Sectoral Analysis of Defense and Military Veterans Budget 2014/15: Vote 22.2

1. SECTORAL ANALYSIS OF THE DEFENCE AND MILITARY VETERANS 2014/15 BUDGET: VOTE 22 2 JULY 2014 Peter Daniels

2. Presentation Outline • Introduction • The 2014/15 Defence Budget • Government Policy guidelines • Main Budgetary issues for 2014/15 • Military Veterans Budget for 2014/15 • Armscor • Castle of Good Hope • Conclusion

3. INTRODUCTION Background to be viewed against: • The 2014 Defence Review • Amongst others to assist the Minister of Defence and Military Veterans to motivate the requested defence budget. • Underfunding • is underfunded and that this impact on the delivery of ordered commitments by the Defence Force • Government policy and other guidelines • the National Development Plan (2030), • the New Growth Path (NGP), • the Medium Term Budget Policy Statement, • the Budget Review 2014 • Reports of the Auditor-General • relevant State of the Nation Addresses • Department’s strategic situational analysis, • policy priorities of the Minister • Strategic Plan • Annual Performance Plans

4. DEPARTMENTS OVESEEN BY PORTFOLIO COMMITTEE ON DEFENCE AND MILITARY VETERANS To preserve and protect the Military and cultural heritage of the Castle of Good Hope, to optimise its tourism potential, and to maximise public access to the parts of the Castle not used by the DOD. Defend and protect the RSA, its territorial integrity and its people, in accordance with the Constitution and the principles of international law regulating the use of force Meet the acquisition, maintenance and disposal needs of the DOD and other clients in terms of defence materiel and related products and services To facilitate delivery and co-ordinate all activities that recognise and entrench the restoration of dignity and appreciation of the contribution of Military veterans to our freedom and nation building.

5. Overview THE 2014/15 DEFENCE BUDGET • Shifting priorities since 1994 • Defence budget as percentage of GDP decreased over years • 1994 = 2.5% to 1.3 % in 2011 • Currently estimated at 1.3% • SA – Underspending on defence • Should be around 2% of GDP • African countries higher SA: Algeria, Angola, Burundi, DRC, Morocco, Swaziland and Uganda • 2014/15 – R42.8 bn ( R40.658 bn in 2012/13) • 2014 Defence Review – SONA – resourcing of SANDF mandate • Mandate-drive vs. budget-driven

6. THE 2014/15 DEFENCE BUDGET 2 • Arguments for increased Defence Budget • Defence Review – should be 2% of GDP - 24% underfunded • Unchecked at present funding levels – decline will compromise defence capability • Underspending • No Military threats, peaceful nation and many socio-economic challenges • Dec 2013 Expenditure report – underspending in Air Defence Programme • Special Defence Account (SDA) – NT – 2013/14 – R10bn – spending ability • MoD – decry underfunding but huge areas of underspending and wastage of resources

7. Government Policy guidelines 1 • National Development Plan (NDP) • Reduce youth unemployment - MSDS and NYS • Strengthen SA’s position in SADC region • Continue support to bring peace and stability on Continent • Combating piracy along east coast Ops Copper • New Growth Path (NGP) • Youth unemployment • Creation of sustainable jobs in Defence Industry • Gender transformation • Medium Term Budget Policy Statement 2013 • R150m troops in DRC • Compensation of employees more than 50% • Funds towards operational budget of SAAF & medical supplies and equipment

8. Government Policy guidelines 2 • Budget Review for 2014 • Additional MTEF allocations – SAAF • Maintenance of aircraft • R5 bn on peace support operations (DRC, Sudan & Ops Copper) • Department Strategic Plan • Border safeguarding • Defence Force Service Commission • Job creation • Defence Works Capability • Annual Performance Plan (APP) • What Department is going to do over upcoming financial year and during the MTEF to implement its Strategic Plan.

9. AUDITOR-GENERAL’S REPORT • 2011/12 – unqualified audit opinion • Departure played role • to exclude certain assets • 2012/13 - qualified audit opinion • Moveable tangible capital assets not all disclosed • Were understated by +- R818 m • Intangible capital assets • Insufficient evidence all intangible assets were disclosed. • Unable to perform alternative audit procedure due to non-compliance with framework and lack of internal controls • Unauthorised, fruitless and wasteful and irregular expenditure • R60.918 m for Unauthorised for 2011/12 – none 2012/13 • Fruitless and wasteful R20 000 from 2011/12 • irregular expenditure for 2012/13 = R 1.015 bn

10. MAIN DEFENCE BUDGETARY ISSUES FOR 2014/15Criminal Justice Cluster Budget Police: R72.5bn = 48% DODMV : R42.8bn = 28% Correctional Services: R19.7 bn = 13% Justice & Constitutional Development : R15.1bn = 10%.

11. MAIN DEFENCE BUDGETARY ISSUES FOR 2014/15 (2) THE DEFENCE SECRETARIAT • Annual Performance Plan (APP) • 2014 Defence Review • Defence diplomacy • DOD Supply Chain management • National Cost Containment measures • Corruption and Fraud • Job creation • Operation Clean Audit - Internal Audit Division • Summary of the Administration Programme Performance Total targets sets: 106 Targets achieved: 80 Targets underachieved: 26 Success rate: 75.4% Budget Spent (%): 99.85%

12. MAIN DEFENCE BUDGETARY ISSUES FOR 2014/15 (3) SOUTH AFRICAN NATIONAL DEFENCE FORCE (SANDF) • Priorities • Border safeguarding • External deployments • Renewal of the SANDF’s Landward defence capability • The Execution of the Maritime Strategy • Internal operations • Capacitation of the Armscor Dockyard • Establishment of a naval base in Durban • Expenditure Trends Focus in medium term will be on: • Managing Department effectively • Maintaining current defence capabilities • Executing ordered peace missions • Border safeguarding • Implement maritime security strategy

13. MAIN DEFENCE BUDGETARY ISSUES FOR 2014/15 • Force employment programme • Focus on border safeguarding • anti-piracy operations • peacekeeping missions in foreign countries. • Landward Defence Programme • focus on preparing & providing forces for increased internal and external deployments and border safeguarding • increased maintenance requirements of the Army’s ageing operational vehicle fleet • modernisation of landward defence equipment • procurement of critical ammunition. • Air Defence Programme • Focus on creating capacity to supply and support prepared forces • Integrate new air defence equipment • prepare deployable air systems. • R341.9 million reprioritised from the SDA over the medium term to improve the SAAF’s operational capability.

14. MAIN DEFENCE BUDGETARY ISSUES FOR 2014/15 • Maritime Defence Programme • Focus on ongoing implementation of maritime security strategy to combat piracy • preparing and maintaining vessels and associated supporting systems, and • preparing and maintaining human resources at the required readiness levels. • Military Health Support Programme • Focus on providing a comprehensive military health service • maintaining and improving tertiary and specialist health support • maintaining the military heath facilities. • These activities are labour intensive therefore spending on compensation of employees is expected to account for 68.6% of the programme’s overall allocation over the medium term • Defence Intelligence Programme • collecting, analysing and disseminating strategic defence intelligence in support of the Department’s outputs • General Support Programme • providing continuous general support capabilities • consolidating and sustaining the Defence Works Capability • providing key information and communication systems • providing a military policing capability and maintaining defence facilities

15. MAIN DEFENCE BUDGETARY ISSUES FOR 2014/15 • Expenditure on Employees • Increases 2010/11 to 2012/13 due implementation of military salary dispensation for regular and reserve force members. • Funded establishment of 76 538 posts and no vacancies at the end of November 2013. • Personnel numbers expected to increase to 78 582 in 2016/17 to rejuvenate landward forces and build capacity in Defence Works Formation. • Defence Review: DODMV disproportionate amount of budget on salaries and faces a lack of key equipment.  • Current budget allocation can only support about 66 000 members and 66 combat units, while the SANDF is already far larger

16. MAIN DEFENCE BUDGETARY ISSUES FOR 2014/15 • Infrastructure spending • Requires the building of medical health facilities and security installations, upgrades infrastructure for disabled persons, and improves and upgrades accommodation and training facilities, through its capital works programme. • Funded 25 capital works building projects in 2013/14. • Spending on capital works increases from R109 million in 2014/15 to R121 million in 2016/17 • for the relocation of air force base in Durban and construction of training facilities. • Continued with 46 refurbishment projects in 2013/14, • Prioritised the refurbishments of military bases, units, depots, ammunition sites, hospitals, accommodation facilities and energy saving devices. • R28 million been allocated over medium term to demolish unserviceable infrastructure

17. MAIN DEFENCE BUDGETARY ISSUES FOR 2014/15 • Defence Works Formation • Seeks an end state where DOD will have a fully functional and resourced in-house capability that will ultimately assume full responsibility for the repair and maintenance of Defence facilities. • Deteriorating conditions of facilities remain a cause for concern • Arrangements between DODMV and NDPW should be concluded to ensure that the Defence Works Capability can execute an increasing number of the repair and maintenance priorities. • Poor living and working conditions impact negatively on the morale of soldiers. • Non-compliance with OHS and other environmental legislative requirements have led to closure of units and that the state of facilities also has a negative impact on the image of the SANDF

18. MAIN DEFENCE BUDGETARY ISSUES FOR 2014/15 Reprioritisation • Landward Defence capabilities: Funds for ammunition, tactical Radio’s and Operational Vehicles • DOD Facilities, including the ARMSCOR Dockyard • Internal DOD maintenance and repair capability • DOD Military messes and rations • Air Defence capabilities: Funds for additional flying hours and aircraft Maintenance backlog • Ship Maintenance and Refits • Provisioning of comprehensive health care: Funds for the Renewal of healthcare technology, Deployable healthcare capabilities and Trauma units • Computer Systems/Accountability: Funds for IT System Modernisation, Codification, Software, Disaster Recovery, Asset Verification and E-Procure • Fuel.

19. MAIN DEFENCE BUDGETARY ISSUES FOR 2014/15 • Special Defence Account • Spending pattern of the Special Defence Account (SDA) a concern to National Treasury. • End of financial year 2013/14, NT indicated that the “huge balance in the SDA” is of concern to it. • Preliminary figures indicate that the balance in the SDA is R3.476 billion as at 31 March 2014. • Claims against the Department • NT concerned regarding amount of R299 million that the Department had to pay for a claim against it, which was not reported to National Treasury

20. DEPARTMENT OF MILITARY VETERANS • DMV resorted under DOD for purposes of 2012/13 ENE and started operating independently from DOD as from 1 April 2013. • DMV submitted its first 5 year Strategic Plan to Parliament in April 2012. • Strategic goals over medium term: • coordinate & facilitate provision of socioeconomic support services to military veterans • manage & coordinate military veterans’ empowerment and stakeholder relations services • ensure that needs of military veterans & their dependants are addressed. • Budget of R504.2 million for FY 2014/15 • Against R351.4 million for FY 2013/14 • 100% of FY 2013/14 has been spent

21. DEPARTMENT OF MILITARY VETERANS National Development Plan • NDP calls for reduction in unemployment & expansion in enrolments in further education & training. • DMV will provide socio-economic services to facilitate employment opportunities for military veterans with support of line function departments, private companies and state agencies. • To date +- 1 176 job opportunities created for Mil Vets • Envisaged by end of 2014/15 a further 1 000 job opportunities • 2013/14, 1 000 dependants provided with bursaries • 1 800 bursaries will have been provided to dependants of military veterans through National Student Financial Aid Scheme (NASFAS) by 2016/17

22. DEPARTMENT OF MILITARY VETERANS Expenditure trends • Spending focus over medium term on building sufficient capacity to support delivery of benefits to military veterans. • bulk of budget will therefore go towards spending in the Socio-economic Support and Empowermentand Stakeholder Management programmes. Administration programme • In 2013/14 allocation R152.8 million versus R178.2 in 2014/15 • Spending focus over MTEF period on establishing management & administrative capacity to support delivery of benefits • Budgetary issues to pursue are: • Filling of critical posts • Development and implementation of IT systems • Funding internal and external audit professional services • Acquisition and upgrading of national and provincial office spaces • Expenditure on consultants.

23. DEPARTMENT OF MILITARY VETERANS Socio-economic Support Programme • increase are to deliver houses, bursaries and health care services • 2013/14 the allocation was R122.2 million versus R168.1 million in 2014/15. • Spending focus over MTEF period will be on filling the remaining critical posts and building sufficient capacity to ensure service delivery benefits are provided to the military veterans. Empowermentand Stakeholder Management • Increase to deliver access to training & skills development • Form partnerships with private sector companies & other organs of state to ensure that jobs are provided for the veterans. • 2013/14 the allocation was R176.5 million versus R157.9 million in 2014/15. • Spending focus over the MTEF period will be on filling the remaining critical posts and building sufficient capacity to ensure service delivery benefits are provided to the military veterans.

24. DEPARTMENT OF MILITARY VETERANS Human resources • ENE: DMV had 63 filled posts and 72 vacancies at end of November 2013. • Vacancies could not be filled as Department did not have adequate office space. • As it moved to a more appropriate building it is projected that personnel numbers will grow from 135 in 2013/14 to 169 in 2016/17.

25. ARMSCOR • Purpose: Armscor satisfy the requirements of SANDF in respect of Defence Matériel. • It is a critical stakeholder for SANDF operational effectiveness. • Also manages Simon’s Town Naval Dockyard, which carries out preventative & corrective maintenance, reconstruction and repairs and upgrades of all SA Navy ships & submarines • Main source of revenue: transfer payments from DOD & sales of goods and services such as redundant equipment. • These payments increase at an average annual rate of 6 per cent and do not usually cover the total operational costs. • Interest earned on revenue is also used to finance operating expenditure.

26. ARMSCOR • Spending focus: • Over the medium term is to meet the defence materiel requirements of the DOD effectively, efficiently and economically • Human Resources: • Funded establishment of 1 567 posts = 172 vacant posts at end of Nov 2013 due to retirements and resignations. • Most vacancies have been advertised and are being filled. • Strategic goals over the medium term: •  Continued focus and commitment on delivering on its role of acquiring equipment economically and efficiently; • ensure the growth and sustainability of the corporation; • transformation of the corporation to grow human capabilities to support growth opportunities • organisational effectiveness and efficiencies through infrastructure renewal; and • review and maintain stakeholder relationships to optimise the corporation’s brand positioning and marketing

27. ARMSCOR • Selected Concerns • Delay with the appointment of a Chief Executive Officer. • Need for a review of the relationship between DOD and Armscor especially as it impacts on the efficiency and economy of the entity. • Active participation of black female-owned enterprises in Armscor programmes is a challenge that needs to be addressed in the BBBEE context. • Simon’s Town Dockyard is experiencing challenges resulting from insufficient capacity and capability to execute its mandate. • Defence Industrial Participation (DIP) objective has not been achieved and no new DIP agreements were entered into during the period under review as the DIP policy was revised in 2012

28. CASTLE CONTROL BOARD Strategic Goals are to: • Establish a human resources development plan for the Castle • Prepare and implement displays on World War 1, • Combine maintenance activities of NDPW and CC Board, which includes appointing a maintenance team to carry out minor preventative maintenance. Revenue • Primarily generated from ticket sales to visitors to the Castle, • Renting out of venues in the Castle • Fees from hosting special events with no direct funding from the department. • This revenue increased between 2010/11 and 2013/14 and is expected to increase at an average annual rate of 7 per cent over the medium term. Unqualified audit opinion • Castle received an Unqualified audit opinion from A-G • A-G found no matters to be reported in terms of the financial health and human resources of the entity and was largely positive about the improvements made on previous recommendations

29. CASTLE CONTROL BOARD Audit opinion identified problems in the following areas: • Internal Audit. Nointernal audit function for some part of year. • Supply chain management. Again identified as a problem as CCB did not fully comply with rules of procurement of goods and services for entities. • Performance against predetermined objectives. Need to develop a properly-designed performance management methodology. • Compliance. AG suggested the use of a compliance checklist to monitor outstanding responsibilities and approvals. • Retention of a surplus. CCB did not apply to NT to accumulate a surplus in previous years but submitted a request to retain its surplus in 2012/13. The result of this request is not yet certain and, as such, the AG noted again that the CCB retained a surplus without National Treasury approval. • Leadership. AG noted concerns in terms of leadership by accounting authority. The accounting authority failed to effectively communicate policies and procedures to ensure effective internal control

30. Thank youPeter DanielsContent Advisor: Portfolio Committee on Defence and Military Veterans