Plan and Budget for Financial Year 2003/2004

Finally, Mr Jankielsohn noted that the "Options Recommended by the National Treasury" indicates that only 50% of the funds requested would be allocated. How would this then reflect the Department's planning in these areas? Furthermore, the reserve forces it seemed would continue to suffer should Funding Option 3 be adopted.

Brig Gen Dries de Wit, Director: Human Resource Planning, responded that this was being addressed via the HR 2010 initiative and would be introduced in January 2003 as a two year system. Funding Option 2 allocated more funds for the recruitment of 3000 personnel, but if the Department were to be allocated approximately half of the projected R60m it would be able to increase its intake. Thus even the addition of 2200 personnel would be welcomed by the Department, as "new blood" would be used to address "the ageing problem".

R Adm Rolf Hauter, Chief Director: Strategy and Planning, replied to Mr Jankielsohn's concern regarding the reserve forces by stating that the total amount available for direct investment into the reserve forces had decreased by approximately R30m, but approximately R146m had been dedicated to reserve force wages and allowances for redeployment in the current year, and excluded funds for training purposes. After the work session hosted in Saldanha Bay in early 2002 Project Phoenix was established to look specifically at the reorganisation of the SANDF, and on 15 and 16 November this year a follow-up Indaba would be held so that "visible plans" could be presented. The reorganisation of the reserve force would be linked to the military skills development project.

Mr N Diale (ANC) stated that the Department of Foreign Affairs had requested forces to be deployed, yet instead of deploying these forces could the African Union not be approached to implement African Peer Review as a means of addressing the issue.

R Adm Hauter responded that the reason for deploying forces was that the promotion of security was a critical aspect needed to establish South Africa in SADC. There was however a very easy mechanism to prevent this from occurring, in the form of the appointment of military attachés, as their role would be critical. The Peer Review System was not directly applicable to the Department, as it properly lies in the political environment.

Mr Ntuli stated that the budget did not make provision for any reserve force skills development programmes, and this was also related to the concern regarding available resources.

R Adm Hauter replied that it acknowledged members of the reserve force council, but this did not mean that the solution "was around the corner".

Mr H Schmidt (DP) stated that the HR 2010 initiative was a vital document and the aim was to recruit 6000 additional members, yet the presentation indicates that only 3000 had now been requested. Brig Gen de Wit then stated that the Department would be happy with just 2200 additional personnel, yet the media reported that HR2010 required 70 000 to be employed. Clarity was sought on this matter.

Mr Masilela replied that these figures had yet to be finalised.

Secondly, Mr Schmidt stated that the presentation states that the aim was to increase the Department's contribution to 1,8% of the GDP, and clarity was needed as to what precisely the budget of the Department would look like to reflect 1,8% of the GDP.

Mr Gründling said that the second last column on the the budgetary projections per programme from 1994 to 2006 provides the total budget for each of those financial years, and it indicated that over the next four years government funding of strategic packages would decline to the point where there would be no more funds to acquire packages in future. The projected figure is R2b on that amount to achieve the desired 1,8%, and R19b in 2004.

R Adm Verster added that that it was also indicated that the 2005 figure would be R21b, and it would then drop to R8m, R6,4m, R4,8m, R3,7m, R1,3m, R1,2m, R1,2m and then finally to 0 in 2011.

The Chair stated that the Department had contended that a programme had been devised to upgrade certain military tanks that were in surplus, how much would such operations cost? Had the Department devised any plans to dispose of these assets, and are they disposable at all?

R Adm Verster said that this operation would be carried out over the next few years until 2006 at a total cost of R185m, and these were primarily low-key upgrades from 1A to 1B, would be done in one regiment only and deal largely with upgrading the cooling system, tracks, gun sights etc. The R185m would be rolled out over a period of time, whereas a single fighter aircraft costs no less than R800m, and this clearly indicated how reasonably inexpensive this upgrade operation is. Thus no new tank replacement was envisaged.

Mr Gründling added that SCOPA had taken the Department "severely to task" regarding redundant equipment and because it did not give periodic reports, but the Committee could be supplied with a consolidated version of the three reports presented. There were two categories of equipment. The first dealst with equipment purchased via the SDA, and when these assets were disposed of the funds return to that account. The second dealt with equipment purchased via the general defence account, in which case the funds arising from the disposal of those assets would be returned to the NRF.

The Department had put its argument forward to Treasury that it would be an incentive to the Department should the funds from the liquidation of assets from the general defence account be returned to the Department as well. Yet the Department did not have the necessary capacity to dispose of the stock, and a business plan could be used to appoint a body to act as an agent here. The disposal of the tanks had not yet been fully discussed and the Department was currently engaged in identifying those weapons systems that had become redundant and how many, if any, would be sold off as scrap metal.

The Chair asked whether the Department planned to sell off its old submarines.

Mr Gründling answered in the affirmative and stated that they were still in service, and the contract would be awarded to the offer of the best price. There were sentiments for the purpose to which the asset will be used once sold. The primary concern was to get the best price, and the asset could even become a display in a museum or used to make razor blades, as was the recent practice.

Mr Schmidt stated that the media had reported that the Department planned to buy thirty additional helicopters, but why would the Department then decide to sell the Oryx helicopters and buy new ones if there was nothing wrong with the Oryx helicopters?

Mr Gründling replied that he was not the right person to answer this question but stated that the Puma helicopters and the first batch of Oryx helicopters were now available for sale, because when the Department had planned to purchase thirty Augustus Italian light utility helicopters. The Oryx helicopters were bought from France, but Mr Gründling stated that he was not certain whether the Department was currently operating both the Oryx and Alliettes helicopters. The Department was currently re-evaluating its present capacity to replace these two helicopters with the thirty new helicopters.

R Adm Hauter added that these thirty would replace the Alliettes. The Oryx fleet consisted of approximately forty helicopters, and the Department requested that it be allowed to sell the balance of ten so that it could effect a mid-life upgrade for those helicopters.

Mr Jankielson referred to the R8,8b spent on the SDA on the aspect entitled "Allocation per Sub-Programme" dealing with the SDA, and sought clarity on what precisely was meant by the "Intelligence Related" category.

R Adm Verster replied that the SDA consisted of two things: capacity and operations. Capacity concerns related to the purchase of weapons systems and technological acquisitions, whereas operations deals with the spare parts that were needed, and this would include "Procurement Services" listed on Maintenance and "Operating Services" would however form part of the running part of the SDA, and included support services for maintenance.

"Intelligence Related" essentially dealt with light security projects that did not form part of the Department's capital expenditure, and were largely sensitive projects. With regard to the "Strategic Defence Procurement" this referred to, R5,5b to R6b was allocated to the army, and the navy received R1,5b.

The Chair asked whether it would be possible for Members to receive a comprehensive account of new equipment acquired for the air force and what type of equipment was needed, so that when the 2003 budget came up Members would know exactly what the needs and challenges are. This would allow the Committee to rationalise the figures. All this would probably be contained in the service-by-service report to be submitted in early 2003.

Mr Schmidt contended that there was a link between "Procurement Services" with the SDA, which currently stood at R1b, and NCACC sales of approximately R1,8b. There seemed to be a link between what NCACC authorised for sale and whether these proceeds would then be returned to the SDA account. Furthermore, the Department was "out of the loop" with products being offered internationally, and perhaps DENEL should be requested to address this Committee on their influence in the market, the latest developments in the market and how the new products would impact the budget.

Mr Gründling replied that provision was made for the revenue from the sale of weapons but the actual amounts were difficult to predict, and as soon as the funds were actually received, the PFMA did not allow the Department to obtain these directly. This was due to the fact that the SDA was not created as a means for all income to be paid in as revenue and at the moment it was first received as revenue and then, with the adjustment budget, it was then given back to the Department via an act of Parliament. The PFMA would probably be amended in 2003 to allow such funds to be returned to the Department.

Mr Jankielsohn suggested that the Department had to submit all its proposals to this Committee for inclusion in the budget, and if these were not presented they would not be allocated funding in the budget.

The Chair stated that she agreed completely with this proposal and it helped when the Department informed this Committee of its spending objectives, because this made matters clear and no problems were created. It also made it clear "to what extent [the Committee] would be able to fiddle" so that it could begin to lobby for the 2004/2005 budget. The Department also had to provide Members with a comprehensive inventory list and management estimates. Members have also raised concern over the wartime helicopters, the Department's plans to introduce 3000 personnel to address the current needs in this area, and in this regard 2500 would probably be a better estimate. Members also requested a report on the current status of the Service Corps, and the need was recognised to recruit young officers in the Service Corps so that the Department could plan ahead.

The Chair stated that she was trying to arrange a meeting with the Department of Public Works and DENEL to discuss these matters further, and to address the deteriorating relationship with BMAT.

Mr Masilela stated that the formal decision would be tendered at the end of March 2003, and a Memorandum of Understanding has been concluded with the British government.

The Chair proposed that the Department address this Committee on all its interests in the United Kingdom before 31 March 2003.

The meeting was adjourned.

Appendix 1
The Director General
National Treasury

(Attention: Mr C.J. Haak)

DEPARTMENT OF DEFENCE (DOD): 2003 BUDGET SUBMISSION
Reference A: National Treasury Guidelines on compiling the 2003 Budget
B: National Treasury letter M.3/15/7 (2878/02) dated 14 July 2002 about the migration from the 1800 MHz frequency band by the DOD and SAPS.

Appendix A: Baseline Medium Term Allocation.
B: Programme Expenditure Trends and 1^st Quarter Report.
C: Reprioritisation within Baseline.
D: Options.
E: Departmental Receipts.
F: Public Entities Reporting to the Minister.
G: Schedules of Spending Data.


DEFENCE BUDGET SUBMISSION
1. Attached as Appendices A to G is the budget submission of Defence for the period 2003/04 to 2005/06 as requested.

INTRODUCTION
2. Defence continues its endeavour to deliver the required level of defence to the citizens of South Africa within budgetary constraints. The challenge to satisfy increasing demands for defence services within the medium term allocation is growing. See Appendix A for the Defence Baseline Medium Term Allocation.

3. Changes in defence priorities and the related impact on force design and structure are currently being investigated. The emergent strategic decisions will be incorporated in the 2004/05 financial year programme budget. Consequently the key objectives, outputs and priorities remain largely as expressed in the department's strategic plan for the period 2002/03 to 2004/05. The programme expenditure trends and 1^st quarter report are available in Appendix B.

4. Until the above mentioned strategic decisions are implemented, existing commitments and obligations leave minimal flexibility to reprioritise within the current programme budget.

KEY STRATEGIC OBJECTIVES AND OUTPUTS
5. The department's strategic objectives and outputs remain as expressed in chapters 2 and 3 of the Department of Defence Strategic Plan for Financial Years 2002/03 to 2004/05. The same applies with regard to the main programmes of the department.

PROPOSED CHANGES TO THE DEPARTMENT'S 2002 - 2004 STRATEGIC PLAN
6. The only changes to the department's 2002 - 2004 strategic plan since tabled in Parliament by the Minister of Defence and since the Minister of Finance has tabled the 2002 annual budget in Parliament, are the following:

a. Due to financial and other constraints Defence is no longer capable of deploying the required number of companies for borderline control and support to the SA Police Service (SAPS). From an anticipated deployment of nineteen Regular Force Companies and twenty-three Reserve Force Platoons, Defence is only able to deploy nine Regular Force Companies and ten Reserve Force Platoons.

b. The department will gradually proceed with its intention to withdraw its forces from internal deployments in support to the SAPS over a six-year period.

c. External SANDF deployments in support of South Africa's foreign policy objectives are increasing rapidly. These deployments require specific mission essential equipment and training that will require additional resource allocation over the medium term.

PROPOSED CHANGES TO PROGRAMME AIMS, STRATEGIC OBJECTIVES AND OUTPUTS
7. There are no proposed changes to main programme aims, strategic objectives or outputs other than those indicated in paragraphs 3 and 6 above.


8. The Minister of Defence has ordered a review of the defence force design and structure. These investigations will be completed by 31 March 2003 and its results will have a major effect on the defence programmes, objectives and outputs.

POLICY OPTIONS

9. Other than the envisaged withdrawal from standing internal deployment commitments no other major policy options are under consideration. The revision of the force design and structure will raise related policy options which will be submitted for consideration in due course.

REPRIORITISATION WITHIN BASELINE

10. Reprioritisation within baseline is addressed in Appendix C to this submission. Other reprioritization will only occur on grounds of the strategic decisions to be made on force design and structure.

ADDITION OF SPENDING PLANS FOR THE THIRD YEAR OF THE NEW MEDIUM-TERM PERIOD

11. Due to the size and organisational levels of Defence, budget guidelines for the preparation of the 2003/04 to 2005/06 budget submission were already issued on the 1^st of October 2001 to all the top level budget holders within the department. These guidelines included provisional allocations for the third year of the new medium-term period and were based on the following:

a. Internal funding priorities of the department.

b. The normal armament acquisition programme of the department.

c. Expected inflation and exchange rate fluctuations, which influence different areas of defence business.

12. These provisional allocations were revised on receipt of the "National Treasury Guidelines on Preparing the 2003 Budget Submission" by the end of May 2002.


OTHER ISSUES

13. Overall Defence Budget Allocation. Presently Defence receives a budget allocation of R 18,414 billion. It is intended that this allocation will rise to approximately R 21,015 billion by the financial year 2005/06. Such a level of defence expenditure represents about 1,6% of Gross Domestic Product (GDP). This level of defence expenditure is, however, based on the strategic armaments procurement programme and is set to drop to about 1% of GDP as the strategic armaments procurement programme reaches completion. Unfortunately the present strategic armaments procurement programme does not address the armament renewal requirements of the SA Army at all. As a matter of principle, to satisfy the armament renewal requirements of the SA Army and to increase the funds available for mission essential training Defence is of the opinion that a defence budget of 1,6% to 1,8% of GDP is a more reliable reflection of what South Africa should be spending on defence in the light of this country's leading role in NEPAD. This must be seen in the context of the ever increasing involvement of Defence in support of South Africa's foreign policy and its commitments to the African Union. The National Treasury is thus requested to consider, in the medium to long term, the allocation of a stable defence budget of between 1,6% and 1,8% of GDP and to give some certainty to Defence in this regard so that its armament acquisition programme, which requires a ten to thirty year planning window, can be properly planned and provided for.

14. Inflation and Exchange Rate Fluctuations. The National Treasury is requested to note that Defence has a very serious problem with the effect that inflation and exchange rate fluctuations has on the defence budget.

a. Exchange Rate Fluctuations. Currently more than a third of the defence budget is being spent on the acquisition of armaments. Although the department is grateful for the way in which the National Treasury considers and deals with the effect of exchange rate fluctuations on the acquisition of the strategic defence packages the same principles should also be applied to the normal armament acquisition programme of the department. Most of the normal armament acquisition of the department also takes place in foreign currency and is also subject to longer than normal contracting periods. The National Treasury in deciding on the size of the defence budget allocation does however, not consider these factors. The only way in which such exchange rate fluctuations can presently be absorbed is at the cost of current activities with a related decline in output.

b. Inflation Rate. Defence, in the execution of its business, is unfortunately dependent on goods and services, which experience some of the highest individual inflation rates in the South African economy such as rations (food), fuel, medicine, services etc. Since 1999 the inflation rate for medical care and health expenses is on average about 10% more than the overall inflation rate while the inflation rate for professional and specialist services is on average about 5% higher than the overall inflation rate. The effect of such inflation rates is evident for Defence which intends spending the following amounts on these goods and services during the financial year 2003/04:

i. Rations R 159 million.

ii. Fuel R 207 million.

iii. Medical Care R 183 million.

iv. Services R 9 939 million.

Defence is grateful for the way in which the National Treasury has considered this issue during the previous budget cycle and requests similar relief in the medium term.

15. Defence Infrastructure. At the moment Defence is required to budget only for the capital works part of its infrastructure. The remainder of the infrastructure budget such as planned and major maintenance remains on the Budget Vote of the Department of Public Works (DPW). Defence is, however, seriously concerned about the unacceptable state of disrepair of some of the infrastructure that defence divisions, formations and units have to occupy. The Defence Programme Officer at the National Treasury is consequently requested to liaise very closely with his National Treasury counterpart in this regard and to be involved in making recommendations if this issue is considered as an option for additional funding in the budget submission of the DPW.

16. Continued Deployment in the Democratic Republic of the Congo (DRC) : Operation MONUC II. Defence has been allocated sufficient funds to enable deployment of current force levels in the DRC until the end of the financial year 2003/04. The anticipated extension of the deployment at current force levels until the end of the financial year 2004/05 will require an additional R 48,5 million.

17. Continued Deployment in Burundi : Operation FIBRE. Defence has been allocated sufficient funds to enable deployment of current force levels in Burundi until the end of November 2002. It is estimated that if such a level of deployment has to be continued during the financial year 2003/04 it will amount to approximately R 326 million.

18. Function Shifts. The National Treasury is requested to note that the following internal function shifts within Defence are currently being considered and will most probably take place during 2002. This will effect the current internal allocation of funds for the medium term within the main and sub-programmes. It is intended to shift the funds associated with these functions by not later than November 2002 to correctly reflect the funding situation within the Estimate of National Expenditure. The intended function shifts are:

a. Establishment of a National War College under the command and control of the Chief of Joint Training. The National War College will be established from the SA Army College, the SA Air Force College, The SA Navy College and the SAMHS Academy.

b. The centralisation of the procurement function and centres under the command and control of the Chief of Acquisition.

c. The movement of the Personnel Services School from the command and control of Joint Training to that of the Human Resource Support Centre.

d. The movement of the Wonderboom General Support Base from the command and control of the Chief of Command and Management Information to that of the Chief of Logistics.

e. The movement of the productivity improvement function from the command and control of the Inspector General to that of the Chief of Policy and Planning.

f. The establishment of an Anti-Fraud Agency under the command and control of the Inspector General.

19. Cluster Priorities. Defence would like to indicate that the present budget submission does not make provision and will not be able to make provision for any additional activities and/or tasks which may arise from cluster priorities or government initiatives. Increased external deployments of the SANDF fall in this category. Costs do not only entail those caused by the deployment, but also resources required for increased mission essential training.

20. Logistic Information and Management Systems. The National Treasury is also requested to take note that the current logistic information and management systems within Defence are not able to fully support the emergent financial reporting requirements and accounting standards, particularly with regard to asset management. In the medium term there are not sufficient funds within the defence budget to enable the upgrade of the current systems to support these principles. If need be the department will have to be funded additionally for this purpose or some defence capabilities will have to be closed to make funds available for this purpose.

21. Migration from the 1800 MHz Frequency Band by the DOD and SAPS

a. From the recommendation by the Cabinet Committee, paragraph c, it appears that the oversight committee, referred to in paragraph b of the recommendations, has been given the responsibility to consult with the Minister of Finance/National Treasury about the financial implications of the migration. It is thus not quite clear how or by whom funding for this purpose should be obtained. However, from your letter it is deduced that you anticipate Defence to address this issue in its budget submission. From this covering letter and the defence budget submission it should be clear that within current defence funding levels and constraints it was not possible to fund envisaged expenditure of this magnitude through reprioritisation. Reprioritisation of defence expenditure to fund the required R 150 million over the medium term period will mean permanent closure of most probably more than one defence capability. Defence is, however, convinced that it was not the intention of the legislature (Telecommunications Amendment Act) to, through its legislation, close defence capabilities.

b. Defence agrees with the National Treasury that budget submissions should demonstrate a willingness to reprioritise rather than requests for additional funding. It should, however, be clear that under circumstances, which necessitate an investigation such as instructed in the DOD Planning Instruction 7/02 (copy attached) it is virtually impossible to reprioritise to enable such a level of additional expenditure.

22. Confidentiality. In the interest of defence security you are requested to treat the information contained in this document with the strictest of confidence.


(J.B. MASILELA)
SECRETARY FOR DEFENCE: DIRECTOR GENERAL

1. Programme 1: Administration: Spending on Administration increases by an average of 0,2 per cent from 1999/00 to 2002/03. Growth over the medium-term can be attributed to:

2. Programme 2: Landward Defence: For the period 1999/00 to 2002/03, spending on Landward Defence increased by 1,9 per cent. It is however projected that spending on this programme will decrease by 3,7 per cent over the medium-term because of the fact that Landward Defence will execute some activities by utilising the Special Defence Account (folio 02 funds).

3. Programme 3: Air Defence: For the period 1999/00 to 2002/03, spending on Air Defence increased slightly by 0,9 per cent and only 1,8 per cent over the medium-term.

4. Programme 4: Maritime Defence: Spending on the programme increased by 5,1 per cent from 1999/00 to 2002/03. This enabled the Navy to provide slightly more sea-hours, but does not provide for increased maintenance and refit of vessels.

Over the medium-term the Navy's spending stabilizes and decrease slightly by 0,3 per cent.

5. Programme 5: Military Health Support: Spending on Military Health Support increased by 7,2 per cent between 1999/00 and 2002/03 which enabled the

Surgeon General to continue providing an acceptable level of medical services to the Department's patients. This increase can also be attributed to an additional allocation of Rm 5,0 received for the 2002/03 medium-term to provide medical services to HIV/Aids patients. The impact of HIV/Aids-related illnesses is still an unknown factor. Military Health Support's allocation increases slightly by 1,2 per cent over the medium-term to defray increasingly expensive medical services.

6. Programme 6: Defence Intelligence: Defence Intelligence is a small but important item on the Defence Vote. Spending on the programme increased slightly by 0,2 per cent between 1999/00 and 2002/03, which can be attributed to the function shift of the Foreign Relations function from the Defence Intelligence to Administration. Spending over the medium-term however increase of 1,0 per cent.

7. Programme 7: Joint Support: Spending on the programme increased by 19,9 per cent between 1999/00 and 2002/03. This is due to the gradual movement of personnel and equipment from the Services to the Logistic, Management Information, Joint Training and Military Police Divisions as they became operational. The increase can also be attributed to an increase in the spending of the British Military Advisory and Training Team due to the signing of a new Memorandum of Understanding between the South-African and British Governments. This function however tapers off and no further provision is made for this activity from 2004/05. The increase of 13,3 per cent over the medium-term is due to the fact that the Improvements in Conditions of Service and Carry Through Costs are currently still centralised in this programme and will only be allocated to the applicable programmes after the final allocation has been received in mid November.

8. Programme 8: Command and Control: Spending on the programme increased by 143,4 per cent between 1999/00 and 2002/03 because of the additional allocation received for the Peace Support Operation in Burundi as well as for MONUC (employment in the DRC) and subsequently tapers down by 24,6 per cent over the medium-term when these operations come to an end.

9. Programme 9: Special Defence Account: The Special Defence Account funds the strategic armaments procurements, special defence equipment, as well as other special defence activities to realise the Defence Force's armament acquisition plan. It increased with 18,8 per cent from 1999/00 to 2002/03 to realise the strategic defence procurement programme. The increase was also due to additional funding received to defray forex adjustments. Spending on this programme will increase slightly by 1,6 per cent over the medium-term as the DOD contribution to the strategic defence procurement programme increases marginally.

1. No major reprioritisation within baseline could take place due to the fact that policy decisions are being awaited.

2. The reason why most of the programmes (with the exception of Joint Support and the Special Defence Account) show a decrease to the MTEF baseline (year-on-year) can be attributed to the fact that the Improvements in Conditions of Service and Carry Through Costs are currently still kept at the Joint Support Programme until the final allocations are received during mid November.

3. The Special Defence Account shows a steady increase over the medium-term due to forex adjustments received during January 2002 and the DOD contribution to the strategic defence procurement programme increases marginally towards 2005/06.

Departmental receipts:

NOTE:

1.The primary function of the Armaments Corporation of South Africa (Armscor) is to acquire defence products, mainly for the SANDF, and to co-manage, with the SANDF, the development of technologies for future weapon systems and products. It also manages the disposal of excess, forfeited, redundant, or surplus defence material for the SANDF and the subsidiary companies, which directly support defence technology and acquisition strategies.

2.Armscor's secondary functions include providing tender board functions, acting as procurement secretariat, providing financial, quality and asset management services, and providing legal services, project security, and arms control compliance assurance.

3.The net value of Armscor's assets of R376,3 million on 31 March 2001 was slightly higher than the previous year's R373,8 million. Investments and cash form a substantial part of the assets, and are reserved to finance specific future obligations such as the redemption of stock, replacement of capital equipment, and marketing and promotion activities.

4.The Armscor group has eight subsidiaries:

1. The Institute for Maritime Technology (Pty) Ltd aims to satisfy strategic needs for techno-military support, products, and services, and to establish applicable technology and systems to further the interests of the SANDF. The Defence Research Centre (Pty) Ltd was recently spun off from this business.
2. Gerotek Test Facilities (Pty) Ltd is a global leader in vehicle testing and related services, such as product testing, consultancy, and armour development.
3. Alkantpan (Pty) Ltd offers an all-purpose weapons and ammunition test range, compiles specifications, and analyses test data.
4. Military Sales and Services (Pty) Ltd provides services such as freight clearing and forwarding, travel arrangements, and business development to Armscor and others in the defence industry.
5. Protechnik Laboratories (Pty) Ltd conducts research and development in the field of chemical defence, such as the protection of personnel working in chemically hazardous environments.
6. Hazmat Protective System (Pty) Ltd manufactures and markets protective equipment for personnel for use in chemical or biological warfare, as well as industrial respirators and breathing equipment.
7. Gennan Systems (Pty) Ltd supports decision-makers in the acquisition, operation, and phasing out of systems by rendering engineering and management services.
8. Defence Research Centre (Pty) Ltd provides decision support services to the defence industry on a strategic, operational, and technical level.

5.The activities of Armscor are mainly financed by an annual transfer payment from the Department of Defence, interest received on investments, the hiring out some of their buildings, commission from stock sales, and income from subsidiaries.

6.Armscor is currently listed as a Schedule 2 major public entity in terms of the Public Finance Management Act (1 of 1999). Actual and prospective changes to its powers and functions mean that an investigation has been initiated into whether it should be re-listed as a Schedule 3 Part B national public entity.

7.Although the Castle of the Cape of Good Hope is currently the responsibility of the Minister of Defence, it is envisaged that in the near future it will become the responsibility of the Minister of Arts and Culture. The Department of Defence does not make any financial contribution towards the Castle of the Cape of Good Hope.