Report of the Portfolio Committee on Defence and Military Veterans on Budget Vote 22: Department

17. REPORT OF THE PORTFOLIO COMMITTEE ON DEFENCE AND MILITARY VETERANS ON BUDGET VOTE 22:DEPARTMENT OF DEFENCE AND MILITARY VETERANS AND THE ENTITIES, NAMELY ARMSCOR AND THE CASTLE CONTROL BOARD, DATED JULY 2014

1. BACKGROUND

The Portfolio Committee on Defence and Military Veterans having considered the request of the National Assembly to consider and report on the Strategic Plans, Annual Performance Plans (APP’s) and budget allocations of the Department of Defence, the Department of Military Veterans and the entities tabled by the Minister of Defence and Military Veterans, and in terms of the Public Finance Management Act (No. 1 of 1999), reports as follows:

2. INTRODUCTION

The Portfolio Committee considered the Strategic Plans and the Annual Performance Plans for the 2014/2015 financial year of the Department of Defence, the Department of Military Veterans and the two entities of the Department, namely Armscor and the Castle Control Board. The Committee further considered the adequacy of financial resources for the implementation of these plans and interrogated the allocation received by the Departments and the entities from National Treasury, the trends over the Medium Term Expenditure Framework (MTEF) both in terms of allocations and expenditure and, in the instance of the entities, in terms of revenue collected. This Report details the findings and recommendations of the Committee after engaging the Departments, and the Entities.

3. CONSIDERATION OF TABLED PLANS

3.1 Purpose of consideration of tabled Plans and Budgets

The purpose of Portfolio Committee’s interactions with the two Department and two entities was two-fold, namely:

• To provide an overview of the projected spending by Departments and the Entities over the medium term; and
• To gain an understanding of how performance indicators and targets are derived and how progress against these targets are tracked and reported on.

The presentations made by the two Departments and the Entities focused on the approach followed in the development of indicators and targets; as well as an attempt to integrate the relevant indicators and targets of the Entities with that of the Department.

3.2 Approach of the Portfolio Committee in consideration of the Budget Allocations, Strategic Plans and Annual Performance Plans

The presentations and documents that form the basis of the deliberations of the Portfolio Committee were considered together with the tabled Plans. In terms of the key performance indicators and targets contained in the Plans, the Portfolio Committee analysed the tabled plans. Discussions focused on key strategic priorities relevant to the programmes of the Departments and that of the Entities.

3.3Government policies and other guidelines

This Report is based on various policy documents which make reference to the relevance of the Defence Force, the specific allocations as well as additional allocations to the DODMV. These documents include the:

•National Development Plan which for instance make reference to youth unemployment and South Africa’s position in the Region and on the Continent.

•New Growth Path which refers to the development of the National Youth Service and the filling of vacant funded positions.

•Medium Term Budget Policy Statement where reference is made to R150 million for the DRC operations and the growth in salary requirements.

•Budget Review 2014 which indicates that over the MTEF period additional amounts will be spent on improving the operational capability of the SA Air Force.

•Reports of the Auditor-General with reference to the qualified audit report and unauthorised, fruitless and wasteful and irregular expenditure.

•State of the Nation Address with reference to appreciation for the peacekeeping role of the Defence Force and the adequate resourcing of the Defence Force in line with the 2014 Defence Review.

4.DEPARTMENT OF DEFENCE

4.1Ministerial Priorities

The Overarching Strategic Statement for 2014/15 provides an updated situational analysis of factors that have a bearing on the output deliverables of the DOD. Some of these are included in the Minister’s Strategic Priorities and Strategic Focus Areas. These factors include the following:

• The South African Defence Review. The Draft Defence Review is a national-level policy, converting government security policy into orientations and tasks for defence and projecting a coherent set of aims and objectives (Note that the Defence Review was approved by Cabinet in March 2014 and was tabled in Parliament on 2 July 2014).

• Corporate Governance and Accountability. The Defence Secretariat will be strengthened in line with its legislative mandate to ensure departmental effectiveness and efficiency.

• DOD Supply Chain Management. To prevent unnecessary losses and to promote accountability and governance, the DOD undertakes to revise its Procurement Policy and ensure timeous payment to Small-Medium and Macro Enterprises within 30 days.

• National Cost Containment Measures. Pending the finalisation of the Defence Review, consideration will be given to departmental strategic resource prioritisation, limited structural expansion and implementation of National Treasury cost containment measures in curbing expenditure in the DOD.

• Border Safeguarding. The DOD remains committed to Operation CORONA, the SANDF’s border safeguarding operation which sees up to 13 sub-units deployed along the country’s borders.

• Human Resources. The following human resources aspects, inter alia, will receive attention: Human Resources Expenditure; Organisation and Individual Performance Management; Ethics and Integrity; and Service Delivery Improvement Plan.

4.2Policy Priorities and Focus Areas

• Enhancement of the SANDF’s Landward Defence Capabilities.

In order to undertake all required missions, the enhancement of the Landward Defence Capabilities is essential and this enhancement has been considered a priority since 2013/14. The Landward Defence Capability has not enjoyed the advantage of being part of the Strategic Defence Packages and is thus lacking technologically advanced Primary Mission Equipment. These capabilities that require attention include the Infantry Capability, which encompasses the production of new generation infantry combat vehicles. The funding of this priority formed part of the financial year 2013/14 onwards strategic budgeting function of the DOD for which the Landward Defence programme was allocated R13.6 billion.

• Maritime Security Strategy.

The National Development Plan (NDP) 2030 recognises piracy and the smuggling of counterfeit goods as some of transnational crimes that need direct intervention. The SA Navy will continue with Operation COPPER (anti-piracy) as well as support other operations such as Operations CORONA (border safeguarding operation) and PROSPER (SANDF’s support to the SA Police Service in crime prevention). The expansion of Naval Base Durban should continue to be resourced in future financial years.

• Job Creation.

In line with the directives of the National Development Plan’s (NDP) prioritising of job creation, the DOD will continue to ensure that job creation, within available resourcing, will be effected through approved projects within the Defence industry. The 2014 Defence Review will inform the finalisation of the White Paper on Defence Industry and the concomitant Defence Industry Strategy.

• National Youth Service (NYS).

The NYS Policy, which will set the norms and standards of the NYS programme, will be developed in 2014/15 and approved in 2015/16. In 2013/14, it was stated that the Department will continue with the execution of the NYS programme through the utilisation of core Defence capabilities to provide initial training to selected youth prior to absorption into respective Government Institutions. In the past financial years since 2011/12, more than 5000 NYS members underwent training under the auspices of Training Command at various bases.

• Restructuring and Support of the Defence Industry.

The restructuring of the Defence Industry will focus on required Defence capabilities and the sustainability thereof. The White Paper on the Defence Industry has been included as a chapter in the 2014 Defence Review. The drafting process of the Defence Industry Strategy has gone through several stages of stakeholder consultation since its commencement. This aim is also in line with the directives of the NDP and the New Growth Path which aims to create increased employment opportunities.

• Revitalisation of the Reserves.

As part of the one-force concept, the Reserves will continue to be transformed and revitalised to fulfil the various Defence roles allocated to them in support of the regulars. A total of R25.2 million has been allocated for the Defence Reserve Direction, in Programme 1 (Administration), for the financial year 2014/15. This amount is, however, only expected to grow at an average of 5.5 per cent to R26.1 million in 2015/16.

In addition to the abovementioned policy priorities for the Minister of Defence and Military Veterans, a number of strategic focus areas have been identified which should be prioritised by the Department and the implementation thereof monitored by the PCDMV.

• Military Skills Development System (MSDS)

The MSDS is a service system that supports the rejuvenation of the DOD’s Human Resources Renewal Strategy to ensure SANDF rejuvenation. The reduction in the number of MSDS compromises the ability of the SANDF to ensure a rejuvenated, prepared and employed capability as force multiplier for both internal and external operations. Until the size of the annual intakes increases, there will be shortages of young and fit deployable soldiers in both regulars and reserves. For 2014/15, approximately 4272 MSDS members will be in the system.

• Transformation within the SANDF

The representation of both men and women in the SANDF command structures remains a key focus area for the financial year 2014/15. The Departmental policy continues to address the aspects with regard to the representation in for instance women at recruitment level, military command level, Defence Attachés and Gender and leadership seminars.

• DOD Audit

The DOD continues to strengthen its internal mechanisms of accounting to ensure a clean audit. For 2013/14, the DOD received two audit qualifications on movable and tangible capital assets and intangible capital assets. For 2014/15, the DOD will focus on resolving challenges with asset management to ensure a clean audit. In this regard, “Operation Clean Audit” will be enhanced through the Audit Management Team.

• Corruption and Fraud

The DOD continues to adopt a zero tolerance attitude to all forms of corruption and fraud within the Department. The DOD Corruption and Fraud Prevention Plan, which is valid for three years, was reviewed and approved on 9 July 2012. In addition, the DOD will enhance the detection, investigation and prosecution of corruption and fraud.

5. OVERVIEW OF BUDGET ALLOCATION 2014/15

The defence budget allocation of R42 831.2 million for 2014/15 constitutes 3.75 per cent of the financial year’s total appropriation of R1 142 562.4 million. Although the budget allocation for 2014/15 increased by 5.3 per cent in nominal terms, it decreased by 0.81 per cent in real terms in comparison to 2013/14. In 2013/14 a real percentage growth of only 0.58 per cent was recorded. The latest allocation thus signifies a continuation of the slowdown in funds allocated to the Department of Defence (DOD).

Matters that have been prioritised for the year 2014/15 include, inter alia, the following:

• Effective management of the Department.
• Maintaining current defence capabilities.
• Ongoing border safeguarding deployments.
• Execution of ordered peace missions.
• The implementation of the maritime security strategy, including anti-piracy patrols off the Mozambican coast.
• Improved operations within the SA Air Force and the South African Military Health Services (SAMHS).

Table 1 indicates the percentage of the Department’s budget that was allocated to each programme in 2013/14 and 2014/15 respectively. The Landward Defence Programme received the largest allocation, and this is mainly due to its large personnel requirement. Furthermore, marginal increases in allocation can be observed in Programme 1 (Administration), Programme 4 (Air Defence) and Programme 5 (Maritime Defence). These trends are in line with the set ministerial priorities and indicate the prioritisation of the management of the Department, the implementation of the Maritime Security Strategy and the increased operating of the SA Air Force.

Of concern is the allocation towards Programme 2 (Force employment) as a percentage of the overall allocation for 2014/15 which is 0.72 per cent lower than in 2013/14. This is despite the Department’s prioritisation of foreign peace missions, including the SANDF’s participation in the 2013-launched UN Force Intervention Brigade in the DRC. Similarly, the allocation towards Programme 6 (Military Health Support) as a percentage of the overall allocation for 2014/15 is lower than in 2013/14, bringing into question the aims of the Department to reprioritise this function.

Table 1: Percentage of budget allocated to programmes

R thousand / 2013/14
(R million) / Per cent of total budget per programme / 2014/15
(R million) / Per cent of total budget per programme / Change in percent allocation
Programme 1: Administration / 4 509.0 / 11.09 % / 4 866.5 / 11.36 % / 0.27 %
Programme 2: Force Employment / 3 555.7 / 8.75 % / 3 437.0 / 8.02 % / -0.72 %
Programme 3: Landward Defence / 13 604.9 / 33.46 % / 13 854.9 / 32.35 % / -1.11 %
Programme 4: Air Defence / 5 714.4 / 14.05 % / 7 166.9 / 16.73 % / 2.68 %
Programme 5: Maritime Defence / 3 107.3 / 7.64 % / 3 678.5 / 8.59 % / 0.95 %
Programme 6: Military Health Support / 3 762.1 / 9.25 % / 3 849.1 / 8.99 % / -0.27 %
Programme 7: Defence Intelligence / 767.9 / 1.89 % / 792.1 / 1.85 % / -0.04 %
Programme 8:General Support / 5 636.8 / 13.86 % / 5 186.3 / 12.11 % / -1.76 %
TOTAL / 40 658.2 / 42 831.2

In line with the Department’s strategies, the biggest real percentage increase (18.10 per cent) is allocated to Programme 4 (Air Defence) while Programme 5 (Maritime Defence) also received a sizeable real percentage increase of 11.47 per cent. Programme 1 (Administration) also received a small real percentage increase. The latter is mostly related to the increased allocation for office accommodation to the Department of Military Veterans (DMV).

The most significant decrease can be observed in Programme 8 (General Support), which received a 13.36 per cent real decrease. This funding for this programme is, however, expected to recover over the MTEF period as it is required to assist the expected increase in personnel by 2016/17. Of concern is the 4.11 real percentage decrease in the allocation to Programme 2 (Force employment) given that foreign peacekeeping deployments have been noted as a Departmental priority. Border control is a further crucial function that is funded from this programme. Landward Defence and Military Health Support received real percentage decreases of 4.11 and 3.66 per cent respectively. The latter is of specific concern given the ongoing challenges faced at military hospitals throughout the country.

The increase in the compensation of employees may relate to expected annual increases as hardly any changes in the expected personnel numbers are foreseen from 2013/14 to 2014/15. The increase in spending on contractors relate mostly to specialised personnel required for aircraft maintenance and the outsourcing of military health requirements to the private sector.

5.1Personnel information and salaries

The Department has a funded establishment of 76 538 posts. This is lower than the number of funded posts recorded in the 2013 National Treasury’s ENE, which notes the DOD to have 80 380 posts. The number is, however, set to grow to 78 582 by 2016/17 in efforts to rejuvenate the Landward Defence capability and build capacity within the Defence Works Formation. Spending on Compensation of employees is expected to increase slightly from R21 373 million in 2013/14 to R21 980.2 million in 2014/15. The latter amount constitutes 51.32 per cent of the allocated budget. While the number of funded posts for 2014/15 is less than in 2013/14, the slight increase in allocation can likely be attributed to annual salary increases. Similar to previous years, the high ratio of funds to be spent on compensation of employees is a concern, as less than half of the budget is left to be spent on other priorities. This has the potential to impact negatively on ensuring the execution of the SANDF’s core mandate and the maintenance of its operational readiness.

5.2Infrastructure spending

There is a significant decrease in infrastructure spending in 2014/15 compared to previous years. While R1.2 billion and R980.2 million was allocated for this purpose in 2012/13 and 2013/14 respectively, the allocation for 2014/15 is only R109 million. This is expected to increase to R121 million by 2016/17. The DOD had 46 refurbishment projects in 2013/14 of which 20 are expected to continue over the MTEF period. A total of R3.8 billion has been allocated for their completion. It is further stated that the DOD is prioritising the refurbishment of physical infrastructure at its bases over the MTEF period.

6.OVERVIEW OF ALLOCATION PER PROGRAMME

6.12014/15 Allocations to Programme 1: Administration

The Administration programme, which consists of 15 sub-programmes, constitutes 11.36 per cent of the Departments total budget for 2014/15. In nominal terms, the budget for this programme increased by 7.9 per cent whereas the real percentage change showed an increase of 1.63 per cent. Sub-Programme 14 (Office Accommodation) represents the largest sub-programme and accounts for 46.13 per cent of the programme’s total budget. This is largely related to an increased allocation for the Department of Military Veteran’s office accommodation and the establishment of operational law structures.

In terms of economic classifications, there is an increase for Compensation of Employees which increased from R1 464.6 million in 2013/14 to R1 550.2 million in 2014/15. This is likely due to the increase in personnel from 3 807 in 2013/14 to 4 082 in 2014/15. This is influenced by the establishment of the Defence Force Service Commission which requires personnel funding from Programme 1 (Administration).

• Performance Indicators for Programme 1 (Administration)

Three performance indicators for Programme 1 (Administration) were provided by the DOD and the only significant variation with previous years is the reduction in the number of Military Skills Development Service (MSDS) members in the system per year. This is of concern given that the DOD stated that one of its aims is to “rejuvenate the landward forces.” The MSDS is central to the rejuvenation of the SANDF. Furthermore, a new indicator for the number of Reserve Force man days was created to be measured from 2014/15 onwards.

6.22014/15 Allocations to Programme 2: Force Employment

The allocated budget for Programme 2 decreased with 3.3 per cent in nominal terms and 8.98 per cent in real terms. This decrease may be viewed in line with the underspending at the end of the 2013/14 financial year. The programme constitutes 8.02 per cent of the Department’s total budget and has as its objective to provide and employ defence capabilities to conduct all operations and exercises. It should be noted that in 2013/14, an additional allocation of R150 million as part of unforeseen expenses was made to the SANDF for participation in the UN mission in the DRC.