SANDF Budget : briefing

Meeting report

DEFENCE PORTFOLIO COMMITTEE; SECURITY AND CONSTITUTIONAL AFFAIRS SELECT COMMITTEE: JOINT MEETING
8 May 2002
SANDF BUDGET: BRIEFING

Chairperson: Ms Thandi Modise (ANC)

Documents handed out:
Defence Budget Vote
SANDF presentation [information contained in the minutes]

SANDF delegation: Minister of Defence, Mosioua Lekota; Mr Jack Grundling, Chief Financial Officer; Mr James April; R Adm Rolf Hauter; R.Adm Verster; Brig Gen Erroll Mann; Mr Moses Khanyile; Mr Dawid Fourie; Col Andy Young; Maj Gen J van der Poel

SUMMARY
The Committee was briefed on the SANDF's strategic plan and budget for the years 2002/3, 2003/4, 2004/5 ahead of the budget vote to be held in Parliament on 14 May 2002. The challenges faced by the SANDF were categorised as:
- Affordable/Sustainable Force Design and Structure
- Thefts and Losses
- Health and Age Profile
- Infrastructure Maintenance
- Integrating the Strategic Defence Packages
- Main Equipment Obsolescence
- Prevent Underspending

MINUTES

Grundling: 2002 is the first year in which the Department of Defence is obliged to present its objectives. The 2003/2004 budget is to be drafted by August 2002. The Defence Budget for 2002/2003 is R18.414 billion, which represents 6.4% of government expenditure and 1.7% of South African GDP. This figure is projected to rise to R19.883 billion by 2004/2005. By comparison, the combined Safety, Security and Justice budgets for 2002/2003 are R19.204 billion. SANDF personnel number 76 000. This is anticipated to reduce to 73 000 by 2004/2005.

The Auditor General has proposed that Departments that underspend should be penalised for non-delivery. The Department of Defence has the smallest underspending/surrender record -- 2000/2001 of 0.04% and in 2001/2002 of 0.06%. This relates to liabilities approved but for which payments have not yet been processed by financial year-end of 31 March.

Fourie: The Strategic Plan is derived from Treasury guidelines, the budget vote being:
2002/2003 R18.414 billion
2003/2004 R19.339 billion
2004/2005 R19.883 billion, and has increased from:

1998/1999 R10.561 billion
1999/2000 R10.767 billion
2000/2001 R13.932 billion
2001/2002 R16 052 billion
The Warburg, Dillon Read model is applied for strategic packages.

The Burundi and Democratic Republic of Congo deployments have increased the Defence allocation, with R270 million being allocated for Burundi and R44 million for the DRC in 2002/2003. Of the 2002/2003 budget of R18.414 billion,
34% is personnel expenses of R6.341 billion
25% is operating expenses
40% is arms acquisitions, of which 83% goes into the Strategic Acquisition Packages
0.4% is capital expenditure

Grundling: The Department of Public Works is responsible for maintenance of buildings and assets. R54 million is allocated annually, and discussions are under way about the appropriateness of this policy. Regarding transformation and the Auditor General's report, there are questions as to how well the Department has performed, but these need a special session rather than deal with them here - including the inefficiency and weaknesses of the Service Corps.

The Special Defence Account of R7.625 billion includes R50 million allocated to sensitive operations, including counter-intelligence. This is tightly controlled with less than 10 people knowing the purpose and objectives. Top secret schedules are signed by the Ministers of Defence and Finance to authorise these activities, with auditing being undertaken by the Auditor General and private auditors.

Defence expenditure was reduced to 1.6% of GDP by 1997/1998. This reduction has now stabilised, with the impact of the arms deal to increase it slightly to an estimated 1.9 % of GDP. The expenditures on arms acquisitions are:

2002/2003 R7.387 billion
2003/2004 R8.236 billion
2004/2005 R8.433 billion

Questions and Answers:
Schmidt (DP): The personnel expenditure at 34% is decreasing over time but, given the reduction in personnel from 100 000 to 76 000, it suggests too many top-level generals and that their salaries are out-of-line.

Grundling: The Department shares this concern. At 100 000 personnel, we had anticipated a decline in personnel costs to R3.950 billion against reduction of personnel to 71 000. This has not been achieved because of rank creep. Demobilisation payments have also contributed to the problem. But for reductions of personnel, these costs would be even higher because costs per person are growing-out-of-line.

Theron (NNP): 1. Out of the R10 million of the budget not spent, what percentage was due to late payments? 2. Regarding the procurements, of which 83 percent is being spent on the arms deal: the Joint Investigation Team found that procurement policies are inadequate, and that this has led to bribery and corruption. What are you doing to counter the problems highlighted in the investigations?

Grunding: 1. The late payments can be compared with a bank balance per 31/3 and cheques written but not yet presented. The system allows for these adjustments to be made by September 2002.

Verster: 2. The Department has taken steps to merge acquisition polices to make sure that the problems highlighted are not repeated. We had old policies applicable to the sanctions era and new policies, and these had not properly caught up with the changed circumstances. Merging these is still being worked out with the Minister.

Modise: (ANC): Please explain the reduction of personnel numbers.

Young: We had 60 133 uniformed members as of 15 April 2002 and approximately 16 000 public service personnel.

Modise (ANC): In other words we are far below the 76 000 uniformed members we thought were being employed by the SANDF. That was Parliament's understanding. We are not immediately interested in the public service personnel.

Van der Poel: The existence of the two has always been the case.

Schalkwyk (DA): Operating costs are too long to operate an effective army. This will have to be rectified, otherwise we will have to increase the budget.

Grundling: The Member's concern is valid. Without the arms deal, the budget would be R12.984 billion and 52% of our budget would be used for personnel. We must reduce the personnel costs to 40% as anticipated in the Defence Review or we will be unable to meet operating and acquisition budget targets.

Oosthuizen (NNP): I welcome the openness of the discussion, but we may end up with an SANDF of 40 000 to 50 000 because we cannot afford 76 000 uniformed members. I am not satisfied with General Van der Poel's answer.

Modise (ANC): There is no way that we will allow for the further whittling down of the SANDF at the increase of the public service component. There are too many personal assistants on the staff. We will have to look at the staffing because we see a top-heavy SANDF with only 40 000 troops. What are the financial implications of the promotions?

Grundling: The White Paper anticipated 40%, 30% and 30% as the budget split between personnel, operating and acquisitions. To achieve our strategic planning we need 75 000 personnel, but because of integration we see an increase in civilian personnel.

Modise (ANC): Parliament approved a reduction of military personnel to 70 000. We will not be part of a mockery of whittling this away. We cannot continue to learn of developments through the media and leakages rather than by official briefings by the Department to Parliament. The Force Structure design changes, but Parliament continues not to be informed. We had hoped this pattern was past, but obviously it is not. We will have to have a very full discussion on human resources at another time.

Ramala (ANC): What about border control?

Grundling: The SANDF is still involved in 2002, and this is being provided for under the landward budget of R3.477 billion which includes fuel and similar costs.

Jankielsohn (DA): 1. Of the pledges for Burundi support, what has been received?
Have we enough funding for the personnel to operate the equipment being acquired under the arms deal? What is the current estimate of the cost of the packages?

Fourie: 1. Contributing countries impose conditions on how their funding is to be utilised. The funds are paid to the Treasury, and only then can we draw on the funds, assuming that we have complied with the conditions of the pledge. The monies for 2001 have been received: Belgium R54.8 million, European Union R47.7 million, Netherlands 17.6 million, South Africa R24.2 million. Total R144.5 million.

Verster: 2. We have comprehensive plans to train personnel and, as regards costs, we have the capital and operating portions.

The original figure was R30 billion, but this had increased to R43.8 billion by 2000
and is presently R52.714 billion including foreign exchange fluctuations. This figure flows through the SANDF, but it is quasi-money because it goes through foreign banks that are servicing the capital debt, and this is not included in the SANDF budget. The different responsibilities of the SANDF and Treasury confuses the figures, including the foreign exchange fluctuations.

Tlhwangwane (ANC): Women and the churches are concerned about the arms deal. Will this equipment be used for South Africa's strategic role? I note that the budget starts increasing from 2000.

Hauter: Our present equipment is obsolete. It averages 30 years old. We cannot maintain such old submarines. The Strategic Packages are to replace this obsolete equipment. It is not a matter of doubling the submarines from 3 to 6. The submarines provide deterrence. We need the Hawks as lead-in trainers for the Gripens.

Middleton (ANC): What about thefts and losses, including thefts of armory? How many excess Impalas are there, and why can't they be used for training?

Grundling: Defence holds huge redundant stocks and inventories from 10/20 years ago when money was being thrown at acquisitions. We have the problem that such redundant stocks cannot be adequately protected from thefts by our own personnel. We are reducing these stocks, but it is not easy. For example, the sale of Impala aircraft or Oryx helicopters may take 3/5 years. About 204 Impalas were bought during the 1960s and 70s. No Impalas are now in use, except for about 30 for a school at Hoedspruit. Excess weapons and ammunition fall under control of the NCACC to ensure that these do not fall into inappropriate hands. Can we sell these aircraft and their spares, or do we scrap them? The problem of theft of computers and other equipment by our own personnel is a major problem. You will also recall that there was a cash heist of R175 000. We have now outsourced cash protection.

Modise (ANC): Are you saying that you need civilians to protect the military, and their cash?

Mogaba (PAC): What is the cost of Defence given the crime in South Africa and other social problems. I have just returned from a rural area where there is no road for miles and miles. Given the engineers in the SANDF, why can't they be used to build roads in rural areas?

Hauter: The SANDF's mandate is entrenched in the Constitution. The Defence Review and Force Design are not necessarily approval, but indicate the need for capability and the maintenance of capabilities. Engineers undergo training, training, training on a daily basis. The funding is barely sufficient. Allocation of funding is only adequate for the training, and not for actual engineering and/or road construction. If the government were to use the SANDF for road construction, it would be in competition with the private sector.

Mogaba (PAC): There is no private sector competition in the rural areas. There are no roads.

Groenewald (FF): What is the reference to Export Credit Agency in the MTEF allocation?

Grundling: The funding for the packages comes from two sources, of which the SANDF budget is the minor amount.

Verster: As regards the submarines: the ECA falls outside the Department of Defence, but the ECA costs are included in the obligations of the National Treasury. Overseas banks provide the facility to the South African government. The loan facilities are incorporated in the MTEF allocations in the Warburg Dillon Read model adapted to take out the premiums now allocated to the Treasury.

Groenewald (FF): Can we have a list of these agencies, and what amounts are being paid, for example to Germany?

Grundling: The responsibility to service the government's debts does not lie within the Department of Defence, but with the Treasury. Defence did not contract with these agencies but with the Treasury.

Blaas (NNP): What is the cost per soldier of the Burundi and DRC operations?

Grundling: There are 701 people in Burundi and 100 people in the DRC. The budgets are R270 million and R44 million. Therefore the cost per soldier in the DRC is R1 220 per day, and in Burundi it is R1 604 per day.

Blaas (NNP): Can you advise whether this is within international norms? It seems excessive.


The meeting closed at 1pm