ATC180515: Report of the Portfolio Committee on Defence and Military Veterans on Budget Vote 19: Defence and Military Veterans: Department of Defence, dated 15 May 2018

Defence and Military Veterans

REPORT OF THE PORTFOLIO COMMITTEE ON DEFENCE AND MILITARY VETERANS ON BUDGET VOTE 19: DEFENCE AND MILITARY VETERANS: DEPARTMENT OF DEFENCE, DATED 15 MAY 2018

The Portfolio Committee on Defence and Military Veterans, having considered Budget Vote 19: Defence and Military Veterans and the 2018 Annual Performance Plans of the Department of Defence, the Department of Military Veterans and its entities namely Armscor, the Castle Control Board and the Office of the Military Ombud, reports as follows:

 

1.         INTRODUCTION

 

1. Mandate of the Committee

 

Section 55 (2) of the Constitution of the Republic of South Africa (1996) states that: “The National Assembly must provide for mechanisms (a) to ensure that all executive organs of state in the national sphere of government are accountable to it and (b) to maintain oversight of (i) the exercise of national executive authority, including the implementation of legislation; and (ii) any organ of state.”

 

1.2        Process

The Portfolio Committee considered the 2018/19 budget allocations of the Department of Defence and the Department of Military Veterans, as well as its entities Armscor, the Castle Control Board and the Office of the Military Ombud, against their Annual Performance Plans for 2018/19 financial year over the period of 2 to 10 May 2018. It encapsulates details on how their 5-year Strategic Plans (2015-2020) will be rolled out, and situates the financial year within the Medium-Term Expenditure Framework (MTEF). The Committee made several observations that led to recommendations to the two Departments and the three entities, to enhance their performance for the FY2018/19.

This Report is divided into three sections, with Part A dealing with the Department of Defence, Part B with the Department of Military Veterans, and Part C with the three entities namely Armscor, the Castle Control Board and the Office of the Military Ombud

 

PART A: DEPARTMENT OF DEFENCE

 

1.         Mandate of the Department of Defence

The mandate of the Department of Defence (DOD) is to defend and protect the country, its territorial integrity and its people, in accordance with the Constitution (Section 200(2) and the principles of international law. This correlates with the mission of the DOD which is to provide, manage, prepare and employ Defence capabilities commensurate with the needs of South Africa as regulated by the Constitution, national legislation, parliamentary and executive direction. The above is provided through the proper management, provision, preparedness and employment of defence capabilities, which are in line with the domestic and global needs of South Africa. The mandate of the Department of Defence further includes support to the developmental state and contributing to the socio-economic needs of the country.

2.         Overview of policy focus areas of the department of defence

 

2.1        State of the Nation Address 2018

His Excellency, President Cyril Ramaphosa delivered the 2018 State of the Nation Address (SONA) on 16 February 2018 to a Joint Sitting of Parliament.  The following excerpts from the SONA 2018 delivered by President Ramaphosa on 16 February 2018 to a Joint Sitting of Parliament. The following are deemed to be relevant to the Department of Defence:

• Ethical Behaviour and Ethical Leadership: Fight Corruption and Fraud

The President stated that this year will be used to reinforce our commitment to ethical behaviour and ethical leadership. This is the year in which we will turn the tide of corruption in our public institutions. The Department manages a hotline to report corruption, providing awareness training on fraud and corruption, as well as instituting disciplinary actions against offenders in this regard.

• Job Creation and Youth Unemployment

Given that the pace of economic growth was not enough to create enough jobs to lift people out of poverty, renewed focus will be on economic growth through the creation of jobs, especially for the young people in our country. The Department of Defence contribute to this objective through various initiatives such as supporting the Department of Rural Development and Land Reform with training, internships through for instance Armscor and the Castle Control Board, etc.

• Procurement and SMME’s

Government will honour its undertaking to set aside at least 30 per cent of public procurement to small and medium enterprises, to co- operatives and to townships and rural enterprises. The DOD has committed itself to support local business through procuring services and goods as close as possible to the point of delivery. It also strives to pay invoices with 30 days in order to ensure the financial sustainability of especially SMME’s.

• Continental Trade: Defence Industry Inroads into Continent

South Africa has acceded to the Tripartite Free Trade Area agreement, which brings together SADC which is our region, COMESA, and the East African Community. This will open market access opportunities for South African export products, contribute to job creation and the growth of South Africa’s industrial sector. Given that Armscor has on occasions bemoan the lack of economic penetration into the Continent especially given the country’s support with Peacekeeping Operations and conflict resolution, this is a welcome initiative and it is hoped the Department will be able to exploit these opportunities.

• Health

The President state that we will need to confront lifestyle diseases, such as high blood pressure, diabetes, cancer and cardiovascular disease. The role of especially the South African Military Health Services (SAMHS) in providing health benefits to serving soldiers and military veterans, and the contributions of the SANDF to address HIV/AIDS, are some of the contributions that the DOD can make towards this commitment.

2.2        The National Development Plan (NDP)

The NDP and its related policies provide a national framework that will inform the contribution by national departments. The DOD contributions to the NDP include the following focus areas:

• All people in South Africa are and feel safe (NDP Chapters 12 and 14). This is done through Border Safeguarding with 15 sub-units being deployed, establishing a Cyber Command Centre Headquarters, and reducing the levels of DOD corruption where prevalent.

• Create a better South Africa, a better Africa and a better world (NDP Chapter 7). This is done through the DOD’s International contributions of conflict prevention, peacekeeping, peace, security and post-conflict reconstruction and development as ordered by Government.

In addition to these two direct contributions, it also contributes to the reduction in youth unemployment; the provision of assistance in disaster aid and disaster relief; combatting piracy along the east coast of Africa; strengthening the research and development capacity in South Africa; building safer communities; and building a capable and developmental state

The focus areas for defence within the NDP flows over into the Medium Term Strategic Framework (MTSF) for 2014 to 2019.

2.3        The Medium Term Strategic Framework (2014 - 2019)

The MTSF Outcomes to which DOD will contribute include the following:

• Outcome 3 (Sub-outcome 3 - All people in South Africa are and feel safe): Defence will contribute to this outcome through its participation in border safeguarding. During 2018/19, a total of 15 sub-units will be deployed for the purpose of border safeguarding, although 22 are required for effective border safeguarding.

 

• Outcome 3 (Sub-outcome 4 – Secure cyber-space): The DOD will contribute to this outcome through the development of a National Cyber Warfare Strategy and Implementation Plan. During 2018/19, the DOD will continue with the implementation of this plan and, if resource allocations permit, contribute to the capacitation of a cyber-security institution through the establishment of a Cyber Command Centre Headquarters.

 

• Outcome 3 (Sub-outcome 7 – Corruption in the private and public sectors reduced): The DOD will continue to implement measures to reduce corruption and fraud.

 

• Outcome 11 (Sub-outcome 3 – Political cohesion in Southern Africa to ensure a peaceful, secure and stable region): The DOD will contribute to conflict prevention, peacekeeping and post-conflict reconstruction and development as ordered by Government.

 

2.4        Priorities of the Minister and the Chief of the SANDF

Minister of Defence Priorities	Chief of the SANDF priorities
Defence Strategic Direction: This includes strategic direction for engagement on the 2015 Defence Review.	Military Strategic Direction: Implementing guidelines on the Defence Review; border safeguarding strategy; joint force employment strategy; developing the blue-print force design; and, a defence diplomacy strategy.
Strategic Resourcing Direction: Developing a Defence Funding Model.	Restructuring the SANDF. Compile a restructuring plan to be rolled out over the MTEF period.
Organisational Renewal: Providing strategic direction to inform the restructuring of the DOD (new force structure).	Implement HR Strategy: Based on the “cradle-to-grave” concept and focus on the right-sizing of the SANDF. The Defence Academy will be established.
	Enforcement of Military Discipline: A discipline plan will be promulgated based on the military culture defined in the Military Strategy.
	Revitalisation and utilisation of Reserves: Improved feeder system for the Reserves.
Human Resources renewal: Ensuring that the personnel profile meets both current and future defence obligations.	Renovation of DOD Facilities: Devolving the responsibility for Defence Endowment property from the DPW to the DOD and utilising the Defence Works Formation for maintenance.
	Development and maintenance of Strategic Reserves: Chief SANDF will provide a policy on strategic reserves determining required reserve stock levels for emergencies.
	Development of SANDF capabilities: Physical development of appropriate capabilities through acquisition plans. Focus will be on development of landward defence capabilities, investigation of the establishment of a Coast Guard and establishing a Cyber Warfare Capability.
	Renewal of Landward Defence Capability: Development of a multipurpose support vehicle; resourced production to take place in 2018/19.
Capability Sustainment: Aligning defence acquisition to the 2015 Defence Review. Notable focus on the DOD Works Capability, cyber Warfare Capability and Defence Industry Policy and Strategy.	Force Protection: Improved Intelligence Capabilities on all levels and improved preparation and force employment stock levels.
	Border safeguarding: Systematic increase of the SANDF’s footprint on the borders.
Ordered defence commitments: Sustaining ordered defence commitments.

Table 1: Priorities of the Minister and the Chief of the SANDF

 

3.         COMMITTEE 2016/17 BUDGET REPORT

The Committee made the following recommendations in terms of the 2016/17 Annual Performance Plan of the Department of Defence:

 

1. Urgent engagement with National Treasury is required in an effort to find means of addressing the projected over-expenditure on compensation of employees in 2017/18 and beyond. Progress in this regard should be presented to the PCODMV on an ongoing basis.

 

1. An urgent trilateral engagement between Parliament’s Defence Committees, the DOD and National Treasury is required regarding the funding of the implementation of Milestone 1 of the Defence Review.

 

1. The Cyber Security Strategy should be finalised as a matter of urgency and regular updates on its implementation be provided to the PCODMV.

 

1. Flying hours in the SA Air Force remain a major concern. The Committee recommends that the DOD reports, on a quarterly basis, progress in the attainment of the 5 000 Force Employment hours to be flown. A further breakdown of the total number of flying hours (training, operational, force employment, etc.) will further assist the PCODMV in its oversight.

 

1. The Committee further recommends that the Department reports to it on the cost of leasing aircraft to transport personnel and cargo in order to determine whether a better option would be to purchase such aircraft. 
2. Similar to the above, the PCODMV recommends that the DOD reports, on a quarterly basis, on the progress being made to attain the 12 000 planned sea hours for the SA Navy.

 

1. The Committee urges closer cooperation between the DOD and the Department of Public Works (DPW) regarding the upgrading of security at military bases. Where possible, the Defence Works Formation should be included in efforts to enhance base security. Closer cooperation with the DPW should also be extended to the realm of border safeguarding and repairs to border fences.

 

1. The Committee further recommends that security-evaluations should be done at military bases especially at those bases in located CBD’s to assist in the determination of which bases should either be moved or rationalised.

 

1. The target related to the availability of medical stock in Medical Stock (Programme 6) should be declassified and reported to the Committee on a quarterly basis.

 

1. Progress with regards to the finalisation of a Mobility Exit Mechanism (MEM) and the potential implementation thereof should be presented to the Committee on a quarterly basis.

 

1. The DOD is implored to ensure that operational fatigue does affect the Permanent Force amid the reduction of the utilisation of the Reserves. The Committee should be briefed on this.

 

• Given the tight financial position of the DOD, areas for further cost-cutting should be identified. The Committee recommends that the Department should report on the allocation to contractors and consultants and the related expenditure on this line item to allow the Committee to monitor this aspect throughout the year.

 

1. The PCODMV also notes the continued rise in outsourcing of patients by the DOD at a very high cost to the Department. The Committee will monitor expenses in this regard.

 

• The DOD should also provide quarterly feedback on (1) progress with regards to the finalisation of 1 Military Hospital’s refurbishment, (2) constraints to hiring of medical personnel, notably at 2 Military Hospital, and (3) means to ensure that services which are being outsourced can be offered in-house.

 

• The DOD should provide quarterly updates on the re-capacitation of the Landward Defence Capability.

 

1. The Department must ensure the resolution of the weaknesses relating to the payment of invoices within the prescribed 30-day period. It should set a target closer to 100 per cent compliance, and ensure that such target is achieved.

4.         Overview of the 2017/18 financial year

 

Information on spending and performance by the DOD is only available up to the end of the Third Quarter of 2017/18. By the end of the Third Quarter on 31 December 2017, a total of R35.517 billion of the Department’s adjusted budget of R48.619 billion had been spent, representing 72.5 per cent of the total budget. At programme level, limited variations between the projected and actual expenditure were evident. The largest variation was with the Force Employment programme that spent R2.220 billion of its adjusted budget of R3.689 billion. This expenditure was 9.3 per cent lower than planned for by the end of the Third Quarter. Two other programmes had higher than planned expenditure. The Military Health Support programme spent R3.552 billion of its adjusted budget of R4.587 billion, which is 5.7 per cent higher than planned. Similarly, the General Support programme spend 3.4 per cent more than projected.

Other concerns that manifested throughout the 2017/18 year should also be noted. By the end of the Second Quarter, the DOD had spent in excess of 100 per cent of its allocated budget on Advertising (R42.375 million spent against an allocation of R7.797 million) as well as Communication (R334.936 million spent against an allocation of R99.106 million). In terms of performance targets set for the year, the Department did well to maintain a positive overall performance. By the end of the Third Quarter, 61 per cent of targets were achieved versus 39 per cent not achieved. Specific performance areas not achieved include, among other, the following:

• The number of Military Skills Development Members in the System was less (3 182) than planned for (3 651). This has the potential to reflect negatively on force rejuvenation.
• The number of reserve force man-days (1 759 779) was less than planned (1 817 104)
• Number of force employment hours flown per year were lower (3 200) than planned
  (5 000).
• The number of sea hours were significantly lower (3 733.87) than planned (12 000).

5.         DOD BUDGET AND PERFORMANCE INDICATORS

5.1        Overview of the DOD 2018/19 Budget

Prior to evaluating the budget, a number of macroeconomic and other strategic drivers that impact on the DOD’s budget and functioning should be noted. In summary, these drivers include the following:[1]

• Political environment: The DOD will be required to remain deployable in support of regional and continental peacekeeping initiatives in support of the UN/AU. This has been confirmed through, for example, the April 2018 re-commitment of the SANDF to the UN mission in the DRC for one year.
• Economic environment: Due to global and domestic economic pressures, the budget allocation to the DOD is likely to remain under pressure. It currently stands at only 0.95%  per cent of the Country’s GDP against a global norm of 2 per cent. As such, the DOD aims to develop alternative funding models to assist in funding the implementation of the 2015 Defence Review.
• Social environment: Social factors that will impact on the DOD in future include the possibility of increased deployments in support of the SAPS during social protests; increased health service delivery requirements to deployed SANDF members and military veterans; and, the need to assist in terms of youth employment.

 

The DOD Budget Vote has eight programmes with various sub-programmes through which planning for the Department is conducted.  The total allocation for the DOD for 2018/19 is R47.949 billion, which is lower than the R48.999 billion allocation for 2017/18. It should be noted that this includes an allocation of R627.1 million for the 2018/19 financial year for the Department of Military Veterans, which is hosted in Programme 1: Administration under sub-programme Military Veterans Management. The DOD received approximately 24 per cent of the funds allocated to the Justice, Crime Prevention and Security (JCPS) Cluster.[2]

 

The DOD budget for FY2018/19 decreases by 2.14 per cent in nominal terms and 7.24 per cent in real terms from 2017/18 to 2018/19. The allocation for 2018/19 represents 3.17 per cent of the country’s total expenditure of R1.512 trillion. However, as a percentage of GDP for 2018/19 (R5.025 trillion), defence expenditure stands at only 0.95 per cent.  In real terms, all eight programmes in the DOD budget received a real percentage reduction.  The largest reductions include the following programmes:

 

• Air Defence: A 10.81 per cent real reduction from 2017/18 to 2018/19.
• Force employment: A 9.5 per cent real reduction from 2017/18 to 2018/19.
• Maritime defence: An 8.63 per cent real reduction from 2017/18 to 2018/19.
• Landward defence: A 7.97 per cent real reduction from 2017/18 to 2018/19.

 

Programme	Budget		Nominal Increase / Decrease in 2018/19	Real Increase / Decrease in 2018/19	Nominal Percent change in 2018/19	Real Percent change in 2018/19
R million	2017/18	2018/19
Programme 1: Administration	5 469,5	5 548,9	79,4	-  209,9	1,45 per cent	-3,84 per cent
Programme 2: Force employment	3 535,4	3 375,6	-  159,8	-  335,8	-4,52 per cent	-9,50 per cent
Programme 3: Landward Defence	16 719,8	16 234,3	-  485,5	- 1 331,8	-2,90 per cent	-7,97 per cent
Programme 4: Air Defence	6 818,5	6 415,9	-  402,6	-  737,1	-5,90 per cent	-10,81 per cent
Programme 5: Maritime Defence	4 590,0	4 424,7	-  165,3	-  396,0	-3,60 per cent	-8,63 per cent
Programme 5: Military Health Support	4 586,7	4 714,1	127,4	-  118,4	2,78 per cent	-2,58 per cent
Programme 7: Defence Intelligence	917,3	950,4	33,1	-  16,4	3,61 per cent	-1,79 per cent
Programme 8: General Support	6 362,4	6 285,9	-  76,5	-  404,2	-1,20 per cent	-6,35 per cent
TOTAL	48 999,6	47 949,8	- 1 049,8	- 3 549,6	-2,14 per cent	-7,24 per cent

Table 2: Increase/decrease per programme from 2017/18 to 2018/19

In terms of significant spending items, the major areas of expenditure for the DOD is (1) Compensation of employees; (2) Contractors); (3) Property Payments; (4) the Special Defence Account; and, (5) payments to Armscor. The following expenditure trends to these five areas should be noted:

• Expenditure on Compensation of Employees will increase by 4.5 per cent between 2017/18 and 2020/21.
• Property payments will increase by 12.4 per cent between 2017/18 and 2020/21.
• Payments to the Special Defence Account will decrease by 5.4 per cent between 2017/18 and 2020/21.
• Payments to Armscor will increase by 6.7 per cent between 2017/18 and 2020/21.

 

In terms of expenditure on goods and services, the following trends over the medium term should also be noted:

• Expenditure on Advertising will increase by 129.1 per cent between 2017/18 and 2020/21 (from R7.797 million in 2017/18 to R93.748 million in 2020/21).
• Consultancy cost will decrease by 55.3 per cent between 2017/18 and 2020/21.
• Fleet services (motor vehicles) cost will increase by 75.1 per cent between 2017/18 and 2020/21.
• Medicine costs will increase by 32 per cent between 2017/18 and 2020/21.
• Inventory costs (other supplies) will increase by 33.9 per cent over the medium term.

 

5.2        Personnel information and salaries

 

Personnel figures presented in the ENE should be seen in the context of the Defence Review Requirements. One of the primary aims of the Defence Review is to restore the balance between Capital, Personnel and Operational expenditure within the DOD over the next ten years. The aim would be to realign spending with the objectives of the 1998 Defence Review which pegged the Personnel spending at 40 per cent, Operating costs at 30 per cent, and Capital costs at 30 per cent of the total budget (a 40:30:30 balance). This ratio is also in line with international benchmarking. In order to achieve this balance, significant alterations to personnel figures and required funding are required. The Defence Review proposes an initial decrease in personnel numbers while keeping Defence spending stable (during Milestone 1). Milestone 1 requires a decrease to 72 000 members.

The DOD has indicated in the 2017/18 APP that it is currently not in a position to reduce personnel numbers due to the lack of an effective exit mechanism. Roughly 50 per cent of the SANDF have contracts until retirement and a viable exit mechanism should be found to reduce personnel. This trend continues in 2018/19 whereby personnel expenditure increase to 57.1 per cent (R27.116 billion) of the DOD’s total expenditure. It is thus 17 per cent higher than the envisaged personnel expenditure. Personnel figures are expected to decrease only slightly from 75 500 to 75 204 in 2018/19.

5.3        Programme 1: Administration

 

5.3.1     2018/19 Allocation to Programme 1: Administration

In line with the overall real percentage reduction of the programme, the majority of sub-programmes received a real percentage reduction. The only exception to this relates to the Communications sub-programme, where the allocation increases from R46.4 million in 2017/18 to R166.5 million in 2018/19. The largest reduction is for the Departmental Direction sub-programme, which sees a real percentage reduction of 22.84 per cent. Similarly, the allocation to the Defence Foreign Relations sub-programme decreases by 20.78 per cent in real terms. Other larger reductions in real terms include the Policy and Planning sub-programme (18.66 per cent) and the Human Resources Support Services sub-programme (9.0 per cent).

In terms of economic classifications, two key shifts should be noted. Firstly, spending on Advertising increases from only R4.1 million in 2017/18 to R76 million in 2018/19. Secondly, Spending on Computer Services decreases from R109.6 million in 2017/18 to R54.2 million in 2018/19.

Programme	Budget		Nominal Increase / Decrease in 2018/19	Real Increase / Decrease in 2018/19	Nominal Percent change in 2018/19	Real Percent change in 2018/19
R million	2017/18	2018/19
Sub-programme 1: Ministry	74,1	76,5	2,4	-  1,6	3,24 per cent	-2,14 per cent
Sub-programme 2: Departmental Direction	58,6	47,7	-  10,9	-  13,4	-18,60 per cent	-22,84 per cent
Sub-programme 3: Policy and Planning	119,1	102,2	-  16,9	-  22,2	-14,19 per cent	-18,66 per cent
Sub-programme 4: Financial Services	372,6	343,9	-  28,7	-  46,6	-7,70 per cent	-12,51 per cent
Sub-programme 5: Human Resources Support Services	808,5	776,2	-  32,3	-  72,8	-4,00 per cent	-9,00 per cent
Sub-programme 6: Legal Services	300,1	297,8	-  2,3	-  17,8	-0,77 per cent	-5,94 per cent
Sub-programme 7: Inspection and Audit Services	143,0	139,4	-  3,6	-  10,9	-2,52 per cent	-7,60 per cent
Sub-programme 8: Acquisition Services	125,7	134,2	8,5	1,5	6,76 per cent	1,20 per cent
Sub-programme 9: Communications Services	46,4	116,5	70,1	64,0	151,08 per cent	137,99 per cent
Sub-programme 10: SANDF Command and Control	156,2	165,3	9,1	0,5	5,83 per cent	0,31 per cent
Sub-programme 11: Religious Services	14,0	15,0	1,0	0,2	7,14 per cent	1,56 per cent
Sub-programme 12: Defence Reserve Direction	28,5	29,4	0,9	-  0,6	3,16 per cent	-2,22 per cent
Sub-programme 13: Defence Foreign Relations	331,9	277,4	-  54,5	-  69,0	-16,42 per cent	-20,78 per cent
Sub-programme 14: Office Accommodation	2 268,7	2 400,3	131,6	6,5	5,80 per cent	0,29 per cent
Sub-programme 15: Military Veterans Management	622,1	627,1	5,0	-  27,7	0,80 per cent	-4,45 per cent
TOTAL	5 469,5	5 548,9	79,4	-  209,9	1,5 per cent	-3,84 per cent

Table 3: Nominal and real increases/decreases in the Administration Programme

5.3.2     Performance Indicators for Programme 1 (Administration)

Programme 1 constitutes the highest number of set targets for the DOD, reflecting 69 set targets across the various sub-programmes (excluding the Military Veterans sub-programme). Several of these targets relate simply to the legislative requirements of submitting annual reports and annual performance plans of the DOD and other sub-departments/entities to Parliament on time. The table below therefore reflects only selected targets in the Administration Programme across the 2016/17, 2017/18 and 2018/19 financial years.

Performance Indicator	Audited Outcome	Estimated Performance	Estimated Performance
	2016/17	2017/18	2018/19
Defence Review implementation status	DOD Plan to arrest the decline was approved by the DOD on 7 March 2017	Monitor implementation of approved DRIP	Monitor implementation of approved DRIP
Military Strategy Status	New indicator	Military Strategy approved and promulgated	Military Strategy implementation guidelines approved by the DOD
Percentage adherence to DOD governance schedule (Defence Funding Model)	New indicator	New indicator	100% (Defence Funding Model Implementation Policy)
Percentage payment of legitimate invoices within 30 days	77%	75%	75%
Human Resources Strategy Status	Implementation plan implemented	HR Strategy Developed	HR Strategy developed in support of Military Strategy
Number of Reserve Force man days	2 679 142	1 817 104	2 674 761
Percentage cases of fraud and corruption prosecuted	13%	40%	25%
Percentage military court cases finalised (in-year)	63%	40%	40%
Status of public opinion on the DOD	72%	75%	75%
Number of Defence attaché offices	44	44	44

Table 4: Selected performance targets for Programme 1

5.4        Programme 2: Force Employment

 

5.4.1     2018/19 Allocations to Programme 2: Force Employment

The allocation for the Force Employment programme has seen continuous decline since 2014/15. For 2018/19, the allocation is R3.376 billion, which is R159.8 million less than its allocation in 2017/18. This translates to a real percentage reduction of 9.5 per cent. The largest decrease in terms of the sub-programmes was for the Support to the People sub-programme, which has a real percentage reduction of 17.13 per cent. This is of particular concern given that this sub-programme includes border safeguarding operations and SANDF support to the SAPS. The Strategic Direction sub-programme is the only sub-programme with a real percentage increase (6.7 per cent).

In terms of economic classifications, three noteworthy shifts are apparent in terms of allocation. Firstly, the allocation for Food and Food Supplies increase from R306.6 million in 2017/18 to R357 million in 2018/19. This increase is well above inflation, yet food items are generally subject to inflationary increases only. Given that the SANDF’s mission profile remains the same in 2018/19 as in the preceding year, the increase in food supplies requires explanation. Secondly, Operating payments decrease from R190 million in 2017/18 to R159.5 million in 2018/19. Finally, Machinery and Equipment decreases from R181.9 million in 2017/18 to only R89.0 million in 2018/19. This is the lowest allocation to Machinery and Equipment since 2014/15.

Programme	Budget		Nominal Increase / Decrease in 2018/19	Real Increase / Decrease in 2018/19	Nominal Percent change in 2018/19	Real Percent change in 2018/19
R million	2017/18	2018/19
Sub-programme 1: Strategic Direction	155,9	175,5	19,6	10,5	12,57 per cent	6,70 per cent
Sub-programme 2: Operational Direction	331,4	340,1	8,7	-  9,0	2,63 per cent	-2,72 per cent
Sub-programme 3: Special Operations	864,4	844,3	-  20,1	-  64,1	-2,33 per cent	-7,42 per cent
Sub-programme 4: Regional Security	1 114,6	1 081,1	-  33,5	-  89,9	-3,01 per cent	-8,06 per cent
Sub-programme 5: Support to the people	1 069,0	934,6	-  134,4	-  183,1	-12,57 per cent	-17,13 per cent
TOTAL	3 535,4	3 375,6	-  159,8	-  335,8	-4,5 per cent	-9,50 per cent

Table 5: Nominal and real increases/decreases in the Force Employment Programme

5.4.2     Performance Indicators for Programme 2: Force Employment

The Force Employment Programme has 12 set targets for 2018/19 of which five are not elaborated on due to the information being classified. The targets for 2018/19 are in line with previous years. The approval of the sub-strategy for Border Safeguarding is still outstanding as it is dependent on the approval of the National BMA Strategy (which resides outside the DOD). Only the number of joint, interdepartmental and multinational exercises increases from three to four. Member should note that for the following year (2019/20) no joint, interdepartmental and multinational exercises are scheduled due to it being an election year.

The classification of information is (in some instances) questionable, specifically where information was previously released and is now deemed ‘classified’. These classified targets for 2018/19 include:

• Percentage compliance with force levels for external operations (previously released target was 98 per cent in 2014/15).
• Percentage compliance of equipment for external operations (previously released target was 77 per cent in 2013/14).
• Percentage reimbursement by the UN/AU (previously released target was 78 per cent in 2014/15).
• Percentage compliance with self-sustainment of personnel (previously released target was 79 per cent in 2014/15).

 

4.5        Programme 3: Landward Defence

 

4.5.1     2018/19 Allocations to Programme 3 (Landward Defence)

 

Landward Defence is the largest of all the Defence programmes, mostly due to its dependence on a large personnel configuration. The allocation for this programme decreased by R485.5 million in 2018/19, resulting in a real percentage decrease of 7.97 per cent. In terms of sub-programmes, the Air Defence Artillery received the largest real percentage reduction (23.83 per cent). This should be viewed against an increased allocation in 2017/18, and the latest reduction is therefore realigning Air Defence Artillery to normal patterns. Furthermore, the Strategic Direction sub-programme received a real percentage reduction of 23.14 per cent. Crucially, the infantry Capability’s allocation was also reduced by R346.2 million (9.29 per cent in real terms). The only sub-programme that received a real percentage increase was the General Training Capability, with a 5.60 per cent increase.

In terms of economic classifications, the largest reduction in allocation was in terms of Departmental Agencies and Accounts, which decreases from R3.191 billion in 2017/18 to R2.446 billion in 2018/19. This reduced allocation is offset by a number of other increases in expected expenditure. The allocation for Contractors increased from R122.9 million in 2017/18 to R266.9 million in 2018/19. Fleet Services also increased from R20 million in 2017/18 to R81.4 million in 2018/19. Similarly, Fuel, oil and Gas increased from R198.6 million in 2017/18 to R262.3 million in 2018/19.

Programme	Budget		Nominal Increase / Decrease in 2017/18	Real Increase / Decrease in 2017/18	Nominal Percent change in 2017/18	Real Percent change in 2017/18
R million	2016/17	2017/18
Sub-programme 1: Strategic Direction	488,6	396,2	-  92,4	-  113,1	-18,91 per cent	-23,14 per cent
Sub-programme 2: Infantry Capability	6 972,8	6 626,6	-  346,2	-  691,7	-4,97 per cent	-9,92 per cent
Sub-programme 3: Armour Capability	449,5	472,8	23,3	-  1,3	5,18 per cent	-0,30 per cent
Sub-programme 4: Artillery Capability	486,5	482,8	-  3,7	-  28,9	-0,76 per cent	-5,93 per cent
Sub-programme 5: Air Defence Artillery Capability	681,7	547,8	-  133,9	-  162,5	-19,64 per cent	-23,83 per cent
Sub-programme 6: Engineering Capability	745,9	795,3	49,4	7,9	6,62 per cent	1,06 per cent
Sub-programme 7: Operational Intelligence	236,7	233,5	-  3,2	-  15,4	-1,35 per cent	-6,49 per cent
Sub-programme 8: Command and Control Capability	209,3	218,1	8,8	-  2,6	4,20 per cent	-1,23 per cent
Sub-programme 9: Support Capability	4 705,1	4 595,5	-  109,6	-  349,2	-2,33 per cent	-7,42 per cent
Sub-programme 10: General Training Capability	474,1	528,2	54,1	26,6	11,41 per cent	5,60 per cent
Sub-programme 11: Signal Capability	1 269,6	1 337,6	68,0	-  1,7	5,36 per cent	-0,14 per cent
TOTAL	16 719,8	16 234,3	-  485,5	- 1 331,8	-2,9 per cent	-7,97 per cent

Table 6: Nominal and real increases/decreases in the Landward Defence Programme

5.5.2     Performance Indicators for Programme 3 (Landward Defence)

Only three performance targets were set for the Landward Defence Programme. The first target on compliance with Joint Force employment requirements remains classified. The Second Target’s description was changed from “Percentage compliance with DOD training targets – Number of learners on courses” to “Percentage compliance with DOD Training targets.” While this target remains at 80%, the number of learners set for the target increases from 2 302 in 2017/18 to 3 681 in 2018/19. This increased target is in line with the increased financial allocation for the Training sub-programme. Finally, a new target was introduced, namely the Number of SA Army unique force training exercises conducted. Two such exercises are to be held in 2018/19.

5.6        Programme 4: Air Defence

 

5.6.1     2018/19 Allocations to Programme 4 (Air Defence)

The Air Defence Programme received a real reduction in its allocation of 10.81 per cent for 2018/19. This is the second consecutive real reduction of more than 10 per cent for the Air Defence programme (10.56 per cent in 2017/18). Of strategic concern is the delayed implementation of the expansion of this programme. In the 2017 ENE, it was indicated that the allocation for this programme will increase significantly towards 2019/20 with an additional R1.4 billion allocated for the procurement of new medium and light transport aircraft and a new generation mobile communications capability. While this process of capitalisation was set to start in 2018/19, the 2018 ENE reveals that such funding will only commence from 2019/20 onwards.

In terms of the sub-programme allocation for 2018/19, several significant shifts should be noted. The largest reduction in allocation (in real terms) include Operational Direction (45.81 per cent), the Helicopter Capability (37 per cent), the Transport and Maritime Capability (19.76 per cent), and the Training Capability (9.31 per cent). Three sub-programmes also received noteworthy real percentage increases. These include the Command and Control Capability (28.51 per cent), the Technical Support Services (12.74 per cent), and the Operational Support and Intelligence Capability (9.56 per cent).

In terms of economic classifications, there is a decreased allocation for the use of contractors from R1.238 billion in 2017/18 to R1.121 billion in 2018/19. The allocation for Fuel, oil and gas also decreases from R276 million in 2017/18 to R173 million in 2018/19. The allocation for Departmental Agencies and Accounts similarly decreased from R876.5 million in 2017/18 to R785.1 million in 2018/19. The economic classification for Training and Development sees an increase from R84.9 million in 2017/18 to R123.5 million in 2018/19. Expenditure on Households will also increase from R17.9 million in 2017/18 to R35.8 million in 2018/19.

Programme	Budget		Nominal Increase / Decrease in 2018/19	Real Increase / Decrease in 2018/19	Nominal Percent change in 2018/19	Real Percent change in 2018/19
R million	2017/18	2018/19
Sub-programme 1: Strategic Direction	30,6	31,0	0,4	-  1,2	1,31 per cent	-3,97 per cent
Sub-programme 2: Operational Direction	170,2	97,3	-  72,9	-  78,0	-42,83 per cent	-45,81 per cent
Sub-programme 3: Helicopter Capability	1 074,0	713,6	-  360,4	-  397,6	-33,56 per cent	-37,02 per cent
Sub-programme 4: Transport and Maritime Capability	798,3	675,8	-  122,5	-  157,7	-15,35 per cent	-19,76 per cent
Sub-programme 5: Air Combat Capability	793,2	840,1	46,9	3,1	5,91 per cent	0,39 per cent
Sub-programme 6: Operational Support and Intelligence Capability	297,0	343,3	46,3	28,4	15,59 per cent	9,56 per cent
Sub-programme 7: Command and Control Capability	510,4	692,0	181,6	145,5	35,58 per cent	28,51 per cent
Sub-programme 8: Base Support Capability	1 994,1	1 803,8	-  190,3	-  284,3	-9,54 per cent	-14,26 per cent
Sub-programme 9: Command Post	63,6	68,9	5,3	1,7	8,33 per cent	2,69 per cent
Sub-programme 10:  Training Capability	612,8	586,3	-  26,5	-  57,1	-4,32 per cent	-9,31 per cent
Sub-programme 11: Technical Support Services	474,1	563,9	89,8	60,4	18,94 per cent	12,74 per cent
TOTAL	6 818,5	6 415,9	-  402,6	-  737,1	-5,9 per cent	-10,81 per cent

Table 7: Nominal and real increases/decreases in the Air Defence Programme

5.6.2     Performance Indicators for Programme 4: Air Defence

The number of targets for this programme increased from three to four. The new target relates to a single planned Air Force unique training exercise to be held in 2018/19. The target related to force employment requirements is classified. The percentage compliance with DOD training targets for 2018/19 (682) remains the same as in 2017/18. It should be noted, however, that this reflects a continuous decline in targets from 2014/15 when training targets were as high as 3 662. Finally, the target on flying hours has been amended as requested by the PCDMV. The total number of hours set for 2018/19 is 25 000.

 

5.7            Programme 5: Maritime Defence

 

5.7.1     2018/19 Allocations to Programme 5: Maritime Defence

The Maritime Defence programme’s allocation for 2018/19 has been decreased by R165.3 million in nominal terms compared to 2017/18. This translates to an 8.63 per cent reduction in real terms as adjusted for inflation. The most significantly affected sub-programme is that of the Maritime Combat Capability which sees a reduction of 20.53 per cent in real terms for 2018/19. This is of specific concern given that it relates to the core function of the Maritime Defence programme. The Base Support Capability’s allocation is also reduced by 12.27 per cent in real terms for 2018/19. It is unclear how this will affect, for example, the re-establishment of the Durban Naval Base. The only sub-programme to receive an increased allocation relates to the Maritime Logistics Support Capability that received a 14.17 per cent increased in real terms for 2018/19.

In terms of economic classifications, the allocation for contractors increased from R184.5 million in 2017/18 to R254 million in 2018/19. The allocation for Fuel, oil and Gas also increased from R73.1 million in 2017/18 to R109.2 million in 2018/19. The allocation for Inventory (Other supplies) also increased from R75.6 million in 2017/18 to R126.8 million in 2018/19. The increases above were largely balanced by the reduced allocation for Departmental Agencies and Accounts which decreased from R1.284 billion in 2017/18 to R957.3 million in 2018/19. Finally, Members should note that no allocation has been made for buildings and other fixed structures in the Maritime Defence Programme for 2018/19.

Programme	Budget		Nominal Increase / Decrease in 2018/19	Real Increase / Decrease in 2018/19	Nominal Percent change in 2018/19	Real Percent change in 2018/19
R million	2017/18	2018/19
Sub-programme 1: Maritime Direction	582,2	569,3	-  12,9	-  42,6	-2,22 per cent	-7,31 per cent
Sub-programme 2: Maritime Combat Capability	1 873,1	1 570,4	-  302,7	-  384,6	-16,16 per cent	-20,53 per cent
Sub-programme 3: Maritime Logistics support Capability	940,7	1 133,1	192,4	133,3	20,45 per cent	14,17 per cent
Sub-programme 4: Maritime HR and Training Capability	538,6	545,2	6,6	-  21,8	1,23 per cent	-4,05 per cent
Sub-programme 5: Base Support Capability	655,4	606,6	-  48,8	-  80,4	-7,45 per cent	-12,27 per cent
TOTAL	4 590,0	4 424,7	-  165,3	-  396,0	-3,6 per cent	-8,63 per cent

Table 8: Nominal and real increases/decreases in the Maritime Defence Programme

5.7.2     Performance indicators for Programme 5: Maritime Defence

Four performance targets were set for this programme for 2018/19, of which the target related to force employment requirements is classified. A total of 438 learners will attend courses for the year, the same number as in 2017/18. This is in line with the fairly stable allocation to the training sub-programme. The number of sea hours remained at 12 000, similar to the previous financial year. Finally, a new target was introduced related to a single SA Navy unique training exercise to be conducted in 2018/19.

 

5.8            Programme 6: Military Health Support

 

5.8.1     2018/19 Allocations to Programme 6: Military Health Support

The Military Health Support Programme received a nominal increase of R127.4 million for 2018/19. Only two major allocation changes to sub-programmes should be noted. First, the allocation for the Military Health Product Support sub-programme increased by 41.58 per cent in real terms for 2018/19. This sub-programme relates largely to the acquiring of pharmaceuticals and other unique health products. Second, the allocation for the Military Health Maintenance sub-programme decreased by 38.51 per cent in real terms for 2018/19. This programme relates to general base support for Military Health facilities.

In terms of economic classifications, the increase for Military Health Product Support is reflected in the increase for Medical Supplies that rises from R155.1 million in 2017/18 to R194.5 million in 2018/19. Travel and Subsistence increases from R69.6 million in 2017/18 to R81.1 million in 2018/19. Finally, the allocation for Departmental Agencies and Accounts decreased from R11.1 million in 2017/18 to only R100 000 in 2018/19.

Programme	Budget		Nominal Increase / Decrease in 2018/19	Real Increase / Decrease in 2018/19	Nominal Percent change in 2018/19	Real Percent change in 2018/19
R million	2017/18	2018/19
Sub-programme 1: Strategic Direction	176,1	191,7	15,6	5,6	8,86 per cent	3,18 per cent
Sub-programme 2: Mobile Military Health Support	134,1	131,6	-  2,5	-  9,4	-1,86 per cent	-6,98 per cent
Sub-programme 3: Area Military Health Support	1 676,4	1 672,2	-  4,2	-  91,4	-0,25 per cent	-5,45 per cent
Sub-programme 4:Specialist Health Services	1 754,6	1 876,5	121,9	24,1	6,95 per cent	1,37 per cent
Sub-programme 5: Military Health Product Support	197,5	295,0	97,5	82,1	49,37 per cent	41,58 per cent
Sub-programme 6: Military Health Maintenance	271,0	175,8	-  95,2	-  104,4	-35,13 per cent	-38,51 per cent
Sub-programme 7: Military Health Training Capability	376,9	371,3	-  5,6	-  25,0	-1,49 per cent	-6,62 per cent
TOTAL	4 586,7	4 714,1	127,4	-  118,4	2,8 per cent	-2,58 per cent

Table 9: Nominal and real increases/decreases in the Military Health Support

5.8.2     Performance Indicators for Programme 6: Military Health Support

Six targets were set for the Military Health Support Programme for 2018/19 of which four are classified. The target for the number of healthcare activities for 2018/19 is the same as in 2017/18, at 2 140 550. It should be noted, however, that this target has been overachieved in recent years, thus perhaps warranting the lifting of the target. Furthermore, the target for training for 2018/19 is 648. This is the same as in 2017/18, but lower than achievements in the years prior to 2017/18.

5.9           Programme 7: Defence intelligence

 

5.9.1     2018/19 Allocation to Programme 7:  Defence Intelligence

For 2018/19, the Defence Intelligence (DI) Programme received a nominal increase of R33.1 million that translates to a real percentage reduction of 1.79 per cent. The most significant shift in terms of sub-programmes is for the Operations sub-programme whereby the allocation increased by 7.78 per cent for 2018/19. This programme refers to the primary function of DI through the production of intelligence and counterintelligence reports/capabilities. The DI Support Services sub-programme received a real percentage reduction of 11.65 per cent in its allocation. No major shifts are evident in terms of economic classifications except for the increased allocation for Departmental Agencies and Accounts from R444.5 million in 2017/18 to R505.5 million in 2018/19. 

Programme	Budget		Nominal Increase / Decrease in 2018/19	Real Increase / Decrease in 2018/19	Nominal Percent change in 2018/19	Real Percent change in 2018/19
R million	2017/18	2018/19
Sub-programme 1: Strategic Direction	0.0	0	0.0	0.0	-	-
Sub-programme 2: Operations	465,4	529,2	63,8	36,2	13,71 per cent	7,78 per cent
Sub-programme 3: DI Support Services	451,9	421,2	-  30,7	-  52,7	-6,79 per cent	-11,65 per cent
TOTAL	917,3	950,4	33,1	-  16,4	3,6 per cent	-1,79 per cent

Table 10: Nominal and real increases/decreases in the Defence Intelligence Programme

 

 

1. Performance Indicators for Programme 7: Defence Intelligence

A total of six performance targets were set for the Defence Intelligence programme for 2018/19. The Cyber Warfare Strategy is one of the most significant targets of this programme as it correlates directly with the aims of the National Development Plan (NDP). The DOD APP indicates that Phase 1 of the Cyber Warfare Strategy, the establishment of a Cyber command Centre, was not achieved due to budgetary constraints. The APP further notes the target for 2018/19 to be the obtaining of a budget and establishment of capabilities in the Cyber Command Centre. The number of vetting decisions to be taken increases slightly from 6 500 in 2017/18 to 7 000 in 2018/19.

5.10      Programme 8: General Support

5.10.1   2018/19 Allocation to Programme 8: General Support

The General Support Programme’s allocation for 2018/19 was reduced only slightly by R76.5 million, translating to a 6.35 per cent reduction in real terms. Two shifts in the allocations of sub-programmes should be noted. First, the Joint Logistics Services’ allocation decreased by 13.68 per cent in real terms for 2018/19. Second, the Military Police allocation increased by 9.56 per cent in real terms.

In terms of economic classifications, two positive shifts should firstly be noted. The allocation for Contractors decreased from R159.1 million in 2017/18 to R115.7 million in 2018/19. Similarly, the allocation for Travel and Subsistence decreased from R100.7 million in 2017/18 to R58.1 to million in 2018/19. However, the increase in Property Payment from R60.8 million in 2017/18 to R304.9 million in 2018/19 should be questioned. Furthermore, expenditure on Computer Services is set to increase by R78.3 million in 2018/19; yet, expenditure on Software and other Intangible Assets is set to decrease from R121.1 million in 2017/18 to R39.8 million in 2018/19.

Programme	Budget		Nominal Increase / Decrease in 2018/19	Real Increase / Decrease in 2018/19	Nominal Percent change in 2018/19	Real Percent change in 2018/19
R million	2017/18	2018/19
Sub-programme 1: Joint Logistics Services	3 227,1	2 938,9	-  288,2	-  441,4	-8,93 per cent	-13,68 per cent
Sub-programme 2: Command and Maintenance Information Systems	1 025,2	1 048,2	23,0	-  31,6	2,24 per cent	-3,09 per cent
Sub-programme 3: Military Police	576,1	665,9	89,8	55,1	15,59 per cent	9,56 per cent
Sub-programme 4: Technology Development	441,3	466,0	24,7	0,4	5,60 per cent	0,09 per cent
Sub-programme 5: Departmental Support	1 092,7	1 167,0	74,3	13,5	6,80 per cent	1,23 per cent
TOTAL	6 362,4	6 285,9	-  76,5	-  404,2	-1,2 per cent	-6,35 per cent

Table 11: Nominal and real increases/decreases in the General Support Programme

 

5.10.2   Performance Indicators for Programme 8: General Support

The number of performance targets for the General Support programme were reduced from 10 in 2017/18 to seven in 2018/19. The following targets were removed in the 2018/19 APP:

• The status of the Procurement Policy: This policy was implemented in the 2017/18 financial year.
• The status of strategic reserves (ammunition): This was considered a classified target.
• The percentage of cases of fraud and corruption investigated: This target is now only reflected in Programme 1.

 

The seven targets for the General Support Programme included in the 2018/19 are reflected in the table below.

Performance Indicator	Audited Outcome	Estimated Performance	Estimated Performance
	2016/17	2017/18	2018/19
DOD Overarching Logistics Strategy	Not completed	Approved and promulgated by DOD	Implementation of the Strategy
Percentage procurement requests fully completed within 90 days from registration	95.87%	95%	95%
Percentage utilisation of endowment property in the DOD	96%	90%	90%
Percentage DOD ICT Integrated Prime Systems Capabilities	81.42%	97.54%	98.87%
Number of crime prevention operations	189	124	124
Percentage criminal cases investigated (backlog)	66%	40%	40%
Percentage criminal cases investigated (in-year)	29%	25%	25%

Table 12: Selected performance targets for Programme 8

 

6.         Committee Observations

During deliberations with the DOD on 9 May 2018, Members of the PCODMV made several observations related to the budgetary allocation and the targets set in the APP. The following should be noted:

1. The Committee noted that the Department will have to manage its finances with R1 billion less and wanted to know whether the department has reprioritised its spending priorities in order to cope with the lesser budgetary allocation.

 

1. The Committee is concerned that the Defence Force is utilising the annual Consumer Price Index (CPI) to plan its budgetary projections, while defence-related inflation is likely to be more than CPI.

 

1. Concern was raised about the funding priorities of the Department and the Committee requested a summary of fixed and moveable assets in order to assist the Department to reprioritise funding.

 

1. The Committee expressed its discomfort with the logistical support to SANDF troops deployed in the Democratic Republic of the Congo (DRC), notably the unreliability of the C130 aircraft due to technical problems. The Committee was of the view that one of the DOD’s priorities should be the repair and maintenance of these aircraft.

 

1. The importance of the serviceability of the Oryx and Rooivalk helicopters in the DRC was emphasised as these aircraft are responsible for around 80 per cent of the reimbursements from the United Nations.

 

1. The lack of a proper exit mechanism was once again lamented by the Committee, as it constrains the rejuvenation of the Department as well as restraining the development of young leaders. It further adds to the high levels of spending on compensation of employees.

 

1. The effective functioning of the Command and Control was questioned by the Committee as the impression was gained that the Civilian Secretariat does not wield much authority over the SANDF and its Chiefs.

 

1. The Committee questioned whether the Department is serious about supporting our peacekeepers effectively as funds seems to be spent on purchasing luxury care at the end of the financial year, rather than ensuring aircraft are serviceable and available to transport our peacekeepers for leave purposes.

 

1. The 2015 Defence Review was acknowledged as a very good document, but given that its proper funding is not forthcoming, the Committee wanted to know how exactly the Department is going to adjust it.

 

1. The Committee wanted to be updated on the latest information about the Armscor Dockyard given its strategic and critical role to repair and maintain the Navy’s vessels to allow them to protect our maritime resources.

 

1. Responding to the Department’s view that it will be requested to assist with the 2019 national elections, the Committee requested more details on the proposed role of the Department. 

 

• Members acknowledge the precarious financial position of the Department and expressed their willingness to assist if the Department provides it with more concrete and practical options on how to address their challenges through the reprioritisation of its financial resources.

 

1. The Department explained the challenges with the Funding Model for the 2015 Defence Review, in particular Milestone 1, and how it will have to be adjusted given that National Treasury was also requiring the Department to institute further savings regarding the Compensation of Employees (CoE).

 

• Note was taken of Project KOBA-TLALA that is managed in collaboration with other departments and provincial governments to enable the development of sustainable rural communities towards food security in the RSA.

 

• The Committee noted the decreased performance of the Department regarding the MPAT management tool and expressed its disappointment in this regard.

 

1. Note was taken of the plans to raise alternative funding and a request was made for more information in this regard, especially the role of Armscor.

 

1. The Committee noted the continuing decrease in the number of flying and sea hours, and was particularly concerned about the implications of such reductions on the operational activities of the SANDF.

 

1. The Committee took note of the leadership challenges at the DOD’s Internal Audit Division and requested more information in this regard.

 

1. The Committee noted the absence of the Chiefs of Services and Divisions at its meetings and requested more information regarding their absence.

 

9.         Recommendations

The PCODMV identified the following areas that will be subject to monitoring by the Committee throughout the 2018/19 financial year:

1. The Committee requested a copy of the letter from National Treasury to the department regarding the reimbursements from the United Nations.

 

1. The Committee requested the latest information regarding the Reprioritisation of the Department’s budget as well as quarterly updates on its spending priorities. This should include a summary of the fixed and moveable assets of the Department.

 

1. The Committee recommends that priority should be given to the repair and maintenance of the C130, Oryx and Rooivalk Helicopters to ensure that our peacekeepers are optimally supported in the Mission Area. Updates on the maintenance and serviceability of these support aircraft should be provided to the Committee on a quarterly basis.

 

1. Urgent engagement with National Treasury is required in an effort to find means of addressing the projected over-expenditure on compensation of employees in 2017/18 and beyond. Progress in this regard should be presented to the PCODMV on an ongoing basis.

 

1. The Committee recommends that the DOD prioritise the rejuvenation of the SANDF. While acknowledging that the Department has to work with National Treasury and the Department of Public Service and Administration (DPSA) to facilitate the exit of especially “older” members of the Defence Force, rejuvenation is essential. The Committee acknowledges that a rejuvenation plan is being developed by the DOD. However, the Committee requests that the Department provide it with a written outline of the rejuvenation plan no later than 60 days after the adoption of this report. Furthermore, future quarterly reports to Parliament should include a progress report on rejuvenation as a standing item.

 

1. The Committee recommends that the Department should prioritise the finalisation of the Military Discipline Bill for submissions to Parliament given that the effective functioning of the Command and Control relies primarily on a high level of discipline.

 

1. An urgent trilateral engagement between Parliament’s Defence Committees, the DOD and National Treasury is required regarding the funding of the implementation of Milestone 1 of the Defence Review, especially given the reduced budget of the DOD.

 

1. The Committee wanted to be updated on the latest information about the Dockyard given its strategic and critical role to repair and maintain the Navy’s vessels to allow them to protect our maritime resources.

 

1. The Committee recommends that the Department should make visible its anticipated role in national elections in its planning and the kind of resources and funding that are required.

 

1. The Committee requested more information on Project KOBA-TLALA, such as where it operates, and the costs and resources involved. A written report in this regard should be furnished to the Committee within 60 days of the adoption of this report.

 

1. The Committee wants the Department to provide it with a report on the situation at its Internal Audit Division, within 30 days of it finalising its investigation.

 

• Flying hours in the SA Air Force remain a major concern. The Committee recommends that the DOD reports, on a quarterly basis, progress in the attainment of the 25 000 flying hours to be flown. A further breakdown of the total number of flying hours (training, operational, force employment, etc.) will further assist the PCODMV in its oversight.

 

1. Similar to the above, the PCODMV recommends that the DOD reports, on a quarterly basis, on the          progress being made to attain the 12 000 planned sea hours for the SA Navy.

 

• The Committee recommends that active efforts be made by the Department to realign its spending          priorities with the envisaged 40:30:30 split between Compensation of Employees, Operational Costs and Capital Expenditure. Given that no additional funds are likely to be received by the DOD    over the MTEF, the DOD should develop alternative means to ensure this spending realignment.   The DOD should provide the Committee with a written report on efforts to realign spending       patterns within 90 days of the adoption of this report.

 

 

 

 

 

 

 

 

 

PART B: DEPARTMENT OF MILITARY VETERANS

 

The Portfolio Committee on Defence and Military Veterans (PCDMV), having considered the 2018/19 Budgetary allocation and Annual Performance Plans of the Department of Military Veterans (DMV), on 15 May 2018, reports as follows:

 

1.  

 

1. Mandate of the Department of Military Veterans

 

The Department of Military Veterans (DMV) derives its legislative mandate from the Military Veterans Act (18 of 2011), which requires it to provide national policy and standards on socio-economic support to military veterans and their dependants, including benefits and entitlements to help realise a dignified, unified, empowered and self-sufficient community of military veterans.

 

1. Main Objective of the Department of Military Veterans

 

The main objective of the Department of Military Veterans is to provide national policy and standards on socio-economic support to Military veterans and their dependants, as well as policies and standards on heritage and empowerment programmes including those that contribute to nation-building and reconciliation.

 

The Annual Performance Plan for 2018/19 financial year, encapsulates details on how the 5-year Strategic Plan (2015-2020) of the Department will be rolled out, and situates the financial year within the Medium-Term Expenditure Framework (MTEF).

 

1. DMV CONTRIBUTION TO NATIONAL DEVELOPMENT PLAN

 

The 2018 APP lists the contributions that it will make to the various chapters of the National Development Plan (NDP) in the FY 2018/19, as: 

 

2.1     Chapter 3: Economy and Employment.

 

The Department plans to contribute through various benefits to the NDP through comprehensive support services to Military Veterans and where applicable, to their dependants through:

 

• Education, Training and Skills development;
• Facilitation of Employment placement; and
• Facilitation of or Advice on business opportunities.

 

2.2     Chapter 8: Transforming Human settlement

 

Through partnerships with Department of Human Settlement (DHS), the DMV will facilitate the building of 1 000 houses. Furthermore, the Department has planned to refurbish houses that are in need of renovations and also support military veterans whose houses are in the process of being repossessed by the banks.

 

 

2.3     Chapter 9: Improving Education, Training and innovation

 

The Department plans to contribute to the NDP objective by providing quality basic education through the provision of comprehensive support services to Military Veterans and where applicable, to their dependants through Education, training and skills development.  

 

2.4     Chapter 10: Promoting Health

 

It links this NDP objective to the MTSF Outcome 2 entitled Long and healthy life for all South Africans, in that it wants to provide comprehensive support services to Military Veterans and where applicable, to their dependants through 1) Acquiring a Healthcare and Wellness Centre (HWC) and 2) Access to health support.

                                                                                                                          

2.5     Chapter 13: Building a Capable State

 

The Department is working towards being an employer for both military veterans and their dependants by ensuring that recruitment is based on experience and expertise that will ensure efficient delivery on the Department’s mandate.

 

2.6     Chapter 14: Promoting Accountability and Fighting Corruption

 

This NDP objective is linked to the MTSF Outcome 12 namely an efficient, effective and development oriented public service. This Executive Authority priority is listed as ensuring a fully functional Department of Military Veterans with an independent vote, systems and processes.

 

2.7     Chapter 15: Transformative society and uniting the country

 

The DMV will contribute through the delivery of various benefits to this NDP Objective. This includes contributions in promoting social cohesion and righting the wrongs of the past; promoting decent employment through inclusive growth; as well as promoting empowerment programmes for and of military veterans. Further, the DMV will contribute through its activities to an effective and efficient developmental oriented public service.

 

3.       THE MEDIUM TERM STRATEGIC FRAMEWORK (2015/16 - 2019/20).

 

Eight Outcomes are listed to which the Department believes it can contribute in 2018/19:

 

• Outcome 1: Improved quality basic education

 

The Department is embracing the ratification of international convention on social and cultural rights and a determination has been made to ensure that universal access to education accrue to all military veterans and where appropriate, their dependents.

 

• Outcome 2: A long and healthy life for all South Africans

 

The provision of healthcare services to the most vulnerable military veterans will continue. To strengthen easy access to healthcare, military veterans help desks were set up at the SAMHS healthcare facilities across all provinces in line with the Ministerial directive of April 2012. This is a positive development with regard to the rolling out of health care services. 

 

• Outcome 4: Decent employment through inclusive economic growth

 

It is imperative for the Department to promote empowerment programmes for and of military veterans and their dependents and this will be characterised by initiatives that embrace widening of access to economic participation.

 

• Outcome 5: A skilled and capable workforce to support an inclusive growth path

 

The DMV will undertake an exploratory study to provide a skills profile of the military veterans that will inform the country’s skills base. This will assist in developing, confirming and deepening the skills base of military veterans and their dependents. 

 

• Outcome 7: Vibrant, equitable, sustainable rural communities contributing towards food security for all

 

The Department will enhance this Outcome by the provision of immediate Social Relief of Distress (SRD) to the most vulnerable of the military veterans and their dependents as mandated by the legislation.

 

• Outcome 8: Sustainable human settlements and improved quality of household life

 

It is the prerogative of the Department to provide adequate housing and improved quality living environments for the military veterans and their dependents, as described in Section 5 of the Military Veterans Act (No. 18 of 2011).

 

• Outcome 12: An efficient, effective and development-oriented public service and an empowered, fair and       inclusive citizenship

 

Although the budget is still located in Vote 19, Defence and Military Veterans’ Programme 1: Administration under sub-programme Military Veterans Management, the DMV will ensure a fully functional and an independent vote, systems and processes as articulated by the Executive Authority.

 

• Outcome 14: Nation building and social cohesion

 

The empowerment of military veterans and their dependents in enhancing their contribution to reconciliation and nation building, will be characterised by the promotion of the Military Veterans’ heritage as well as memoralisation and honouring.

 

4.       PRIORITIES OF THE MINISTER AND THE ACCOUNTING OFFICER

 

Minister of Defence Priorities	Acting Accounting Officer priorities
Governance:           The filling of senior posts will be addressed.	Credible Database: The database is in the process of being           re-verified. ICT:   Further enhancing of ICT capabilities.
Legislative review: The amendment of the Military           Veterans           Act (No. 18 of 2011) is under way. The Military Veterans           Benefits Regulations will also be reviewed.
Education support:           High levels of success in this regard and continued           growth expected.	Education and training: Cooperation with other organs of state to       employ and reskill veterans.
Health Care: Increased support to be offered.	Health Care: Increased support to be offered.
Heritage: Various heritage activities planned for           2018/19.	Honouring and Memorialisation: Prioritisation of upgrading of           Veterans’ graves in Tanzania.
Erecting headstones: Rolling out of headstones at           Veterans’ memorial sites to commence in 2018/19.
Social Relief of Distress: Ongoing assistance to more           than 3 000 families.
Housing: An improved service delivery model to be developed.
Pension: DMV resources not geared for this benefit.
Empowerment: Partnership with Fiber Processing and           Manufacturing to empower 115 Veterans’ dependants.	Empowerment: Continued entrepreneurial training and           opportunities through business development.
Stakeholder Management: The outstanding provincial DMV           offices to open in 2018/19.	Stakeholder management: The Service Delivery Model           encapsulating service centres around the country will be launched           in 2018/19. An elective conference of the South African National           Military Veterans’ Association (SANMVA) will be prepared for           in 2018/19.

Table 1: Strategic Priorities of the Minister and Accounting Officer

 

1. MANAGEMENT PERFORMANCE ASSESSMENT TOOL (MPAT)

 

For the FY 2018/19, the Department hopes to improve its performance and service delivery by annually assessing its many practices and improving its main areas of concern which are among others:

 

• Critical importance of management and leadership;
• Importance of accountability and consequences;
• Inability to implement Corporate Governance of Information, Communication, Technology
• Poor management of diversity;
• Inability to manage and finalise disciplinary cases on time; and
• Non-payment of suppliers within 30 days as prescribed by PFMA and Treasury Regulation.

 

6.       DMV OVERVIEW OF THE 2018/19 BUDGET AND MEDIUM TERM EXPENDITURE          FRAMEWORK ESTIMATES

 

The DMV Annual Performance Plan gives effect to its mandate that translates into the following outcomes:

 

Programme 1 (Administration): The main purpose of the programme is to provide management and strategic administration support to the Ministry, and overall management of the department. The Administration programme is divided into six sub-programmes; Management; Corporate Services; Internal Audit; Strategic Planning, Policy Development, Monitoring and Evaluation; and Office Accommodation.

 

Programme 2 (Socio-Economic Support):  The main purpose of the programme is to develop and monitor the implementation of legislation, policy frameworks and service delivery cooperation agreements on compensation for injury in military service, counselling, education, healthcare, public transport, pension and housing benefits to Military veterans eligible for such support. The programme consists of three sub-programmes, namely: Database and Benefits Management; Healthcare and Well-being Support; and Socio-Economic Support Management.

 

Programme 3 (Empowerment and Stakeholder Management): The main purpose of this programme is to manage and facilitate the implementation of military veteran empowerment and stakeholder management programmes. The programme consists of three sub-programmes, namely: Provincial Offices and Stakeholder Relations; Empowerment and Skills Development; and Heritage, Memorials, Burials and Honours.

 

6.1     DMV Expenditure Estimates for FY2018/19

 

The Department of Military Veterans received a total allocation of R627.1 million for the 2018/19 financial year, increasing only slightly from R622.1 million in 2017/18. While this reflects a small nominal increase in allocation, when adjusted for inflation it equates to a real percentage reduction of 4.45 per cent. The largest real percentage reduction is for the Administration Programme (19.26 per cent) while the Empowerment and Stakeholder Management Programme received a 6.42 per cent real reduction. The Socioeconomic Services Programme received a 3.85 per cent real increase, thus reflecting a relatively stable allocation. The reduction in the Administration allocation vis-à-vis a stable Socio Economic Support Services allocation should be viewed in a positive light as it directs funds towards the core functions of the DMV.

Programme	Budget (Adjusted           estimate)		Nominal           Increase/          Decrease in       2018/19	Real Increase/           Decrease           in 2018/19	Nominal           Percent           change in           2018/19	Real Percent           change           in           2018/19
R million	2017/18	2018/19
Programme 1: Administration	149,8	127,6	-  22,2	-  28,9	-14,82 per cent	-19,26 per cent
Programme 2: Socio Economic Support          Services	307,4	336,8	29,4	11,8	9,56 per cent	3,85 per cent
Programme 3: Empowerment and           stakeholder management	164,9	162,8	-  2,1	-  10,6	-1,27 per cent	-6,42 per cent
TOTAL	622,1	627,1	5,0	-  27,7	0,8 per cent	-4,45 per cent

Table 2: Expenditure Estimates for FY2017/18 to FY2018/19

 

6.2     Programme 1: Administration

In line with the overall real percentage reduction of the programme, the majority of sub-programmes received a real percentage reduction. The largest reduction is for Sub-programme 6 (Office Accommodation) which received a 28.46 per cent real reduction in its allocation. Sub-programme 1 (Management) also received a 25.68 per cent real reduction.  Financial Administration and Corporate Services received a real reduction of 23.9 per cent and 22.77 per cent respectively. Of specific concern is the 11.36 per cent real reduction in the allocation for Internal Audit, which was previously highlighted as a concern by the Auditor-General.

In terms of economic classifications, the reduction in overall allocation to Programme 1 is largely due to a reduction in Compensation of Employees from R63 million in 2017/18 to R43.7 million in 2018/19. Two key increases in expenditure should be noted. Expenditure on Business Consultants are expected to increase from R1.9 million in 2017/18 to R8.5 million in 2018/19. Contractors will similarly increase from R900 000 to R4.9 million over the same period. Furthermore, Infrastructure and Planning Services will increase from R600 000 to
R14.8 million in 2018/19.

Programme	Budget (Adjusted appropriation)		Nominal Increase / Decrease in 2018/19	Real Increase / Decrease in 2018/19	Nominal Percent change in 2018/19	Real Percent change in 2018/19
R million	2017/18	2018/19
Sub-programme 1: Management	8,8	6,9	-  1,9	-  2,3	-21,59 per cent	-25,68 per cent
Sub-programme 2: Corporate Services	66,4	54,1	-  12,3	-  15,1	-18,52 per cent	-22,77 per cent
Sub-programme 3: Financial Administration	20,8	16,7	-  4,1	-  5,0	-19,71 per cent	-23,90 per cent
Sub-programme 4: Internal audit	10,8	10,1	-  0,7	-  1,2	-6,48 per cent	-11,36 per cent
Sub-programme 5: Strategic Planning, Policy Development, Monitoring and Evaluation	16,6	19,9	3,3	2,3	19,88 per cent	13,63 per cent
Sub-programme 6: Office Accommodation	26,5	20,0	-  6,5	-  7,5	-24,53 per cent	-28,46 per cent
TOTAL	149,8	127,6	-  22,2	-  28,9	-14,8 per cent	-19,26 per cent

Table 3: Nominal and real increases/decreases in the Administration Programme

Performance Indicators for Programme 1 (Administration)

Programme 1 includes 8 set targets for 2018/19. The first of these refer to a new Strategic Target related to the Management Performance Assessments Tool (MPAT) Score. During 2018/19, the DMV aims to achieve an MPAT Score of 3. Furthermore, all targets for 2018/19 remain the same as targets set in 2017/18, except for the target for ‘percentage of approved communication strategy activities implemented’ which increases from 75% to 100%.

Performance Indicator	Audited Outcome	Estimated Performance	Estimated Performance
	2016/17	2017/18	2018/19
Percentage women at SMS level	New target	50%	50%
Percentage of Communication Strategy activities implemented	50%	75%	100%
Percentage cases from the Presidential Hotline resolved	100%	100%	100%
Fully integrated benefits management system	New target	Solution Construction and Implementation	Continuous improvement
Number of liberation struggle history research outputs	5	5	5
Percentage representation of Persons with disabilities	2%	2%	2%
Percentage of legitimate invoices paid in 30 days	90%	90%	90%

Table 4: Selected performance targets for Programme 1

6.3     Programme 2: Socio-Economic Support         

Programme 2 received a real percentage increase in its allocation of 3.85 per cent. This should be lauded as the programme is linked to the core business of the DMV, namely delivering services to veterans. The overall increase is largely attributed to the 34.42 per cent real increase in the Database and Benefits Management subprogramme. This increase thus correlates with the prioritisation of the database by the Acting Director General (Section 4 of this Report). The programme also focuses heavily on the provision of bursaries and skills development as benefits. Over the Medium-term, the DMV is expected to spend at least R465 million on bursaries and R224 million on skills development (of a total medium-term budget of R1.995 billion).

In terms of economic classifications, the allocations remained relatively stable with three exceptions. First, there is an increase in the allocation for Contractors from R34.4 million in 2017/18 to R53.7 million in 2018/19. Secondly, Compensation of employees increases from R22.8 million to R40.6 million in 2018/19. Finally, the allocation for Travel and Subsistence decreases from R10.9 million to R4.2 million over the same period.

Programme	Budget		Nominal Increase / Decrease in 2018/19	Real Increase / Decrease in 2018/19	Nominal Percent change in 2018/19	Real Percent change in 2018/19
R million	2017/18	2018/19
Sub-programme 1: Database and Benefits Management	11,0	15,6	4,6	3,8	41,82 per cent	34,42 per cent
Sub-programme 2: Health Care and Wellbeing Support	76,7	80,9	4,2	0,0	5,48 per cent	-0,02 per cent
Sub-programme 3: Socio economic Support Management	219,7	240,3	20,6	8,1	9,38 per cent	3,67 per cent
TOTAL	307,4	336,8	29,4	11,8	9,6 per cent	3,85 per cent

Table 5: Nominal and real increases/decreases in the Socio Economic Support Services Programme

Programme 2 has four strategic objective annual targets and four annual performance targets. Targets that are key to service delivery to military veterans are reflected in the table below. Of specific concern is the targets related to housing and the finalisation of the database, as past performances in this regard has been significantly lower than the set targets.

Performance Indicator	Audited Outcome	Estimated Performance	Estimated Performance
	2016/17	2017/18	2018/19
Percentage Veterans verified and captured on the database	New indicator	90%	95%
Number of military veterans with access to healthcare	15 740	15 000	17 000
Number of military veterans with newly built houses per year	168	1 000	1 000
Number of bursaries provided to veterans and their dependents	7 146	8 700	10 700

Table 6: Selected strategic and performance targets for Programme

6.4     Programme 3: Empowerment and Stakeholder Management

Programme 3 received a nominal decrease in its allocation of only R2.1 million rand that, when adjusted for inflation, translates to a 6.42 per cent reduction in real terms. Both the key service-delivery sub-programmes, Empowerment and Skills Development as well as Heritage, Memorials, Burials and Honours, received a real percentage reduction above 15 per cent. However, given the aim of the DMV to open new Provincial Offices in 2018/9, the allocation for the Provincial Offices and Stakeholder Relations sub-programme increased by 15.06 per cent in real terms. In terms of economic classifications, the allocation for Compensation of Employees increases from R28.1 million in 2017/18 to R38.0 million in 2018/19. Catering costs also increase from R2.5 million to R3.7 million over the same period.

 

 

 

Programme	Budget		Nominal Increase / Decrease in 2018/19	Real Increase / Decrease in 2018/19	Nominal Percent change in 2018/19	Real Percent change in 2018/19
R million	2017/18	2018/19
Sub-programme 1: Provincial offices and stakeholder relations	49,1	59,6	10,5	7,4	21,38 per cent	15,06 per cent
Sub-programme 2: Empowerment and skills development	94,0	83,7	-  10,3	-  14,7	-10,96 per cent	-15,60 per cent
Sub-programme 3: Heritage, Memorials, Burials and Honours	21,8	19,5	-  2,3	-  3,3	-10,55 per cent	-15,21 per cent
TOTAL	164,9	162,8	-  2,1	-  10,6	-1,3 per cent	-6,42 per cent

Table 7: Nominal and real increases/decreases in the Empowerment and Stakeholder Management Programme

Programme 3 has four strategic objective annual targets and five annual performance targets. Targets set for 2018/19 remain in line with those set in 2017/18. However, the target for veterans assisted in terms of skills development increases from 4 000 in 2017/18 to 5 000 in 2018/19. Furthermore, three veterans’ memorial sites will be erected in 2018/19. The targets set for 2018/19 are reflected in the table below.

Performance Indicator	Audited Outcome	Estimated Performance	Estimated Performance
	2016/17	2017/18	2018/19
Number of private sector companies and organs of state in agreements with the DMV	0	4	4
Number of veterans with access to training and skills development	1 908	4 000	5 000
Number of veteran’s business entities supported per year	179	110	110
Percentage approved burial claims paid within 30 days	New target	100%	100%
Number of memorial sites erected per year	2	2	3

Table 8: Selected strategic and performance targets for Programme 3

 

7.       PROPOSED AMENDMENTS TO THE MILITARY VETERANS ACT AND REGULATIONS

The Department has once again stated that they intend to amend the Military Veterans Act (No. 18 of 2011) as well as the Military Veterans Benefits Regulations (MVBR) of 2014. They believe that these amendments will play a significant and critical role with regards to the inclusion of the dependents of the military veterans in all benefits. It states in particular that: “The amendment of the Act is necessary as it will play an important role in shaping the future of military veterans. On completion thereof, the MVBR shall be reviewed.”

 

8.       COMMITTEE OBSERVATIONS

The Committee made the following observations in terms of the 2018/19 Annual Performance Plan and 2018/19 Budget allocation to the DMV:

 

• The Committee commends the improved spending of 97% of the total budget by the end of the Fourth Quarter of 2017/18 and implores the DMV to continue the effective spending patterns in 2018/19.
• Poor performance in the Socio-Economic Support Services related to housing (156/500) and the percentage captured on the Database was noted by the Committee.
• The Committee drew the Department’s attention to the fact that it still does not have an independent vote and systems, although this has been one of its priorities since the inception of the Department. 
• Note was taken of the intention of the Department to increase its percentage of Communication Strategy activities from 75% to 100% although the Department has not been successful in achieving the previous target.
• The Committee is concerned that the Department often provides percentages in its Reports which do not give a clear understanding of the kind of impact and the number of people that have been assisted. Examples include the number of women at SMS level (48%), Percentage of cases to the Presidential hotline resolved (100%), the percentage of persons with disability (2%) and especially the percentage of military veterans verified and captured on the Database (20%).
• The Committee raised concern about the drastic escalation in bursaries. While the education support offered by the DMV is widely welcomed, it is also the responsibility of the DMV to ensure that this benefit is not misused, but in support of Veterans in need according to the means test.
• The Committee noted that the high demand for bursaries were funded by shifting unspent funds towards Education Support mainly from Housing and Skills Development.
• The Committee noted the DMV’s intention to restructure in order to improve service delivery and encouraged the Department to ensure that it is fast-tracked so that benefits are delivered to deserving military veterans.
• The Committee is concerned about the Internal Audit capacity, which has also received reduced allocation. Internal Audit was identified as a risk by the Portfolio Committee since the establishment of the Department. The Auditor General, as well as the Standing Committee on Public Accounts, also raised concerns about Internal Audit. 
• The Committee is concerned about the delays in the finalising the public transport benefit for military veterans.
• The Committee is concerned about the long standing issue of skills audit. This will ensure that benefits delivery is fast-tracked.
• The Committee noted that additional information is needed regarding the target of providing 100 Military Veterans with businesses opportunities.
• The Committee raised its concerns regarding the ongoing inability of the DMV to achieve its housing targets; yet, the targets remain similar to previous years in the 2018 APP.
• Members of the Committee are encouraged by the research output of the DMV and would like to receive such output.
• The Committee raised concern about the expected increase in litigation costs and requested clarity on litigation expected in 2018/19.
• The Committee raised concern regarding the Advanced Technological Services and progress made in terms of its implementation.

 

9.       RECOMMENDATIONS

The Portfolio Committee made the following recommendations regarding the 2018/19 Annual Performance Plan and 2018/19 Budget allocation to the DMV:

• Although acknowledging the improved spending in the Fourth Quarter, the Committee recommends that the Department should further enhance its spending patterns in especially the service delivery programmes not only to avoid requests for roll overs, but also to proof its ability to spend funds effectively and efficiently.
• While the Housing policy is at last being finalised, the Committee recommends the speedy finalisation of all policies to enhance the delivery of benefits especially those related to the pension and public transport benefits.
• The Committee acknowledge the progress being made with finalising the new Macro-structure of the Department, but recommends that the Department should enhance its efforts in order to speed up the delivery of benefits and the appointment of personnel in especially critical managerial posts.
• The Committee recommends that the Department should prioritise its efforts to have an independent vote and systems, as this will assist in the effective and efficient delivery of benefits.
• The Department should set more realistic targets especially if it did not meet those targets in the past. A case in point is the “Percentage of Communication Strategy activities” target which was increased from 75% to 100% although the Department failed to meet the previous target.
• The Committee recommends that the Department should prioritise the weaknesses identified in the MPAT processes in order to improve its performance on this management tool.

• The Committee wants the Department to provide both the percentages and the actual numbers when reporting on the achievement of their targets in order to give the Committee a clear understanding of the kind of impact and the number of people that have been assisted. This should be implemented in future quarterly reports to the Committee as well as annual reports, including the 2017/18 Annual Report to be submitted to Parliament in 2018.

• The Committee recommends that the Department should ensure that overspending on Education support does not come at the expense of benefits such as Housing and Skills Development. It should prioritise the revised maximum limits for basic and higher education and implement these as determined, as well as enhancing its collaboration with NSFAS to award bursaries to qualifying military veterans and their beneficiaries.

• The Committee recommends that the DMV should focus in particular on the performance of the Administration Programme and the Empowerment and Stakeholder Management Programme in order to ensure that its overall performance is improved.
• The Committee recommends that the poor performance in the Stakeholder Management Programme such as state organs having agreements with the DMV, number of beneficiaries for skills development, and memorial sites erected, should be targeted for enhanced focus.
• The Department should fill the vacancies in the Internal Audit section as soon as possible and ensure that this section is supported with the necessary resources without delay.
• The Department should prioritise the completion of the Skills Audit and a report to this effect should be presented to the Committee as soon as it is completed. 
• The DMV should submit a report to the Committee, within 30 days, on the reasons for the expected expenditure increases in 2018/19 in relation to the following:

• R4.973 million is allocated for Catering;
• Communications allocation increases from R4.816 million in 2017/18 to R10.543
  million in 2018/19;
• The allocation for Infrastructure and Planning increases from R561 000 in 2017/18 to
  R14.779 million in 2018/19;
• Legal Services increase from R1.647 million in 2017/18 to R4.388 million in 2018/19;
• The allocation of Contractors increase drastically from R35.290 million in 2017/18 to
  R58.544 million in 2018/19;
• R105 000 is budgeted for entertainment for 2018/19;
• The allocation for Consumable Supplies increases from R3.606 million in 2017/18 to
  R5.889 million in 2018/19;
• The allocation for Venues and Facilities increases from R8.848 million in 2017/18 to
  R10.209 million in 2018/19.

• The Committee recommends the prioritisation of the finalisation of the upgrading of the Department’s ICT systems in an effort to enhance the database finalisation.

 

 

PART C: DEFENCE ENTITIES

 

The Portfolio Committee on Defence and Military Veterans (PCODMV), having considered the 2018/19 Budgetary allocation and Annual Performance Plans of the Castle Control Board (CCB), the Armaments Corporation of South Africa (ARMSCOR) on 8 May 2018 and the Military Ombud on 10 May 2018, for the 2018/19 financial year, reports as follows:

 

CASTLE CONTROL BOARD (CCB)

 

1.  

 

1. Description of core functions of the Castle Control Board

 

The Castle Management Act, 1993 (No. 207 of 1993) provides for a Castle Control Board (CCB) to govern and manage the Castle – South Africa’s oldest architectural structure - on behalf of the Minister of Defence and Military Veterans. The National Heritage Resources Act (No. 25 of 1999) provides for the management of the Castle as a national heritage site. The Castle’s objectives are set out in the Castle Management Act as follows:

• To preserve and protect the military and cultural heritage of the Castle;
• To optimise the tourist potential of the Castle; and
• To maximise accessibility to the public.

 

1. Overview of the key relevant policy focus areas

 

2.1        The National Development Plan

 

The NDP and its related policies provide a national framework that will inform the contribution by national departments and public entities. Aspects relevant to the CCB and their envisaged contribution are as follows:

 

• Tourism:  The Castle of Good Hope (CGH) as a premier heritage tourism destination is part of important debates and regularly engages with the tourism industry, government departments, donors and partners to contribute toward the NDP outcomes and targets. CCB Programme 3 deals with Tourism Management and the organisational objective aligned to the NDP is “To maximize the tourism potential of the CGH.”

 

• Envisaged Reduction in Youth Unemployment:  The CCB is running a programme for youth job shadowing and internship. This initiative will be strengthened and refined over the MTEF. In this regard the CCB is working with the Culture, Arts, Tourism, Hospitality and Sports Sector Education and Training Authority to access some of their resources. The CCB’s output objective in Programme 4, which is aligned to the NDP, is “Delivering a range of public programmes with SA schools, cultural groups and special community groups.”

 

• Strengthening the National Research and Development Capacity:  The CCB is very mindful of the historical significance of the CGH and its collections. These offer significant opportunities in the areas of education and research. The organisation has a small resource centre which it plans to expand. The CCB will establish a CCB Strategic Research capability, particularly to record, monitor and share the lessons of the multi-million rand renovations project. The link with the NDP is CCB Programme 2 “Ensure the maintenance, preservation, interpretation and showcasing the history of the Castle.”

 

• Fraud and Corruption: The CCB will intensify its campaign in fighting fraud and corruption. CCB Programme 1 refers to “Ensure clean, sound administration and good governance”. The organisation is involved in a process to review its legislation and has strengthened most of its critical internal controls to ensure a sound, corruption and crime-free organisation.

 

Reference is also made to the ring-fenced R4.5 m annual subsidy as well as the CCB supporting economic objectives articulated in the National Development Plan (NDP). “The site is already supporting 89 direct employment posts, another 300 temporary opportunities associated with events and runs a very successful internship and learnership programme offering opportunities to at least 30 youth annually.”

 

2.2        The Medium Term Strategic Framework (2014 - 2019)

 

The MTSF Outcomes to which CCB will contribute by virtue of its legislative mandate and inherent capabilities are as follows:

 

MTSF Outcomes 4 and 5: “A skilled and capable workforce to support an inclusive growth path” and “Decent employment through inclusive economic growth” are linked to the CCB Programme “To maximise the tourism potential of the CGH” with the following outcomes set out in the CCB Strategy Map:

 

• Deliver a complete offering of visitor services and experience;

• Human resource development and adequate staffing levels;

• Implement a revenue generation plan; and

• Responsible commercialisation drive.

 

MTSF Outcome 12: “An efficient, effective and development orientated public service and an empowered, fair and inclusive citizenship” is linked to CCB programmes 1 and 2, namely “Ensure clean, sound administration and good corporate governance” and “Ensure the maintenance, preservation, interpretation and showcasing of the history of the Castle.” These are linked to the following Strategic Map outcomes:

 

• Effective and efficient systems of internal control;

• Sound financial control;

• Research and international benchmarking; and

• Integrated resource management.

 

2.3        Ministerial Priorities

 

The CCB states that they will endeavour to align its programmatic outputs and outcomes to those of the Ministry:

 

• Defence Strategic Direction. This priority relates to ensuring the provision of Ministerial strategic direction to the DOD over the short, medium- and long-term.

 

• Strategic Resourcing Direction. This priority relates to the directing of the developing of an appropriate Defence Funding Model thereby ensuring the adequate resourcing of the Defence function over multiple MTSF periods aligned with prevailing defence policy.

 

• Organisational Renewal Direction. This priority relates to the directing of the renewal of the defence organisation to achieve greater efficiencies and effectiveness across the defence functions.

 

• Human Resources (HR) Renewal Direction. This priority relates to the directing of the renewal of the departmental human resource function to ensure that the personnel profile is able to meet both current and future defence obligations.

 

• Capability Sustainment Direction. This priority relates to reviewing the Defence direction to the Defence Industry, technology development and directing Defence acquisition in line with the four milestones of the SA Defence Review 2015.

 

2.4        Sustainable Development Goals

 

The 17 SDGs and 169 targets which form the SDGs demonstrate the scale and ambition of this new universal Agenda. These SDGs seek to build on the Millennium Development Goals and complete what they did not achieve. These SDG and targets will stimulate action over the next 15 years in areas of critical importance for humanity and the planet. The CCB by virtue of its legislative mandate will indirectly support selected SDGs as furthermore directed through the current 2015 – 2020 MTSF.

 

1.       Committee 2017/18 Budget Report

 

The Portfolio Committee made the following recommendations on the 2017/18 Budget Report of the CCB:

 

• The Committee recommended that even though the accumulated surplus and its utilisation has been sanctioned by National Treasury, the surplus should be utilised prudently and with the understanding that revenue shortfalls, should be covered by the Revenue Optimisation Strategy.
• The CCB indicated that the Revenue Optimisation Strategy is a 110 pager and it was requested that this be shared with the Committee, as soon as possible. It is recommended that the strategy be operationalised to generate income to prevent the depletion of the surplus which will impact on the running of CGH, in case the R4.5 million is not provided by the DOD. In addition, the CCB should provide the Committee with the projected figures for each of the highlighted projects.
• The CCB was encouraged to further enhance its clean audit opinion by ensuring that the noted Irregular Expenditure is avoided in future.
• The Committee reiterated that it was not against the awarding of performance bonuses/awards, especially against the good performance of the CCB, but stressed that all personnel should be considered for this.
• The Committee encouraged the CCB to enhance its revenue strategies, not only to improve its finances, but also to address the high cost of compensation to employees. 
• The CCB indicated that progress is being made with its plans to solely manage the Castle, and it was encouraged to further these attempts to ensure that it is in a position to optimally manage the whole precinct.
• Given that no specific answer was given to the requested R4.5 million annual subsidy from the Department of Defence, it is recommended that the CCB provides more information on this issue at its next meeting.
• The Committee was encouraged by the response by Chief of Logistics that he will address the ill-discipline of SANDF soldiers guarding the CGH, and they were requested to share these plans and progress in this regard with the Committee.
• The CCB should provide more information on the anti-criminality plan given the challenges in this regard, and especially how it impacts on the image of the CGH.
• The Committee recommended that the CCB should not only manage the top five risks, but all risks attached to the CGH.
• The CCB is required to explain the difference in amounts between performance rewards and performance bonuses, given that they indicated that these terms were used interchangeable, as well as when these amounts will be finalised.
• Given that the CCB indicated that progress has been made with the migration of “Het Bakhuys” to them, the Committee recommended that the CCB keeps it abreast of developments in this regard. The CCB should also provide the Committee with the current and projected figures regarding the finances of “Het Bakhuys.”
• The CCB should provide the Committee with more information around local and international travels undertaken by members of the CCB.

 

4.         CCB Overview of the 2018/19 Budget and Medium Term Expenditure Framework Estimates

 

The CCB 2018/19 Annual Performance Plan and the Strategic Plan (2015 - 2020) give effect to the mandate of the CCB which translates into the following outcomes:

 

Programme 1: Ensure clean, sound administration and good corporate governance. Delivery of a significantly improved corporate governance environment as measured by the CCB’s annual AGSA audit rating i.e. achievement of a clean audit report.

 

Programme 2: Ensure the maintenance, preservation, interpretation and showcasing of the history of the Castle. Delivering of an increased number of innovative museum exhibitions and other displays accessible to the general public and tourists.

 

Programme 3: Maximise the tourist potential of the Castle. Delivering of the Castle as an enhanced tourist attraction as indicated by increased visitor figures and revenue generated through tourism activities.

 

Programme 4: Increased public profile and positive perception across all sectors of the community

 

4.1        CCB’s Expenditure Estimates from FY 2014 to FY20210/21

 

Programme R thousand	2014/15	2015/16	Audited 2016/17	Adjusted appropriation 2017/18	Medium-term expenditure estimate
					2018/19	2019/2020	2020/21
Administration	5 172 (4 180)	5 412 (5 091)	6 637 (5 428)	7 266 (5 895)	7 061 (6 432)	7 485	7 971
Conservation	656 (1 863)	541 (1 950)	369 (2 020)	750 (2 121)	525 (2 244)	584	623
Tourism Promotion	60 (75)	131 (130)	41 (150)	158	60 (167)	75	80
Public Access	350 (260)	1 354 (330)	1 167 (347)	364	(204) 385	215	229
Total	6 239 (6 378)	7 438 (7 501)	8 214 (7 945)	8 538	7 850 (9 228)	8 359	8 903
Compensation of employees (CoE)	3 092	3 317	5 393 (4 278)	6 044 (4 530)	5 734 (4 987)	6 078 (5 262)	6 473

Table 1: CCB Expenditure estimates

There were significant differences in the Conservation programme from 1 863 in the APP 2016 to 656 in the APP 2017, and from 2 121 in FY 2017/18 to 750 in FY2018/19. Similarly, the decrease in Tourism promotion from 150 in the 2016 APP to 41 in the 2017 APP, and even more significant the decrease from 167 in FY2017/18 to 60 FY2018/19 were noticeable.There were also increases in the Compensation of employees which were indicated as R4.530 million in FY2017/18 versus the adjusted figure of R6.044 million, with similar increases for the following two financial years (R4.987 million vs R5.734 million and R5.262 million vs R6.078 million).

4.2        Selected Performance Indicators

Annual Performance Plan: Selected performance indicators and annual targets for FY 2018/19 to FY 2020/21

PERFORMANCE INDICATOR	2014/15	2015/16	2016/17	2017/18	2018/19	2019/20	2020/21
Gross revenue generated per annum	R3.8m (R3.3m)	R4.9m (R3.9m)	R8.2m (R4.65m)	R8.5m (R5m)	R7.850m (R9.2m)	R8.359m (R9.7m)	R8.903m
Number of tourists attracted per annum	168 514 (149 940)	154 067 (152 000)	155 000 (157 000)	160 000	165 000	165 000	175 000
Number of student interns hosted per annum	20	26 (25)	30 (30)	30 (35)	15 (30)	30	20
APP submitted to Executive Authority	100%	100%	100%	100%	100%	100%	100%
Annual Report submitted to Executive Authority	100%	100%	100%	100%	100%	100%	100%

Table 2: CCB Selected performance indicators

Some of the noticeable issues regarding the Selected Performance Indicators include the figures in brackets which were for the 2017 APP and were reported on already and were subsequently changed. The Committee also requested the CCB to explain the changing of figures for especially the Gross Revenue from R9.2 m in FY 2017/18 to R7.850m in the current APP. In addition, the number of Student interns hosted per annum dropped from 30 to 15 for this financial year and explanations were required for this change.

 

4.3 Performance delivery environment: Challenges and opportunities

The APP refers to the need for the CGH precinct to be managed solely by the CCB and that all other entities must adhere to the policies and procedures of the CCB. Reference is also made to other organisations operating on the site, undermining the CCB’s drive towards sustainability, relating especially to the transfer of Het Bakhuys, and “the overall role of IZIKO and the Officers Messes at the CGH which must be resolved during FY 2018/19.  Further, all State entities and departments should be strongly encouraged to use the CGH’s Conference and Events facilities for government functions. It also refers to the approved annual subsidy namely that “To execute its full mandate, the CCB’s own generated income (R7.850 million per annum) must be augmented by the MODMV to address the above in a manner that will not only protect the R108 million recent investment but enhance it.”

 

 

 

4.4        Additional funds allocated for FY2016/17 and FY2018/19

The APP in Table 9 indicates the additional allocation of R4.5 million for financial years 2018/19 to 2020/21. These additional funds are to be utilised for activities such as:

• Heritage maintenance,
• Preventative facilities management,
• Implementation Conservation Management Plan,
• Development of new heritage tourism,
• Development of conference and wedding facilities,
• Refurbishing and outsourcing,
• Completion of military museum exhibitions,
• Acquisition of heritage artefacts, and
• Development of Center for African Colonial studies.

 

The Appendix in the APP outlining the Guidelines for Expenditure of Funds allocated for maintenance of the CGH, lists three maintenance categories namely Emergency day-today maintenance, Planned and preventative maintenance and Corrective maintenance. The Committee requested more information on how exactly these two items (Additional funds activities vs the Guidelines for Expenditure of Funds) are aligned, and especially whether some of the aforementioned items, such as Acquisition of heritage artefacts, and the Development of Centre for African Colonial studies, can be viewed as maintenance items.

5.         ORGANISATIONAL STRUCTURE AND PERSONNEL

CCB is seemingly “well-structured” and has a functional Board. It appointed a Chief Executive in April 2013, and a CFO on 1 April 2014. It has also appointed Heritage, Events and Tourism Managers and is apparently sufficiently resourced to deal with its full mandate. Personnel is the CCB’s biggest driver of expenditure as can be noted in the table below.

Item	2014/15	2015/16	2016/17	2017/18 Adjusted appropriation	2018/19	2019/2020	2020/21
CoE Percentage of total allocation	49.56%	44.59%	54.26%	70.78%	73%	72.7%	72.7%

 

The adjusted appropriation for FY2017/18 indicates that the Compensation of employees has climbed from a low of 44.59% of total expenditure in 2015/16 to 70.78% in 2017/18. Further, the subsequent three years are all above 72%. Given the international norm of 40% for employees in the ratio 40/30/30 ratio (40% for personnel, 30% for capital expenditure and 30% for operational expenditure), questions were raised on how the CCB plan to address this issue.

Item	2013/14	2014/15	2015/16	2016/17	2017/18	2018/19	2019/2020
Compensation of employees (CoE)	1 775	3 092	3 317 (3 845)	4 278 (4 128)	4 530 (4 309)	4 987 (4 602)	5 262
CoE Percentage of total allocation	40%	49.56%	44.59%	52.08%	53.05%	54.04%	54.02

Table 3: CCB Compensation of personnel FY2013/14 to 2019/20

 

 

 

6.         REVENUE GENERATION

The current APP refers to the fact that the CCB is not merely a cost centre but a significant revenue generation centre. It has completed its Revenue Optimisation Plan and its implementation will lead to an increase in revenue in the initial phase (2018) by at least R2.5 million per annum.  Further, direct revenue is expected to be around R8.5 million in 2018 primarily generated from ticket sales, renting out of venues, and fees from hosting special events. 

The CCB Board has rescinded the basis of agreement with IZIKO (sharing a third of its entry fees with Iziko) and this will lead to an additional R1 million per annum for the CGH. It is also expecting an average annual rate increase in revenue of 10 per cent over the medium term. Further, it has also increased the ticket prices to R50 for adults and R25 for students from R30 and R15 respectively.

7.         PROPOSED AMENDMENTS TO THE CASTLE MANAGEMENT ACT

The 2018 APP lists the proposed amendments in Annexure B. It was in support of the amendments in the Defence Laws Repeal and Amendment Act (No. 17 of 2015) namely the removal of the age restriction and repeal of the Defence Endowment Property and Account Amendment Act (No. 17 of 1929). It suggests further changes regarding some of the names, definitions, the appointment of the Chairperson of the CCB, and the clarification of the CCB’s scope and objects. It also proposes the deletion of provisions relating to the “purchase of the Castle.” The Board was requested to ensure that it has considered all relevant legislation applicable to it to ensure that proposed changes deal with it in a holistic manner to avoid haphazardness in this regard.  Note was taken of the intention to delete sections pertaining to the “purchase of the Castle by the Board.” The new section’s wording: “to provide for the Board rendering assistance in the management and control of any defence endowment or heritage property.” should be reconsidered or an explanation should be given of “any defence endowment or heritage property.”

8.         Committee Observations

During deliberations with the Castle Control Board on 8 May 2018, Members of the PCODMV made several observations related to the budgetary allocation and the targets set in the Annual Performance Plan. The following should be noted:

1. The Committee questioned why the Revenue Optimisation Plan which has been mooted for the last two years, is projected to increase revenue only from this financial year onwards.
2. Questions were asked about the position of a Financial Manager and whether this is akin to the post of the CFO, to which the answer was in the affirmative.
3. The Committee noted that the historic reserves which were around R13 million is nearly exhausted with only around R1.5 million left.
4. The Committee raised questions around the utilisation of military veterans at the CGH and raised question around their conditions and terms of their employment.
5. As in previous years, the Committee once again noted discrepancies between the 2017 APP and 2018 APP regarding the Performance indicators and targets, which leads to confusion and complicates proper comparisons.

8.         Recommendations

The PCODMV identified the following areas which will be subject to monitoring by the Committee throughout the 2018/19 financial year:

1. The Committee recommended that the CCB should provide exact information around their financial sustainability as the information provided indicated that without the assistance of the DOD, it is unlikely to be financially sustainable.
2. Clarity should be provided to the Committee on financially related issues such as the increasing costs of compensating employees, the granting of a R4.5 million annual subsidy from the DOD, the near-depletion of the historical           reserves, and the failure so far of the Revenue Optimisation Strategy.
3. The Committee recommended that the CCB should avoid misrepresenting information such as the R4.5 m not being a subsidy, the role it is trying to write for itself in the amendment of the Castle Management Act, the R1 million from Iziko, and the accuracy of the performance figures.
4. The Committee recommends that the CCB should provide it with a written report on the contractual relationship between the CCB and the Department of Military Veterans regarding the Center for Memory, Healing and Learning. The reports should also include information on the employment of military veterans at the CCB given some of the concerns around conditions of employment, safety and accommodation. 
5. The Committee wants a written report on exactly how the security and safety of assets and personnel at the Castle, is being addressed. This should include information on the reported ill-discipline of guards at the Castle given the damage it causes to the image of the SANDF, the DOD, and the CCB.
6. The Committee recommended that the CCB should speed up the process to amend the Castle Management Act to facilitate its sole ownership/management of the Castle.
7. The Committee advised the CCB that the issue of Het Bakhuys and other officers, messes need to be clarified with the DOD and their views should be accommodated in addressing this issue.

 

ARMSCOR

1.  

 

1. Mandate of Armscor

 

The Armaments Corporation of South Africa SOC Ltd (Armscor) was established in terms of the Armaments Production and Development Act (No. 57 of 1968) to satisfy the requirements of the South African National Defence Force (SANDF) in respect of Defence Matériel.

 

1. Main Objective of Armscor

 

The objectives and mandate of Armscor are defined in the Armaments Corporation of South Africa Limited Act of 2003 and includes the objective of meeting the defence matériel requirements of the Department of Defence (DOD) effectively, efficiently, and economically. Furthermore, Armscor are to meet the defence technology, research, development, analysis, and test and evaluation (T&E) requirements of the DOD effectively, efficiently, and economically.

 

1. ARMSCOR CONTRIBUTION TO NATIONAL DEVELOPMENT PLAN

 

The 2018 Corporate Plan lists a number of contributions from Armscor to the National Development Plan (NDP), including the following:

 

• Sharpening South Africa’s innovative edge by continuing its contribution to global scientific and

technological advancement;

• Implementing greater investment in R&D and better use of existing resources;
• Facilitating innovation and enhanced co-operation between public service, technology institutions and the private sector in areas of potential dual use (military and civilian application);
• Committing to procurement approaches that stimulate domestic industry and job creation; and
• Procuring from and supporting SMMEs, black-owned and black-managed enterprises, and female-led enterprises, the youth, and military veterans.

 

3.       THE MEDIUM TERM STRATEGIC FRAMEWORK (2015/16 - 2019/20).

 

Armscor’s contribution to the Medium-term Strategic Framework (MTSF) goals are twofold. Firstly, Armscor support the DOD which, in turn, contributes to the following MTSF two goals:

 

• Outcome 3: “All people in South Africa are and feel safe”
  • South Africa’s borders effectively defended, protected, secured and well-managed: Armscor supports this outcome with regard to providing technology and equipment to the DOD in support of the overarching strategy to defend, protect, secure, and ensure well-managed borders by securing the land, airspace and maritime borders.
  • Secure cyber space: Armscor provides support for capacitating a Cyber-Security Institution by the establishment of the Cyber Command Centre Headquarters.
  • Corruption in the public and private sectors is reduced: Armscor will prevent corruption where prevalent and in the execution of Armscor’s mandate.

 

• Outcome 11: “Creating a better South Africa and contributing to a better and safer Africa in a better world”
  • Political cohesion in Southern Africa to ensure a peaceful, secure and stable Southern African region: Armscor supports the DOD by supplying the necessary security equipment.

 

Secondly, also indirectly supports the following MTSF outcomes:

 

• MTSF Outcome 2: “A long and healthy life for all South Africans”,
• MTSF Outcome 4: “Decent employment through inclusive economic growth”,
• MTSF Outcome 5: “A skilled and capable workforce to support an inclusive growth path”, and
• MTSF Outcome 12: “An efficient, effective and development oriented public service and an empowered, fair and inclusive citizenship”.

 

4.       MEDIUM-TERM STRATEGIC FOCUS AREAS

 

In order to achieve the Armscor Strategy, the Armscor Board identified four strategic focus areas. These strategic focus areas changed somewhat from 2017/18 and although overlap exists, the 2018/19 strategic focus areas lean towards a combination of service delivery and rigid financial management. Each focus area has specific goals for the 2018/19 financial year as per the table below:

 

STRATEGIC FOCUS AREAS
Strategic initiative	Measurement of success	2018/19 target
Revenue Generation	Group Revenue	R1.384 billion (up from R1.265 billion in 2017/18)
	Increase income from existing Armscor R&D facilities	5 per cent (R139 million)
	Revenue generated from the Business Enablement Unit	R110.2 million (up from R34 million in 2017/18)
Cost Management	Improve net financial position	Break even (2017/18 had a loss of R25.5 million)
Efficient and effective delivery	Reduce Defence Industrial Participation (DIP) Agreements turnaround time	50 days (previously 68 days)
	Reduce Acquisition projects turnaround times	58 days (previously 68 days)
	Reduce DOD project amendments turnaround times	40 days (previously 63 days)
	% Compliance with Technology Management Plan	90% (same as in 2017/18)
	% of all IP requests received processed	80% (same as in 2017/18)
	Development of Supply Chain Management	31 March 2019
	Finalise Data leakage solutions and an IT Security Operations Centre	30 June 2018
	Issue quarterly reports against targets on procurement spend on SMMEs.	31 March 2018
Stakeholder engagement	One contract successfully concluded from every business lead obtained	10:1
	Convert contracts to repeat work of at least 2:1	No target set for 2018/19
	Employee satisfaction measurement	1.5% improvement
	Increasing in black representation	72% (70% in 2017/18)
	Increasing in female representation	38% (37% in 2017/18)
	Controllable staff turnover in technical positions, excluding retirement	Less than 4.5%
	Provision of bursaries for full time students	33 (same as in 2017/18)
	% compliance with Succession Planning	80% (same as in 2017/18)
	Appointment of people with disabilities	22

Table 1: Strategic focus areas and objectives of the Armscor Board

 

5.       OVERVIEW OF THE ARMSCOR BUDGET FOR 2018/19

 

5.1     Broad budgetary overview

 

The projected income for the Armscor Group in 2018/19 (R1.636 billion) is higher than that which was projected for 2016/17 (R1.543 billion). Given the projected increase in income, Armscor is expected to accumulate a net surplus of R200 000. This is in line with the projections of the entity to break even in the 2018/19 financial year. The main increase in cost for 2018/19 is (1) direct Personnel Cost that increases from R1.203 billion in 2017/18 to R1.252 billion in 2018/19 and (2) External Services that increases from R84.1 million in 2017/18 to R128.5 million in 2018/19.

 

5.2     Additional financial information

 

Whereas previous years noted the likelihood of all divisions of Armscor being loss-making, this changed for projections in 2017/18 when it was expected that all components, except the Dockyard, will be profitable. This trend is expected to continue in 2018/19. In the Corporate Plan, financial projections are only included for Armscor Corporate, the Dockyard and the Researcher and Development divisions. Projected profit/losses for the 2018/19 financial year per components includes:

 

• Armscor Corporate:                   Surplus of R31 million  
• Research and Development:      Loss of R200 000
• Armscor Dockyard:                   Loss of R30.6 million
• Armscor Group:                       Surplus of R200 000

 

In terms of the Group Capital Expenditure for 2018/19, a number of requirements are put forth in the Corporate Plan. A total of R135.239 million is required for such expenditure in 2018/19. Key capital expenditure for the year includes the following:

 

 

• Office Equipment:                     R2.570 million
• Computer Equipment:                R21.312 million
• Office furniture:             R1.501 million
• Computer software:                   R33.482 million
• Machinery and Equipment:         R20.208 million
• Motor Vehicles:                         R7.750 million
• Capital assets:                          R47.945 million

 

5.3     Armscor expected expenditure trends

 

When reviewing the Armscor expenditure per activity, as presented by National Treasury, overall expenditure increases from R1.905 billion in 2017/18 to R2.081 billion in 2018/19. This translates to a real percentage increase in expenditure of 3.54 per cent. The largest increase in expenditure is expected to relate to Armscor’s Logistical Support. Logistical support expenditure will increase from R235.6 million in 2017/18 to R276.3 million in 2018/9 that translates to a real percentage increase of 11.16 per cent. The Administration expenditure is also expected to increase by R51.3 million over the same period, translating to a 5.52 per cent increase in expenditure in real terms. Table 2 provides an overview of broad expenditure trends.

 

Programme/objective/ activity	Budget		Nominal Increase / Decrease in 2018/19	Real Increase / Decrease in 2018/19	Nominal Percent change in 2018/19	Real Percent change in 2018/19
R million	2017/18	2018/19
Administration	453,0	504,3	51,3	25,0	11,32 per cent	5,52 per cent
Quality Assurance	115,6	122,5	6,9	0,5	5,97 per cent	0,44 per cent
Management of Defence Matériel Acquisition	382,6	405,8	23,2	2,0	6,06 per cent	0,53 per cent
Logistics Support	235,6	276,3	40,7	26,3	17,28 per cent	11,16 per cent
Management of strategic facilities: Armscor Dockyard	283,7	302,2	18,5	2,7	6,52 per cent	0,97 per cent
Management of strategic facilities: Research and Development	434,7	470,0	35,3	10,8	8,12 per cent	2,48 per cent
TOTAL	1 905,2	2 081,1	175,9	67,4	9,2 per cent	3,54 per cent

Table 2: Armscor expenditure trends from 2017/18 to 2018/19

 

6.       ARMSCOR PERSONNEL INFORMATION

 

The total personnel strength is reflected in the table below and comes to 1 691, which is higher than the projection of 1 564 for 2017/18. However, this figure excludes Contracted Employees and Talent Development Programme Employees. When these categories are added, the total number of personnel is 1 863 for 2018/19. The overall increase in personnel figures are largely due to an increase in Dockyard personnel from only 436 projected in 2017/18 to 553 in 2018/19. These figures are reflected in Table 3.

 

Armscor Group	Total Permanent employees projected in the 2017/18 corporate Plan	Total Permanent employees provided for 2018/19
Armscor (including R&D)	1 128	1 138
Armscor Dockyard	436	553
TOTAL	1 564	1 691

Table 3: Personnel figure comparison

 

7.       SELECTED PERFORMANCE INDICATORS

 

For 2018/19, Armscor noted a number of performance indicators related to acquisition, payments, Defence industrial Participation (DIP) management technology and research as well as the management to the Dockyard. These targets set for 2018/19 are largely in line with targets set in preceding years. Selected performance targets are included in Table 4.

 

Goal	Performance indicator	2016/17  Achievement	2017/18 Target	2018/19 Target
1 (Defence Materiel acquisition)	Contracts to be placed by Armscor: Commitment of funds against formally planned value of commitments	100% per cent	95 per cent	95 per cent
2 (System Support Acquisition)	Contracts to be placed by Armscor: Commitment of funds against formally planned value of commitments	99.90 per cent	95 per cent	95 per cent
3 (Schedule placement)	Average time from receipt of requirement to placement of contract	60 days for shortened process items   93 days for standard acquisition   111.58 days for SDA programmes	60 days for shortened process items   90 days for standard acquisition   270 days for SDA programmes	60 days for shortened process items   90 days for standard acquisition   270 days for SDA programmes
4 (DIP Management)	Value of Defence Industrial Participation (DIP) credits granted	R135.5 million	R235.6 million (changed to R154.562 million in Aug 2017)	R51.7235.6 million
5 (Defence Technology and Research)	Research and Development to achieve contractual milestones/deliveries as per agreed Memoranda	96.67 per cent	95 per cent	95 per cent
6 (Dockyard Management)	Adherence to contractual project milestones	95.20 per cent	90 per cent	90 per cent
	% compliance to project finance	97.1 per cent	90 per cent	90 per cent
	Provision of Ancillary Services to the SA Navy	100 per cent	95 per cent	95 per cent
	Ensure training is provided in accordance with the requirements of the SA Navy	100 per cent	90 per cent	90 per cent

Table 4: Selected performance indicators per Armscor goal

8.       COMMITTEE OBSERVATIONS

The Committee made the following observations in terms of the 2018/19 Corporate Plan of Armscor:

 

• The Committee notes that Armscor is willing and able to assist the DOD in the process of sweating assets as an alternative means of raising funds should this process be initiated.
• The Committee raised the importance of the sweating of Intellectual Property (IP) as a means of assisting the defence industry and using IP as a means of gaining generating revenue.
• The Committee welcomes the appointment of a new director at the Armscor Dockyard, which has been hampered by operational inefficiencies and loss-making in recent years. The Committee specifically notes the potential for the incorporation of the local maritime defence industry as a means of returning the Dockyard to profitability.
• The Committee notes with concern the pressures faced by the local defence industry.
• The transfer of Dockyard personnel with many years of service to fixed-term contracts are welcomed. This will allow such personnel to retire in a dignified manner after many years of service to Armscor.
• The Committee notes its appreciation for the speedy payment from Armscor to Denel for services and equipment. However, the fact that Denel struggles to pay Armscor subcontractors on time is a major concern to the Committee.
• International marketing opportunities are noted by the Committee and it is the hope of the Committee that these will result in increased contracts. Of particular importance is Armscor’s engagement with the United Nations to serve as a strategic partner and provide services, specifically to UN missions in Africa.
• The Committee welcomes the contracting for the Inshore Patrol Vessels (IPV) and a new Hydrographic Vessel for the SA Navy. The sourcing of such vessels from domestic shipyards will serve as a major boost for the domestic maritime industry.
• The Committee notes its concerns in delays for the contracting of Offshore Patrol Vessels for the SA Navy.
• The Committee raised its concern in terms of general aircraft maintenance for the South Africa Air Force. 
• The Committee notes the performance indicators reflected in the Corporate Plan. However, the correlation of these with that of previous corporate Plans allows scope for improvement.

 

9.       RECOMMENDATIONS

The Portfolio Committee made the following recommendations regarding the 2018/19 Corporate Plan of Armscor:

• The Committee recommends ongoing engagement between the DOD and Armscor regarding the possible sweating of assets as a means of alternative fundraising for the DOD. This should be considered in the light of the limited funds available for the implementation of the 2015 Defence Review.  Should the sweating of assets be considered, the Committee urges both the DOD and Armscor to conduct such initiatives in a responsible manner cognisant of the long-term needs of the Department.
• The Committee recommends that Armscor puts in place concrete means to ensure that IP under the control of Armscor be exploited to the full. The Committee further recommends that Armscor, in future, provide information to the Committee eon progress in the exploitation on IP in its reports to Parliament and its Annual Report.
• The Committee urges the Armscor Dockyard to exert dedicated efforts to move towards profitability. As such, the Committee requests a mid-year report from the new Dockyard director on progress made to establish new partnerships, services rendered to the SA Navy and means of returning the Dockyard to profitability. This report should be submitted to the Committee no later than 30 September 2018.
• The Committee recommends that, should the problem persist in 2018/19, Armscor supply it with a list of subcontractors not being paid by Denel despite payments made by Armscor.
• The Committee requests Armscor to submit a progress report on the construction of the IPVs and the Hydrographic vessel for the SA Navy every 6 months, commencing 30 September 2018.
• The Committee urges the prioritisation of the contracting for the SA Navy’s Offshore Patrol Vessels. Information on progress in this regard should also be provided in the progress reports on the IPV and Hydrographic vessel to be submitted to Parliament.
• The Committee urges Armscor to prioritise engagement with the United Nations and unlocking opportunities for the domestic defence industry in supporting United Nations mission globally and, specifically, in Africa.
• The Committee urges ongoing engagement between the DOD and Armscor regarding the maintenance requirements of the SA Air Force fleet. This holds specific relevance to repair and maintenance of aircraft deployed in peace missions and elsewhere.
• The Committee recommends that Armscor adjusts its performance targets noted in the Corporate Plan upwards where such targets have been achieved for several years.

 

THE MILITARY OMBUD

 

1.  

 

1.1        Description of core functions of the entity

 

The Military Ombud was established in terms of the Military Ombud Act, No. 4 of 2012, to “investigate and ensure that complaints are resolved in a fair, economical and expeditious manner.” Section 8 (1) of the Act states that “the Ombud and staff members must serve independently and impartially and must perform their functions in good faith and without fear, favour, bias or prejudice, subject to the Constitution and the law.”

1.2        Mandate of Committee

 

Parliamentary oversight of the Military Ombud aims to ensure that the Ombud finalises complaints within reasonable time as to ensure the relevance of the Ombud’s Office and general satisfactory conflict resolution within the South African National Defence Force’s (SANDF) serving and former members.

1.3        The 2018 Annual Performance Plan (APP)

The Office of the Military Ombud (MO) submitted its fourth Annual Performance Plan (APP) in March 2018 to Parliament. As with the first three APP’s, it was developed in support of the National Development Plan, the Medium Term Strategic Framework 2014 – 2019, the New Growth Path and the 2015 State of the Nation Address. 

 

The Minister states in her Foreword that the focus of the Office is to ensure that complaints are resolved in a far, efficient, effective and economical manner to achieve its mandate as prescribed in the Military Ombud Act (No. 4 of 2012). She further states that the capacity to attain the intent will to some degree be constrained by a number of factors within the performance delivery environmental, most notable being the disconnect between the expectations of government versus the budget allocation.  The Military Ombud himself refers to the 5th anniversary of the Military Ombud Office in that it represents significant progress in impacting the lives of serving and former members regarding their conditions of service and the public regarding the official conduct of a member of the Defence Force.

2.         UPDATED SITUATIONAL ANALYSIS

The Military Ombud lists various external factors that impact on its operations such as:

2.1        Social

The creation of the OMO demands clarity on the institutional purpose and the need for strengthening of synergies, including standardisation of approaches.  The increase in complaints submitted reinforces the need for the Office to be universal and easily accessible, swift and impactful in its own service delivery.

2.2        Legal

Non-implementation of finalised complaints: It states that the Office has no provisions regarding the implementation of the recommendations and processes followed by the Minister when there is a failure to implement. Monies appropriated by parliament: Options for an alternative funding model and engagement with Parliament, National Treasury and the DOD are required to position the Office as an independent and impartial institution.

2.3        Technological Environment 

Information, communication Technology Developments: This presents opportunities for improving governance while increasing operational risks, such as cyber-crime and the use of technology to conceal maladministration and corruption.  Social Media: the emergence of social media has enhanced the role of stakeholders, the articulation of their requirements and expression of their desires to see instant change, putting pressure on the Office to deliver timely and impactful results.

The following are some of the internal factors that impact on its operations, listed by the Ombud:

2.4        Training

Reference is made to training of personnel as training gaps have been identified for members to attend training interventions.

2.5        Financial management

The Office acknowledges the financial difficulties in the country as well as the Cost containment measures by Treasury. It therefore endeavours to stay within its budget and encourage staff to double their efforts and work within the limited budget and achieve greater results.

2.6        Implementation of Operational recommendations

The APP refers to this being a challenge and that it will seek an amendment to the current mandate. The absence of a mechanism to provide feedback on recommendations made, needs to be investigated for implementation and institutionalisation.

2.7        Pending court cases

The APP refers to five cases pending before the court. Three deal with matters wherein the powers of the Military Ombud in respect of recommendations made to the Minister will be addressed. All five matters are currently sub judice or under judicial consideration and the Office is awaiting the outcome thereof.

3.         PERFORMANCE DELIVERY ENVIRONMENT

The APP refers to some of the key change imperatives identified such as

3.1        Challenges Hampering Performance Delivery  

The APP indicates that the following challenges impacted on its performance delivery:

• Delay in finalising Memoranda of Understanding.
• Consultations on alternative avenues to ensure its independence.
• Budget cuts introduced by National Treasury since it is a newly established entity.
• The need to reposition the Office to achieve organisational independence from the SANDF/DOD.

3.2        Schedule 3 Entity

The requirement to be created as a Schedule 3 entity will have an effect on the current establishment table as additional functions will be created to ensure compliance and adherence to National Prescripts. Such as the Chief Financial Officer, Governance, Risk and Compliance and Procurement, and thus it will impact on its organisational structure.

3.3        Independence

Closely linked to the idea of a Schedule 3 entity, is the issue of the Ombud’s independence. “The need to reposition the Office to achieve organisational independence from the SANDF.” This is essential as it has to take decisions on complaints independently and fairly.  Further, it plans to conduct a feasibility study to determine the macro placement of the Office to promote independence and impartiality.

4.         FINANCIAL INFORMATION

4.1        Full Cost and the Budgeted Amount

The APP refers to the full cost and the budgeted amount per sub-programme as listed in the table below. It states that the deficit indicated has a direct impact on the execution of the mandate of the Office as complaints reported/registered will not receive the attention deserved due to non-compliance with the Military Ombud Act, Regulations and Service Standards.

Sub-programme	2018/19 (R’000)		2018/19 (R’000)		2018/19 (R’000)
	Full Cost	Budget Amount	Full Cost	Budget Amount	Full Cost	Budget Amount
Military Ombud	R70 014	R56 458	R71 861	R54 505	R74 101	R55 202
Total	R70 014	R56 458	R71 861	R54 505	R74 101	R55 202
Funding Deviation	-R13 556		-R17 356		-R18 900

 

The Table gives a good idea of the kind of financial shortages that the Ombud is grappling with in that the funding deviation accounts for close to a quarter of what is required. This is a serious concern as it states that “complaints reported/registered will not receive the attention deserved due to non-compliance with the Military Ombud Act, Regulations and Service Standards.”

4.2        Human Resource allocation

The APP further highlights the fact the that the total HR budget allocation is R39 590 million which leaves the operating budget with R16,878 million. From the operating budget of R16,878 million an amount of R5,011 million is allocated for the payment of the building lease. The operating budget of R11 867 million remains to satisfy all the operational requirements.

5.         SELECTED PERFORMANCE INDICATORS AND TARGETS

The Military Ombud lists three Selected performance indicators as outlined in the table below.

Performance indicator	Estimated performance	Medium-term projections and sources of verification
	2017/18	2018/19	2019/20	2020/2021
% of written complaints finalised	70%	75% (80%)	75% (100%)	75%
% compliance with submission dates of MO accountability documents to Executive Authority (Annual Performance Plans)	100%	100%	100%	100%
% compliance with submission dates of MO accountability documents to Executive Authority  (Annual Report)	100%	100%	100%	100%

Table 1: Selected performance indicators for FY 2018/19 to FY 2020/21

 

 

The Portfolio Committee has previously questioned the 60% and 70% targets to finalise written complaints and is encouraged that for 2019/20 it aims to finalise 100% of these complaints. The Office will be engaged regarding the challenges to finalise more complaints for the current and next financial years.

6.         COMMITTEE OBSERVATIONS

During deliberations with the Military Ombud on 10 May 2018, Members of the PCODMV made several observations related to the budgetary allocation and the targets set in the Annual Performance Plan. The following should be noted:

1. Given that the term of the Military Ombud comes to an end in May 2019, the Committee resolved to start enquiring about the process for his successor, timeously.

 

1. The Committee enquired about how cases are brought to the Ombud, especially whether the Office is allowed to investigate cases on its own initiative.

 

1. Questions were asked about the relevance of the Office of the Military Ombud and whether it is delivering value for the money allocated to it.

 

1. Questions were asked about the R5 million building lease, whether this is cost–effective and whether other options exist in this regard.

 

1. The Committee noted that the funding allocation of the Military Ombud has now been ring-fenced in the DOD budget leading it to be less dependent on the Department.

 

1. Concern was expressed regarding the 4 vacancies given that the Office is a service delivery institution and heavily reliant on personnel.

 

1. The Committee noted the five cases in which the Office is involved and requested more information on it.

 

1. The Committee noted with concern the fact that there are, in some cases, significant delays in the implementation of recommendations made by the Military Ombud.

 

7.         RECOMMENDATIONS

The PCODMV made the following recommendations regarding the Office of the Military Ombud:

1. The Committee recommends that the Minister should start the process for recruiting a successor timeously in order to avoid a vacancy, especially given the protracted process to fill the post of the Deputy Military Ombud.

 

1. The Committee resolved to investigate when and how the Ombud can be empowered to launch investigations on its own initiative and whether this is a feasible model for the office of the Ombud.

 

1. The Committee recommends that the Ombud should continue to enhance its awareness campaigns to further ensure that the general public is aware of its existence, its role and functions by, inter alia, utilising Social Media platforms.

 

1. Although the Committee accepted the explanation by the Ombud regarding the building lease agreement, the Ombud was requested to investigate other options that would be less expensive given the limited budget of R5 million of the Office.

 

1. The ring-fenced budgetary allocation of the Ombud was welcomed and the Committee will consider the proposed amendments to the Military Ombud Act in order to address some of the dependence concerns of the Office.

 

1. The Committee endeavoured to support the Ombud in his efforts to secure his independence through being registered as a Schedule 3 entity, as well as resolving some of its personnel issues.

 

1. The Ombud should brief the Committee on the outcome of the five court cases, once it has been finalised.

 

1. The Committee recommends increased engagement between the Military Ombud and the Minister of Defence regarding delays in the implementation of recommendations made by the Military Ombud. The DOD should brief the Committee on challenges regarding the implementation of some of the recommendations made by the Military Ombud. A written report should be submitted to the Committee by the office of the Ombud within 30 days of the adoption of this report on recommendations that are yet to be implemented by the Minister of Defence. Reasons for non-implementation stipulated by the Minister should also be provided as well as efforts by the Ombud  to engage the Minister on such recommendations.

 

RECOMMENDATION TO THE NATIONAL ASSEMBLY

 

While mindful of the challenges faced by the SANDF and the Departments of Defence and Military Veterans, the Committee recommends that the 2018/19 budgetary allocation is approved. 

 

The Democratic Alliance’s (DA) objection to this recommendation should be noted.

 

Report to be considered

 

 

 

 

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[1] Department of Defence. (2018). p. 2-5.

[2] Announcements, Tablings and Committee Reports No 56─2018, Fifth Session, Fifth Parliament,  Parliament Of The Republic Of South Africa