these reconstructions of what may have happened, Netshitenzhe’s confident prediction that the controversy over the discrepancies between the draft reports and the final report will fade into public oblivion seems at the least to be premature, particularly as controversies over the arms deal have resurfaced at regular internals for the past five years.

Another factor is likely to keep the arms deal in the public eye: its huge cost to taxpayers, starting at nearly R30-billion when the deal was signed in December 1999 but rising to nearly R60-billion as the value of rand fell in the years that followed. It stands at about R50-billion today after the recovery of the rand from its calamitous fall in 2000. But, as Judith February of the Institute for Democracy in South Africa notes, the deal was sold to the public on the basis that it would pay for itself through industrial and defence investments in the South African economy by the contracting companies.17 These offset benefits, as they are referred to in official statements, have been valued at between R110-billion and R105-billion or, to put it differently, billions of rands more than the cost of the state-of-the-art weapons South Africa is buying. These calculations rest on an improbable assumption: that by spending billions of rands on armaments, the purchasing country can earn billions more than the cost through investments to which the armament manufacturers have committed themselves.

The government has exuded a rosy optimism on offsets, one that ignores or minimises the failure of several companies to meet their target dates on investments. The government, and the public with it, has, however, had to brace itself against a cold wind emanating from Victor Moche, the CEO of the state-owned manufacturing company Denel. He is highly sceptical of the value of the defence industrial programmes to which the arms manufacturing companies are committed. He describes them as “practically 100 per cent loss-making contracts”.18 The implication of his statement is that the government and South African taxpayer will have to bear the major burden of the huge cost of the arms deal or, to use ANC-speak, the strategic defence procurement packages.

The government cannot say it was not alerted to the risk of reliance on offsets to reduce, let alone eliminate, the cost of the arms deal. The affordability team warned in its 1999 report that failure of the contracting manufacturers to meet a “significant proportion” of their industrial programme commitments is likely to lead to a “significantly negative” macro-economic impact.19 The warning should be seen in the context of a prediction by the affordability team that the arms deal would result in payment obligations extending well into the future, with the bulk of the payments taking place between 2001 and 2013. Aside from the risk of non-fulfilment by the armament corporations of their national and defence industrial participation investments, there are two further risks: adverse foreign exchange movements and the impact of interest obligations. These risks have been minimised (but not eliminated) by the strong rand in the past year or so. But many shifts in foreign exchange movements can take place between now and 2013.

A key paragraph of the affordability team report is worth quoting: “The sums involved are extremely large; they involve fixed contract commitments extending over long periods with high breakage costs; they are heavily import based; and their costs are off-set by a set of associated activities which cannot be guaranteed”.20

Netshitenzhe’s prediction that the spat of adverse publicity on the arms deal will soon disappear from public awareness seems ever less plausible when costs and possible associated financial disasters are taken into account. His forecast may be prompted by an admirable calmness in face of an impending storm over the arms deal as a whole. It cannot be taken too seriously, however, when the huge financial costs of the deal are brought into the equation, particularly as South Africa last year signed a letter of intent to purchase between 8 and 14 transport aircraft from the European-based A400 Airbus company at a minimum cost of a further R8-billion.

It is apposite in conclusion to recall the words of Joe Slovo, former chairman of the South African Communist Party shortly before his death in January 1995: “We need to be told clearly what the purpose is of all the high tech, high cost weapons systems... and why the current equipment is not sufficient. There (is) little doubt in my mind that South Africa’s greatest defence will be a satisfied population”.21

Endnotes
1 The Star, 14 January 2005.
2 Business Day 7 January 2005 and Mail & Guardian 7-13 January 2005.
3 Special Report of the Auditor General, 24 June 2004.
4 Ibid.
5 The Star, 27 January 2005, Drafts aren’t meant for changing.
6 BBC Radio 4, 13 May 2003.
7 Ibid.
8 Key issues on government website: www.gov.za.
9 Sunday Independent, 22 January 2005.
10 Ibid.
11 Joint Investigation Report, page 373.
12 Business Day and Mail & Guardian, Op cit.
13 Focus 23, Conflicts of Interest.
14 Focus 24, Arms deal probe: unanswered questions.
15 Auditor General’s Special Review, September 2000.
16 Joint Investigation Report, page 111.
17 Idasa, Political information and monitoring service: www.idasa.org.za.
18 Ibid.
19 Judith February, South Africa – Democracy and the South African Arms Deal.
20 Quoted in February Op cit.
21 Quoted by Tony Leon in a speech to the Friedrich Naumann Foundation, 8 February 2005.