Conflicts of interest

Opposition criticism of the arms deal is beginning to tell, says Patrick Laurence. The ANC is no longer so confident that the deal is safe from corruption or financially viable.

THERE ARE SIGNS that the government has begun a retreat from its earlier adamantine insistence that the R43.8 billion arms deal is "fail-safe" against corruption. One of these signs comes from President Thabo Mbeki himself. Though couched in cautious language, his statement in late July subtly sounding a withdrawal is radically different in tone from his January 12 declaration, which marked the opening of the government offensive against the array of voices either opposed to the arms deal or concerned about its possible contamination by corruption.

The government's shift is almost certainly a response to sustained criticism from opposition parties and sections of civil society and, more particularly, to media exposures identifying members of the ANC establishment who, to the discomfort of the organisation, accepted favours from arms manufacturing companies. Embarrassed by the disclosures, which named no less a person than the chief of the South African National Defence Force, Siphiwe Nyanda, as the recipient of two luxury vehicles at an appreciable discount from the European Aeronautic Defence and Space Company (EADS), the ANC-led government may simply feel the need to fall back to a more defensible position.

Another possibility, however, is that in a bid to salvage its reputation as a government committed to the eradication of corruption, it may be preparing to sacrifice one or two of the ANC notables who benefited from the generosity of the arms manufacturing industry. It can hardly contemplate that manoeuvre while maintaining its "fail-safe" stance. There is no hard evidence of an imminent public washing of hands of those who have embarrassed the ANC. But two names keep emerging when observers speculate on who might be jettisoned as scapegoats: former defence minister Joe Modise and ANC Chief Whip Tony Yengeni, whose acquisition of a state of the art 4x4 Mercedes at a generous discount from DaimlerChrysler, which later became a component of EADS, has long been a talking point.

In his statement to the media in late July, after he and his ministers had completed their three-day lekgotla, Mbeki announced that the cabinet had decided to "examine ways of tightening up regulations dealing with the probity of officials involved especially in the negotiation of large contracts". The arms deal - or, as government refers to it, the strategic defence package - is the largest single deal signed by the ANC-led government and logically qualifies for inclusion within the ambit of Mbeki's announcement.

Any doubt about whether Mbeki's statement alluded to the arms deal was removed by his response to a question from one of the journalists at the briefing. Asked whether the anti-corruption measures he had referred to were prompted by the current investigation into the arms deal, Mbeki replied: "Indeed part of what we are saying arose out of some of the allegations that are being made around the defence acquisition. Even if the allegations (are) proved not to be true . . . the issues that are being raised are relevant and therefore we need to attend to them." Nothing in Mbeki's statement suggested that the issue would no longer be relevant if the allegations proved to be true. On the contrary, they implied that substantiation of the allegations would give them greater relevancy.

Mbeki had earlier indirectly linked the proposed anti-corruption regulations to the arms deal. Having stipulated that the regulations would apply to cabinet ministers as well as government officials involved in the negotiation of "large contracts", Mbeki told journalists: "The cabinet was of the view that it might very well not be correct . . . where a minister who works in a particular portfolio, leaves and then joins the private sector in an area of that portfolio and most likely with people who got some tenders in that sector while he/she was a minister." Several journalists deduced that Mbeki was referring to Modise, justifiably, as the presidential remarks described the former defence minister's position with uncanny, and perhaps deliberate, accuracy.

Modise, who signed a contract with a German consortium for the supply of three submarines three days before retiring and before the department of finance had completed its affordability study, is today a businessman with links to the armaments industry. He is the chairman of Conlog holdings, a company which has links through its subsidiary, Logtek, with Futuristic Business Solutions (FBS), which has been - to quote Noseweek - "awarded the logistics contracts for virtually every programme in the defence package". FBS, which is led by Modise's former comrade-in-arms during the struggle against apartheid, Lambert Moloi, is in turn linked to African Defence Systems, a partial subsidiary of Thompson CSF, the French armaments company. Thompson is a member of the consortium that was awarded the contract to provide the SA Navy with four corvettes.

Modise has emerged as a businessman poised to exploit the opportunities for enrichment in the Coega project, an ambitious scheme to develop a deep-water port at Coega, about 20km from Port Elizabeth, and an industrialised development zone (IDZ) around it. His connection with the Coega project is twofold. When he signed the submarine deal in mid-1999, he revived (unrealised) hopes that Coega would attract international investors. Since then a company in which he figures as chairman and shareholder, Khuthele Projects, has been awarded a contract to conduct an integrated transportation study for Coega. Thus, once again, Modise in his new role emerges as, at the least, a potential beneficiary of a decision that he took while the political head of a powerful ministry.

Ray Hartle, communications manager of the Coega Development Corporation (CDC), has attempted to clear Modise of suspicions of skulduggery. He accuses those who question the probity of the Modise connection - most notably Colm Allan, of the Public Service Accountability Monitor (PSAM) at Rhodes University - of being disingenuous. He states that Modise acquired shares in, and became chairman of, Khuthele Projects only after it was awarded the contract. He gives no dates and seems to rely heavily on broad ex-cathedra statements about the established procedures of tendering.

But, even assuming that his chronology is accurate, it is possible that Khuthele Projects was awarded the contract because the CDC knew that Modise was going to invest in it. The chairman of CDC is Moss Ngoasheng, immediate past economic adviser to Mbeki and thus a man who moved in the same upper ANC circles as Modise. Raenette Taljaard, Democratic Alliance (DA) spokesperson on the arms deal, is not satisfied with Hartle's explanation. She has written to Auditor General Shauket Fakie asking him to investigate suspected irregularities relating to Coega. The questionable practices include reports that the CDC does not have the legally-required IDZ operator permit, which it should have applied for as part of "a competitive tendering process". Taljaard's letter specifically asks Fakie to scrutinise the roles of Modise and Ngoasheng in the Coega project. Fakie, whose office is one of the three state agencies involved in the arms deal probe, states in his reply: "I believe the issue of the Coega Development Corporation would probably require a special investigation of its own. I am busy seeking legal opinion as to whether I have the legal mandate to look into Coega's affairs."

Even if Coega is discounted pending further investigation, the nexus between Modise in his post-political entrepreneurial identity and the armaments industry seems irrefutable. Modise's dismissal of those who expose the links and ask questions about them as the peddlers of "lies and gossip" comes across as defensive bluster. He fits the description of an ex-minister who has moved into an area as an entrepreneur where he was active as a minister. That area is now frequented by people who benefited from tenders awarded while he was in government. United Democratic Front leader Bantu Holomisa minces no words as he points an accusing finger at Modise: "He is benefiting, his company is benefiting and his associates are benefiting."

If Modise is a potential sacrificial candidate as the ANC-led government seeks to dissociate itself from the suspected malfeasance of public office bearers, Yengeni is another. According to a front-page report in the Sunday Independent, Yengeni is the butt of bitter jokes about "4x4" leaders in ANC ranks at branch level and among former Umkhonto we Sizwe foot soldiers. During the debate on the motion of confidence in the Speaker, Frene Ginwala, in June, Holomisa memorably described him as one of those who said "Viva!" on Saturday and took a 4x4 on Monday. Yengeni is feeling the heat, judging by the full-page advertisements he took out in selected newspapers in July setting out how he acquired a luxury ML 4x4 Mercedes Benz in 1998 at a generous discount from DaimlerChrysler Aerospace.

Two arguments are central to his attempted self-exoneration: his contentions that the discount was a routine one, no different from those offered to the ordinary public by vehicle manufacturers, and that it was nowhere near the reported 47 per cent of the purchase price as the vehicle had been damaged. If the vehicle was indeed damaged, it is not clear why Yengeni did not say so before. His advertisement does not explain why he waited more than four months before stating his case. Nor does it explain why, specifically, he did not offer a full exposition of how he acquired the vehicle when the matter was raised in Parliament and when he was invited to do so before the parliamentary ethics committee, instead of opting merely to declare his innocence. His explanation does not refute the initial report in the Sunday Times that, at the least, he had free use of the vehicle for seven months before he started to pay for it. Nor does his explanation convincingly disprove allegations that he only entered into a finance agreement when his acquisition of a car normally valued at, according to his own reckoning, R314,000, became a talking point in parliamentary corridors. Yengeni's advertisement provoked another round of awkward questions about whether he paid for the advertisements himself or whether a benefactor or benefactors paid for them.

More questions lie ahead: if he paid for them, the estimated cost of R250,000 raises the question of how he could afford to spend more than half his annual salary of just over R400,000 when, by his own admission, he was still paying off the 4x4 and, in all probability, the house he purchased in Cape Town in 1996. If he did not, who gave or lent him the money and why? After an initial and, some would add, thunderous silence, during which the ANC denied that it had paid for the ads, Yengeni opted for an imprecise answer - "friends", he replied, before relapsing into stonewalling mode. Another question was put to him: while he had attempted to explain his acquisition of the 4x4, why did he remain silent about the Mercedes cars also acquired by his wife and his expatriate Congolese woman friend? In the meantime, the riposte to his advertisement from Douglas Gibson, DA chief whip, went unanswered. Responding to Yengeni's claim that the discount he received was a standard discount available to the public, Gibson asked what member of the public qualified for a discount from an arms manufacturer? Gibson also commented on Yengeni's statement that as chairman of the parliamentary portfolio committee on defence - a post he held in 1998 - he had not been in a position to influence the arms deal. If that was so, Yengeni and his committee had "totally abrogated their oversight function" on behalf of taxpayers, Gibson said.

Dealing with the argument that the procurement of weapons for the arms deal was so complicated a process that no one individual was able to determine what should be acquired, at what cost and from whom, Noseweek makes a pertinent point. "EADS . . . didn't rely on one (individual). They offered inducements to a whole spectrum of people who were jointly in a position to influence the outcome." Yengeni apart, beneficiaries include Nyanda, Armscor chairman Ron Haywood, Llew Swan, co-chairperson with "Chippy" Shaik of the strategic offers committee, and Vivan Pillay, who led the team negotiating the industrial offsets with arms manufacturers tendering for contracts.

The DA's Taljaard attaches particular importance to Pillay's acceptance of the discount, presumably because he was in better position to influence decisions than most, if not all, of his co-recipients of EADS' generosity. But Shaik is arguably just as important a figure. As chairman of the arms procurement committee he was strategically situated to nudge the process towards one company rather than another. His neutrality has already been questioned in Parliament's standing committee on public accounts (Scopa) and in the media. Those questions arise from the award of sub-contracts to African Defence Systems (ADS), of which his brother Shabir Shaik is a director. Chippy Shaik says that he recused himself when his brother's company was involved. The Mail & Guardian, however, has published extracts from minutes of a meeting relating to the combat suite for the corvettes ordered by the South African navy, an issue in which ADS had an interest. The minutes show that, far from recusing himself, Shaik chaired the meeting and participated in the discussions. The decision went in favour of Detexis, a sister company of ADS, at the expense of the original preferred bidder, the Cape Town firm CCII. All of which means that Shaik, like Modise, might be an embarrassment to the government and its assurance that the procurement process was "fail-safe" against malfeasance.

For the moment, though, the spotlight is on Yengeni. The ANC national executive's appointment of a special 22-member committee to oversee party activities in Parliament indicates that Yengeni may have lost the confidence of the national leadership. Gibson sees it as a simultaneous "motion of no-confidence in the government chief whip and a power grab by the executive".

If it is another move to centralise power at the expense of Yengeni, there is an element of irony. Yengeni cracked the party whip to bring ANC members on Scopa back into line. Since then they have put party political interests ahead of their obligation to taxpayers to act as independent watchdogs over government expenditure on the arms deal. In a move which has Stalinist undertones, they have even rewritten the fourteenth Scopa report. It now supports the ANC's line that the committee did not agree to a multi-agency investigation into the arms deal that included the special investigating unit (SIU) then still headed by Judge Willem Heath.

Ironically, too, the newly appointed head of the SIU, Willie Hofmeyr, has mooted the need in South Africa for the legal equivalent of the Hong Kong Ordinance of 1970. The ordinance states government officials, past and present, who maintain a standard of living which is above that commensurate with their "official emoluments" shall be guilty of an offence unless they can provide a satisfactory explanation. That Hofmeyr should place this option on the table as the multi-agency investigation into the arms deal comes to a close is unlikely to be coincidental. He is also the head of the Asset Forfeiture Unit and the deputy director of the National Directorate for Public Prosecutions. He may be hinting that some people who were involved in the arms deal owe the public an explanation and that future government ministers or officials who live above their means should be obliged to explain how they acquired their wealth.

Many opposition politicians assume, and some leaders in civil society fear, that the multi-agency investigation into the arms deal may be less than thorough or perhaps even part of an official cover-up. Perhaps their misgivings are not totally warranted. They do not take account of the integrity of people such as Hofmeyr or the possibility that the investigation may have acquired a momentum of its own which the men at the top cannot control, even if they wanted too. The investigators may have unearthed evidence that they cannot or will not hide. The ANC's political leaders may be preparing public opinion for a few shocks when their findings are published and for the sacrifice of a few scapegoats.

The public hearings on the arms deal, held under the auspices of the Public Protector Selby Baqwa, were widely interpreted as a public relations exercise aimed at restoring national confidence in the arms procurement process. Thus the first witness, Vice Admiral Robert Simpson of the SA Navy, defended the controversial idea that counter-trade or offset defence and industrial investments would pay for the arms deal. Simpson even praised Modise as an "outstanding visionary" who was responsible for promoting the controversial notion of offsets.

But the same public hearings were the forum for admissions that increased rather than decreased scepticism over the arms deal. Roland White, a former senior official in the department of finance now working for the World Bank in Washington, admitted that the calculations on which the cost-escalation formulas were based might have been insufficiently researched. When it was put to him that "no research" had been done on the formulas, he replied: "In my personal opinion, your view is probably a fair one." That contradicted government assurances that the deal would not impose too severe a burden on the fiscus, assurances that rested in part on the improbable assumption that offsets worth R104 billion would accrue to South Africa from the arms deal and generate 65,000 jobs.

Terry Crawford-Browne, of Economists Allied for Arms Reduction, highlighted the improbability of the assumption on which offset hopes rested in his submission to the hearing. It implied, wrote Crawford-Browne, that the way to generate wealth was to spend vast sums on sophisticated weaponry. If that was so, the solution to Third World poverty was for those countries to spend their meagre resources on arms, a manifestly absurd thesis.

White's admission removed a lynch-pin from the carefully assembled government propaganda exercise justifying the arms expenditure, even though he tried to qualify it later. Warnings had been issued before about the danger of sharply escalating costs. The affordability report by the department of finance said: "The sums involved are extremely large; they involve fixed contractual commitments extending over long periods with high breakage costs . . ." Unhappily for government the affordability report contained a disturbing scenario of a declining rand and, consequently, a rising arms bill. It forecast that the rand-dollar exchange rate would be R9.6 to the dollar in 2002-4 and that it would reach R22.8 by 2017. On the hoped for counter-trade investments the report came to a sombre conclusion: they could not be guaranteed. As early as September 1999 the Auditor General reached a similar conclusion in his special review: "All bidders with whom contracts have been finalised had to sign performance guarantees as regards their NIP (National Industrial Participation) commitments. I am of the opinion that the guarantees . . . may be inadequate to ensure delivery of the NIP commitments."

In selling the arms package to the electorate, government spokemen chose to ignore the warnings contained in the affordability report and, instead, to stress the supposed advantages of the offset investments. The Institute for a Democratic South Africa criticised it for this in its review of the arms deal published in May.

Until recently government was supremely confident of the viability of the deal. It also believed that it was "fail-safe" against corruption at the level of primary contracts between its arms procurement committee and the arms manufacturers. Its confidence verged on arrogance, which rubbed off onto the ANC in Parliament. Scopa's records of the time its members spent studying the relevant arms deal documents show that Andries Nel, one of the new members appointed after the January 2001 reshuffling of ANC representatives, did not bother to examine the records at all. Another new ANC representative, Vincent Smith, who is co-head of the ANC study group on Scopa, spent a mere 25 minutes skim-reading a few pages of the huge pile of documentation.

There are signs that ANC confidence may be waning. Replying to a question from Taljaard in Parliament, Mbeki's acknowledged that government fully recognises the "risks identified in the affordability report". He also implicitly admitted that the first four to five years of the contract could be financially negative. The government appears to have begun preparing defensive lines beyond contingency plans to phase in the costs to avoid too heavy a burden in any one year and, if necessary, to cancel the second and third tranches of the contract to buy fighter aircraft. Where former deputy defence minister Ronnie Kasrils once asserted that South Africa does not have to choose between guns and butter because it can afford both, government spokesmen no longer indulge in that kind of extravagant boasting.

Patrick Laurence is an assistant editor on the
Financial Mail.