A 3.9-billion-dollar arms deal between South Africa and several European multinationals has plunged the country into its worst post-apartheid political crisis, with President Thabo Mbeki announcing an inquiry into allegations that the chief investigator of alleged corruption in the deal was an apartheid spy.

An arms deal worth about 3.9 billion U.S. dollars concluded between South Africa and several European multinationals has plunged the country into its worst post-apartheid political crisis.

On Thursday President Thabo Mbeki announced a judicial commission of inquiry into allegations that the chief investigator of alleged corruption in the course of the deal, Bulelani Ngcuka, was an apartheid spy.

Ngcuka is the head of the country’s national prosecuting authority and together with his team, has kept up a feisty investigation into the arms deal. Among others, he is investigating deputy president Jacob Zuma for allegedly requesting a bribe from Thales, the French defence company.

But a fortnight ago, the hunter became the hunted when allegations surfaced in news report that he had been the spy. An article in the South Africa’s City Press suggested that he was getting his back at senior figures in the ruling African National Congress (ANC) who had investigated him in the 1980s.

The degree of infiltration of the ANC by apartheid agents was high in the struggle against apartheid.

“The purpose here is to ensure that this matter is urgently processed and ensure that in a matter of weeks findings can be made so that we do not have a situation in which (the prosecuting) unit finds itself debilitated by these kinds of spy allegations,” said government spokesperson Joel Netshitenzhe when cabinet announced the inquiry.

But apart from the political heat, questions are being raised about the benefits government claimed would flow from the arms deal. South Africa has entered into so-called “counter-trade” agreements with the arms companies where they would provide investment in return for the purchases.

A condom project reported by IPS last year has failed to get off the ground and has not created a single job. The mooted East London factory, bankrolled by Condomie and Ferrostaal – two German companies – was put on ice in April.

Yet government has painted it as a success story, claiming job creation and investment.

The Department of Trade and Industry which with the Department of Defence is responsible for overseeing the counter-trade benefits of South Africa’s hugest arms purchase ever. It highlights the holes in the system which has not yet established water-tight systems of monitoring and compliance.

Previous investigations by the Mail and Guardian newspaper have revealed similar disjunctures between claim and reality. Researcher David Botha of the Institute for Strategic Studies says the arms deal’s off-sets are in fact yielding the promised fruit.

“I am impressed with the results being achieved,” said the researcher, a former Armscor manager. He added, “Here’s a tremendous story and government’s not telling it.”

South Africa paid 3.9 billion U.S. dollars for four corvettes from the German Frigate Consortiums; three submarines from Ferrostaal; 28 Gripen fighters from BAE/SAAB, 24 Hawk jet trainers from BAE and 25 light utility helicopters from Agusta.

In return, it signed off-set contracts valued at 16.6 billion U.S. dollars.

Direct industrial participation (DIP) in the defence industry by winning bidders makes up 2.4 billion U.S. dollars, while indirect participation in the rest of economy comprises the rest. The latter benefits are called national industrial participation (NIP).

Critics say that it will be very difficult for South Africa to pluck the promised fruits as off-set deals around the world often fizzle out. But Botha’s research found that government’s clients had by the end of March met over a quarter (26.5 percent) of their commitments to the defence industry, valued at R3.7 billion (around 507 million U.S. dollars). “Orders have been placed with 38 local companies, and the estimated work content of the contracts placed is 3.6-million man-hours, or an estimated 1677 jobs,” says Botha.

Other benefits are more ephemeral, though as important. The defence industry’s contribution to the economy is negligible but the arms deal has globalised the industry, long a pariah because of its apartheid history.

Says Botha, “In the first place, the industry was visited by large numbers of senior representatives from European industry and defence forces that would not otherwise have been exposed to South Africa.” The Swiss Air Force has, for example, placed a non arms deal related order.

And shareholdings have also been signed, in many cases a lifeline to the local industry which has been weaned of the large subsidies paid by apartheid’s National Party governments for whom the industries were crucial.

While the first part of the offsets have been achieved quite quickly, says Botha, the rest of the contracts are likely to come more slowly. “There is a suspicion that the early successes reflect a tendency to go for the low-hanging fruit, and that it will become progressively more difficult to find acceptable projects as time goes by,” warns the researcher.

Information on the NIPS, the more substantial and difficult part of the off-set package is far more sketchy in Botha’s research and in government’s monitoring. The government’s team had approved 45 projects by the end of March 2003 but not many have moved beyond the drawing board and benefits are still only in the projections phase.

“These projects are expected to generate credits to the value of six billion U.S. dollars over between seven and 11 years. Thus over 40 percent of the total commitment of 14 billion U.S. dollars has already been approved after only three years,” says Botha.

Big projects collated in the research include: a solar panel manufacturing plant in the Western Cape with projected revenues of 20 million U.S. dollars a year; Filk Gold Chains in Cape Town with revenue of about 26 million U.S. dollars a year and which employs 50 people; assistance with agricultural and floricultural exports in the Western Cape have created 1,500 jobs.

But researchers are still divided on whether these investments are additional or would have happened with our without the arms deal.

A beneficiation project with Harmony gold mine in the Free State is projected to raise 37 million U.S. dollars in jewelry sales by April next year.

But as the case of Condomie and other projects show, the road between projections and realisation is long. South Africa’s Professor Paul Dunne in a forthcoming book argues that the projected figure of 65,000 jobs from the arms deal is ambitious and that international research shows that downstream employment creation is in fact limited.

The key weakness in the offset programme is the absence of independent monitoring and detailed accounting of offsets. Neither Botha’s research nor the government have provided details of how off-set credits are calculated.

Watch-dogs like the Trade and Industry committee at parliament do not have the capacity to properly audit the claims, while the Auditor-General Shauket Fakie who had undertaken to monitor the process will only do so when the first “milestone” for offset fulfillment falls due, which is only next year.

For now, the political and other costs of the arms deal outnumber the benefits for South Africa.