By Dexter Jerome Smith.

The promised pay-back to more than offset Pretoria's seemingly excessive purchase of the most advanced jet fighter force in Africa has begun to be totted up. The acquisition of 28 Gripen new-generation multirole fighters plus an unspecified number of Hawk advanced fighter trainers was announced last November, but a final accounting for the deal is only just emerging.

The unveiling of a key element of the pay-back - a technology transfer deal between British Aerospace and Denel, South Africa's principal arms manufacturer - was held back to provide the icing on the cake for UK Prime Minister Tony Blair's visit to South African President Nelson Mandela in January.

The value of the Gripen/Hawk purchase has still not been disclosed, partly because the number of Hawks required has not been settled. But with Gripens costing about £15m a piece and Hawks about £8-10m, depending on whether they are just for training or also for counter-insurgency ground attack operations, the cost could be around the £500m mark.

What is known is that British Aerospace (BAe) offered an offset of more than 200% on the purchase, and at least one quarter of that pay-back will be aimed at providing work for South Africa's non-defence industry, including investment in government social uplift programmes.

It now seems that the first fruit of the BAe-Denel tech transfer/co-operation deal is a joint bid of Denel's Rooivalk attack helicopter to the Australian Army, primed by BAe's subsidiary British Aerospace Australia, one of the largest defence sector employers there. Denel has only ever succeeded in exporting a dozen Rooivalks - these to Malaysia. BAe does not manufacture helicopters but it has relevant experience of avionics and stealth integration - as well as development of mission system software - on Eurocopter's Tiger, the European new-generation attack helicopter.

In the run-up to the South African Air Force's selection of Gripens and Hawks, Saab-BAe Aerospace, the joint venture company responsible for exports of the Swedish designed Gripen fighter, made a crucial announcement at the Farnborough International Air Show in September: Denel had been selected to supply all Gripen's NATO standard specification pylons used to hang stores under the aircraft's wings. These would not only go on future Gripens for export but would be retrofitted onto those already in use by Gripen's lead-customer, the Swedish Air Force. This, plus South Africa's selection of Gripen and the BAe tech transfer deal, opens the way to Denel putting its new A-Darter air-to-air missile on Gripen and it is being offered as an option on subsequent Gripen exports.

Denel's A-Darter is an agile `fourth generation' missile. That is to say it uses the latest intelligent computer flight controls to perform tight dog-fighting turns to lock onto its target. Gripen uses the same technology, and is the first (and only) `fourth generation' agile fighter in service today.

Another piece of the deal-making jigsaw fell into place when the Swedish Air Force agreed to let the 28 Gripens for South Africa come out of its third batch order. This pushes a significant part of their cost past the previous 2007 date for the completion of that batch, easing current Swedish defence budget problems, and allowing the South Africans to buy the planes at rather less than their normal £20m per copy price tag.

It is in this context that Saab's Chief Executive, Bengt Halse, welcomed the South African Air Force purchase, saying, "It is my understanding that this is the most comprehensive single trade and investment package ever proposed to South Africa coupled with the provision of an appropriate and cost-effective defence solution". Certainly both Saab and BAe are now committed to investing in both defence and non-defence industry in South Africa over the long term.

Saab, and its parent Wallenberg Group, have a particularly broader capability to invest in non-defence industry in South Africa, including in respect of Saab cars, Scania trucks, and Electrolux white goods. The Electrolux investment card was crucially played by the Wallenberg Group in Hungary in 1995 to win a commitment there to buy Gripens. Electrolux refrigerators now account for 5% of Hungary's industrial exports. But Hungary's commitment has still to be converted into a firm order.

As for BAe, it has deep pockets and the company has shown itself to be willing to take investment stakes in partner companies. It actually has a 35% share stake in the Saab Aerospace Group. A shareholding in Denel could be possible, particularly if Australia buys the Rooivalk. However, BAe sold its auto interests to BMW in 1994, which used to include the Rosslyn-based Land Rover South Africa plant. Its other non-defence interests are principally in civil aviation, mainly in its shareholding in Airbus.

It is thus with South Africa's defence industry that most of BAe's offset work is likely to be concentrated. BAe has already selected the Midrand-based company AMS to provide engine Health and Usage Monitoring (HUMS) Systems for Hawk jets recently sold to Australia and Canada. AMS will doubtless have worked on the South African Hawks and other future Hawk sales. Last year BAe bought a 20% stake in another Midrand company, Advanced Technologies and Engineering (ATE), who do systems integration work on the Rooivalk as well as other aircraft.

Perhaps the clearest signalling of BAe's intentions is its recent move to establish British Aerospace South Africa as a registered Pty company under the chairmanship of long-time ANC party boss Dr Diliza Mji. BAe has already demonstrated its willingness to put money into South Africa's social uplift programmes, including into the building of a new sports complex in Uitenhage - an area of high unemployment - as well as in a programme to spread the use of telemedicine to help remote areas, and a programme to provide artisan and business skills training to demobilised veterans of the South African armed forces.