INTRODUCTION Defence expresses its appreciation for the opportunity to brief the Joint Budget Committee on the Medium Term Budget Policy Statement. Delegation: Mr Motumi - Acting Secretary for Defence Mr Visser - Chief Director Budget Management Mr Engelbrecht - Director Budgeting

INTRODUCTION (CONT) The Department of Defence continues to render extensive support towards Government’s foreign policy initiatives as it manifest itself in NEPAD, promoting solidarity in the SADC and by contributing to the fulfillment of the United Nations’ aspirations for a better world for all. Defence is also a symbol of peace, security and stability within our borders and elsewhere.

AIM To brief the Joint Budget Committee on Defence’s contribution toward Justice and Protection Services and other topics addressed by the Minister of Finance in his Medium Term Budget Policy Statement.

MINISTER OF FINANCE – MTBPS THEMES Economic participation and 2nd economy Social security, health care and human development Improving capacity of the State International Relations Infrastructure Projects 1. Over and above the themes, the MTBPS directly addresses the following: R 300 million for Peace Support operations which are used to its fullest extent, and The modernisation and improvement of the combat readiness of the Defence Force which will be addressed later during the presentation. Continued reduction of support to SAPS for borderline control are moving ahead and the scheduled completion date is 2009/10. 2. With the above in mind members may benefit from the budget history as presented in the next slide.

BUDGET HISTORY: DEFENCE BUDGET ALLOCATION (Rb) FY Final Allocation GDP % (incl SDP) % Gov exp (incl SDP) Incl SDP Excl SDP 94/95 10,907 2.5% 7.5% 95/96 10,535 2.2% 6.7% 96/97 10,246 1.9% 5.9% 97/98 9,579 1.6% 5.0% 98/99 9,721 1.5% 4.8% 99/00 10,405 00/01 13,910 01/02 16,053 13,154 6.1% 02/03 18,414 14,191 1.7% 6.3% 03/04 20,050 13,574 6.0% 04/05 20,257 13,600 5.6% 05/06 22,459 15,888 5.7% 06/07 22,588 17,418 07/08 22,152 18,669 This slide reflects the budget allocation to the Department of Defence since the beginning of the new democracy. The numbers speak for themselves. Three elements are worth mentioning The figures shows a steady increase in nominal terms (but decline in real terms) when the funding of the Strategic Procurement Programme is taken into consideration. The budget allocation for the current and future years remains around 1.5% of GDP but may be impacted on by the final allocation. This % may however decline as we see a growth in GDP and a reduced defence baseline allocation once the SDP is completed. This 1.5% is also well within the recommended limits of 2% for developing countries. Finally the Defence budget represents 5.7% of total government expenditure which is also well within the recommended maximum norm of 6%.

Minister of Defence’s Policy Priorities – 2006 MTEF Strategic Airlift Capability Operational Vehicle Fleet serviceability Enhanced Intelligence Capability Military Skills Development System Information and Communication Systems Defence Infrastructure Expanded Anti Retroviral Roll-out Other Armscor Value Added Tax Strategic Defence Procurement Programme (RoE adjustment) Strategic airlift capability is currently under discussion between the MoF and the MoD. This presents a specific challenge in that Defence did not receive additional funding for the acquisition of this capability. Should Defence be forced to fund this acquisition programme from its current allocation, a number of existing projects will either have to be cancelled or moved to the right. This will have a negative impact on the already troubled defence related industry and Denel. Readiness and serviceability of operational vehicles. The under funding of vehicles especially in the landward programme this has resulted in low levels of readiness and availability of these vehicles. To rejuvenate the needed vehicles in terms of the present force design the funding requirement is Rm495. However the critical requirement for operational vehicles in support of the African agenda equals Rm150. This amount will be enough to focus on the maintenance and repair of the vehicles currently used in operations and does not address the total fleet. Intelligence collection capabilities. Funding this proposal will support cluster priorities, significantly improve the quality and quantity of intelligence, enhance the technology capability of South Africa thereby contributing towards accelerated growth and development. This is an integral part of Government’s Programme of Action. The primary focus is to improve service delivery to peace support operations, updating outdated border control technology and enhance control at sea and air ports of entry. MILITARY SKILLS DEVELOPMENT SYSTEM (MSDS). In terms of HR Strategy 2010 and the consolidation of the Africa agenda, Defence’s HR profile must be rejuvenated by young soldiers of the right age and health profile. This requirement is in direct support of Government’s employment initiatives and defence’s “one force concept” as it serves as the feeder system for the Reserve Force component. This investment will finance a 3000 intake in 2006/07 of which 1500 will be integrated into the regular force. For 2007/08 and 2008/09 it will finance a 3000 annual intake of which 2000 will be integrated into the regular force and 1000 in the reserve force. Information communication systems renewal. The renewal of information communication systems is essential in amongst others improving the provision of management information and compliance with government’s reporting requirements. Non-compliance will result in qualified audit reports. The non-funding of this proposal will result in the collapse of defence’s resource management systems with a negative effect on accountability. INFRASTRUCTURE. The infrastructure of defence, like the rest of government is in a poor state and requires funding. Over the last 3 years defence has spent on average Rm 82 per annum on repair and maintenance. This amount will be increased to Rm118 (05/06), Rm134 (06/07), Rm671 (07/08) and Rm508 (08/09). This requirement is to supplement the existing allocation to ensure compliance with occupation health and safety act requirements and provide a work environment conducive to productivity while providing quality service. ARV ROLL-OUT. Defence is in support of government’s initiatives to treat patients with anti retroviral drugs. As part of the research programme and limited rollout of the arv treatment, project phidisa, a sponsorship was received from the USA. However, the present sponsorship does not provide for the increased patient load and further rollout of this programme. Therefore the department is in urgent need of funds to rollout this programme to the projected patient load within the department. The issuing of arv medication is in line with the policies as prescribed by the department of health. All military hospitals and selected sickbays are in the process of accreditation. OTHER. Other issues that will effect Defence’s budget allocation over the MTEF period is the additional allocation to finance Armscor VAT needs to comply with the revised VAT Legislation and the annual rate of exchange adjustments on the Strategic Defence Package.

Defence Budget Allocation (2005 Letter of Allocation)   2002 2003 2004 2005 (a) 2006 2007 2008 1. Administration 467,150 548,823 616,894 681,398 723405 751835 785,482 2. Landward Defence 3,402,517 3,262,795 3,363,097 3,575,144 3882791 4152296 4,309,605 3. Air Defence 2,086,904 2,173,638 2,239,940 2,395,243 2511618 2650266 2,816,781 4. Maritime Defence 981,805 1,064,166 1,097,461 1,211,774 1316772 1391197 1,426,246 5. Military Health Support 1,235,152 1,268,220 1,316,781 1,517,578 1669029 1780040 1,905,200 6. Defence Intelligence 132,258 144,166 135,743 148,786 146236 153877 172,498 7. Joint Support 1,975,975 2,087,328 2,354,730 2,490,426 2661445 3062909 3,301,818 8. Force Employment 746,322 1,232,480 1,242,174 1,363,706 1414877 1468556 1,559,419 9. Special Defence Account 7,807,718 8,018,388 7,045,000 9,075,379 8261531 6741292 6,197,207 18,835,801 19,800,004 19,411,820 22,459,434 22,587,704 22,152,268 22,474,256 The figures above reflects the current allocation to Defence in terms of the Letter of Allocation received as part of the 2005 ENE. The outcome of the MinComBud and JBC deliberations will impact on the final allocation. The adjustments tabled for 2005/06 as reflected in the Adjustments Appropriation Bill are reflected in the next slide.

ADJUSTMENT APPROPRIATION BILL (05/06) Requirements Armscor VAT – Rm44 Peace Support – Cotê d’Ivoire – Rm21 Strategic Airlift Capability - Rm788 Total – Rm 853 TC Recommended to Cabinet Self Financing Revenue – GDA – Rm23,6 Revenue – SDA- Rm121,7 Baseline Adjustment – Rm211 The amount of Rm21 was recommended by the Treasury Committee to Cabinet. The adjusted appropriation reflects the additional funds to be received, revenue generated added to Defence’s baseline and the reallocation of funds between programmes. Defence’s baseline for 2005/06 is increased with Rm211.

Defence supports Government Defence Policy Proposals Economy Social Security Capacity Inter-national Infra-structure 1 Equipment Modernisation Direct Indirect 2 Military Skills Development System 3 Information and Communication Systems 4 Def Infrastructure 5 Anti-Retroviral roll-out Defence’s primary object as per the Constitution is to defend and protect the Republic, its territorial integrity and its people in accordance with the Constitution and the principles of international law regulating the use of force. It is therefore not always possible to linked Defence’s policy priorities directly to Government themes. The department’s policy priorities and the way in which they support Government themes are reflected in this slide. Economic participation and the 2nd Econ. Mobility Exit Mechanism allows skilled personnel to become involved in private practices and in so doing create jobs. The MSDS creates work for an additional 2000 people annually, thereby increasing the buying power of the second economy. Social Security and Health Care. A comprehensive health service is rendered to a patient population of approximately 223,237 (69,000 members and their dependants) Capacity building manifest itself in Defence’s assistance with the development of the IFMS and specifically the Logistic Management Component thereof. International Relations DRC – 1,341 Burundi – 1,287 Liberia – 4 Sudan – 256 Ethiopie/Eritria, Comoros and Rwanda – 34 mil observers. The DOD is providing various training opportunities to an average of 80 foreign military students per annum while at the same time uses on average 50 foreign learning opportunities provided to SANDF students per annum. Infrastructure Increased M & R of infrastructure creates opportunities for small SMME Rm98, Rm145 and Rm351 for 05/06, 06/07 and 08/09 Defence is currently involved in land restitution in the Wallmansthal area to the benefit of the people. Capital expenditure plans for infrastructure amounts to Rm70, Rm74 and Rm78 for 05/06, 06/07 and 08/09. It is trusted that this very short brief will assist members in making the necessary decisions regarding the in-year Adjustments Appropriation Bill and financial determinations for the 2006 MTEF allocations.

DISCUSSIONS