Offsets in practice: The experience of South Africa

Abstract

Numerous countries require that defense manufacturers commit to substantial offsets when defense materiel is purchased. However, there is extremely limited data regarding the economic efficacy or rationality of offsets. Recent disclosures related to South Africa’s controversial 1999 “Arms Deal” about the economic performance of its sizeable offset obligations provides solid evidence that the manipulation of offset scoring systems allowed defense manufacturers to invest far less than originally contracted. The South African experience indicates that there are likely to be structural features inherent in all civilian offsets flowing from defense contracts that exert a downward pressure on the actual economic investments delivered by defense manufacturers.