ATC210513: Report of the Portfolio Committee on Defence and Military Veterans on Budget Vote 23 (Department of Defence) Dated 12 May 2021

Defence and Military Veterans

REPORT OF THE PORTFOLIO COMMITTEE ON DEFENCE AND MILITARY VETERANS ON BUDGET VOTE 23 (DEPARTMENT OF DEFENCE) DATED 12 MAY 2021

 

The Portfolio Committee on Defence and Military Veterans (PCODMV), having considered Budget Vote 23: Department of Defence (DOD), the 2021/22 Annual Performance Plans (APP) of the DOD andthe 2021/22 budget and APP of the Castle Control Board (CCB) on 5 May 2021, as well as the 2021 Corporate Plan and budget of the Armaments Corporation of South Africa (Armscor) on 11 May 2021, reports as follows:

 

INTRODUCTION

 

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.”

 

Process

 

The Portfolio Committee considered the APP 2021/22 and budget allocation of the DOD and CCB on 5 May 2021 as well as the Corporate Plan and budget of Armscor on 11 May 2021. The Committee made several observations that led to recommendations to the DOD and the two entities to enhance their performance for the remainder of 2021/22. This Report is divided into two sections, with Part A dealing with the DOD and Part B with the two entities, namely the CCB and Armscor.

 

 

PART A: DEPARTMENT OF DEFENCE

 

 

1.         MANDATE OF THE DEPARTMENT OF DEFENCE

 

Section 200(2) of the Constitution dictates that the mandate of the DOD is to defend and protect the country, its territorial integrity and its people, in accordance with the Constitution and the principles of international law. This aligns with the mission of the DOD that 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.

2.         The impact of the COVID -19 pandemic on DOD PLANNING

 

The Minister states in her Foreword to the APP that what is contained in the document has been greatly influenced by the environment within which the DOD operates, such that it will need to be adapted and enriched in the light of the experience the Department has had over the year since the COVID-19 pandemic’s emergence in March 2020. In light of the new insights that the Department has gained, new approaches have been developed on how to do business with the hindsight of what was confronted with as the DOD grappled with the emergence of the pandemic. COVID-19, devastating as it is, has brought with it with new ways of doing things, the “new normal” which has forced everyone in every part of the world to think and do things differently.

 

She further states that the implementation of the APP will be such that the DOD does not want to deviate, unless circumstances changes as was the case during 2020. “Were this to happen, we will still rise to the challenge, as we did when the pandemic broke just as we were to begin the 2020/21 financial year.”

 

3.         COMMITTEE 2020/21 BUDGET REPORT

 

In order to include a holistic review by the Committee, past recommendations are included. The Committee made the following recommendations in terms of the 2020/21APP of the DOD:

 

• The Committee urges the DOD to ensure that all SANDF personnel deployed to assist otherstate departments in the fight against Covid-19 be well prepared and issued with the relevant

protective gear. The DOD is further urged to ensure that regular screening and testing of itsmembers occur to prevent the spread of Covid-19 pandemic within the Armed Forces itself.

• The Committee will engage the Defence Force Service Commission on its recurring findingson conditions of service of soldiers and the DOD on progress with the implementation ofoutstanding recommendations.
• The DOD is urged to ensure that it maximises its reimbursement from the United Nations forparticipation in peacekeeping regarding the availability and serviceability of especially PrimeMission Equipment. The Departments should, henceforth, include in their quarterly report thepercentage of reimbursement received from the UN relevant to expected reimbursement.
• The DOD should include, in its Annual Report, a list of areas in which it assisted othergovernment departments, what the expenditure was in this regard and whether reimbursementfor such assistance was received.
• The Committee requests the DOD to update it on a quarterly basis on progress regarding the implementation of technological means to boost border safeguarding. Quarterly progress on

the spending of the R225 million allocated by National Treasury for this purpose should also

be provided.

• The Committee undertook to continuously engage the DOD on progress regarding ProjectsHoefyster, Biro and Hotel.
• The Committee recommends that the DOD should on a regular basis share with it progress made with the implementation of Milestone 1 of the 2015 Defence Review and the challenges

in this regard.

• The DOD is encouraged to fast-track the utilisation of the Defence Works Formation as a cost

saving mechanism. The Committee recommends that the DOD should provide feedback on the devolution of certain responsibilities from the Department of Public Works to the DOD. Projects and related savings should be reported in the DOD Annual Report.

• The Committee also encourages the Department to fast-track the sweating of assets to ensure

maximum benefit for the SANDF. In this regard, the DOD should share with the Committeeits detailed plans, once completed, for the sweating of assets.

 

 

• The Committee once again urges the DOD to engage National Treasury to find ways to avoid

the irregular expenditure on Compensation of Employees, against the background of therejuvenation plan that the DOD is expected to share with National Treasury. The Department

should report on progress in this regard on a quarterly basis.

• The Committee noted reasons for the higher cost of the Ministry sub-programme such as aircraft chartering for the Executive Authority and the Presidential Medical Unit. Notwithstanding the need for such services, the Committee urges the DOD to find ways of reducing the overall cost of the Ministry during the 2020/21 financial year and over the medium term. The Committee will monitor expenditure in this regard on a quarterly basis.
• Despite challenging financial conditions, the Committee urges the DOD to reassess expenditure patterns to potentially shift funds to ensure the continuation of midlife upgrades for key naval and air platforms.
• The Committee requests the DOD to explain, in its next quarterly report to Parliament, what the maintenance of prime mission equipment at a set levels means and whether they have been

able to maintain this set level.

• The Department should indicate to the Committee, in its next quarterly report to Parliament, whether it has any austerity measures, whether these have been implemented and if these are

successful to address the persistent funding challenges of the Department.

 

4.         DEPARTMENT OF DEFENCE ANNUAL PERFORMANCE PLAN 2021

 

The 2021 DOD APP consists of four main parts namely:

 

Part A: DOD Mandate

Part B: DOD Strategic Focus

Part C: Measuring DOD Performance

Part D: Technical Indicator Descriptions

 

4.1        Part A: DOD Mandate, Policies and Strategies

 

This section lists the Constitutional mandate as derived from the 1996 Constitution and refers specifically to sections 92, 198, 199, 200, 201, 202, 204, and 41(1). Reference is made to its legislative mandate as derived from the Defence Act 2002 (No. 42 of 2002), the Defence Amendment Act (No. 22 of 2010), and several other acts such as the PFMA (No, 1 of 1999), and the Military Ombud Act (No. 4 of 2012).  The Policies and Strategies include the White Paper on Defence of 1996, the 2015 Defence Review, the DOD Strategy, the Military Strategy as well as the Defence Secretariat Strategy. It explains the 2015 Defence Review further by referring to the three defence strategic policy trajectory options namely:

 

• Option 1. “Expand over the trajectory in partnership”.
• Option 2. “Expand independently”.
• Option 3. “Shrink to financial allocation”.

 

Defence Strategic Policy Option 2 was selected, approved and endorsed by Cabinet and Parliament respectively. This selected option focusses on the maximum preservation of the sovereignty of the defence function and posits a level of defence ambition that is commensurate with South Africa’s continental gravitas, as well as the role that South Africa is expected to and should pursue on the African continent.

 

The Strategic Plan highlights the five strategic planning milestones as firm foundations to direct the development of South Africa’s defence capabilities through a DOD Extended Defence Development Plan. The first four milestones will provide the initial impetus to ensuring an adequate, appropriate and relevant defence capability for South Africa. Milestone 5 will remain the constitutional contingency which can be achieved from the firm foundation provided by Milestone 4. The Milestones are presented as follows:

 

• Milestone 0 (MS0). The current situation within the DOD commencing 2017.
• Milestone 1 (MS1). Arresting the decline in critical capabilities through immediate and direct interventions.
• Milestone 2 (MS2). Re-balance and re-organise the Defence Force as the foundation for future growth.
• Milestone 3 (MS3). Create a sustainable Defence Force able to meet ordered defence commitments.
• Milestone 4 (MS4). Enhance the capacity of the Defence Force to respond to emerging threats and a wide range of strategic challenges.
• Milestone 5 (MS5). Defence of the Republic against any direct threat.

 

4.2        Part B: DOD Strategic Focus and situational analysis

 

This section describes the DOD’s vision, mission, organisational values, individual values, the situational analysis which covers both the external and internal environments:

 

• Vision: “Effective defence for a democratic South Africa.”
• Mission: “To enable, prepare, employ, sustain and renew Defence capabilities in accordance with the needs of South Africa as regulated by the Constitution, National Legislation, Parliamentary and Executive direction”.

• DOD organisational values: The DOD has committed itself to organisational values that are rooted in individual values, codes of conduct and unit cohesion. In the execution of the defence Mission Statement, the DOD continues to pursue and adhere to the following organisational values:

• Accountability.
• Consultation Rooted in Effective and Efficient Partnership and Collaboration.
• Discipline.
• Ethics.
• Excellence.
• Openness and Transparency.
• People.
• Service Standards.
• Teamwork.

 

The Updated 2021 Situational analysis

 

The departmental situational analysis provides insight into both the evolving external and internal departmental dimensions that impact on the outcomes and outputs of the DOD. The matters identified in the situational analysis are a product of the departmental planning process that has taken also into consideration the 2019-2024 MTSF priorities and sources relevant to the defence portfolio mandate.

 

External environmental analysis

 

The external environment refers to factors external to the DOD and in some instances, external to the RSA, providing trends that could have an effect on the RSA and the DOD. It includes the following:

 

• Political. South Africa’s national security is centred on the advancement of its sovereignty, democracy, national values and freedoms, its political and economic independence. There are domestic, regional and continental dimensions to the national security architecture. Domestically, South Africa’s national security focuses on human security, sovereignty and the related priorities of territorial integrity, constitutional order, the well-being, prosperity and upliftment of its people, economic growth and good governance. Regionally, South Africa’s national security hinges on the stability, unity and prosperity of the Southern African Region in particular, and the African continent in general.
• Economic. The economic forecast and the current trends in the defence funding allocation, continue to constrain the implementation of the National Policy on Defence (SA Defence Review 2015), with a profound adverse impact on the availability and modernisation of required defence capabilities.
• Social. The inability of Government to meet the demand for social services coupled to the lack of employment opportunities may result in increased violent protests, particularly amongst the vulnerable and unemployed youth posing a threat to domestic stability. Protest tipping points could require the employment of the SANDF, in cooperation with the South African Police Service (SAPS), to ensure national security and stability. The responsibility of the SANDF for border safeguarding will increase as cross-border migration intensifies.
• Technological. Information Warfare - It is crucial that the State places cyber-security as a central national priority. The DOD will be required to develop, in consultation with identified stakeholders, a cyber-defence capability that will enhance national cyber resilience. Defence Industry. South Africa’s Defence Industry is among the most technologically advanced in the world and recognised by Government as a fully-fledged economic sector and should it be adequately funded, has the potential to significantly contribute to the economy of South Africa. Interventions focused on ensuring the sustainability of sovereign and/or strategic industries that are at risk of implosion and that may disrupt the interdependency within industry, must be deliberately planned for and executed.
• Legal. Adherence to International Law. It is anticipated that the SANDF will continue to participate in peacekeeping operations and possible offensive operations, responding to global security threats. The SANDF will ensure that personnel involved in such operations are conversant with International Law regulating the use of force when conducting both offensive and defensive actions in the theatre of operations.
• Physical (Environmental). - Climate Change - Natural disasters remain a reality and may have catastrophic effects domestically, regionally and continentally. It is inevitable that the DOD will in the foreseeable future be called upon, through the conducting of both humanitarian and disaster operations, to assist local government authorities and other state departments both internally and in the SADC Region. The recurrent disasters in the SADC Region require the DOD to have the appropriate capacity to timeously respond to such situations
• Military - The operational environment of the future will become increasingly complex. South Africa will be required to maintain a credible defence capability and adopt a posture demonstrating resilience irrespective of the nature of potential conflict, thereby ensuring:

• Effective border safeguarding operations.
• Execution of international obligations.
• Co-operation with the SAPS to effect law and order.
• Support to other government departments.
• Humanitarian and disaster relief operations.
• Contribution to national cyber resilience.

 

Internal environmental analysis

 

The internal environment refers to factors that have been identified as trends that could have an effect on South Africa in general and the internal DOD, and includes the following:

 

• Deployment of the SANDF. The SANDF continues to be employed to any kind of environment or area, as tasked by Government and may include the following:

• Peace Support Operations.
• Foreign Interests in Africa.
• African Capacity for Immediate Response to Crises (ACIRC).
• Prevention and Resolution of Conflict.
• Provide Humanitarian Assistance and Disaster Relief.
• Support in the Combating of Maritime Piracy along the East Coast of Africa.
• Building Safer Communities.

• Human Resource Dimension. In the areas of Human Resource Management and Compensation of Employees (CoE), the transfer of funds to address the CoE allocation challenges will be strengthened through action plans to ensure full compliance with legislation and treasury requirements. The DOD will continue to utilise Reserve Force members in support of the “one-force concept”, supplementing the DOD’s capacity to perform crucial functions and operational tasks, thereby ensuring compliance with ordered commitments.
• Financial dimension. The DOD has seen significant budget reductions since the 2016/17 MTEF with a department baseline allocation increase below the country’s national inflation rate. Since the 2016/17 MTEF, the baseline of the Department has been reduced by R25.5 billion, mainly on CoE and the Special Defence Account (SDA). During the 2020/21 MTEF, the budget of the CoE and the SDA have been reduced by R3.7 billion and R5 billion respectively. The reduced SDA allocation and total discontinuation thereof in the FY2021/22 will adversely impact on the capability, sustainability and modernisation of defence prime mission equipment and the Defence Industry as a whole.
• Logistic Dimension. The logistic support capability of the DOD will remain under pressure within the context of a declining Defence budget allocation. The DOD continues to operate aging legacy systems that have become increasingly more difficult and costly to maintain and repair due to obsolescence. This obsolescence is not only applicable to defence combat systems, but also to support equipment, inclusive of those procured commercially-off-the-shelf. 
• Information Technological Dimension. The DOD will endeavour to develop departmental ICT systems aligned with both the national and internal requirements through the following:

• Governance of Information Technology. The DOD will strengthen its ICT Policy and Plans by institutionalising the Public Service Governance Framework.
• Information Systems. The current DOD ICT infrastructure must be geared to accommodate the management of information over its life cycle, and must be in compliance with the regulatory framework.

 

4.3        Part C: Measuring DOD Performance

 

This section deals Performance Information, Measuring the DOD Impact Statement, Measuring of the DOD Outcomes, DOD Contribution to National Imperatives, Departmental Imperatives as well as the DOD’s Enterprise Risk Management. This section focuses on the following selected issues:

 

• Overview of Policy Focus areas of the DOD.

Three key overarching guidelines provide direction in terms of the DOD’s policy focus areas, namely the National Development Plan 5-year Implementation Plan, the Medium-term Strategic Framework (MTSF) for 2020 -2025 as well as the Ministerial priorities, the priorities of the Defence Secretariat and the priorities of the Chief of the SANDF.

 

• National Development Plan 5-year Implementation Plan.

The implementation of the NDP, “Vision 2030”, through the NDP 5-year Implementation Plan (2019-2024 MTSF) will primarily focus on job creation, poverty reduction and the reduction of inequality. The Governmental priorities for the 2019 to 2024 MTSF were developed to which the DOD will contribute both directly and indirectly as addressed in this Plan. The DOD will endeavour to support the following Government Pillars and Priorities:

 

• MTSF Pillar 1:   “A Strong and Inclusive Economy”.
• MTSF Priority 2:            “Economic Transformation and Job Creation”.
• MTSF Pillar 2:   “Capabilities of South Africans”.
• MTSF Priority 3:            “Education, Skills and Health”.
• MTSF Priority 4:            “Consolidating of Social wage through reliable and Basic
  Services”.
• MTSF Priority 5:            “Spatial Development, Human Settlements and Local
  Government”.
• MTSF Priority 6:            “Social Cohesion and Safer Communities”. (DOD Direct
  Contribution).
• MTSF Pillar 3:   “A Capable State”.
• MTSF Priority 1:            “A Capable, Ethical and Developmental State”.
• MTSF Priority 7:            “A Better Africa and a Better World”. (DOD Direct
  Contribution).

 

•  

Ministerial priorities, the priorities of the Defence Secretariat and the priorities of the Chief of the SANDF. To encapsulate both strategic and operational goals, the Departmental priorities are captured in the Table below which highlights key focus areas on each priority by the Minister of Defence, the Secretary for Defence, as well as the Chief of the SANDF:

 

Table 1: Priorities of the Minister, the Secretary for Defence and the Chief of the SANDF

 

5.         Overview of the 2020/21 financial year

 

Information on spending and performance by the DOD is only available up to the end of the Third Quarter of 2020/21. The DOD received a total main appropriation of R52.439 billion for 2020/21 which was adjusted higher during the mid-year adjustment period and increased to R54.201 billion. During the 2020/21 financial year, the spending patterns per quarter has been as follows:

 

• At the end of the First Quarter (June 2020), the DOD spent R12.182 billion (23.2%) of its main appropriation, which was slightly higher than projected expenditure.
• At the end of the Second Quarter (September 2020), the DOD spent R25.351 billion (45.8%) of its main appropriation, which was slightly lower than projected expenditure.
• At the end of the Third Quarter (December 2020), the DOD spent R38.075 billion (70.2%) of its adjusted appropriation, which was slightly lower than projected expenditure.

 

At programme level, some variances can be noted in terms of actual expenditure against projected expenditure for the Third Quarter. The largest variances can be noted in the Administration, Military Health Services and General Support. The lower than projected spending on goods and services was mainly due to late verification of invoices received from the Department of Public Works and Infrastructure resulting in non-payment. The closure of local and international businesses due to the Covid-19 pandemic also affected the planned procurement activities.

 

In terms of economic classification, the overall lower than projected expenditure can be explained in terms of lower than projected spending on goods and services (by R1.277 billion). The main cost driver in the DOD continued to be spending on compensation of employees. However, at the end of the Third Quarter, spending on this item was slightly lower than planned by 0.3%. Overall spending on the main economic classification categories at the end of the Third Quarter was as follows: 

 

• Compensation of employees:    R24.592 billion. 0.3% lower than projected
  spending.
• Payment on capital assets:                    R620 million. 29.7% lower than projected spending.
• Goods and Services:                             R8.036 billion. 13.7% lower than projected
  spending.

 

6.         budget analysis[1]

 

6.1        Overview of expenditure

 

The total allocation for the DOD for 2021/22 is R46.269 billion, which is significantly lower than the adjusted appropriation of R54.201 billion for 2020/21. The DOD budget therefore decreases by 14.64% in nominal terms and 18.08% in real terms[2] from the 2020/21 adjusted allocation to 2021/22. However, context is important in that the 2020/21 adjusted budget didinclude additional allocations for the SANDF’s response to the Covid-19 pandemic. Nonetheless, the 2021/22 allocation (R46.269 billion) also remains lower than the main allocation of 2020/21 (R52.439 billion).

 

The defence allocation for 2021/22 represents 2.29% of the country’s total expenditure of R2.020 trillion (2.98% in 2020/21). However, as a percentage of GDP for 2021/22 (R5.352 trillion), defence expenditure stands at 0.86% (0.97% in 2020/21).

 

The table below reflects the nominal and real percentage changes per programme for the DOD’s 2021/22 budget. The real percentage changes are adjusted for Consumer Price Inflation (CPI) and do not take into account other forms of inflation such as medical or the concept of ‘defence inflation’ which are generally considered higher than CPI. Individual programmes will be discussed in subsequent sections.

 

Programme 1	Budget			Nominal Increase / Decrease in 2021/22	Real Increase / Decrease in 2021/22	Nominal Percent change in 2021/22	Real Percent change in 2021/22
R million	2020/21 Main	2020/21 Adjusted	2021/22
Programme 1: Administration	5 731,9	5 445,1	5 514,1	69,0	-  153,3	1,27%	-2,81%
Programme 2: Force employment	3 671,1	4 620,7	3 596,5	- 1 024,2	- 1 169,2	-22,17%	-25,30%
Programme 3: Landward Defence	17 421,9	16 617,2	14 523,4	- 2 093,8	- 2 679,2	-12,60%	-16,12%
Programme 4: Air Defence	7 405,3	7 536,2	5 969,2	- 1 567,0	- 1 807,6	-20,79%	-23,99%
Programme 5: Maritime Defence	4 915,6	4 958,7	4 278,1	-  680,6	-  853,0	-13,73%	-17,20%
Programme 5: Military Health Support	5 656,0	6 077,4	5 306,1	-  771,3	-  985,2	-12,69%	-16,21%
Programme 7: Defence Intelligence	1 187,5	1 147,9	758,0	-  389,9	-  420,5	-33,97%	-36,63%
Programme 8: General Support	6 449,3	7 798,2	6 323,1	- 1 475,1	- 1 730,0	-18,92%	-22,18%
TOTAL	52 438,6	54 201,4	46 268,5	- 7 932,9	- 9 797,8	-14,64%	-18,08%

Table 2: Increase/decrease per programme from 2020/21 to 2021/22

 

6.2        Key cost drivers for 2021/22

Key cost drivers and other concerns of the DOD 2021/22 budget include the following (in terms of broad economic classifications):

 

• Compensation of employees. Spending on CoE has been an ongoing concern for the DOD in recent years. This will continue to affect the Department in 2021/22, where the allocation for spending on CoE decreases from R30.985 billion in 2020/21 to R29.347 billion in the current financial year. The reduced allocation of major concern given that the DOD spent R30.985 billion on CoE in 2020/21 with a staff complement of 72 950. Yet, in 2021/22, the DOD is expected to have a staff complement of 73 154 (as per the ENE) while the CoE allocation is reduced by R1.638 billion. It is unclear how the DOD will fund this and the increased CoE pressure leaves little funds available for operations and capital acquisition. In 2021/22, the DOD will spend 63.43% of its total allocation on CoE (up from 57.17% in 2020/21).

 

• Contractors. Despite a reduced budget allocation, the allocation for spending on contractors increases from R2.185 billion in 2020/21 to R3.063 billion in 2021/22.
• The high cost of administering the DOD. In a briefing to Parliament’s Standing Committee on Finance on 27 February 2019, Professor Jannie Rossouw of the Fiscal Cliff Study Group lamented the exorbitant cost of ministries in South Africa. He also noted that the DOD Ministry has one of the highest ministerial cost of all ministries (R137.7 million for 2019/20), compared to National Treasury (with the lowest ministerial cost of R4.4 million). This trend is set to continue over the MTEF. For 2021/22, the cost of the Ministry is R125.5 million, which is significantly higher than the R97.2 million spent in 2020/21.

 

Reductions in key economic classifications

• Fuel, oil and gas. The allocation for fuel, oil and gas decreases from R1.018 billion in 2020/21 to R787.8 million in 2021/22.  This is a significant reduction, but realigns expenditure with levels of 2019/20. However, the impact of this reduction on SANDF operations and operational capacity should be considered.
• Food and food supplies. The allocation for food and food supplies decreases from R1.439 billion in 2020/21 to R1.117 billion in 2021/22.  The impact of this on the conditions of service of personnel requires clarification.
• Departmental agencies and accounts. A major decrease in transfers to the Special Defence Account is visible from R5.233 billion in 2020/21 to R1.005 billion in 2021/22. In line with previous presentations to the PCDMV, these funds are likely to be spent, in part, on finalising Projects Biro and Hotel for the SA Navy. However, the reduction will result in the inability of the SANDF to conduct any noteworthy arms procurement which will impact significantly on its medium-term operational capacity.

7.         National Treasury feedback to the PCoDMV

 

In 2020, following its engagement with the DOD on the 2019/20 Annual Report, the PCODMV made specific recommendations to National Treasury. The responses to these recommendations are essential to consider in the light of the 2021/22 budget. The following recommendations were responded to:

 

Committee recommendation 1:

The committee welcomes the provision of additional funds for the use of technology to augment bordersafeguarding. However, the Minister of Finance should consider an additional ring-fenced allocation togradually increase the number of sub-units from 15 to at least 22 sub-units for border safeguarding bythe South African National Defence Force (SANDF). This increase will assist the SANDF in countering cross border crime and adhering to its legislated function to effect national border control.

Response from National Treasury 1:

Border security remains a government priority. Over the 2021 MTEF period, R3.2 billion is earmarked to safeguard borders. As noted earlier, there is little scope to provide additional funding at this time andfiscal constraints require departments to identify opportunities for reprioritisation.

 

 

 

Committee recommendation 2:

The Minister of Finance should consider an additional ring-fenced allocation to fund the midlife upgradesof the South African Navy vessels in need of such upgrades. The upgrade of the South African Navy’sfrigate and submarine fleet is essential to ensure that the Navy maintains its patrol capabilities and thereby fulfil its constitutional requirement to ensure the territorial integrity of South Africa.

Response from National Treasury 2:

As noted at the beginning of this section, there is little scope for additional funding and departments areadvised to identify areas of reprioritisation, including by improving their internal efficiency.

 

Committee recommendation 3:

The Minister of Finance and the Minister of Defence and Military Veterans are encouraged to find meansto salvage the Special Defence Account. This will be essential to ensure that the Department of Defencecan continue to maintain critical capabilities and provide continued indirect support to the defence industry.

Response from National Treasury 3:

As noted at the beginning of this section, there is little scope to provide additional funding at this time.

 

Committee recommendation 4:

The Minister of Finance should indicate to the committee his willingness to fund, in addition to the Department of Defence’s main allocation, a workable and humane exit mechanism for personnel over the medium term. This will assist the committee in its planned engagement with the department.

Response from National Treasury 4:

The National Treasury agrees that the department requires a long-term plan to manage compensationspending pressures. In the 2019 Budget, the National Treasury provided funding to implement early retirement without penalties, as part of an effort to reduce the growth of public-service compensation. Unlike other departments, the Department of Defence chose not to participate in this initiative. As notedat the beginning of this section, there is little scope to provide additional funding at this time.

8.         budget and performance analysis per programme

 

8.1        Programme 1 (Administration)

 

8.1.1     Programme 1 Budget Analysis

 

The Administration programme received a nominal increase of R69 million from R5.445 billion in 2020/21 to R5.514 billion in 2021/22. However, this increase translates to a real percentage decrease of 2.81% when adjusted for inflation. The largest decrease in real terms is for Subprogramme 2 (Departmental Direction), with a 16.31% reduction. Subprogramme 7 (Inspection and Audit Services) also received a real percentage decrease of 11.29% in its allocation. The latter is of concern given the ongoing focus of the PCDMV on the need for a comprehensive internal audit capacity in the DOD. Subprogramme 8 (Acquisition Services) received a real percentage reduction of 11.45%. Sub-programme 9 (Communications Services) received a real percentage increase of 41.63% while the Ministry’s allocation increased by 23.91%.

 

In terms of economic classifications, allocations remained fairly static. However, the following aspects can be noted: 

• Advertising. Spending is set to increase from R38.7 million in 2020/21 to R75.3 million in 2021/22. This increase realigns spending with that of the years prior to 2020/21, meaning that the low spending on advertising in 2020 was likely related to the Covid-19 pandemic. Nonetheless, the need for spending R75 million on advertising in light of the DOD’s halt in recruitment for 2021/22 as well as capacity and financial constraints can be questioned.
• Travel and subsistence increases from R63 million in 2020/21 to R123.3 million in 2021/22. The reduced spending in 2020/21 on this item was likely due to Covid-19 restrictions.
• Property payments increases only marginally from R1.178 billion in 2020/21 to R1.250 billion in 2021/22. However, this comes off a major increase from R551.5 million in 2017/18. It brings into question the DOD’s ability to negotiate favourable annual lease increases.

 

Programme	Budget			Nominal Increase / Decrease in 2021/22	Real Increase / Decrease in 2021/22	Nominal Percent change in 2021/22	Real Percent change in 2021/22
R million	2020/21 Main	2020/21 Adjusted	2021/22
Sub-programme 1: Ministry	132,2	97,2	125,5	28,3	23,2	29,12%	23,91%
Sub-programme 2: Departmental Direction	53,4	50,0	43,6	-  6,4	-  8,2	-12,80%	-16,31%
Sub-programme 3: Policy and Planning	127,6	120,0	113,8	-  6,2	-  10,8	-5,17%	-8,99%
Sub-programme 4: Financial Services	447,6	416,9	413,6	-  3,3	-  20,0	-0,79%	-4,79%
Sub-programme 5: Human Resources Support Services	998,8	897,7	944,2	46,5	8,4	5,18%	0,94%
Sub-programme 6: Legal Services	371,6	345,0	336,3	-  8,7	-  22,3	-2,52%	-6,45%
Sub-programme 7: Inspection and Audit Services	158,3	150,8	139,4	-  11,4	-  17,0	-7,56%	-11,29%
Sub-programme 8: Acquisition Services	77,6	73,7	68,0	-  5,7	-  8,4	-7,73%	-11,45%
Sub-programme 9: Communications Services	132,7	80,5	118,8	38,3	33,5	47,58%	41,63%
Sub-programme 10: SANDF Command and Control	191,6	182,5	175,5	-  7,0	-  14,1	-3,84%	-7,71%
Sub-programme 11: Religious Services	20,8	20,0	19,8	-  0,2	-  1,0	-1,00%	-4,99%
Sub-programme 12: Defence Reserve Direction	36,5	35,4	36,1	0,7	-  0,8	1,98%	-2,13%
Sub-programme 13: Defence Foreign Relations	309,0	271,4	263,7	-  7,7	-  18,3	-2,84%	-6,75%
Sub-programme 14: Office Accommodation	2 674,1	2 704,1	2 716,1	12,0	-  97,5	0,44%	-3,60%
TOTAL	5 731,9	5 445,1	5 514,1	69,0	-  153,3	1,3%	-2,81%

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

 

 

 

 

8.1.2     Programme 1 Performance Planning

 

There has been a significant reduction in the number of targets for Programme 1 in recent years. While historically this programme had in excess of 60 targets, these were reduced to only eight targets in 2020/21 and further decreased to seven in 2021/22 (The target removed relates to the reduction in the number of audit qualifications). The Department should be commended for this as it will simplify oversight, but clarity should be sought on the reasons for the removal of a target related to audit outcomes. The targets are aligned with envisaged DOD outputs and are reflected in the table below.

 

DOD Output	Indicator	2020/21 Estimated performance	2021/22 Target
Defence Strategic Direction	% Adherence to DOD Master Record Index for Policies	>80%	60%
	% Adherence to DOD Master Record Index for Strategies	50%	5.55%
	% Adherence to DOD Master Record Index for Plans	90%	100% (44)
	Number of Reserve Force man days	2 695 963	2 601 591
	Percentage of audits completed ito approved audit plan	100%	80%
Defence Capabilities Prepared	% Compliance with SANDF battle fitness requirement	Classified	Classified
Defence Capabilities provided	Number of Defence Attaché Offices	44	44

Table 4: Performance Targets for Programme 1

 

8.2        Programme 2 (Force Employment)

 

8.2.1     Programme 2 Budget Analysis

 

The allocation for the Force Employment programme decreased significantly by R1.024 billion, resulting in a real percentage decrease of 25.3%. This can largely be attributed to a decrease in the allocation to Subprogramme 5 (Support to the People) that received a 45.56% reduction in real terms. The reduction in the allocation to Programme should be viewed as a realignment with normal expenditure trends prior to the Covid-19 pandemic. In 2019/20, for example, spending on Support to the People was R1.101 billion and while this nearly doubled in 2020/21, it was again reduced to R1.2 billion in 2021/22.

 

In terms of economic classifications, most reductions are aligned with a reduced deployment need given the finalisation of the SANDF’s Covid-19 deployments at the beginning of 2021. However, the following changes in spending in terms of economic classifications should be considered for questions of clarity.

 

• Contractors increase from R247.7 million in 2020/21 to R276.7 million in 2021/22.
• Travel and subsistence increases from R150.5 million in 2020/21 to R201.7 million in 2021/22.

 

Programme	Budget			Nominal Increase / Decrease in 2021/22	Real Increase / Decrease in 2021/22	Nominal Percent change in 2021/22	Real Percent change in 2021/22
R million	2020/21 Main	2020/21 Adjusted	2021/22
Sub-programme 1: Strategic Direction	209,5	191,9	181,2	-  10,7	-  18,0	-5,58%	-9,38%
Sub-programme 2: Operational Direction	400,1	369,5	363,6	-  5,9	-  20,6	-1,60%	-5,56%
Sub-programme 3: Special Operations	954,5	1 066,8	920,1	-  146,7	-  183,8	-13,75%	-17,23%
Sub-programme 4: Regional Security	985,1	876,6	931,5	54,9	17,4	6,26%	1,98%
Sub-programme 5: Support to the people	1 122,0	2 115,8	1 200,2	-  915,6	-  964,0	-43,27%	-45,56%
TOTAL	3 671,1	4 620,7	3 596,5	- 1 024,2	- 1 169,2	-22,2%	-25,30%

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

 

8.2.2     Programme 2 Performance Planning

 

The Force Employment Programme has 11 set targets for 2021/22 of which five are not elaborated on due to the information being classified. All targets set for 2021/22 are in line with performance in the preceding years. The target set for the number of joint, interdepartmental exercises is two while no such exercises took place in 2020/21 due to Covid-19. The DOD should be commended for de-classifying the target related to the percentage reimbursement received from the UN or AU for external missions, which stands at 70% for 2021/22. Questions can be raised whether or not it is possible to set a higher target for reimbursements over the MTEF. The number of sub-units to be deployed for border safeguarding remains at 15 (See the page 10 of this document for the National Treasury response to the PCODMV in terms of border safeguarding).

 

The classification of targets remains a concern in terms of parliamentary oversight, especially as it relates to combat readiness and operational preparedness. The JSCD and the JSCI should be prompted to consider means of effectively overseeing the classified targets below, specifically in the context of a decreasing defence budget. Should funding severely affect these operational target areas, it is the prerogative of Parliament to advise the National Treasury on relevant adjustments. However, such recommendations cannot be considered without the relevant oversight. The following targets remain classified. 

• Percentage compliance with Joint Force Employment requirements as resourced

• Percentage combat ready capabilities available for the SANDF
• Percentage compliance with force levels for external operations
• Percentage compliance of equipment for external operations
• Percentage compliance with self-sustainment of personnel

 

8.3        Programme 3 (Landward Defence)

 

8.3.1     Programme 3 Budget Analysis

 

The Landward Defence programme is the largest programme in the DOD and includes the SA Army with a personnel component of 36 007 in 2021/22. For 2021/22, the programme received a significant nominal decrease of R2.094 billion, resulting in a real percentage decrease of 16.12%.

 

All subprogrammes in the Landward Defence programme saw a decrease in allocation for 2021/22, with the exception of the Armour Capability that received an additional allocation of R3 million. The largest reduction was to the Air Defence Artillery Capability with a real percentage reduction of 31.03%. Notably, the Infantry Capability’s allocation has been reduced by 23% in real terms (R1.331 billion), which is largely related to a reduced allocation for CoE. The Artillery Capability’s allocation is reduced by 28.22% in real terms. The
R75 million reduction in the allocation to General Training is likely related to the fact that the SANDF’s MSDS intake for 2021 was cancelled.

 

In terms of economic classifications, the following increases and decreases from 2020/21 to 2021/22 can be noted:

 

• The allocation for Compensation of Employees decreases from R13.015 billion to R12.179 billion. Over the medium-term, this expenditure item is set to decrease by 1.9%. The SA Army is the largest personnel component of the SANDF and thus heavily affected by Compensation of Employees.
• The allocation for contractors increases significantly from R92.1 million to R623.9 million.
• The allocation for Fuel, oil and gas increases from R184.1 million to R247.4 million.
• The allocation for Travel and subsistence decreases from R409.1 million to
  R251 million.

 

Programme	Budget			Nominal Increase / Decrease in 2021/22	Real Increase / Decrease in 2021/22	Nominal Percent change in 2021/22	Real Percent change in 2021/22
R million	2020/21 Main	2020/21 Adjusted	2021/22
Sub-programme 1: Strategic Direction	458,4	422,2	372,0	-  50,2	-  65,2	-11,89%	-15,44%
Sub-programme 2: Infantry Capability	6 739,5	6 706,7	5 376,1	- 1 330,6	- 1 547,3	-19,84%	-23,07%
Sub-programme 3: Armour Capability	511,4	484,5	487,5	3,0	-  16,6	0,62%	-3,44%
Sub-programme 4: Artillery Capability	872,8	714,0	534,0	-  180,0	-  201,5	-25,21%	-28,22%
Sub-programme 5: Air Defence Artillery Capability	554,7	497,7	357,7	-  140,0	-  154,4	-28,13%	-31,03%
Sub-programme 6: Engineering Capability	858,3	814,2	809,6	-  4,6	-  37,2	-0,56%	-4,57%
Sub-programme 7: Operational Intelligence	252,7	239,2	216,2	-  23,0	-  31,7	-9,62%	-13,26%
Sub-programme 8: Command and Control Capability	240,0	228,5	208,8	-  19,7	-  28,1	-8,62%	-12,30%
Sub-programme 9: Support Capability	4 921,4	4 596,5	4 361,9	-  234,6	-  410,4	-5,10%	-8,93%
Sub-programme 10: General Training Capability	558,5	533,2	457,8	-  75,4	-  93,9	-14,14%	-17,60%
Sub-programme 11: Signal Capability	1 454,0	1 380,6	1 342,0	-  38,6	-  92,7	-2,80%	-6,71%
TOTAL	17 421,9	16 617,2	14 523,4	- 2 093,8	- 2 679,2	-12,6%	-16,12%

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

 

8.3.2     Programme 3 Performance Planning

 

Four performance targets were set for the Landward Defence Programme for 2020/21. The target related to the percentage combat ready capabilities available to the SANDF as well as the target related to Joint Force employment requirements remain classified. The two other targets set for 2020/21 remain in line with the preceding year. The target “Percentage compliance with DOD Training targets” is 80% (5 093 learning opportunities). The number of learning opportunities is much higher than in 2020/21 (2 813) and 2019/20 (3 454). However, despite more learning opportunities provided, the budget allocation for the General Training subprogramme decreases by R75 million in 2021/22.

 

8.4        Programme 4 (Air Defence)

 

8.4.1     Programme 4 Budget Analysis

 

The Air Defence programme has taken significant strain in recent years in terms of its budget allocation. Despite a sizeable increase in 2020/21, the allocation of the programme has again been decreased by R1.567 billion in 2021/22 compared to 2020/21. This represents a real percentage decrease of 23.99%. The allocation of all subprogrammes were reduced, except for the Technical Support Services subprogramme that saw a nominal increase of
R115.5 million. Subprogrammes most affected by reductions include the following:

 

• Subprogramme 5 (Air Combat Capability) received amajor reduction in its allocation from R886.5 million in 2020/21 to R343.2 million in 2021/22. Over the medium-term, the allocation for this competency will decrease by 23.5% in nominal terms. This will likely impact immensely on the capacity of the SA Air Force to maintain its current air combat capabilities.
• Subprogramme 7 (Command and Control Capability) received a decreased allocation of R253.9 million, resulting in a real percentage decrease of 43.48%.
• Subprogramme 2 (Operational Direction) relates to the SA Air Force Command and received a real percentage reduction of 36.41%.
• Subprogramme 1 (Strategic Direction) received a decreased allocation of R8.1 million, resulting in a decreased allocation of 29.35% in real terms.

 

In terms of economic classifications, the following increases and decreases from 2020/21 to 2021/22 can be noted:

 

• The allocation for Contractors increases from R1.421 billion to R1.596 billion.
• The allocation for Fuel, oil and gas decreases from R385.2 million to R176.6 million. This may impact on the ability of the SA Air Force to achieve its planned force employment hours.
• The allocation for Training and Development increases from R57.4 million to
  R66.2 million, despite no planned MSDS intake for 2021. This is in contrast to the Training and Development subprogramme that sees its allocation reduced by 15.84% in real terms.

 

 

 

Programme	Budget			Nominal Increase / Decrease in 2021/22	Real Increase / Decrease in 2021/22	Nominal Percent change in 2021/22	Real Percent change in 2021/22
R million	2020/21 Main	2020/21 Adjusted	2021/22
Sub-programme 1: Strategic Direction	31,8	30,7	22,6	-  8,1	-  9,0	-26,38%	-29,35%
Sub-programme 2: Operational Direction	149,6	219,6	145,5	-  74,1	-  80,0	-33,74%	-36,41%
Sub-programme 3: Helicopter Capability	819,3	1 161,5	963,6	-  197,9	-  236,7	-17,04%	-20,38%
Sub-programme 4: Transport and Maritime Capability	1 071,4	987,7	730,5	-  257,2	-  286,6	-26,04%	-29,02%
Sub-programme 5: Air Combat Capability	871,3	866,5	343,2	-  523,3	-  537,1	-60,39%	-61,99%
Sub-programme 6: Operational Support and Intelligence Capability	418,0	397,9	369,9	-  28,0	-  42,9	-7,04%	-10,78%
Sub-programme 7: Command and Control Capability	629,1	617,6	363,7	-  253,9	-  268,6	-41,11%	-43,48%
Sub-programme 8: Base Support Capability	2 238,2	2 132,2	1 855,2	-  277,0	-  351,8	-12,99%	-16,50%
Sub-programme 9: Command Post	74,6	70,9	69,0	-  1,9	-  4,7	-2,68%	-6,60%
Sub-programme 10:  Training Capability	522,7	497,2	436,0	-  61,2	-  78,8	-12,31%	-15,84%
Sub-programme 11: Technical Support Services	579,2	554,4	669,9	115,5	88,5	20,83%	15,96%
TOTAL	7 405,2	7 536,2	5 969,2	- 1 567,0	- 1 807,6	-20,8%	-23,99%

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

 

8.4.2     Programme 4 Performance Planning

 

Five targets have been set for the Air Defence Programme of which two remain classified (‘percentage combat-ready capabilities available to the SANDF’ and ‘percentage compliance with Joint Force Employment requirements’). The percentage compliance with DOD training targets for 2021/22 (80%) remains the same as in previous years, with 687 learning opportunities provided. The number of training opportunities for the year is 687, but this should be viewed against a R61 million reduction in the allocation to the General Training subprogramme. Finally, the target on flying hours for the year is set for 17 100, which includes force preparation (12 100 hours), force employment (4 000 hours) and (1 000 VVIP hours).

 

8.5        Programme 5 (Maritime Defence)

 

8.5.1     Programme 5 Budget Analysis

 

The overall allocation to the Maritime Defence programme decreases by R680.6 million from R4.959 billion in 2020/21 to R4.278 billion in 2021/22, resulting in a real percentage decrease of 17.2% when adjusted for inflation. Only the Maritime Direction Capability received an increase of R30.8 million, resulting in a 0.41% real increase. Of concern is that the Maritime Combat Capability will see its allocation decrease by 30.79% in real terms. The Base Support Capability also sees its allocation reduced by 16.75% in real terms.

 

 

In terms of economic classifications, the following increases and decreases from 2020/21 to 2021/22 can be noted:

• The allocation for Contractors increases from R259.4 million to R411.6 million.
• The allocation for Fuel, oil and gas increases from R170.1 million to R215.5 million.
• The allocation for Operating payments increases from R19.2 million to R51.4 million.
• The allocation for Departmental agencies and accounts decreases from R1.167 billion to R495.2 million.

 

Programme	Budget			Nominal Increase / Decrease in 2021/22	Real Increase / Decrease in 2021/22	Nominal Percent change in 2021/22	Real Percent change in 2021/22
R million	2020/21 Main	2020/21 Adjusted	2021/22
Sub-programme 1: Maritime Direction	690,8	665,8	696,6	30,8	2,7	4,63%	0,41%
Sub-programme 2: Maritime Combat Capability	1 737,7	1 995,1	1 438,7	-  556,4	-  614,4	-27,89%	-30,79%
Sub-programme 3: Maritime Logistics support Capability	1 198,5	1 199,0	1 160,9	-  38,1	-  84,9	-3,18%	-7,08%
Sub-programme 4: Maritime HR and Training Capability	610,2	517,3	477,3	-  40,0	-  59,2	-7,73%	-11,45%
Sub-programme 5: Base Support Capability	678,5	581,6	504,5	-  77,1	-  97,4	-13,26%	-16,75%
TOTAL	4 915,8	4 958,7	4 278,1	-  680,6	-  853,0	-13,7%	-17,20%

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

 

8.5.2     Programme 5 Performance Planning

 

Six targets were set for the programme of which two are classified (‘percentage combat-ready capabilities available to the SANDF’ and ‘percentage compliance with Joint Force Employment requirements’). Four coastal patrols are planned for 2020/21, but the impact of the reduced allocation to both programmes 2 and 5 on these patrols should be considered.  The remaining targets relate to the number of training exercises, unique maritime exercises and the number of sea hours. The latter was reduced from 10 000 for 2020/21 to 8 000 in 2021/22 and includes force preparation (2 144 hours) and force employment (5 856 hours) which include the hours during deployments for Op COPPER (long-range patrols) and the conducting of four maritime coastal patrols as part of Op CORONA (border safeguarding).

 

8.6        Programme 6 (Military Health Support)

 

8.6.1     Programme 6 Budget Analysis

 

The Military Health Support programme’s allocation was reduced by R771.3 million in 2021/20, bringing its total allocation to R5.306 billion. This reflects a real percentage reduction of 16.21%. The allocation of all subprogrammes were reduced in nominal terms. Most significantly is the allocation for the Military Health Maintenance subprogramme that received a 100% reduction and no further allocation over the medium-term. No specific reason for the non-funding of this subprogramme is provided in the APP. The reduction in the Military Health Product Support subprogramme is to be expected after a major increase in funding for
Covid-19. The 2021/22 allocation for this programme is aligned with pre-Covid levels. The allocation for the Mobile Military Health Support subprogramme is reduced by 21.07% in real terms.

 

In terms of economic classifications, several changes from 2020/21 to 2021/22 can be noted:

 

• The allocation for Agency and support/outsourced services increases from R261.7 million to R708.2 million. This allocation should be viewed against observations by the PCDMV during its visit to 1 Military Hospital where it was noted that the delayed refurbishment programme is resulting in an elevated need for patient outsourcing.
• Only R7.7 million is allocated for machinery and equipment. Over the MTEF, only R24 million is allocated for this purpose compared to, for example, R211 million between 2017/18 and 2019/20. It is unclear how medical equipment in hospitals will be maintained with such a small allocation or whether medical equipment acquisition for hospitals is done under another category.

 

Programme	Budget			Nominal Increase / Decrease in 2021/22	Real Increase / Decrease in 2021/22	Nominal Percent change in 2021/22	Real Percent change in 2021/22
R million	2020/21 Main	2020/21 Adjusted	2021/22
Sub-programme 1: Strategic Direction	229,1	268,8	241,0	-  27,8	-  37,5	-10,34%	-13,96%
Sub-programme 2: Mobile Military Health Support	270,3	212,3	174,6	-  37,7	-  44,7	-17,76%	-21,07%
Sub-programme 3: Area Military Health Support	1 941,4	1 860,4	2 049,9	189,5	106,9	10,19%	5,74%
Sub-programme 4:Specialist Health Services	2 334,8	2 242,9	2 106,9	-  136,0	-  220,9	-6,06%	-9,85%
Sub-programme 5: Military Health Product Support	320,5	960,0	380,2	-  579,8	-  595,1	-60,40%	-61,99%
Sub-programme 6: Military Health Maintenance	174,9	167,5	0,0	-  167,5	-  167,5	-100,00%	-100,00%
Sub-programme 7: Military Health Training Capability	384,9	365,6	353,4	-  12,2	-  26,4	-3,34%	-7,23%
TOTAL	5 656,0	6 077,4	5 306,1	-  771,3	-  985,2	-12,7%	-16,21%

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

 

8.6.2     Programme 6 Performance Planning

 

Only four targets were set for Programme 6 of which three are considered classified. Only the target related to training is not classified (80% compliance for 2021/22; 648 learning opportunities). Classified targets include:

 

• Percentage compliance with Joint Force Employment requirements as resourced.
• Percentage combat-ready capabilities available to the SANDF.
• Percentage compliance with availability of medical stock.

 

The classification of the latter target was highlighted as a major point of concern by MPs in the Fifth Parliament. If information is available, this is something that can be tracked by Parliament, thus preventing concerns when urgent need arises (as is evident when the medical system came under pressure such as with the Covid19 pandemic).

 

8.7        Programme 7 (Defence Intelligence)

 

8.7.1     Programme 7 Budget Analysis

 

The allocation for Defence Intelligence in 2020/21 reflects a significant decrease given its relatively small size as a programme. The total allocation was decreased from R1.148 billion in 2020/21 to R758 million in 2021/22, resulting in a real percentage increase of 36.63%. The major reduction was reflected in terms of Subprogramme 1 (Operations), which sees its allocation reduced from R641.9 million to R234.8 million.

 

In terms of economic classifications, R49.2 million is allocated for Operating Leases for 2021/22, which is a major increase since the highest allocation for this item in the past four years was R6.1 million in 2017/18.

 

Programme	Budget			Nominal Increase / Decrease in 2021/22	Real Increase / Decrease in 2021/22	Nominal Percent change in 2021/22	Real Percent change in 2021/22
R million	2020/21 Main	2020/21 Adjusted	2021/22
Sub-programme 1: Operations	655,1	641,9	234,8	-  407,1	-  416,6	-63,42%	-64,90%
Sub-programme 2: DI Support Services	532,4	506,0	523,2	17,2	-  3,9	3,40%	-0,77%
TOTAL	1 187,5	1 147,9	758,0	-  389,9	-  420,5	-34,0 per cent	-36,63 per cent

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

 

8.7.2     Programme 7 Performance Planning

 

In line with the previous year, only two performance targets are indicated for Programme 7, as follows:

 

• Number of vetting decisions taken (5 000 for 2021/22, compared to an estimated performance of 4 500 in 2020/21).
• Number of Defence Intelligence Products (448 for 2021/22)

 

8.8        Programme 8 (General Support)

 

8.8.1     Programme 8 Budget Analysis

 

The General Support programme’s allocation was cut by R1.475 billion for 2021/22 compared to the previous financial year, resulting in a real decrease of 22.18%. At subprogramme level, the defunding of the Technology Development subprogramme is of significant concern. No funds are allocated for this programme in 2021/22, with limited allocations re-emerging over the MTEF. The Technology Development subprogramme provides for establishing and sustaining selected science and technology capabilities in the defence industry. Furthermore, the Joint Logistical Services’ allocation is reduced by 28.27% in real terms. The only subprogramme to receive an increased allocation is the Departmental Support subprogrammethat received an additional R179 million in 2021/22 compared to 2020/21, resulting in a 11.85% real increase. The Departmental Support subprogramme provides for the payment of corporate departmental obligations such as transfer payments to public entities, legal fees, external audits and bank charges.

 

In terms of economic classifications, the following increases and decreases from 2020/21 to 2021/22 can be noted:

 

• The allocation for Minor assetsdecreases from R91.4 million to R73.4 million. This allocation is, however, still significantly higher than any allocation prior to 2020/21, with the highest allocation in the preceding three years being R21.2 million in 2017/18.
• The allocation for Property payments increased significantly in recent years, from
  R14.6 million in 2019/20 to R245.5 million in 2020/21 and further to R505.4 million in 2021/22. 
• The allocation for Buildings and fixed structuresdecreases from R450.8 million to R344.2 million. This decrease is the continuation of a decreased allocation to Buildings and fixed structures in recent years with the allocation between 2017/18 and 2019/20 never falling below R600 million.

 

Programme	Budget			Nominal Increase / Decrease in 2021/22	Real Increase / Decrease in 2021/22	Nominal Percent change in 2021/22	Real Percent change in 2021/22
R million	2020/21 Main	2020/21 Adjusted	2021/22
Sub-programme 1: Joint Logistics Services	2 954,8	4 509,7	3 370,8	- 1 138,9	- 1 274,8	-25,25%	-28,27%
Sub-programme 2: Command and Maintenance Information Systems	1 053,1	1 032,7	1 024,0	-  8,7	-  50,0	-0,84%	-4,84%
Sub-programme 3: Military Police	728,2	706,5	667,3	-  39,2	-  66,1	-5,55%	-9,36%
Sub-programme 4: Technology Development	467,3	467,3	0,0	-  467,3	-  467,3	-100,00%	-100,00%
Sub-programme 5: Departmental Support	1 245,9	1 082,0	1 261,0	179,0	128,2	16,54%	11,85%
TOTAL	6 449,3	7 798,2	6 323,1	- 1 475,1	- 1 730,0	-18,9%	-22,18%

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

 

 

8.8.2     Programme 8 Performance Planning

 

The number of performance indicators used to track performance in Programme 8 remain at six for 2021/22.  One new target was introduced in 2020/21 relating to the ‘percentage compliance to the DOD ICT Capability Plan’ (this replaced a target related to the utilisation of DOD endowment property). Targets set for 2021/22 include the following:

 

 

 

 

 

Performance Indicator	Audited Outcome	Estimated Performance	Estimated Performance
	2019/20	2020/21	2021/22
Percentage procurement requests fully completed within 90 days from registration	99.76%	95%	95%
Percentage expenditure in accordance with facilities plan	103.75%	100%	100%
Percentage compliance with DOD ICT Plan	New	90.4%	90.23%
Number of crime prevention operations	174	124	124
Percentage criminal cases investigated (backlog)	56.57%	40%	40%
Percentage criminal cases investigated (in-year)	47.32%	25%	25%

Table 12: Performance Indicators for Programme 8

 

9.         COMMITTEE OBSERVATIONS

 

During deliberations with the DOD on 5 May 2021, Members of the PCODMV made several observations related to the budgetary allocation, the performance indicators and the targets set in the Strategic Plan and the APP. The following were noted:

 

• Members expressed the need for more thorough oversight of classified information and noted the need for the Minister of Defence to inform the Portfolio Committee or the Joint Standing Committee on Defence in writing when certain questions cannot be answered due to security concerns. This will allow the relevant Committee to apply for a closed meeting to conduct oversight of the relevant aspects.
• Members expressed concern about the ongoing increase in the proportion of the defence budget allocated to Compensation of Employees. Members noted that that this results in very limited funds remaining available for military operations and, specifically, for the acquisition of new and modern equipment to maintain a professional military force.
• The Committee noted with concern the information presented by the DOD indicating a projected shortfall in funds for Compensation of Employees, and questioned how this will be funded in 2021/22.
• The Committee again expressed the need for funding of the midlife upgrades of the SA Navy’s primary vessels.
• Members noted the significant increase of nearly R1 billion in spending on contractors during 2021/22 compared to the previous year.
• The Committee questioned the high cost of the Ministry in the Department, but noted the Minister’s indication that the medical support systems for the principals, which was located under the Military Health Services, has been shifted to the Ministry programme.
• The Committee again confirmed the need for border safeguarding in South Africa, especially given the current developments in Mozambique.
• The Committee affirmed its concerns around the funding of Project Hoefyster and noted the Minister’s indication that an engagement with Cabinet is scheduled regarding Denel which may provide direction on the future of the project.
• Members expressed concern around the major reduction in funding for fuel and the impact that this will have on flying hours and sea hours in the SA Air Force and SA Navy respectively.
• Given the current fiscal constraints faced by the DOD, Members expressed the need for discussions around the potential requirement for an alternative funding model to keep the SANDF ‘afloat.’ 

 

10.        RECOMMENDATIONS

 

The PCODMV identified the following areas that will be subject to monitoring by the Committee throughout the 2021/22 financial year:

 

• The Minister of Defence should indicate in writing to the PCODMV or the Joint Standing Committee on Defence, whichever may be relevant, whenever a response to a written or verbal question cannot be divulged due to security reasons in order for the committees to plan schedule closed meetings to address such issues.
• The DOD should provide the Committee with a written plan, before 30 June 2021, on how it will approach Compensation of Employees in 2021/22, including the following information:

 

• The final allocation from National Treasury for Compensation of Employees for 2021/22.
• The projected shortfall on Compensation of Employees for 2021/22.
• How the DOD plans to fund the shortfall in Compensation of Employees, including any envisaged shifts in or between programmes and in terms of economic classifications.
• The projected shortfall in Compensation of Employees over the MTEF.
• Medium-term plans to bring Compensation of Employees expenditure in line with the National Treasury allocation.
• An update on plans to curb expenditure on Compensation of Employees related to the high number of supernumeraries in the DOD.
• Efforts to curb the Compensation of Employees related to lengthy suspension with full pay of personnel.

 

• The Committee undertakes to have further engagements with the DOD and National Treasury on the funding for border safeguarding efforts.
• The DOD should, on a quarterly basis, update the Committee on its plans to refit the primary SA Navy vessels.
• The DOD should, before 30 June 2021, provide the Committee with a detailed, project-specific, written breakdown on the projected spending on contactors for 2021/22 as well as the reasons for the significant planned increase in spending compared to the previous year. Quarterly feedback on this expenditure should also be included in upcoming quarterly reports to the Committee.
• While the Committee accepts that the inclusion of medical services for the principals in the Ministry sub-programme, it increases the expenditure and the DOD is urged to review whether any savings cannot be incurred in this programme. In this regard, the DOD should provide the Committee, before 30 June 2021, with a written breakdown of the Ministry’s planned spending in terms of sub-sub programmes as well as economic classifications for 2021/22. The report should also include a breakdown of the function shift from SA Military Health Services (SAMHS) to the Ministry subprogramme.
• The Committee undertakes to schedule a follow-up meeting with the DOD and Armscor on the outcome of the Cabinet engagement on the future of Denel as it relates to Project Hoefyster, other major acquisition projects as well as ‘Original Equipment Manufacturer’ maintenance of SANDF equipment. This follow-up will be correlated with the Joint Standing Committee on Defence.
• The Committee urges the DOD to repurpose any possible savings to operational aspects of the DOD, specifically fuel and other operational needs that negatively affect the attaining of flying- and sea hour targets.

• The Committee undertakes to continue discussions with the DOD and National Treasury on the potential requirement for an alternative funding model to keep the SANDF ‘afloat’. 

 

 

 

 

PART B: DEFENCE ENTITIES

 

The Portfolio Committee on Defence and Military Veterans (PCODMV), having considered the 2021/22 Annual Performance Plan of the Castle Control Board (CCB) and the Corporate Plan 2021 and budgetary allocation for FY 2021/22 of the Armaments Corporation of South Africa (Armscor) 5 and 11 May 2021 respectively, reports as follows:

 

THE CASTLE CONTROL BOARD (CCB)

 

1.         Introduction

 

The Castle Management Act, 1993 (No. 207 of 1993) provides for a CCB to govern and manage the Castle of Good Hope (CGH) – 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.

 

2.         THE CCB AND THE COVID 19 PANDEMIC

The Minister confirms in her Foreword that the 2021 Medium-Term Expenditure Framework will be affected by one of the most devastating events of the century: namely the coronavirus pandemic.  The Chairperson of the Board elaborates further on the devastating effect of the pandemic on the activities of the CCB, given that it is heavily reliant on tourism revenue. He stressed that one of the major implications of the pandemic is the uncertainty that accompanies it.

3.         CHAIRPERSON’S FOREWORD

The Chairperson of the CCB points out that they have received four consecutive clean audit outcomesfrom the Auditor-General, but does not mention that the last audit outcome was unqualified. This was due to financial statements submitted not being prepared in accordance with the prescribed financial reporting framework.

3.1        Strategic Risks

The Chairperson further highlights the strategic risks to receive attention in 2021/22:

• Going Concern status: They will continue to engage the executive authority to assist with this challenge given the lack of sufficient operating income from tourism and events.
• Marketing and promotion.  To overcome this challenge, they will aggressively market and promote the Castle of Good Hope (CGH).
• Safety and security. This will remain a key priority. Securing the perimeter fence has become imperative for UNESCO World Heritage status.
• 4th Industrial Revolution technologies. They plan to utilise all of these available technologies and tools to manage and promote the CGH’s built and intangible heritage.
• Non-classroom education. They plan to link up with global progressive forces to enhance their heritage status and provide visitors with a virtual experience of the CGH.
• Clean audit outcome. The CCB has committed to achieving another clean audit outcome.

4.         ANNUAL PERFORMANCE PLAN 2021/22

The CCB’s APP 2021 – 2022 consists of four main parts namely Part A: CCB Mandate; Part B: CCB Strategic Focus; Part C: Measuring CCB Performance; and Part D: Technical Indicator Descriptions.

4.1.         Part A: CCB mandate

This section lists the Constitutional mandate as derived from section 238. The legislative mandate is derived from the Castle Management Act (No. 207 of 1993); the Defence Endowment Property and Account Act (No. 33 of 1922); and the National Heritage Resources Act (No. 25 of 1999). The CCB is proposing to amend the Castle Management Act (CMA) (No. 207 of 1993); and the Defence Endowment Property and Account Act (No. 33 of 1922).The APP states that the “Board has identified that the current founding legislation is dated and submitted a review document to the MOD&MV. The outcome of this legislative review process will provide much-needed clarity to the CCB and its stakeholders.” It is also noted that the CCB is involved in a court case with the Castle Military Museum Foundation. No mention is made of the other court case with “KamersvolGeskenke,” that was alluded to in the Strategic Plan.

4.2        Part B: CCB Strategic Focus

This Part deals with the CCB’s vision, mission, organisational values, situational analysis, external environment analysis, and internal environment analysis in the CCB’s 2020 – 2021 APP.

4.2.1     Situational analysis

The Updated 2021 Situational Analysis starts off with a reference to the COVI-19 pandemic, and that the resultant lock-down meant that for the CCB staff there was “no access to the Castle, no tourists, no events, no filming, no work - no income.”  Reference is also made to the transfer of relief funding of R3 million to the CCB on 20 May 2020 from the DOD. It then states that besides this once-off relief funding, the CCB would require a similar, annual operational subsidy to fulfil its constitutional mandate over the MTEF.

External Environment Analysis

The APP states that the issue of sustainable funding for the CCB was prioritised with the Deputy-Minister to engage with his counterpart in the Ministry of Sports, Art and Culture to ascertain the role, function and requirements of the CCB and Castle within the broader heritage fraternity. The APP also makes the following two statements which require clarification. “More than often disgruntled Khoi, youth or military veteran groups would visit the Castle, anticipating some antagonism from other users and stakeholders” and “More serious is the threat of international terrorism that has increased over the last few years with radical groups continuing to destabilize countries and regions of the world. As a "soft" heritage tourism attraction, the castle is a potential, symbolic target for these kinds of intentions.”

Internal Environment Analysis

Reference is made to the fact that one of CCB's most significant threats is its going concern linked to financial sustainability and the threats to its Going concern status. It complains that it receives no direct financial subsidy from the national fiscus to date (despite legislation permitting the organisation).The APP again points out that there is a need for the precinct to be operationally managed solely by the CCB and all other entities present on or connected to the site – military and non-military - must adhere to the policies and procedures of the CCB. “The Board and Executive Authority must address the transfer of Het Bakhuys to the CCB. Ditto for the overall role of IZIKO and the Officers Messes at the CGH if the CCB is to realize its full financial viability.”

 “The additional resources required (under a typical, post-COVID year) has been calculated at a nominal amount of between R2.8 million to R4 million per annum and should be ring-fenced as an operational subsidy based on a tightly managed MOA.”The APP further states that “The Logistics Division, the custodian of the Castle as a Defence Endowment Property, has ring-fenced some funding for maintenance and repair work.”

4.3        Part C: Measuring CCB Performance

The APP states that the CCB will, over the 2019-2024 MTSF period, support the government's priorities and ultimately, the National Development Plan (NDP), Vision 2030 as well as the NDP 5-year Implementation Plan.

1.  

 

The detailed performance Outcomes over the MTSF is provided in the table below. These are the high level, measurable, impactful outcomes. The five APPs to be developed over the MTSF shall contain other, secondary outcomes and outcome indicators.

 

		Outcome Indicators		Five Year Target
	Accountable and effective governance of the CCB	Percentage of CCB accountability documents submitted following National Prescripts	97% (Based on the previous MTSF audited performance)	97% (Based on the last MTSF average audited performance
		Status of improved audit opinions	Reduced number of audit qualifications	Decrease (reduce) the audit opinions to unqualified opinions.
	A well-conserved maintained and protected Castle of Good Hope	The annual number of visitors and tourists attracted to the Castle		981 000 (Based on the previous three years’ performances but with limited  offering)
		Gross revenue generated through tourism and events	R24.4 million*	R25.5 million (Based on previous three years’ Performances without Revenue Generation Plan

Table 1: Outcome indicators and five-year target

 

 

 

 

 

 

 

 

 

 

 

 

 

1.  

 

This section deals with the Annual Performance Plan of the CCB and in particular with the programmatic outlines and the related financial aspects of the four programmes, through focusing on the relevant Performance Indicators and Targets, both annually and quarterly.

1.  

 

The purpose of the Administration programme is to ensure clean, sound administration and good corporate governance.

 

Output indicators	Annual Target	Quarterly targets with sources of verification noted
		Q1	Q2	Q3	Q4
Number of corporate governance policies approved per annum	4	1	1	1	1
Percentage of significant prior-year audit findings resolved	100%	-	-	-	100%
CCB Annual Performance Plan timeously submitted to the Executive Authority	100% (1)	-	-	-	100%
CCB Annual Report timeously submitted to the Executive Authority	100% (1)	-	100% (1)	-	-
CCB Quarterly Reports timeously submitted to the Executive Authority and National Treasury	100%	100% (1)	100% (1)	100% (1)	100% (1)
CCB CEO Performance Agreement timeously submitted to the Executive Authority and National Treasury	100% (1)	-	100% (1)	-	-
CCB Strategic Plan 2020 – 2025 timeously submitted to the Executive Authority and National Treasury	-	-	-	-	-

Table 2: Programme Annual and quarterly targets

5.2        Programme 2: Maintenance and Conservation at the CGH

This programme aims to ensure the maintenance, preservation, interpretation and showcasing of the history of the CGH.

Output indicators	Annual Target	Quarterly targets with sources of verification noted
		Q1	Q2	Q3	Q4
Number of preventative and regulation maintenance projects completed	8	2	2	2	2
An annual increase in number of tangible heritage projects implemented at the CGH	6	1	2	2	1
Number of non-commercial, cultural events hosted at the CGH	10	2	3	2	3
Number of exhibitions hosted annually at the CGH	5	1	1	1	2

Table 3: Programme 2 Annual and quarterly targets

 

 

5.3        Programme 3: Maximising the Castle’s Tourism Potential

The purpose of this programme is to optimise the tourism potential of the CGH.

Output indicators	Annual Target	Quarterly targets with sources of verification noted
		Q1	Q2	Q3	Q4
The annual number of visitors and tourists attracted to the Castle	120 000 (175 000)	20 000 (40 000)	20 000 (40 000)	35 000 (45 000)	45 000 (50 000)
Gross revenue generated through tourism and Events	R9 438 000 (R8.903 m)	R 1 435 000 (R1500 000)	R 1 103 000 (R1 750 000)	R2 950 000 (R2 700 000)	R3950 000 (R2 953 000)
Number of commercial events hosted annually at the CGH	20 (30)	5 (8)	5 (7)	5 (7)	5 (8)
Number of film and fashion shoots accommodated at the CGH per annum	10 (15)	2 (3)	3 (4)	3 (4)	2 (4)
Number of tourism infrastructure upgrades Completed	1 (2)	-	- (1)	1 (-)	- (1)
Number of Joint Marketing Initiatives undertaken per year	2	-	1	-	1

Table 4: Programme 3 Annual and quarterly targets

5.4        Programme 4: Increase public access to the CGH

This programme aims to optimize public access and increase the CGH’s public profile and positive perception across all community sectors.

Output indicators	Annual Target	Quarterly targets with sources of verification noted
		Q1	Q2	Q3	Q4
The annual number of potential visitors reached through the media	80m (60m)	20m (20m)	20m (10m)	20m (10m)	20m (20m)
Number of student interns hosted at the CGH per annum	12	6	2	2	2
Number of heritage-educational programmes organised for women, unemployed youth, disabled and traditional communities	12	3	3	3	3
Number of heritage programmes organized for Military Veterans	6	2	1	1	2

PERFORMANCE INDICATOR	2017/18	2018/19	2019/20	2020/21	2021/22
Number of student interns hosted per annum	26(30)	15	12 (30)	12(20)	12

Table 5: Programme 4 Annual and quarterly targets

 

6.         PROGRAMME RESOURCE CONSIDERATIONS

This section of the APP refers to the CCB Expenditure estimates, annual increases per programme and the percentages of the programmes in relation to the total budget. 

 

Programme	2020/21 Main		2020/21 Adjusted		2021/22		2022/23		2023/24
	(R’000)		(R’000)		(R’000)		(R’000)		(R’000)
	Full Cost	Budget Amount	Full Cost	Budget Amount	Full Cost	Budget Amount	Full Cost	Budget Amount	Full Cost	Budget Amount
Administration	7 971	7 971	7 266	4 711	8 450	8 450	8 957	8 957	9 360	9 360
Conservation Management	623	623	750	304	660	660	700	700	732	732
Tourism Management	80	80	158	0	85	85	90	90	94	94
Public Access	229	229	364	150	243	243	258	258	270	270
Total	8 903	8 903	8 538	5 165	9 438	9 438	10 005	10 005	10 456	10 456

Table 6: CCB’s expenditure estimates for FY2020//21 to FY2023/24.

 

The projected expenditure for 2021/22 is R9 438 000 and increases over the rest of the MTEF period. Given the dire financial position and its reliance on the DOD for financial support, one issue that can be raised is whether these amounts been thoroughly interrogated and have alternatives been considered.

 

Programme	Budget			Nominal Increase / Decrease in 2021/22	Real Increase / Decrease in 2021/22	Nominal Percent change in 2021/22	Real Percent change in 2021/22
R million	2020/21 Main	2020/21 Adjusted	2021/22
Administration	7 971.0	7 266.0	8 450.0	1 184.0	843.4	16.30%	11.61 %
Conservation Management	623.0	750.0	660.0	-  90.0	-  116.6	-12.00 %	-15.55 %
Tourism Management	80.0	158.0	85.0	-  73.0	-  76.4	-46.20 %	-48.37 %
Public Access	229.0	364.0	243.0	-  121.0	-  130.8	-33.24 %	-35.93 %
TOTAL	8 903.0	8 538.0	9 438.0	900.0	519.6	10.5%	6.09 %

Table 7: Programmes’ nominal and real increases 2019/10 - 2020/21

Table 7 shows that the overall budget increase of the CCB is 6.09% in real terms, and only one programme shows a real increase, namely Programme 1 Administration. Programme 1 also shows an increase R 843.400 in real terms while the three others show real decreases.

 

 

Programme	Budget	Percent of total budget per programme	Budget	Percent of total budget per programme	Change in percent allocation
R million	2020/21 Adjusted		2021/22
Programme 1: Administration	7 266.0	85.10%	8 450.0	89.53%	4.43%
Programme 2: Conservation Management	750.0	8.78%	660.0	6.99%	-1.79 %
Programme 3: Tourism Management	158.0	1.85%	85.0	0.90%	-0.95 %
Programme 4: Public Access	364.0	4.26%	243.0	2.57%	-1.69%
TOTAL	8 538.0	100.00%	9 438.0	100.00%	0.00%

Table 8: Percentages of programmes vs total budget 2020/21 - 2021/22

Programme 1 remains the biggest with 85% in 2020/21 with an increase to 89.53% in 2021/22, largely related to the cost of employees. The other three programmes show decreases ranging from 0.95% to 1.79% of the budget over the two years.

6.1        Programme 1 – Administration.

This programme has been allocated R8.450 million for 2021/22.  Similar to the previous APP, it states that this is the most significant spending programme and that within this programme, employment cost is the most significant expenditure driver, as there are 18 people employed by the CCB. It makes provision for a full-time facilities and logistics manager, a facilities management contract and a limited number of full-time maintenance personnel. Without this, the 420-roomed Castle will fall in disrepair sooner than later. These have been included in the estimates for FY2020/21.

6.2        Programme 2 – Conservation Management.

The second biggest expenditure item is the Preservation, Interpretation and Showcasing Programme of the CGH’s Heritage which amounts to R660 000, slightly less than the previous year’s
R750 000. It states that the organisation plans to deliver a series of innovative public events over the medium term. Some of their initiatives include an active marketing drive to get more South African learners and locals to visit the CGH, heritage programs and cultural workshops for all South Africa’s cultural and ethnic groups, skills training workshops for Military Veterans, interactive heritage displays, expansion of museum displays and the development of the CGH Chapel as a place of worship and reflection.

6.3        Programme 3 - Tourism Management

This Programme’s expenditure has been decreased with R73 000 for FY2021/22 and, given that it is viewed as crucial to the CCB’s mandate, this is concerning. As in the previous APP, it states that the Tourism portfolio will be improved by expanding tour options, tourism products and experiences aimed at kids, better signage, display of cultural tourism products and aggressive marketing programmes. It also again mentioned the fact that there are not enough indoor venues and would like to procure a 2 500-seater marquee.

6.4        Programme 4 - Public Access

For FY2021/22 an allocation of R243000 has been made for this programme, a decrease of R121 000 from the previous year. Most of the expenditure goes into public events such as community workshops, outreach programmes to schools, and hosting of special needs groups.

1. REVENUE GENERATION

 

The APP stated that the CCB has completed a Revenue Optimisation Plan, and the implementation of the findings thereof will lead to an increase in revenue in the initial phase (2018) by at least R2.5 million per annum. The Revenue Optimisation Plan will assist in realising the full capacity of the site. It further states that the COVID-19 pandemic has radically undermined the CCB’s ability to generate money from the tourism industry, and it will rely on the DOD or other state entities for support while it is mitigating the impact of this disastrous event.

 

Among the strategies adopted by the Board to increase more revenue is the increase in fees for hosting events at the Castle of Good Hope. The Board considered that the venue rental fees have been unchanged for more than 20 years. The increase will be affected by 2020/21 without causing significant disruptions in the tourism industry.

 

1. CASTLE CONTROL BOARD ENTERPRISE RISK MANAGEMENT

 

The identified CCB Enterprise Risks of the CCB is listed in the APP and differs with those in the previous APP.

Outcome	Key risks	Risk mitigation
A well-conserved maintained and protected Castle of Good Hope	The inability of the CCB to remain a going concern in the aftermath of the most devastating event (COVID-19) because it cannot generate revenue from its tourism and events portfolios.	Aggressive marketing and a compact with government departments to use the Castle facilities for their smaller meetings and conferences.
A well-conserved maintained and protected Castle of Good Hope	We are experiencing a decline in financial resources inhibiting us from executing our primary mandate to conserve and promote CGH as a Heritage Site.	See through the legal and compliance processes to apply to Treasury for the retention of historic surpluses.
Accountable and effective governance of the CCB	We have insufficient Human Resources capacity hampering our endeavours to fulfil our core mandates.	Retrain and redeploy existing staff and recruit key staff, e.g., financial manager, in an HRD Plan.
A well-conserved maintained and protected Castle of Good Hope	Blurred and overlapping responsibilities regarding the overall management of the CGH precinct negatively affecting our ability to coordinate and optimize the resource base.	Integrated CGH Management Plan drafted, inter-institutional management structure revived, and Revenue Optimisation Plan to be finalized.
A well-conserved maintained and protected Castle of Good Hope	Compromised security in and around the CGH undermining the work of the CCB.	Compromised security in and around the CGH undermining the work of the CCB.
Accountable and effective governance of the CCB	Lack of adherence to a Manual of Policies and Procedures to regulate control and compliance environment undermines our ability to build win-win partnerships with the private and public sectors.	Newly appointed Executive Director and Chief Financial Officer are leading the initiative to ensure complete compliance
A well-conserved maintained and protected Castle of Good Hope	The compromising of the image of the Castle either through malice or abuse of its spaces and amenities	The Executive Director shall actively engage stakeholders and the media.

Table 3: Enterprise risk and Risk Mitigation

8.         COMMITTEE OBSERVATIONS

 

During deliberations with the CCB on 5 May 2021, Members of the PCODMV made observations related to the budgetary allocation, the performance indicators and the targets set in the APP of the CCB. The following were noted:

 

• The Committee commended the DOD forits continued support of the CCB and for making available an additional R5.5million to the entity in April 2021. The Board is encouraged to intensify its efforts to maximise its ability to generate income during the current pandemic, which it projected at R2million.

• The Committee once again implored the CCB to address the concerns of the Auditor-General and to this extent the appointment of the two interns were welcomed. It was enquired for how long the interns will be employed and it was indicated that the CCB will attempt to employ them both permanently being graduateswith relevant qualifications.
• The CCB has 19 employeesdependent on it and the Committee stressed that its efforts to sustain its personnel during difficult times, is being appreciated.

 

9.         RECOMMENDATIONS

 

The PCODMV identified the following areas that will be subject to monitoring by the Committee throughout the 2021/22 financial year:

 

• The Committee recommends that the CCB should attempt not to rely on the DOD for funding during crises, but that it should also endeavour to maximise its revenue generation through its mandated activities as well as innovative new means to generate income. The Committee will monitor its efforts to generate its own revenue.
• The CCB should submit a short mid-year report to the PCODMV on income generation as well as expenses to enable the Committee to track efforts by the CCB to generate alternative revenue.
• The Committee noted the appointment of the two interns to assist with addressing the audit queries, but stressed that given the size of the entity’s budget and the personnel available, that it expect an improvement in this regard.

• The CCB should explain to the Committee how it will make provision for the two interns and especially how it plans to retain them because they are graduates and that the entity has lost three managers and two other staff members recently.
• The Committee noted the invitation extended tothe Committee to hold a meeting at the Castle in order to expose Members to the rich history of the Castle of Good Hope, and will explore options in this regard.

 

 

ARMAMENTS CORPORATION OF SOUTH AFRICA (ARMSCOR)

 

The PCODMV, having considered the 2021/22 Corporate Plan of the Armaments Corporation of South Africa SOC Ltd (Armscor) on 11 May 2021, reports as follows:

 

1.  

 

1.1        Mandate of Armscor

 

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.

 

1.2        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 DOD effectively, efficiently, and economically. Furthermore, Armscor are to meet the defence technology, research, development, analysis, and test and evaluation requirements of the DOD effectively, efficiently, and economically.

1.       strategic focus areas

 

1. Notes from the introductory statement

 

The Armscor 2021 Corporate Plan, in the opening address by the Board Chairperson, notes an important refocussing of the entity by stating four strategic outputs that have since been adopted, including:

• Revenue generation
• Cost management
• Efficient and effective delivery
• Stakeholder management

 

Considering these strategic outputs is important for the work of the Portfolio Committee on Defence and Military Veterans (PCODMV) as it provides a framework for oversight over the medium-term. The strategic outputs are underpinned by the ever-increasing financial constraints facing Armscor. In this regard, both the Board Chairperson and the Chief Executive Officer (CEO) note the following main concerns facing the entity: “The overstretched national fiscus and the reduced transfer payment to Armscor requires credible proposals to generate revenue for the Corporation and offer possible solutions to preserve the sovereign and strategic capabilities within the defence industry.”

 

The South African defence industry has and will continue to face financial constraints, and it is in this regard that the Corporation must assume the critical role of nurturing the industry through this difficult period.Through the Defence Industry Fund (DIF) [which was part formed by Armscor and the DOD], the local SMMEs in the defence industry will be able to compete in the global defence market.Armscor has pledged its support to the non-costed deliverables of the DOD plan (Defence Review 2015) to arrest the decline.

Manage its limited resources with the requisite prudence and intellect that will improve its sustainability.The declining Special Defence Account (SDA) will in the next financial year pose a risk towards operational readiness of the client procurement, as well as the maintenance. Armscor’s growth strategy, titled: “On-Time, In-Time, Towards a Sustainable Future”, will focus on strategic outputs to deliver the Corporation’s sustainability

 

2.2        Environmental scan

 

The Corporate Plan further contains a detailed situational awareness which maps the external and internal environments that affect the Corporation. The consideration of these factors are essential to Members of Parliament as it shapes the constraints and conditions under which Armscor will have to operate in the medium-term. Key aspects of this situational awareness that can affect Armscor and its service to the SANDF include the following:

External environment

• Political: The domestic focus of national security is on Human Security and the growth of South Africa is dependent on peace, stability and economic development on the continent. The focus on human security was encapsulated in 2020 with the deployment of the military to assist in the country’s efforts to prevent the spread of the Covid-19 pandemic.
• Economic: There is increasing fear of economic downturn, with GDP growth continuously revised downwards. This downturn was exacerbated by the Covid-19 pandemic, negatively impacting the implementation of the National Development Plan (NDP). The defence allocation is expected to further decline over the medium-term.
• Social: Four aspects will shape future economic and political conditions, namely increased life expectancy; population growth and the youth bulge; migration; and, urbanisation. In addition, the social sphere will be impacted by the Fourth Industrial Revolution and cyber connectivity.
• Technology: The SANDF will be required to improve its Information Warfare capability while the Defence industry requires funding and planning to maximise its economic contribution.
• Legal: The DOD, especially the SANDF commanders could face various new international legal challenges during external operations. The SANDF must ensure that it operates within International Law.
• Physical: The SANDF could increasingly be required to become involved in humanitarian operations, specifically as a result of climate change. Furthermore, as demonstrated during the Covid-19 pandemic, SANDF involvement may be required to deal with humanitarian operations related to pandemic outbreaks.
• Military: The military will have to prepare for a deployment environment where the distinction between military and other containment measures become increasingly blurred. Of particular importance will be the SANDF’s role in border safeguarding as well as the need for technological means of securing the country’s borders.

 

Internal environment

• Economic recession: Slow economic growth, exacerbated by Covid-19, will hamper the creation of job opportunities and possibly contribute to conflict from the unemployed youth demographic.
• Defence budget allocation: The Defence Force is Armscor’s largest client and its budget allocation will remain constrained over the medium-term. DOD’s Human Resources expenditure is foreseen to continue rising, slightly above the inflation rate, effectively reducing the operating and capital budgets. This introduces an era where the ability of the SANDF to conduct operations is substantially curtailed, possibly negatively influencing the demand for Armscor capacity related to the contracting of maintenance, repair and overhaul (MRO) services. The impact of this, on the Strategic Capital Acquisition Master Plan (SCAMP) is severe.
• Corporate governance accountability:Armscor will continue to operate and function under good governance principles as per the King IV Report.
• National cost containing measures:Armscor will continue to implement cost containment measures as per National Treasury directives.
• Service delivery improvement: The Acquisition process and contracting process at Armscor will be improved to better serve the DOD needs.

 

2.3        Armscor contribution to national government planning

 

With the environmental scan of Section 3.2 in mind, Armscor will seek to contribute to several Government outcomes as per the NDP and the Medium-Term Strategic Framework (MTSF) (2019-2024).

Armscor contributions to the NDP:

• Sharpening South Africa’s innovative edge by contributing to global scientific and technological advancement;
• Investing in Research and Development;
• Facilitating cooperation between public service and technology institutions;
• Committing to procurement approaches that stimulate domestic industry and job creation;
• Procuring from and supporting SMMEs, black-owned and black managed enterprises and female-led enterprises, the youth and military veterans.

 

Armscor contributions to the 2019-2024 MTSF

• Priority 1: Capable, ethical and developmental state. Armscor will contribute to improved corporate governance and continue to fight corruption. The institution will also follow a zero tolerance approach to sexual abuse toward women, the youth and people with disabilities.
• Priority 2: Economic transformation and job creation. Armscor will focus on domestic procurement of goods and services. Over 146 bursaries will be awarded for science and engineering. Military veterans support programmes were created to ensure access for this select group to the defence industry.
• Priority 3: Education skills and health. Armscor’s focus will be on the provision of domestic and foreign learning opportunities in the fields of science and technology.
• Priority 5:  Spatial development, human settlements and local government. Armscor will support women, the youth and economic development in rural areas through Project KobaTlala.
• Priority 6: Social cohesion and safer communities. Armscor will contribute to this priority through its contribution to the SANDF’s border safeguarding operations and the provision/acquisition of technology and equipment for the SANDF.
• Priority 7: A better Africa and a better world. Through supporting the DOD’s external operations in Africa, Armscor will contribute to regional and continental peace, security and stability.

 

1. Budget Analysis

 

3.1        Overview of 2021/22 income and expenditure

 

The following section will compare the 2020/21 and 2021/22 Armscor Corporate Plans in terms of projected budgetary aspects.The projected income for the Armscor Group in 2021/22 (R1.505 billion) is lower than that which was projected for 2020/21 (R1.581 billion). It must be noted that the actual achieved income for the Group in 2020/21 was likely less than the projected R1.581 billion due to the impact of Covid-19. Despite the projected reduction in income, Armscor is expected to accumulate a net surplus of R3.1 million.

 

The main cost drivers for Armscor in the 2021/22 financial year include the following:

• Direct personnel costs of R1.127 billion (compared to R1.161 billion in 2020/21).
• External services costs of R102.7 million (compared to R99 million in 2020/21).
• Water and electricity costs of R46.4 million (compared to R44.7 million in 2020/21).
• Subsistence and Travel at R38.3 million (compared to R41.2 million in 2020/21).
• Indirect personnel costs of R32.6 million (compared to R33.2 million in 2020/21).

 

3.2        How is Armscor funded?

 

Armscor is largely funded from state finances. In addition, it supplements this income with other commercial projects. In order to lessen the pressure on the fiscus, these projects require expansion as per Armscor’s plan to increase commercial activities, in order to increase Armscor’s economic viability. For 2021/22, Armscor planned funding comprises the following:

 

• Transfer payment:         R1.207 billion (R1.240 billion in 2020/21)
• Net sales:                     R209.4 million (R259.1 million in 2020/21)
• Other income:               R65.0 million     (R58.7 million in 2020/21)
• Recoveries:                   R23.4 million     (R22.3 million in 2020/21)

 

3.3        Additional financial information:

 

Armscor has shown progress in returning most of its subsidiaries to profitability in recent years. For 2021/22, it is projected that both Armscor Corporate and the Armscor Dockyard will show a surplus but, as was the case in 2020/21, the Research and Development division will show a marginal loss. Projected profit/losses for the 2021/22 financial year per component includes:

 

• Armscor Corporate:                   Surplus of R47.7 million (R2.4 million in 2020/21)           
• Research and Development:      Loss of R45.1 million (R1.9 million in 2020/21)
• Armscor Dockyard:                   Surplus of R0.4 million (R0.3 million in 2020/21)
• Armscor Group:                        Surplus of R3.1 million

 

In terms of the Group Capital Expenditure for 2021/22, a number of requirements are identified in the Corporate Plan. A total of R354 million is required for Group Capital Expenditure in 2021/22, which highlights an ongoing increase in projected expenditure in recent years (R246 million in 2020/21 and R163.8 million in 2019/20). However, Armscor noted that Capital expenditure budgeted for in 2021/22 financial year includes items not executed in 2020/21 financial year. This is likely as a result of non-expenditure due to the Covid-19 pandemic. The envisaged expenditure of R354 million may therefore not be a true reflection of increased expenditure. Members may request further clarity on how Group Capital Expenditure in 2021/22 compares to actual expenditure in 2020/21. Nonetheless, when planned expenditure in 2021/22 is compared to that of 2020/21, the following increases/decreases can be noted:

 

• Office Equipment:                     R1.834 million (R2.510 million in 2019/20)
• Computer Equipment:                R81.286 million (R18.964 million in 2019/20)
• Office furniture:             R2.062 million (R1.169 million in 2019/20)
• Computer software:                   R97.416 million (R84.130 million in 2019/20)
• Buildings and infrastructure:       R133.205 million (R14.350 million in 2019/20)
• Machinery and Equipment:         R26.228 million (R30.967 million in 2019/20)
• Motor Vehicles:             R4.9 million (R7.503 million in 2019/20)
• Capital assets:                          R7.4 million (R86.481 million in 2019/20)

 

When reviewing the Armscor expenditure per activity, as presented by National Treasury, overall expenditure decreases from R2.036 billion in 2020/21 to R1.990 billion in 2021/22. This translates to a nominal decrease in expenditure of 2.26%. The largest decrease in expenditure is expected to relate to Armscor’s Logistical Support from R200.9 million in 2020/21 to R149.2 million in 2021/22. All other expenditure is kept relatively stable when inflation is taking into account. Management of strategic facilities (Research and Development) is also decreased by R16 million compared to the previous financial year. In contrast, expenditure on Administration increased by R12.7 million in 2021/22.

 

Programme/objective/ activity	Budget			Nominal Increase / Decrease in 2021/22	Real Increase / Decrease in 2021/22	Nominal Percent change in 2021/22	Real Percent change in 2021/22
R million	2020/21 Main	2020/21 Adjusted	2021/22
Administration	785,1	548,8	561,5	12,7	-  9,9	2,31%	-1,81%
Quality Assurance	115,1	197,6	202,2	4,6	-  3,6	2,33%	-1,80%
Management of Defence Matériel Acquisition	339,7	371,1	379,6	8,5	-  6,8	2,29%	-1,83%
Logistics Support	247,0	200,9	149,2	-  51,7	-  57,7	-25,73%	-28,73%
Management of strategic facilities: Armscor Dockyard	313,4	365,5	361,3	-  4,2	-  18,8	-1,15%	-5,13%
Management of strategic facilities: Research and Development	321,5	352,4	336,4	-  16,0	-  29,6	-4,54%	-8,39%
TOTAL	2 121,7	2 036,3	1 990,2	-  46,1	-  126,3	-2,26%	-6,20%

Table 1: Armscor expenditure trends from 2020/21 to 2021/22

 

 

1. THE SWEATING OF ASSETS

 

As a means of raising income for Armscor, the sweating of assets has previously been considered. The 2018/19 Annual Report noted that “Armscor identified four of its properties to sweat; two at Erasmuskloof, one at Pretoria West and one at Northern Cape. The latter two are at Armscor’s facilities –Gerotek and Alkantpan. The Corporation issued a request for bids, inviting potential developers and investors to submit bids for the development of these land parcels. While the response received was positive, internal process is underway and the necessary approval will have to be obtained.”[3] Progress in this regards remains unclear as the 2021/22 Corporate Plan simply states that “Armscor established the Property Management and Leveraging Division with the intention of sweating its own property assets.”

 

1. Personnel information

 

The total personnel strength for 2021/22 is reflected in the table below. This figure includes 45 Contract Employees as well as 56 personnel in the Talent Development Programme. The reduction in personnel is aligned with a statement by the National Treasury noting that “in line with Cabinet’s decision to stabilise government debt, transfers from the department are reduced by R119.9 million in 2021/22, R145.2 million in 2022/23 and R140 million in 2023/24. These reductions were mainly effected on compensation of employees, spending on which decreases at an average annual rate of 1.4 per cent, from R1.2 billion in 2020/21 to R1.1 billion in 2023/24. The corporation expects a decrease in personnelmainly due to natural attrition.

 

Armscor Group	Total Permanent employees projected in the 2020/21 Corporate Plan	Total Permanent employees provided for 2021/22
Armscor (including R&D)	1 141	1 069
Armscor Dockyard	458	429
TOTAL	1 599	1 498

Table 2: Personnel figure comparison

 

6.         SELECTED PERFORMANCE INDICATORS

6.1        Service delivery indicators

 

The table below highlights a number of service delivery performance targets across Armscor’s six goals that Members should consider and track throughout the year. Goals include the following:

 

• Goal 1: Defence Materiel Acquisition.
• Goal 2: System Support Acquisition
• Goal 3: Schedule placement
• Goal 4: Management of Defence Industrial Participation (DIP)
• Goal 5: Defence technology research, test and evaluation; Intellectual Property management
• Goal 6: Performance against Dockyard Mandate           

 

Goal	Performance indicator	2019/20  Achievement	2020/21 Target	2021/22 Target
1 (Defence Materiel acquisition)	Percentage of DOD capital requirements converted into orders placed	99.97%	95%	95%
	Execution of contracts measured through cash flow on DOD orders placed	103.18%	95%	95%
2 (System Support Acquisition)	Percentage of DOD system support and procurement requirements converted into orders placed	92.45%	95%	95%
	Execution of contracts measured through cash flow on DOD orders placed	123.35%	95%	95%
3 (Schedule placement)	Average time from receipt of requirement to placement of contract	88.48 days for shortened process items   83.84 days for standard acquisition   150 days for SDA programmes	95 days for shortened process items   125 days for standard acquisition   145 days for SDA programmes	95 days for shortened process items   120 days for standard acquisition   145 days for SDA programmes
4 (DIP Management)	Value of Defence Industrial Participation (DIP) credits granted	R116.27 million	R41.78 million	R129.95 million
5 (Defence Technology and Research)	Percentage of execution of technology requirements	96.45%	95%	95%
6 (Dockyard Management)	Adherence to contractual project milestones	93%	90%	90%
	Percentage compliance to project finance	90%	90%	90%
	Provision of Ancillary Services to the SA Navy	97%	95%	95%
	Ensure training is provided in accordance with the requirements of the SA Navy	100%	90%	90%
	Percentage compliance with quarterly report timelines	100%	90%	90%

Table 3: Selected performance indicators per Armscor goal

 

 

 

 

 

 

 

 

 

6.2        Armscor strategic outputs

 

In addition to the service delivery performance indicators, Armscor also set itself a number of targets in terms of its strategic output. These are summarised in the table below:

 

Outcome	Output	2019/20  Achievement	2020/21 Target	2021/22 Target
Revenue generation	Group revenue	R1.371 billion	R1.222 billion	R1.324 billion
	Revenue from Armscor R&D	R393.5 million	R330.6 million	R310 million
	Revenue from Business Enablement Unit	R31.8 million	R33.7 million	R33.3 million
Cost Management	Improve net financial position	R178.7 million surplus	R243.3 million deficit	R3.1 million surplus
Efficient and effective delivery	Percentage compliance with work in accordance with DOD-Armscor SLA	121%	90%	90%
	Completion of Intellectual Property requests	100%	80%	90%
	Commercialise one IP Technology	New indicator	New indicator	31 March 2022
	Maintain a comprehensive IP register	31 March 2019	31 March 2020	31 March 2021
	Appoint an ERP Service Provider	New indicator	New indicator	31 May 2021
	Implementation of approved application system renewal plan	40%	80%	80%
Stakeholder management	Stakeholder satisfaction improvement survey	N/A	31 March 2021	N/A
	Employee engagement survey to determine baseline	No opportunity	% improvement to be determined	% improvement to be determined
	Increase black representation	82% black employees	83%	83%
	Improve female representation	38.43% female employees	40%	40%
	Controllable staff turnover	2.78%	<4.5%	<4.5%
	Provision of bursaries for full-time students	37	33	23
	Contracting and development of graduates as interns	40	40	30
	Succession Planning Development (Percentage compliance with succession plan)	91.01%	80%	80%
	Number of people with disabilities	25	28	28

Table 4: Selected Armscor’s strategic outputs

 

 

 

7.         COMMITTEE OBSERVATIONS

 

During deliberations with the DOD on 11 May 2021, Members of the PCODMV made several observations related to the budgetary allocation, the performance indicators and the targets set in the Corporate Plan. The following were noted:

 

• Members expressed significant concern around the decline of Denel and the way in which this affects not only the SANDF but also Armscor. The Committee was informed that there are ongoing engagements between Armscor and Denel to assist the entity.
• The Committee noted with concerns the delays in the finalisation of the Armscor audit of Denel Intellectual Property. The Committee was informed that while significant progress has been made in the audit, delays are due to the fact that some personnel at Denel are not present at work due to the financial difficulties faced by the entity.
• Members expressed concern around the state of the Silvermine Naval Base and the impact that this has on the SANDF’s radar capability. The Committee was informed that Armscor has a very capable radar division and assists the DOD in this regard, despite budget constraints. The radar capability has improved its service delivery to be more cost effective by making use of internal engineering capabilities, and “smart buying.”
• The Committee welcomed the fact that, despite delays, Armscor is making progress in obtaining business from other government departments, including the SA Police Service.
• The Committee expressed concern around the delays in the midlife upgrades of the SA Navy primary vessels and the potential financial impact this can have on the Armscor Dockyard.
• The Committee expressed reservations about the fact that the DOD still owed funds to AB Logistics for travel arrangements. However, the Committee also welcomed the adjustment of the business model that allows the DOD to make an advance payment to AB Logistics against which the Division can draw funds.
• Members reflected on previous concerns around the payment of bonuses and increases at Armscor in previous years and the financial impact thereof.
• Members questioned the lack of outreach and social responsibilityactivities in the Western Cape during 2021/22. However, the Committee was informed that budgetary constraints affect such activities and that there were several activities in the Western Cape in recent years.

 

8.         RECOMMENDATIONS

 

The PCODMV identified the following areas and proposes the following recommendation that will be subject to monitoring by the Committee throughout the 2021/22 financial year:

 

• The Committee undertakes to write to the Denel Board to urgently assist Armscor to finalise the audit of Intellectual Property at Denel. The Committee will further request Parliament’s Portfolio Committee on Public Enterprises to provide oversight of the matter, in addition to the oversight provided by the PCODMV.
• The Committee undertakes to schedule a follow-up meeting with the DOD and Armscor on the outcome of the Cabinet engagement on the future of Denel. Feedback will also be requested on the engagements between Armscor and Denel. This follow-up will be correlated with the Joint Standing Committee on Defence.
• The Committee urges Armscor to continue to provide quality and cost-effective support to the SANDF in the maintenance and development of its radar systems.
• The Committee welcomes the fact that Armscor is finding ways of generating additional revenue, including through the provision of work for other government departments. Armscor should provide the Committee with a written 2021/22 mid-year report on its efforts to generate additional revenue and, specifically, the projected revenue per government department. The report should also clarify Armscor’sefforts to ‘sweat assets’ as a means of revenue-generation.
• The Committee urges Armscor and the DOD to finalise the consolidation of accounts as it relates to outstanding payments from the DOD to AB Logistics, a Division of Armscor.Armscor should submit a report to the PCODMV, before 30 June 2021, on AB Logistics operations and activities.
• The Committee urges Armscor, and specifically the Armscor Board, to make responsible decisions around bonuses and increases given the current financial constraints under which Armscor functions.The Board should submit an immediate report to the PCODMV on any decision to pay bonuses and/or increases.
• Armscor should provide the Committee with a mid-year report on the uptake of severance packages by its personnel, including the envisaged savings emanating from this, the qualifications of personnel lost and succession planning put in place to ensure that critical skills are not lost.
• Cognisant of the financial constraints, Armscor is urged to continue with outreach and social responsibility initiatives as far as possible, especially in areas where Armscor has facilities.
• Armscor should provide the Committee with a report, before 30 June 2021, on the acquisition budget of the DOD over past 3 years under management of Armscorversus the allocation (transfer) to Armscorover that period. The report should also indicate the projected DOD acquisition budget and transfer to Armscor over the MTEF.

 

Report to be considered.

 

 

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[1]All tables used in this report reflect the original 2020/21 allocation, the adjusted 2020/21 allocation and the 2021/22 allocation. However, net and real percentage changes are calculated on the adjusted 2020/21 allocation and the 2021/22 allocation.

[2] Real percentage takes into account Consumer-Price Inflation.

[3]Armscor (2019). P. 94.