Joint Investigation Report into Strategic Defence Procurement Packages: adoption of final Committee Report; Devaluation of the R

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Finance Standing Committee

05 December 2001
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FINANCE PORTFOLIO COMMITTEE

FINANCE PORTFOLIO COMMITTEE
6 December 2001

JOINT INVESTIGATION REPORT INTO STRATEGIC DEFENCE PROCUREMENT PACKAGES; DEVALUATION OF THE RAND; COMMITTEE PROGRAMME 2002

Chairperson:
Ms B Hogan (ANC)

Documents handed out:
Report of the Portfolio Committee on Finance on the Joint Investigative Report
Strategic Defence Package: Table of Costs

SUMMARY
The Committee adopted their report on the Joint Investigation into the arms procurement packages with certain amendments.

The Democratic Party asked that hearings be held the following week to discuss the plummeting value of the Rand, which is causing concern. The Chairperson asked that they be deferred till early the following year. The kind of input preferred is high calibre, analytical input from economists and academics, who can discuss the situation from an international perspective. The DP agreed to this, but suggested that they need to consider both the international perspective and domestic concerns and trends.

MINUTES
Ms Hogan, the Chairperson, invited Members to comment on the Report of the Finance Committee.

Mr Andrew (DP) said that although he had only received the report 20 minutes before, in general it seemed a fair reflection of the discussion. He referred to page 4 of the Report, the last paragraph, where it is recommended that the costs of the arms procurement package be updated with greater regularity. Are they happy with the frequency of reporting, given the scale of the arms deal?

Secondly, the impact of the cost on the budget deficit is reflected in the Budget in February and the Medium Term Budget Policy Statement in October.

Ms Hogan responded that they could ask for such a report every six months or even quarterly. She would be satisfied with a report on the impact of the costs on the fiscal deficit every four months. She requested the Parliamentary Liaison Officer, Mr Shahid Khan, to check whether regular quarterly reports covers this.

Ms Joemat (ANC) said that the quarterly report should come through to the Committee.

Mr Andrew insisted that it should come to Members in hard copy, as it was important, and Members often receive great amounts of email.

Mr Koornhof (UDM) said Members must not only receive the report but need to engage on it.

Mr Koornhof referred to page 2, paragraph 3 of the Report, which refers to Maritime Helicopters. The Helicopters were not dealt with in the Joint Report and it therefore seems out of place in this report. Paragraph 3 states that "It would appear that the cost would have to be carried by the budget of the SANDF outside of the amount agreed by Cabinet that is attributable to the Special Defence Account." He suggested that they rather leave this out, as it was not covered by the investigators. He knew, for instance, that the cost is not covered by foreign loans.

Ms Hogan said she was not sure whether he was correct on that point. The Affordability Report, on page 255, refers to the purchase of maritime helicopters.

Mr Koornhof responded that the fifth contract was not investigated, only the four contracts.

Ms Hogan said the question which arises is cost cutting measures. One is looking at cost reduction therefore it is logical that it is included. It is legitimate to know where the purchase is funded, whether it is covered by the budget or through foreign loans.

Mr Andrew said he agreed with the Chairperson. Any expenditure on the Maritime Helicopters would be covered in the budget; whether it is paid by tax or by domestic or foreign loans.

Ms Hogan proposed that if the source of the payment is unclear then this should rather be stated. She proposed that they remove the paragraph beginning with "It appears…" and that the following be substituted for it. "It is uncertain where the cost of such a transaction would be incurred in the budget."

This was accepted.

Ms Taljaard (DP) requested clarity on the following issue discussed in the Joint Report, the IONT. They were appointed to negotiate to lower the cost of the package, but the Joint Investigative Team were not able to make a finding whether IONT made a contribution to lowering the cost. This is not reflected on page 2 but it should be.

Ms Hogan proposed that on page 2, after paragraph 6, the following could be inserted. 'In the light of cost-covering mechanisms introduced, the Committee acknowledges 8.12.4". It could be stipulated that the team could not reach a finding either way.

Mr Koornhof referred to a statement by the National Treasury. On page 2 of their Report it refers to a total cost at contract time of R30,050 billion. He also referred to the 2001 budget estimates over a twelve-year period. In September 2000 it amounted to R43, billion. Can this not be built into the report? Or must the amount approved by Cabinet, R30 285 million be adhered to? Should the cash flow expenditure be reflected?

Ms Hogan commented that it is in the Budget Review, but it could be included for the sake of completion.

Mr Nene (ANC) referred to page 3 where it states that the final cost of the package is far higher than was agreed by Cabinet, the final cost being R30, 050 billion, after negotiations. The final contract price entered into amounted to R30, 05 billion due to a reduction of the negotiated contract prices of the trainer and fighter aircraft.

Ms Hogan said she did not want to lose the flow of the text. She suggested putting it into footnote 16 to refer to footnote 12. That amount was negotiated downward. The capital costs in the 2001 budget was R43, 8 billion.

Mr Andrew asked for a correction of a typo at the bottom of page 2, which should read, "Recommendations are…"

Ms Hogan moved the adoption of the Report. All Members were in agreement.

The Valuation of the Rand

Mr Andrew (DP) explained that, given the sharp fall in the value of the Rand, there was understandably wide-spread concern amongst the public, government, the business sector. The Portfolio Committee should be contemplating whether there is something which could be done by Parliament or itself as an oversight Committee. In general the Committee struggled with programming. Usually it was overwhelmed by legislation and reactive to the Executive. The Committee needed to inform itself and help the public to understand these issues. Maybe they would not find an immediate solution but this could allow people to air their views.

Some of the matters which could be discussed in such a forum include the following:
· What causes currencies to go up and down?
· Are there other causes besides supply and demand causes?
· The effects, both positive and negative, of sharp devaluation.
· The options available to SA in trying to cope with the pros and cons of each option.
· After the East Asian crisis the IMF set up a Committee, has anything happened in that regard?

A forum such as the one proposed will help Parliament to understand the issues and the public at large. A panel of economists, the Minister of Finance and the Reserve Bank could present their views. Perhaps hearings could be convened for the following week?

Ms Hogan agreed that this is a very important issue. But in tracking what economists are saying there seemed to be largely a panic response. In holding hearings they needed to get to grips with the issues. She preferred academic, analytical input of a high calibre, from senior economists. They could examine international trends and how they were affecting certain countries in particular ways. An analytical as opposed to a political approach was needed.

Mr Andrews said he saw room for a parallel approach. There could be a specific domestic approach on the one hand. At present there is a heightened sense of concern, even angst about the economy. He fully supported the suggestion of getting in high calibre people in so that South Africans could realise that their problem was not exclusive.

Ms Hogan added that hearings could also feed into the perception that this is a crisis. Economists think in the short term.

She proposed that she would talk to the Reserve Bank and the Treasury to see whether they would participate in such a hearing. She wanted to get to grips with the effects of globalisation and preferred a more measured approach.

Mr Andrew said that presumably there are some academics who have good points. After getting the international perspective one still needed to be analytical about the domestic situation. There needs to be a blend of the two.

Ms Hogan reiterated that she preferred to hear from people who were out of the heat of the moment. Her gut feeling was that there will still be a rehash of media coverage.

With respect to the Committee's programme for 2002 the Committee will return a week later as it is overworked. They could hold hearings in that week.

Mr Andrew said he had no objection to holding these hearings next year. If they were to convene them it should be done properly.

The meeting was adjourned.

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