The Department of Defence (DOD) reminded Members that the process of developing the Defence Review 2015 started in 2012 and the first draft was finalised in 2014. This 2014 draft was revised and updated in 2015. The Defence Secretary told the two Defence Committees that the DR 2015 cannot be funded because of funding challenges. Treasury had informed DOD that its budget would be cut by R18.5 billion. To implement the DR 2015, DOD requires an additional funding of R53 billion to its current budget. Thus there are significant funding challenges to implement the DR 2015. Due to this, the Budget Task Team (BTT) is considering different non-traditional funding options.
Three options were developed to secure funding for DR 2015. These options are: re-designing the allocation of Defence funding; expand Defence independently; or expand in partnerships. Of the three options, the Cabinet approved Option 2, which requires implementation of DR 2015 over six years starting from 2018/19. The approved plan was scrutinised by BTT to determine funding solutions for implementation.
The BTT developed a phased approach to ‘Arrest the Decline’ and ended up with five work packages that should be prioritised. The first two packages focused on critical organisational efficiency and reorganising DOD business process and the others address the critical elements of arresting the decline. The third package is the capital interventions required to support priority DOD missions costing approximately R9.8 billion. The fourth package is the improvement of capabilities to execute audit commitments, which include border safeguarding, peacekeeping missions on the African continent, patrolling the maritime zone, keeping the airspace safe, Operation Phakisa and rollout of cyber defence. The DOD recognises that these four packages would make Defence sustainable. The fifth package is maintenance of comprehensive defence capabilities and their renewal. However, DOD agreed with Treasury that the first four packages were critical to start with and it would move to the fifth when the economy has improved.
Having noted that Defence funding is insufficient to arrest the decline and implement the DR 2015, BTT looked at opportunities to reduce costs and increase revenue. These opportunities include: increasing United Nations Peace Mission reimbursements; generating income and saving costs from moveable assets; generating income from medical opportunities; reducing human resources costs through related interventions and utilising endowment properties. A cash flow projection to determine the money needed to arrest the decline. It was projected that overtime Defence could achieve Work Package 3 and 4 when its budget has increased to R68 billion. The projected shortfall for HR amounts to R3.2 billion against the allowed ceiling. The current HR shortfall of DOD is R3.1 billion and this is a huge challenge.
It is evident that the fiscus cannot support the full implementation of Option 2 for at least the next two MTEF periods. BTT further concluded that although work package 5 remains important, the priority for any additional funding must be directed at achieving work packages 1, 2, 3 and 4. These packages require an increase of Defence budget of up to R18.2 billion. BTT concluded that any funding emanating from compensations or reimbursements should be allocated to the interventions that would make Defence sustainable to meet its audit commitments. In conclusion, DOD received a letter in April 2018 from Treasury indicating that due to fiscal circumstances, Treasury is unable to fund the implementation of the DR 2015 over the MTEF periods.
Members expressed concern at the Defence budget cuts and that DR 2015 cannot be implemented. They agreed that the funding challenge should be taken to the President as Commander in Chief of the Defence Force. Members remarked that Treasury should not distance itself from Defence as it belongs to the country to serve the people. Other Members stated that Defence has an ageing force who are not willing to let go of their perception of what a defence force should be. On the matter of DOD struggling to get compensated for the work it performed on behalf of other departments, Memebers suggested a signed MOU was in place first. In response to the Defence Secretary noting that DOD cannot leverage the intellectual property developed from its research as the IP Act does not allow it to do so, it was suggested that DOD draft an exception clause to amend the IP Act.
Members said that the SANDF is important not only for the country but also for the African continent. Members expressed concern about ageing soldiers. There should be an exit plan for soldiers to retire and a rejuvenation plan. DOD and Treasury indicated that there are discussions about Force Design and Structure, but funding remains the biggest challenge because retirement packages cost a lot of money.
Treasury responded that the reason for DR 2015 not being funded was due to the current economic status of the country and competing priorities in government. When DR 2015 was conceptualised in 2014, there were not many competing priorities in government. Priorities in government like Fees Must Fall make it difficult for Treasury to fund DR 2015 which requires R53.3 billion. The budget has to be discussed in Cabinet and reality is the economic constraints and competing priorities.
The DOD and the National Treasury Budget Task Team (BTT) delegations introduced themselves: Dr Sam Gulube Secretary for Defence (DOD); Brigadier General John Gibbs, Planner in DOD and member of BTT; Major General Michael Ramantswana, Chief of Military Policy, Strategy and Planning (DOD); Ms Naso Tyibilika, Chief Director of Budget Management (DOD); Mr Mashudu Bidzha, Director of Public Finance (Treasury) and Mr Rendani Randela Chief Director: Justice and Protection Services (Treasury).
Defence Review 2015: briefing by Secretary for Defence
Dr Sam Gulube, Secretary for Defence, said the DR 2015 started in 2012 and the first draft was finalised in 2014. However, the 2014 draft was revised and updated in 2015.He stated that a process of developing a ‘funding model’ for DOD was started as part of the implementation of the DR 2015 and in response to a Ministerial Directive. The funding model exercise was intended to explore non-traditional revenue streams to supplement the Defence funding allocation from Treasury. In 2016, an Interdepartmental Budget Task Team (BTT) between DOD and Treasury was established to explore funding options to ‘arrest the decline’ in DOD. The BTT consulted stakeholders and completed its task in August 2017 and made recommendations.
The 2015 Defence Review (DR 2015) is the new South African Defence Policy and the task performed by BTT was to find ways to fund it. The DR 2015 requires funding over critical elements to achieve its objectives. DOD developed the ‘DOD Plan to Arrest the Decline’. These options are: re-designing the allocation of defence funding; expand defence independently or expand in partnerships. Of the three options, the Cabinet approved Option 2, which requires implementation of DR 2015 over six years starting from 2018/19. The approved plan was scrutinised by BTT to determine funding solutions for implementation.
The focus of the deliberations between DOD and Treasury were to determine what could be feasible and executable over the next two planning cycle periods.
BTT made assumptions about the implementation of Option 2. These assumptions are: the implementation would start in 2018/19 over six years; that inflation has not been included and the requirement has been determined in real terms on 2016/17 prices; that the figures reflect the operational burden of the South African National Defence Force (SANDF) expanded over a period of six years. Another assumption was it follows an approach of significant ramp-up of the budget allocation to allow for capacity building and industry response and that the allocation of funds should be within the prioritisation logic that has been followed and referred to as a ‘balanced evolution’ process.
In trying to identify and develop a funding model for the DR 2015, BTT also looked at critical priorities for funding interventions within DOD. This exercise entailed considering areas in which efficiency and cost savings could be realized. The DOD engaged with Treasury on Cost of Employment (COE), Special Defence Account and the Human Resources footprint based on the Cabinet decision to reduce government employees and an understanding of the dilemmas that DOD has in this domain. DOD is still facing many challenges on the COE. Thus COE is one of the priorities to be attended to in the funding model.
Brigadier General John Gibbs, Director: Defence Review Implementation Project, said BTT made a decision that the point of departure had to be what DOD was expected to deliver in terms of its operational commitments. The DOD Joint Force Employment Requirement (JFER) provides for the operational requirements. As such, the funding model developed prioritised the JFER. The BTT developed a phased approach to arrest the decline and ended up with five packages. The first package that BTT focused on is the critical organisational efficiency which required little funding. The second package is about reorganising DOD’s business process which also does not require significant funding.
The next two packages address the critical elements of arresting the decline. The third package which BTT looked at is the capital interventions required to support the priority missions that DOD is conducting. The cost for this package is approximately R9.8 billion. The fourth package is the improvement of capabilities to execute audit commitments, which include border safeguarding, peacekeeping missions on the African continent, patrolling the maritime zone, keeping the airspace safe, Operation Phakisa and rollout of cyber defence. The DOD prioritised these four packages and recognised that improving on all four packages would make Defence sustainable.
However, in terms of the JFER, Defence Act, other legislative commitments and Constitutional requirements, DOD had to consider Work Package Five. The fifth package speaks to the maintenance of comprehensive defence capabilities and their renewal. However, DOD agreed with the Treasury that the first four packages were the critical elements to start with and it would move to the fifth when the economy has improved. Measures for each of the packages were developed into what is called a ‘balanced evolution of the SANDF’. The measures developed into balanced evolution were a result of the Cabinet instruction that the SANDF should be able to intervene on the continent for peacekeeping missions and support South Africa’s foreign policies. To achieve all the packages coined a balanced evolution of SANDF, DOD requires an additional funding of R53 billion to its current budget. This means that over time, the Defence budget should increase to R103 billion.
However, the economic outlook of the country may not be able to assist DOD with the required budget. Therefore, DOD will consider the two Medium Term Expenditure Framework (MTEF) periods and look at how to increase the Defence budget over time to the point where the decline can be arrested so that Defence can be sustainable to perform to the level of ambition expected by Parliament and Cabinet. The first ambition is to support the current defence missions. The second ambition is to increase army units in the different missions and increase performance. DOD realised that its current funding is not sufficient to meet these ambitions. It therefore looked at alternative funding models to meet its commitments.
In developing a funding model, BTT looked at the DOD cost centres and assets (fixed and movable). Opportunities for cost reduction and/or additional revenue generation were scrutinised including the Budget Efficiency Report of the Deputy Minister. In the final report, the opportunities identified and investigated were categorised and grouped:
Opportunity 1: Increase United Nation Peace Mission reimbursement income.
Opportunity 2: How to generate income and save costs from moveable assets.
Opportunity 3: Generating Income/save costs from medical opportunities.
Opportunity 4: Reduce Human Resources costs through related interventions.
Opportunity 5: Utilisation of selected endowment properties
Opportunity 6: Reduction of cost on leased properties.
Opportunity 7: Alternative utilisation of property being managed by Department of Public Works.
BTT estimated the revenue which could be generated from those opportunities. A recommendation was made that the Treasury should reimburse DOD the money generated from UN or AU peacekeeping missions. Treasury agreed in principle but the challenge is that the Public Finance Management Act restricts reimbursement of monies to specific departments by the Treasury except under special circumstances. Therefore, Treasury reimbursed some of the money back to DOD totalling R546 million.
The estimated revenue from the sweating of endowment properties through leasing could be R1.5 billion. DOD may generate some revenue from transfers received from other departments for work done by DOD for those departments. Having considered all the opportunities, DOD could generate R3.7 billion from non-traditional funding streams. However, this amount is still not enough to arrest the decline.
The key findings of the funding model are that there is limited scope for significant revenue generation by DOD. Secondly it was found that the endowment assets are valued at R160 billion which is substantially lower than initially estimated. Out of the R160 billion assets, the money which could be generated from endowment assets is approximately R1.5 billion from 2020/21 onwards. Further, it was agreed that any revenue that can be generated by DOD should however be available to offset current expenses. There were also instances identified where a “commercial mindset” could substantially benefit the Defence funding agenda. For instance, where DOD intervenes to do something which was supposed to be done by another department, DOD should be financially compensated if the department which failed to do the work has a budget for that specific work.
Key findings of the funding model are that the opportunities for internal efficiencies should be put into force. In addition the forced rationalisation is the largest opportunity for reducing annual expenditure. The SANDF has a large ageing force. However the forced rationalisation requires significant upfront costs subject to the finalisation of the Force Design and Structure requirements which is currently underway.
The funding model developed provided a clear picture of the options and challenges facing the Defence budget and the limitation for DR 2015 implementation. The DR 2015 as a policy for South Africa is mandatory but implementation thereof is a challenge. Due to the funding challenges, DOD should develop a value proposition and clearly define costs of functions performed and value delivered. Balancing priorities against available funds is critical while also matching the Defence ambition to the available resources.
DOD has to look at revenue sources and retain revenue streams to support expenditure forecasts as well as determine the available property portfolio to the market. This is important to utilise Defence facilities and immoveable assets. The BTT also developed proposals critical to meet the Defence mandate. These proposals are cost savings and preventing wastages; organisational efficiency and structural design; personnel rejuvenation and right sizing; Special Defence Account (SDA) deliberate alignment to the military strategy (ensure no duplication); maximising reimbursements (UN and others); sweating endowment property assets that are surplus to requirements; focusing on repair and maintenance of operational vehicles; optimising DOD Works capability and additional allocation from the fiscus.
These proposals were consolidated in a cash flow projection to determine the amount of money needed to arrest the decline. It was projected that overtime Defence could achieve Work Package 3 and 4 when its budget has increased to R68 billion. The projected shortfall for HR amounts to R3.2 billion against the allowed ceiling. The current HR shortfall of DOD is R3.1 billion and this is a huge challenge. DOD is faced with a challenge where the allocated budget is not sufficient to meet what is required or expected.
It is evident that the fiscus cannot support the full implementation of option 2 for at least the next two MTEF periods. BTT further concluded that although work package 5 remains important, the priority for any additional funding must be directed at achieving work packages 1, 2, 3 and 4. These packages require an increase of Defence budget of up to R18.2 billion. BTT concluded that any funding emanating from compensations or reimbursements should be allocated to the interventions that would make Defence sustainable to meet its audit commitments. In conclusion, DOD received a letter in April 2018 from Treasury indicating that due to fiscal circumstances, Treasury is unable to fund the implementation of the DR 2015 over the MTEF periods.
Dr Sam Gulube went on to present the way forward for implementation of the DR 2015. He reminded the Committees that when the DR 2015 was developed, Members were informed that the Defence budget allocation should be increased. However, since the adoption of the DR 2015, the DOD budget was reduced. Given these fiscal constraints, BTT come to the conclusion that the DR 2015 cannot be funded as required and only the non-cost interventions are being implemented. Further, BTT came to the decision that it should retain income generated through UN reimbursements for operations and channel the money towards arresting the decline. DOD is providing many services to different departments but has not been receiving money for those services. For instance, Defence is involved in cleaning up the Vaal River because of contamination from sewer systems. DOD was also involved in Mafikeng Hospital to provide medical services. All these operations are outside the core mandate of Defence but Defence continues to assist other departments which however cost DOD.
BTT agreed that DOD should retain income derived from the sweating of assets. Nonetheless, the details of this are still under discussion and final approval will be subject to regulatory provisions provided by Treasury. DOD is developing a Sustainability Strategy which will be considered by the Defence Council. The Sustainability Strategy essentially indicates that DOD should comply with the budget reduction and allocation ceilings in targeted areas. It also outlines measures to reconfigure Defence because the budget allocated for 2018/19 does not meet the needs of Defence.
The Chairperson thanked DOD officials for their representation and asked for clarity on the Defence budget.
Dr Gulube responded that the budget is approximately R48.5 billion.
The Chairperson said that the reimbursement of funds to DOD for its services should be immediate because there is an agreement between Treasury and DOD.
Mr E Mlambo (ANC), Co-Chairperson, said that he was not satisfied why Treasury fails to release the money to DOD when the UN or AU pays for peacekeeping missions. What is the stumbling block?
Mr Rendani Randela, Chief Director: Treasury, replied that the money was paid to DOD from UN missions.
Ms B Dambuza (ANC) needed clarity on the exact financial year in which the money was paid. DOD should be reimbursed whenever they provide services to other departments. She did not understand what the problem is. There is a tendency of non-payment within certain departments and they need to know how DOD would get the money. Many municipalities are struggling to get their monies from departments. Does DOD have a strategy to ensure they are compensated for their services within the country? She recommended that DOD should continue providing the services. She asked why Treasury reduced funding for Defence. She asked how Treasury views staff reduction. If there is staff reduction, it means that there should be money for the process. She asked why DOD is not proceeding with the sweating of assets.
The Chairperson pointed out that the reimbursement of funds for international missions was done. The remaining one is the reimbursement of funds for services rendered for other departments. He asked for the strategy to recover money from other departments.
Mr S Marais (DA) thanked officials for the presentation. The departure point is section 200 of the Constitution which provides the Defence mandate. There are many interpretations that can be given to the section. However, it is not clear what the mandate is and who decides on the mandate. The narrow definition of the section should be the point of departure to define a clear ambition for Defence. Did DOD strategies speak to the constitutional mandate as stipulated in section 200? The priorities of Defence do not seem to be aligned to the constitutional requirements and the budgetary allocation.
Mr Marais needed to understand why the second option to re-design Defence was not approved. He asked DOD to explain the interpretation given to the first option which failed to comply with constitutional requirements. He suggested that the Defence Committees should have a workshop to unpack what DOD needs and how to comply with constitutional requirements while not compromising its capabilities. His view was that Defence has an ageing force who are not willing to let go of their perception of what a defence force should be. This is a major problem within Defence.
Mr Marais said that it is important to understand what Defence needs to be sustainable and to comprehend its ambitions and expected capabilities. He did not understand the Joint Force Employment Requirement (JFER) and was seeing it for the first time. He needed to understand if it was the official requirement. The JFER could have been used as a reason there is no money to be allocated for DR 2015. He asked DOD to clarify what the JFER is about and share the document with the Defence Committees.
Mr Marais did not understand why DOD prioritised certain packages over other packages. For a defence force to be strong and capable to deliver on its responsibilities, all packages should be implemented in harmony with each other. If all the five packages are not implemented as a combination, there will be a problem. His view was that there should be options of combinations.
Mr Marais asked if the estimated cost plan included inflation and the type of inflation considered. CPI inflation would not apply to most defence equipment because most of them are not consumable. Realistic inflation rates should be provided for so that DOD can progress. He asked why there was a decrease in the UN reimbursement.
Mr Marais noted that when committee members went to the Democratic Republic of Congo, a presentation was done indicating that 80% of the UN refunds were based on the efficiency of the helicopters. However, in February, SANDF helicopters could only fly 30% of the UN allocated flying hours. If DOD wants to increase the UN peacekeeping missions and increase reimbursement, there should be a plan to do that. The serviceability of equipment should be addressed as well. He was frustrated that the information on the need to increase UN reimbursements was not clear or sufficient. He did not understand how DOD intends to increase its UN refunds if it prioritised certain packages over other packages and Defence equipment is not properly serviced. He did not believe DOD had properly done its homework on its strategy to increase UN reimbursements.
Mr Marais said the objective to raise between R500 million and R1.5 billion on endowment assets would not be achieved without capital injection. It is impossible to recapitalise important assets without capital injection. To what extent can the assets worth R160 billion be sold to increase capital to get necessary equipment?
Mr Marais was also concerned about the ageing defence force. Do we know in the next 5 to 7 years what will be the expected retirements? There is need to rejuvenate the workforce because the current force is too old. He asked for the timelines for personnel rejuvenation and right sizing plan as presented by DOD. He was glad that Dr Gulube had pointed out that the DR 2015 is not fundable because of the shrinking economic growth. The Defence Force can employ a lot of young people, but that is not happening because it has no funding and the old people do not want to retire.
Mr Marais said that the R18.2 billion cut from the Defence budget is less than the actual net shortfall. The correct shortfall is R36.4 billion. Therefore, anything being done is R36.4 billion behind. On services to other department, the government policy for reimbursement is 30 days. Did DOD submit invoices for payments which were not honoured?
Mr P Mhlongo (EFF) stated that when he visited China, he learnt the importance of planning and how China aligns capital injection with human resources. It is no use to come up with a funding model with millions only to realise that in the next few years, the majority of the people in Defence retire. He asked if DOD has aligned its funding model with human resources. He was concerned that Defence top command had a lot of old people whose lifespan in the service is limited.
Mr Mhlongo asked if DOD had identified all the stakeholders that can be part of the process undertaken. He does not support cutting down Defence capabilities to a lower standard because South Africa has a duty to the continent. He asked DOD’s position on Armscor so the Defence Committees can assist wherever necessary.
Mr Mhlongo said that the President is the Commander in Chief of the Defence Force and that no department or ministry can dictate terms for the Defence Force. Industrialisation cannot be achieved without sharpening defence force capabilities. He did not know any country that developed without strengthening its defence force. Cyber warfare is intertwined with global threats and currently there is Brexit which may have implications for Commonwealth countries although the implication are not yet known. He strongly agreed with Mr Marais that there should a workshop to understand what needs to be done for the national defence force. We cannot forfeit our defence because it is our national pride. There is a duty on South Africa to ensure that the African continent is safe and secure. There is no amount of money which could be equal to the mission called for by Oliver Tambo and other African leaders to establish the Organisation for African Union for the purpose of stabilising the continent. It is unacceptable that Defence capabilities are compromised when politicians are stealing millions.
Mr D Gamede (ANC) reminded them that they had taken a decision to engage Treasury because the main issue affecting DOD is funding. He needed to understand from Treasury its position on funding DOD and the letter sent by the Treasury Director General stating that it will not fund the implementation of the DR 2015. It was unacceptable to find a department of state saying it will be unable to fund anything for the next three years. Instead, it would be better if Treasury specifically stated what it is able to do. The importance of Defence should not be undermined. The main purpose of Defence is to defend the country and that is impossible if Defence is not adequately funded. The Defence Committees should engage both Treasury and DOD Directors General, the Minister of Finance and the President. DOD is one department that needs money and the Defence Committees should not accept the position of Treasury not to fund the DR 2015.
Mr Gamede proposed that the Defence Committees meet with the Ministers of Defence and Finance and the President to ensure that funding for the DR 2015 is secured. The implications of failing to fund Defence should be emphasised. Without defence, there is no country. He was not happy that the UN reimbursement given to DOD was only for the current financial year. What happened to the UN reimbursement for past years? Defence is a matter of national importance and if Treasury does not fund Defence, then the President should be informed so that money can be raised.
Mr S Esau (DA) reiterated the importance of the defence force for a country and certain departments cannot be compromised. Departments like education and health are crucial for any country. However, in order to thrive and prosper, the nation should be secure. Budgets should be skewed in favour of those departments for a secure nation. In practice, some of the critical departments are compromised. All departments should practice the 3Es (efficiency, effectiveness and economical). However, this is not properly followed and there is a lot of corruption in many departments. He pointed to overcharging in procurement that needs to be cut down. The 3Es should be practised to reduce losses and expenditure across all departments.
Mr Esau needed to understand the Cost Benefit Analysis of DOD to ensure that the old force resigns at the right age and Defence is rejuvenated with more young people. It is important to comprehend that the ageing force requires more money for retirement package whereas the cost of rejuvenating Defence with young soldiers will cost less. They need to know the actual cost.
Mr Esau said that the funding model did not address intellectual property (IP) and this needed clarity from DOD. IP should be exploited. There is a potential for South Africa to make money on the continent from the arms industry IP. The IP has not been exploited and more money can be generated through this.
Mr Esau said 1.5% of the value of endowment properties must be used to maintain them. They should not be used at a loss. DOD should find strategic partners that understand this investment and that the profits made will be transferred to government. What happened to the Dockyard for maintenance of ships and vessels? He hoped that the Dockyard will be improved to service vessels for South Africa and other countries in Africa so that money can be raised for Defence. Peacekeeping missions should generate money for South Africa.
Mr Esau reminded Members that when the process of developing the DR 2015 started, the Defence Committees asked for its financial implications. He recalled Members’ concern that the DR 2015 cannot be implemented because of economic recession and that the DR 2015 seemed to be overambitious. He also said that there is a need to ensure that soldiers are disciplined and willing to save the country. Some soldiers refuse to do simple work like cleaning the barracks. A new type of work ethic should be instilled.
Mr Esau emphasised that South Africa needs a defence force which can be respected and will play a major role on the African continent. Many countries like Angola, Algeria and Nigeria have improved their defence force. He asked if countries on the continent with an improved defence force are contributing to the AU peace keeping missions. He asked for the commitments of those countries as South Africa is usually requested to send the SANDF for many peace keeping missions. Were these discussions taking place in the AU and the Southern African Development Community? South Africa should not always lead when it cannot afford to fund the missions. There should be a viable solution to solve security issues on the continent. If South Africa does not intervene, many refugees will run to South Africa and this may affect the country.
Mr Esau said the DOD report was informative and that it should be put into action. Treasury must be actively involved as defence is not only for DOD but the entire country. He reiterated that DOD must also ensure that it does not make unrealistic demands. In ensuring that Defence capabilities are not undermined, the Defence Committees should be mindful that DOD does not waste money or make unnecessary demands.
Mr Gamede said that in the State of the Nation Address, previous President Jacob Zuma told the nation that DR 2015 would be funded. He was therefore surprised Treasury had written to DOD stating that there is no money to fund the implementation of DR 2015. For that reason, he suggested that the Defence Committees should meet the President and get directives.
The Chairperson thanked Mr Gamede for the proposal. He reminded Members that he had also once proposed that the President as the Commander in Chief must intervene when Treasury indicated it would not fund the DR 2015. He had asked Treasury at the time why it attended their meeting when they had clearly indicated that the DR 2015 will not be funded. Treasury should be working together with DOD to find ways to fund defence. If members of the public hear that the Defence Forces is collapsing, they would be shocked. It is very painful to run a country without a defence force. He took note of the proposal made by Members for a three day workshop to look into the matter and meeting with the President. They need to find out if the President as the Commander in Chief is aware and understands what is happening.
Dr Gulube replied about sweating of assets, indicating that DOD is working on a Facility Plan which deals with this. However, DOD cannot sell some of the assets because they fall under the Government Immovable Asset Management Act (GIAMA). These assets are under the custodianship of the Department of Public Works (DPW) such as the Waterkloof Air Force Base. DOD conducted an audit of the assets that could be sold and the value of those properties is approximately R160 billion. Armscor’s approach to land is different from the approach used by DOD. Armscor only takes into account all the land owned by the government while DOD considers the land that forms part of the Defence endowment. The Defence Committees will be given a complete picture when the Facility Plan is finalised. The DPW told DOD that it cannot sell certain land without following certain procedures.
Dr Gulube said the constitutional mandate of Defence is to protect the people of South Africa and to defend the territorial integrity of South Africa. The Constitution requires Defence to be present whenever the people of South Africa should be protected. Moreover, the Constitution prescribes how deployment should be done. For instance, in cases of disaster management, Defence can be deployed to rescue people or perform any task. The challenge of the system is that the disaster management fund does not sit with DOD but within local government coffers. DOD usually faces difficulties to unlock those funds.
Dr Gulube replied to Mr Mhlongo’s question on the identification of stakeholders who will help to drive the implementation of DR 2015. There was an attempt to conduct public consultations before the DR 2015 was developed but the participation was very low. However, DOD intends to call for public participation for the next 2019/20 Defence Review.
Dr Gulube stated that DOD has done extensive work to analyse the complement of soldiers so that the issue of ageing force can be addressed. DOD has analysed quadrants for different ages of soldiers and of those who should retire. DOD has an exit plan for ageing soldiers but still faces the challenge of funding. To exit the ageing soldiers, it will cost approximately R 4 billion for the first MTEF. DOD engaged with Treasury so that the funds can be raised. DOD cannot exit soldiers on its own without the required funding and without the support of the public service administration. DOD also has a rejuvenation plan for young soldiers but this cannot be implemented because of funding challenges.
Dr Gulube stated that DOD needs the help of the Defence Committees to leverage IP. The Intellectual Property Act provides that if the government spends money on research and development, the IP rights belong to the institution or company that conducts the research and not government. DOD has been having difficulties with this clause because the Department of Science and Technology insists that the clause cannot be amended. The reason the clause was drafted like that is because the lawmakers wanted to make it easy for private companies to commercialise their IP and earn money from it.
Dr Gulube suggested that the IP Act should be amended so that DOD can leverage the IP from its research. The Council for Scientific and Industrial Research (CSIR) has also been blocking DOD from commercialising IP developed by Defence. He suggested that Parliament could help by amending the clause and inserting an exception so that DOD can commercialise its IP.
Dr Gulube agreed that Defence plays an important role in industrialisation and that more money should be injected into it. Defence is involved in many research projects that could generate money for DOD. For instance, it is developing shark cables which can be used to repel sharks from the ocean shores and avoid using nets because they are not environmentally friendly for other fish. Due to budget cuts some of the research conducted by Defence is being compromised. One should understand that when money is invested in Defence, it is for the benefit of the country because Defence plays an important role in industrialisation.
Dr Gulube said that he requested Treasury put in writing in a letter that it cannot fund the DR 2015 so that the Parliament could assist DOD on the way forward. Treasury does not decide on what to fund but receives directives from Parliament. He had brought the letter in case Members needed to go through before finding a way forward.
The Co-Chairperson requested that the letter should be given to the Defence Committees.
Dr Gulube agreed with Mr Esau that all departments should be efficient and cost effective and avoid overspending money. He added that the Dockyard is being attended to by DOD and Armscor so that it can be sustainable and profitable. On peacekeeping missions, he pointed out that the security restored in the DRC usually benefits Belgian and other European companies operating in DRC. There is need for South Africa and its people or businesses to also benefit from the peace keeping missions. He concluded by agreeing with Mr Esau’s point about the need to cultivate and nurture discipline within the SANDF.
Brig Gen Gibbs agreed that section 200 of Constitution is important although there might be different interpretations. DOD Chief Joint Operations interpret the Defence mandate and conflict risks and the JFER. The Defence Committees have a right to have a look at the JFER if they require. He went on to state that the work packages were grouped into related measures but this does not mean that some are more important than others. BTT was able to determine what could be achieved in the next two MTEF periods for each of the packages even if the expected funding is not received by DOD. However, more could be achieved if the funding is secured.
Brig Gen Gibbs replied that inflation was taken into account using CPI as the official position of government. He agreed that inflation for defence equipment differs from CPI because most are not consumables. DOD did an analysis within its medical division for medical stock and found that the average inflation rate is 17%. However, the applicable inflation rate across all defence divisions is 11%. DOD is heading towards a crisis but he was pleased to see the level of frustration of the Defence Committee members.
Maj Gen Michael Ramantswana Chief of Military Policy, Strategy and Planning, replied that DOD is currently working on the Force Design and Structure. The process will be completed by the end of the second quarter. However, before it is finalised, it should be approved by the Military Command Council (MCC). DOD is considering a strategy to roll-out the design in light of the financial crisis. The full Force Design and Force Structure will be presented to Members when it has been completed and approved by the MMC
Maj Gen Ramantswana replied that the MCC takes UN reimbursements seriously. There was a full discussion within DOD on how to ensure that UN reimbursements are paid back to DOD. The MCC is cognisance of challenges faced by Defence and the challenge of getting some equipment from missions back into the country. Many options are being explored to resolve the challenges. He was happy that the Defence Committees understand the importance of defence to the country and that it should be sustainable and adequately funded.
Ms Naso Tyibilika, DOD Chief Director: Budget Management, replied that certain departments take longer than 30 days to pay DOD for services rendered. Even though the process takes long, most departments pay DOD whenever it renders services. Departments that received invoices from DOD but have not made payment include the Departments of Social Development, Rural Development and Public Works.
Mr Rendani Randela, Treasury Chief Director: Justice and Protection Services, agreed that Defence is a critical department because it protects all the people of South Africa. Most of the issues the Defence Committees had raised were discussed by DOD and Treasury during their deliberations. On retirement of Defence Force members, there are certain things that Treasury cannot do given the budgetary constraints. For instance, the exit and rejuvenation of Defence should be balanced to meet the mandate of Defence. Given the budgetary requirements, Treasury cannot meet the demands of Defence. As part of the discussions between Treasury and DOD, there was a proposal to set aside funding to deal with the exit plan because natural attrition in Defence is not very effective. However, one challenge that most people fear is the penalties that may be charged if they exit before the right age. Within Treasury, DOD and DPW there are still discussions on the exit plan and how it should be implemented. The discussions are being conducted in terms of the Public Service Act to understand how many people are within different age categories.
Mr Randela replied that Treasury wrote a letter to DOD and DPW indicating that they should have a meeting to resolve the funding crisis in Defence. The meeting could not take place because of the resignation of previous Minister of Finance Nene. The Ministers of Finance, Defence and Public Works were also supposed to meet by the end of September 2018. Treasury will try to push for the meeting to take place so that in future people who join Defence will know when they retire and the exit plan.
Mr Randela replied that his suggestion to DOD is that there should a framework which deals with compensation for services provided by Defence to other departments. This framework will assist all departments in having Memoranda of Understanding with DOD. He will have a discussion with his colleagues in Treasury on the need to have a framework which will be used by all departments that need assistance from Defence.
Mr Randela replied that the letter from the Treasury DG stating that DR 2015 will not be funded was guided by Treasury’s projections and budgetary framework given the current economic status of the country and competing priorities in government. When DR 2015 was conceptualised in 2014, there were not many competing priorities in government. Further, priorities in government like Fees Must Fall make it difficult for Treasury to fund DR 2015 which requires R53.3 billion. The budget has to be discussed in Cabinet and reality is the economic constraints and competing priorities.
Mr Mashudu Bidzha Director of Public Finance from National Treasury pointed that Treasury takes the strategic importance of Defence very seriously. He also agreed that the matter should be taken to the responsible Ministers and President. When one is in a constrained economic environment, budgeting becomes a choice because of many competing priorities. Treasury has a difficult task to ensure that these competing priorities are balanced. He did not want the Defence Committees to think that Treasury does not prioritise Defence or think that it is not important. Therefore, he fully supported the proposal to take the matter to the President because the Defence Committees can also play an important role. He reminded Members that they had recommended that DOD should retain the UN reimbursements and that was implemented. Treasury is now transferring the money to DOD as a result of the recommendations made by the Defence Committees
The AU is currently conducting a review of member states to understand the contributions of each country to the AU. It is known that South Africa is a significant contributor to the AU Peace Fund. However, with the current review, the AU wants to make sure that there is a balance so that other countries also contribute to the Peace Fund and other programmes of the AU. He reiterated that the matter should be escalated to the executive so that it can be resolved.
Mr Marais noted that some questions had not been answered. He was shocked that there is nothing to be added from the UN reimbursements. South Africa was in DRC for a peace-keeping mission and money should given to DOD from that mission. The medical costs in Defence are very high and he asked if it is necessary to have hospitals specifically dedicated for the military.
Mr Esau suggested that Dr Sam Gulube should draft the IP exception clause to be forwarded to the Minister and Parliament to review the clause so that the Defence can retain and commercialise IP developed from its research. He did not see why the MOUs are not being entered into while Defence has a lot of expertise that can be utilised. The MOUs should be drafted quickly so that Defence can assist different departments with its expertise and make money out of providing services. He was concerned about the growing number of soldiers getting money from Military Veterans due to soldiers that joined prior to 1994. He pointed that members from Defence constitute the highest number of beneficiaries and there should a plan to ensure that soldiers are independent after they retire and not rely on money from Military Veterans.
The Co-Chairperson indicated that these comments are for DOD to take note of and not to provide answers.
The meeting was adjourned.
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