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An Evaluation of the BAE/SAAB South African Royal View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by South East Academic Libraries System (SEALS) An Evaluation of the BAE/SAAB South African Royal Manufacturing Project in Virginia, Free State Province: A Case Study of the Implementation of the South African Defence Offsets. By Gwendolyn Wellmann Submitted in fulfilment of the requirements for the degree of D. Phil in Development Studies at the Nelson Mandela Metropolitan University. February 2010 Supervisor: Professor Richard Haines Co-supervisor: Dr Mick Brookes Abstract This study is an evaluation of the BAE Systems/SAAB consortium National Industrial Programme project, South African Royal Manufacturers (SARM), which forms part of BAE Systems/SAAB’s National Industrial Participation Programme (NIPP) obligations resulting from their participation in South Africa’s 1998 Strategic Procurement Programme (popularly referred to as the ‘arms deal’). SARM was a gold chain manufacturing plant, located in the Free State mining town of Virginia and which was implemented by the BAE Systems/SAAB consortium in partnership with the Harmony Gold Mining Company. Funding for the business was provided by the BAE Systems/SAAB consortium as part of their industrial participation obligation. This funding was supplemented with a loan obtained from the South African Industrial Development Corporation (IDC) to the value of 40% of the cash funds; while land and buildings, as well as loans in the form of gold granules and bars, were provided by Harmony Gold Company, as part of what they describe as their corporate social responsibility towards the Virginia area where they are the only mining company operating; and also simultaneously as their obligation towards gold beneficiation as required by law. The business failed after less than 12 months of operation amidst allegations of theft of gold and the sudden lay-off of approximately 500 poor black rural women. The company’s liquidation appears to be on the backburner indefinitely. The study was conducted over a period of 18 months, and this thesis written over several more. As part of this evaluation several issues were investigated. These issues are: the push for beneficiation of South African mined metals; the National Industrial Participation Programme; local government development; the BAE Systems/SAAB consortium and other similar companies which are involved in jewellery production for export as part of both the country’s beneficiation drive, as well as the 2 NIPP. These other companies are used in this study as a ‘control’ group against which SARM’s performance can be measured realistically. Different research methods were used during the evaluation, including secondary document reviews, face-to-face and telephonic interviews with key-informants, the use of e-mail to contact key-informants, as well as conducting face-to-face questionnaires with random interviewees, and a focus group discussion with SARM ex-workers. There were several limitations to this study. The primary limitation was the inaccessibility of official and legal documents pertaining to both SARM, and the 1998 arms deal. SARM no longer exists, and thus the evaluation results should be used as lessons learned for similar projects in the future. Key words • Arms deal • Industrial participation • Offsets • BAE Systems/SAAB • Beneficiation • SARM • Sustainable development • Economy • Jobs 3 Acknowledgements I am very grateful for the kind and patient support from both Richard Haines and Mick Brookes over the past years. I am also particularly grateful for the assistance of Mr. Dumile Damane and Ms. Amanda van den Berg, who patiently answered all my queries and more often than not assisted me with finding my way through the bureaucratic morass (to be honest, they stormed, attacked and conquered the bureaucratic morass on my behalf - no small feat!). Thank you also to all the key informants and focus group participants who took time to discuss the relevant issues with me and to provide me as much information as legally possible. Without them, this study would not have been possible. I will always be indebted to my partner who constantly encouraged me to keep focused on the end-goal, even though the one sensation throughout the past few years was one of careening down a mountain road in a car without brakes, having no definite notion of what lay ahead and no certainty of success, knowing only that once the frantic descent had commenced, there was no alternative but to continue. Mi do wo sen adie biara in this world. Mi dweni wo ho everyday. Mida si pi. I am very grateful for the funding received from the National Research Foundation. 4 TABLE OF CONTENTS ACRONYMS ............................................................................................................................... 9 1 Introduction...................................................................................................................... 11 1.1 Background ....................................................................................................................... 11 1.2 Motivation of the study ..................................................................................................... 13 1.3 Definition of concepts ....................................................................................................... 15 1.3.1 Industrial Participation .............................................................................................. 16 1.3.2 Poverty ...................................................................................................................... 32 1.3.3 Sustainable Development .......................................................................................... 42 1.3.4 The Reconstruction and Development Programme (RDP) ....................................... 45 1.3.5 The Growth, Employment and Redistribution (GEAR) Strategy ............................. 51 1.3.6 Local Economic Development .................................................................................. 56 1.3.8 Government Procurement ......................................................................................... 62 1.3.9 Corporate Governance and Corporate Social Responsibility .................................... 65 1.3.11 Precious metals beneficiation ................................................................................. 72 1.4 Goals and Objectives of the Study .................................................................................... 74 1.5 The value of the study ....................................................................................................... 75 1.6 Outline of the Study .......................................................................................................... 76 2 The Research Design and Process .................................................................................. 82 2.1 Research Hypothesis ......................................................................................................... 82 2.2 Research Question ............................................................................................................ 83 2.2.1 The Research Plan and Process ................................................................................. 83 2.2.2 Data collection methods ............................................................................................ 86 2.2.3 Designing the key-informant interview .................................................................... 89 2.2.3.2 Focus Group Discussions ....................................................................................... 91 2.2.4 Data Analysis ............................................................................................................ 94 2.3 Limitations ........................................................................................................................ 94 3 The South Africa Situation ............................................................................................. 96 3.1 Introduction ...................................................................................................................... 96 3.2 A brief history of the South African arms industry ........................................................... 96 3.2.1 Pre 1989 .................................................................................................................... 96 3.2.2 1989-1996 ................................................................................................................. 99 3.3 The 1998 arms deal ........................................................................................................ 103 3.3.1 The Defence Review ............................................................................................... 108 3.3.2 The Financial Cost of the Deal ............................................................................... 112 3.4 Industrial Participation .................................................................................................. 123 3.4.1 General background to offsets ................................................................................ 123 3.4.2 The WTO Agreement on Government Procurement .............................................. 124 3.4.3 South Africa’s offsets history ................................................................................. 125 3.4.4 Current South African Industrial Participation ......................................................
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