Economic Impact of the Arms Deal

We now know that the Arms Deal cost R60-R70 billion including bank financing costs. This is almost double what we were told at the time. It affected the economy, both directly and indirectly, in profound ways. The 1999 (secret) Affordability Report provided a prediction of the deal’s potentially devastating economic impact:

Affordability Report

In August 1999, soon after the deal was done, Cabinet received the report of a team of experts on its potential economic impact. The document was classified and has remained so for nearly 15 years, although it is unclear what national security threat it posed.

This Affordability Report indicated that the Arms Deal presented serious risks. One key risk involved its possible impact on interest rates, which could massively inflate the deal’s cost. Another risk was that that the planned offsets – promises on the part of Arms Deal companies to invest in the country – would not have the desired impact, or indeed materialise at all.

An analysis of the largest offset proposals (three different types of steel and metal processing mills) was attached. It indicated that there was significant commercial risk that two of the projects would not transpire. This concern was warranted. In the end, none of the proposed mega projects came to anything.

The report’s financial models further indicated that if either the rate change or offset risks went the wrong way, the impact on the economy overall would be severe. In the worst case scenario, if both negatives occurred, over 100 000 jobs could be lost.

In the best case scenario, the report advised that the Arms Deal would create just 1000 jobs – far short of the 65 000 jobs that were promised by Cabinet when the Deal was announced, and a fraction of what could have been created if the money was spent elsewhere.

Critics have long argued that this Report indicates that the Arms Deal was irrational, as it could have massively dented the economic well-being of the country.

  • Read the recently declassified Affordability Report HERE.