Publication: Business Day Issued: Date: 2007-02-22 Reporter: Jonathan Katzenellenbogen

Defence to Gobble an Extra R3,5bn

 

Publication 

Business Day
Date 2007-02-22

Reporter

 Jonathan Katzenellenbogen

Web Link

www.businessday.co.za

 

An extra R3,5bn over the next three years, mostly to pay for SA’s order of eight new-generation Airbus strategic air transporters, the A400M, is the main reason behind the faster-than-planned rise in the defence budget.

In the next fiscal year the treasury plans to spend R26bn on defence, an 8,6% increase on the current year, which will amount to about 4,8% of allocated spending.

Over the three fiscal years to the end of the current one, defence spending rose by an average of 5,2% a year. However, the next three years will see an annual average rise of 6,2% in spending. The total cost of SA’s A400M project will be R15,34bn *1, according to the treasury. This makes it more expensive than any of the individual arms deals since 1994 ­ except that for the Gripen fighters. Spending on the A400M fleet will peak in the 2012-13 fiscal year and come to an end in the 2014-2015 fiscal year.

The eight A400Ms that SA will acquire by about 2015 will more than double the air force’s airlift capacity, allowing the country to play a potentially large role in the transport of troops and equipment of the planned southern brigade of the African Standby Force *2.

The weakening exchange rate has also pushed up the total cost of the controversial multibillion rand arms deal from a projected cost of R44,8bn this fiscal year to R47,48bn *3 next year.

For the first time the treasury has given a detailed breakdown of the cost of the weapons systems that make up the controversial multibillion rand arms deal.

According to data provided in the treasury’s estimates of national expenditure, the cost of SA’s four frigates will total R9,65bn.

Three submarines cost R8,1bn, 30 Agusta utility helicopters R2,39bn, the 26 Gripen fighters R20bn, and the 24 Hawk fighter trainers R7,2bn.

With acknowledgements to Jonathan Katzenellenbogen and Business Day.


*1       For eight aircraft! Do we really need eight airlifters at R2 billion a pop.

Or have the Germans added on 50% markup for useful expenditures?


*2      What are we going to airlift, where?

Southern Brigade of the African Standby Force.

Sounds good - it will surely be needed when things really turn bad north of the Limpopo (not that they aren't bad enough already).


*3      Using a simplistic approach, the increase amounts to 57%. If the same increase was applied to the corvette acquisition price, then this would have increased from R6,873 billion to R10, 79 billion.

However, the initial applicable exchange rates were R6,25 = US$1,00 and R6,40 = Euro1,00. Current exchange rates are R7,07 = US$1,00 and R9,32 = Euro1,00.


*4      For the corvettes, major payments were made between April 2000 and December 2001 when the exchange rates went to R13,80 = US$1,00.

The actual corvette acquisition price in 2007 Rands is more likely to be between R12 billion and R13 billion, that's R3,00 billion to R3,25 billion each.

The country is buying a 5th corvette. The price will be between R3,0 billion and R4,0 billion in 2007 Rands.