The Department of Defence met with the Portfolio Committee to present the performance and expenditure report for the third quarter of the 2018/19 financial year. It highlighted key performance indicators and gave a strategic overview of the progress thus far, based on the Defence Review of 2015.
Because of budget cuts, the Department faced a shortfall and needed to re-evaluate the number of personnel. It would have to cut the required complement of 75 000 by 6 000 to meet the new budget requirements, but this was not possible. There would be a need to reduce expenditure on goods and services, but this would mean the efficiency of equipment would be compromised, as maintenance and replacement could not take place regularly. The drop in expenditure for goods and services would subsequently cause the DOD to regress in the long run, as future members would have the responsibility of recouping equipment at a much higher cost in the future. There were also growing commitments for the DOD, such as Project Vaal River. There was an uneven distribution of age groups in the Department, and there had to be recruitment of youth. However, there was a commitment to properly remunerate older staff when they retired, which also required funding.
In discussion, the Department was criticised for the fact that it was using the Defence Review of 2015 as a mandate to evaluate performance, even though it had been previously discussed by the Committee, which had viewed the mandate as too unrealistic to use as a performance measure. The focus of Members’ comments was mainly on how the Department could adapt to the budget limitations, and how it could contribute to revenue generation.
The newly elected Chairperson, Mr D Gamede (ANC) opened the meeting with an announcement on the resignation of the previous Chairperson, Mr M Booi (ANC), in December 2018.
Department of Defence Performance Report
Dr Sam Gulube, Secretary of Defence, , thanked the Committee for their support and input given to the Department of Defence (DOD) over the course of their term, and handed over to Mr S Sokhela, Chief Financial Officer (CFO), to proceed with the presentation.
Mr Sokhela explained the relevance of including the legislative requirements, so the Committee could fully understand the layout of the report, which was strictly related to the quarter from October to December 2018, with no information before or after this time. The importance of the third quarter results functioned as the last ‘early warning system’ of weak performance.
Mr S Marais (DA) said the Committee would not be present to evaluate the fourth quarter, so he requested an expectation of the strategic overview of the last quarter, as it may highlight possible concerns for a realistic view of performance.
Mr Sokhela agreed to include projections in his presentation for more clarity wherever possible.
The strategic overview of the DOD was outlined in the SA Defence Review 2015 Strategic Trajectory, which had been communicated to national stakeholders to ensure they were adequately informed about the current state of progress, particularly the Department of Performance Monitoring and Evaluation (DPME), and complemented the medium term strategic framework (MTSF) mandate paper for 2020, which was based on the 2015 Review. The DOD’s strategy was to work on the tangible defence contribution to the economy (defence multiplier effect), by ensuring safety and security, and to create a more stable economic environment which could potentially drive investment, subsequently generating economic growth.
In the area of human resources (HR), the DOD planned and budgeted for an average personnel strength of 75 211, at a cost of R30.3 billion, while the available allocation was R27.1 billion. The only way to adhere to the allocation was by reducing the number of personnel, and projections were made at a personnel strength of 75 000, which was the number of personnel needed for the Department to achieve its strategic objectives.
On 7 March, the Minister of Defence was meeting with the Minister of Finance and the Minister of Public Enterprises to discuss the issue of a budget shortfall, as the retention would require the DOD to retrench about 6 000 members of personnel, which was not possible. The shortfall was estimated at R3.2 billion, but through analysis of the current books, the estimation was R1.9 billion, as most salaries and allowances had been paid. The adjustment downward could be attributed to a reduction in goods and services expenditure by R1.4 billion. By making this decision, the efficiency of equipment was compromised, as the maintenance and replacement of equipment could not take place regularly. The fall in expenditure for goods and services would subsequently cause the DOD to regress in the long run, as future members would have the responsibility of recouping equipment at a much higher cost in the future.
Mr Sokhela said that even though there had been a reduction in the allocation of funding, there were growing commitments for the DOD, such as Project Vaal River. He also explained the uneven distribution in age of the DOD, and the urgency for the recruitment of youth to join the Department. However, as the older generation left the DOD, there was a commitment for it to properly remunerate staff when they retired, which also required funding
During the period of evaluation, 90% of invoices were paid in 30 days, an improvement in debt management, but the DOD remained committed to further improvement of invoice payments.
The Hydrographic Bill had been passed by the National Assembly, and was waiting for the President’s approval.
The Department was currently preparing the Military Discipline Bill.
The Defence Amendment Bill was still in the Parliamentary process before the National Assembly.
Regarding regional security, the component of the DOD responsible for peacekeeping operations, the major operation, Operation Mistral, was now in the Democratic Republic of Congo (DRC) with the UN Peacekeeping Operations. Their efforts had been commended by the UN for protection and social services regarding the Ebola outbreak in the eastern DRC,
Internal operations included Operation Corona, to execute border safety nationally, while the
DOD continued to supply government departments with safety and security support, such as the SANDF assisting the North West Province government with infrastructure support to maintain essential services, which had commenced in June 2018. The DOD was also the main contributor to the rehabilitation of the Vaal River.
The non-financial performance was assessed through use of the defence mandate and governance performance monitoring, ensuring accountability.
The indicators are vast for administration, and of the 22 indicators, 45.5% were achieved. This was significantly lower than the previous two quarters, and could be attributed to the quarter falling within the festive season, yet the projection is that 61% of targets would be met for the year. The positive projection for the overall achievement was because there had been an increased focus on facilitating telecommunications development, thus helping the Department to achieve their indicators, especially regarding equipping the disaster recovery division of the DOD.
All the selected estimates of national expenditure (ENE) performance Indicators were within target or slightly below, with the DOD committed to improving in the next quarter. The indicators below target could be attributed to less efficiency due to budget cuts and lack of equipment.
The DOD percentage of expenses paid was 72.7% of the budget, and the variances in expenditure were within the 8% range. This was the first time the budget cuts had constraint the DOD significantly. This worried Mr Sokhela, as the ripple effect would be felt in the long run when the expenses had piled up. He continued to emphasise the importance of the meeting with the Minister of Finance to increase the expenditure ceiling to maintain financial performance.
The crucial factors resulting in negative and positive balances were:
- The compensation of employees mentioned above, with the reduction in goods and services expenditure.
- Over-expenditure on payment for capital assets, specifically in peacekeeping for elections in the DRC, although these were once-off expenses.
- Payment for financial assets had exceeded the expected expenditure due to foreign exchange losses, theft and other factors.
Mr Marais said the report did not paint a positive picture of the current state of the DOD, and commented on the fact that it was using the Defence Review of 2015 as a mandate to evaluate performance, even though it had been discussed by the Committee, which had viewed the mandate as too unrealistic to use as a performance measure. He urged the DOD to incorporate a change in the mandate in their next strategic overview, which had been requested by the Committee, to deliver an alternative mandate in 2019.
Regarding HR issues, what were the expected rates of retirement exits and the subsequent effect on the number of personnel? Why should the personnel level be at 75 000 if there was going to be a decrease in the year to follow?
He said that to comply with section 200 of the constitution, it was the DOD’s objective to protect the borders and provide protection, which required youth. He therefore requested a more outlined solution to the rejuvenation of the Department to adhere to the constitution.
The shortfall in the budget was not the responsibility of the Defence Force, but no feedback had been given on the contribution by local government, which they were constitutionally obliged to do.
He referred to the helicopter unit of Operation Mistral, and said the work helicopters had been doing had been very controversial last year, as the UN had stated that expenses were too high. However, the work being done was very important in maintaining safety in the DRC. The helicopter unit was able to operate only 40% of the time due to logistical and maintenance issues, so he wanted clarity on the capital acquisition in the air force, as it was a benchmark for the DOD.
With reference to Operation Corona, there was no clarity on the location of personnel and the vulnerability of the borders. Was there any indication of the deployment of soldiers during the forthcoming elections, as all nine provinces should have structures available to support any unrest that may occur during this period?
Mr Marais expressed his dismay at the number of hours flown and time spent at sea, and believed the indicators did not adequately express these factors compared to Section 200 of the constitution’s obligations.
The summary of state expenditure showed a reduction in the expenditure on military health support, but the budget allocation had increased. He therefore asked for the percentage use of the three military hospitals currently in operation, and the hospitals’ actual capacity, to be provided in a follow up report. The hospitals faced under-utilisation and lack of resources, so he asked if it was necessary for the hospitals to be under the budget of the Defence Force. Was it not possible to transfer the hospitals to the Department of Health, with specific provisions and arrangements to ensure beneficiaries still had the same access and health benefits?
He was also concerned about capital assets and meeting the obligations of Section 200 of the constitution if there was a reduction in expenditure. He wanted more details on the Special Defence Account and disclosure of the status of the account.
He referred to Armscor’s visit to Russia and the financial support Armscor wanted to receive from Russia. As Armscor was a part of the DOD, he made a request for the benefits expected by the Department.
The Committee wanted to understand how the Department was protecting its strategic assets from theft and loss. There had also been multiple reported accidents associated with the DOD, and feedback should be provided on the implication of this on strategic assets.
Mr G Skosana (ANC) congratulated the DOD on the passing of the bills mentioned earlier and the prompt payment of invoices, hence supporting small business growth. The main challenge was the issue of budget constraints and its impact on the performance of the DOD to ensure safety and stability in the economy. The importance of this needed to be conveyed to the Minister of Finance, and a bailout was necessary. The financial expenditure had been over budget and had been attributed to currency losses, but there were no provisions set aside to deal with the accumulated loss. He asked if it was not possible in some way to have some structures available to deal with the unforeseen losses.
Mr S Esau (DA) acknowledged the budget cuts, but the DOD had not stated other ways they were willing reduce costs or generate avenues of revenue to soften the shortfall in the budget. He requested information on the dockyard and its current capacity to help revenue generation through its shipyards. He urged the use of the DRC as a target for exports, in return creating employment and investment opportunities to generate money.
He also asked about the retirement and retrenchment strategies to be implemented to sustain the DOD in both the short and long run, with a cost-benefit analysis. When would the prime mission equipment (PME) be obtained by the Special Defence Account (SDA), as it would provide a way to analyse where the Department was financially?
Department of Defence’s response
Mr Sokhela said he would cover the questions he could answer immediately, and report back to the Committee on the other issues in due time.
The Defence Review of 2015, which had been followed by the DOD, would be reviewed for a more realistic performance evaluation, and would be published in 2020. The mandate previously drawn up had disregarded the budget, with more focus on what the DOD could be.
The intention of the Department was to have 3 000 leaving and 3 000 youth entering the DOD. The calculation had been done, and the age group exiting was at the top level while the entries would be young and unskilled, which would cause a skills/experience disproportion in the DOD.
The Vaal project was funded by National Treasury and other departments of government, but the payments by these state organs were not guaranteed to fund the project. A memorandum of understanding (MOU) was now being circulated, coordinated by National Treasury (NT).
Regarding the serviceability of assets, these had been replaced and maintained in the last year, with reinvestment by the UN.
He fully agreed on utilising the hospitals that could benefit both the Defence Force and the public, and would think out of the box to solve these problems. Private partnership may be good, but soldiers needed immediate medical care.
Strategies for revenue generation were being developed by the Department to help with the shortfall in the budget.
He said military facilities were supposed to be protected by military services. The over-expenditure was the result of deployments in the North West Province, KwaZulu-Natal, the Free State and Limpopo. Regarding arrangements for the forthcoming elections, there was a strategy in place which would be reported on at the next meeting.
The meeting was adjourned.
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