The Defence Offsets and Economic Development in the Eastern Cape Abstract

Leslie Bank, Stephen Hosking and Richard Haines University of Port Elizabeth

Offsets or industrial participation have become an increasingly important part of arms procurement, with the promise of economic benefits often being an important justification of spending large amounts of public funds. These benefits are, however, open to question and the limited but growing research on the subject does tend to cast doubt on the net value of defence offsets to national economies. An important aspect of any offset agreement is its impact on industrial and economic development at sub-national level, but this has often been largely neglected in the literature. This paper contributes to the continuing debate by undertaking a case study of the South African experience, focussing on the Eastern Cape. Particular attention is paid to the deployment and impact of the offsets within two IDZs (Industrial Development Zones) in the Fish River SDI (Spatial Development Initiative) and the implications for the development path of the Eastern Cape province. The study finds that, while not wholly without merit in attracting and focussing investment, industrial participation schemes can deform efforts at more integrated development at sub national levels and further fragment the terrain for industrial policy conceptualisation. As a result they seem to offer little that might challenge the existing inequalities in South Africa's space economy. Overall, the paper finds that, while the scheme is still in its early stages, its present and future impact at national and local levels is likely to be more problematic than is often recognised.