Department of Defence Budget: briefing

Meeting report

DEFENCE PORTFOLIO COMMITTEE
13 May 2003
DEPARTMENT OF DEFENCE BUDGET: BRIEFING

Chairperson: Ms TR Modise(ANC)

Documents handed out:
Department of Defence 2003/2004 Budget presentation

SUMMARY
The Department of Defence briefed the Committee on their budget for 2003/2004. The issue of transformation in the Department of Defence elicited discussion. Some Members expressed empathy regarding the challenge of transformation while others offered suggestions on how the issue could be tackled, bearing in mind present inhibitions. Discussion also revolved around Parliament's involvement in the budget process and the utilisation of British support in instance of B-matt in providing guidance to the South African Defence Force.

MINUTES
Department of Defence presentation
Mr Engelbrecht, Department of Defence, conducted the powerpoint presentation. (Please see attached document). In addition he responded to a previous question raised by the Portfolio Committee on why the funding of Reserve Forces appears only on the Maritime Budget breakdown. He explained that in other arms of Defence, the funding of Reserve Forces lies in the sub-sub levels of the budget while with Maritime, it is placed on the first sub-level.

Discussion
Mr Blaas (NNP) referred to the rationalisation process as undertaken by the Department of Defence, giving the process of streamlining as an example. He said that he did not pick up anything regarding managed reduction of expenses related to the tasks.

Brigadier General De Wit: Human Resource Planning, Department of Defence, said that they ought to understand that this is directly related to the improvement of conditions of service. The Department is involved in transformation and restructuring, yet they want to focus on the rejuvenation process up to 2009. They were involved with retirement funds and other stakeholders aimed at identifying mechanisms to address challenge of 2010. He hoped it would be plausible by the next financial year.

Mr Blaas asked if the medium term budget would be revisited.

Brig Gen De Wit said that this was a possibility.

Mr Blaas referred to the phasing out of the commandos. He asked whether the transfer of funds that were normally deployed for them would be used in the setting up of a new structure.

Brig Gen De Wit replied by firstly explaining that the commandos would be phased out over a period of six years. He explained that the commandos did not have a fund dedicated to them, and that their funding had an effect on the army's operating budget. After the phasing out of the commandos, they did not see a transfer of funding taking place.

Adv Schmidt (DA) commented that the Committee did not have a proper understanding of what the budget should be and what funds are actually required from the side of the Department. He did not really know how to resolve this. The Committee needed a copy of the actual document so that could analyse the details themselves, for example how much a single unit actually receives a year. This would assist them in finding out what the Department actually needs. He expressed the strong opinion that it was impossible to absorb all of the information that was presented to them in one day. He suggested that the Committee also needed to get involved in the formulation process.

Ms Modise, Chairperson, commented that the Committee should take responsibility. She recalled that the Committee were told about the formulation of the Budget once before and in that instance, the sub-committee had excluded themselves from that process.

Mr Grundling: Chief Financial Officer, Department of Defence, explained that the Department worked on four levels of detail. A fourth level of detail could be a unit. The Strategic Plan of the Department, he continued, originates from the overall mandate of the Department and goes through its funding and breaks it down further. The budget document requested by Adv Schmidt would be too thick and would reveal too much. The Committee needed to oversee how the Department spent their funds and how they managed their personnel and equipment. The document sought by Adv Schmidt would be inter-departmental and would be very detailed. However, he emphasised that it was available. He suggested that the Committee dispatch somebody to spend a week with the Department, to get a feeling of the volume and the detail that they were working with. They could thus return and inform the Committee on how best to present the information to them.

Adv Schmidt asked whether the finalisation of the budget prior to the Department's presentation in front of the Committee was not disadvantageous, especially regarding funding for emergency situations, which was a possibility and reality within Defence.

Mr Grundling explained that activities and budgets change slowly over time. They needed to be realistic that the changes they needed to bring about would take some time to achieve.

Mr Visser (Department of Defence) noted that they needed to look at the eighteen month cycle, which is how the process is normally finalised.

Ms Modise asked if Adv Schmidt would be willing to take Mr Grundling up on his offer and be the one who spends time at the Department of Defence.

Adv Schmidt accepted the offer.

Ms Modise suggested that the best time to go would be when the budget is formulated so to prioritise the directive of Committee.

Mr Ntuli (ANC) referred to fact that B-Matt was closing down and would be maintained only in a support capacity. He asked whether this would be a totally new division and, if so, why was it necessarily the British who had to provide the support. He assumed that there were key elements and competencies that the Department was looking for in this support service and asked whether Britain was the only country that could provide them with these.

Rear Admiral Haupter (Department of Defence) explained that at the end of the integration phase, it was decided that the B-Matt mandate would come to an end. However, he continued, they were not offered the support they needed as a result of the ending of B-Matt. They had an ongoing need for guidance from those with experience. At the moment the B-matt support service consisted of a small number of at least four personnel. He explained that they assisted them with lessons, training and sometimes with logistics.

Ms Modise asked whether there was any other country that they could use for support services.

Rear Admiral Haupter said that they did get support from other countries like Norway, but there was no written agreement with such countries. They sought advice from other countries and sent their people to military schools in other countries for courses. Peacekeeping, which is one of the areas in which they were obtaining advisory support from B-Matt, was complicated and needed guidance. That was especially true when considering Section 7 of the United Nations Charter, which speaks about peace enforcement as opposed to peacekeeping. They needed to keep in touch with the knowledge base of B-Matt.

Ms Modise asked whether it was possible that the offer for peacekeeping support came from the side of the British.

Mr Masilela (Secretary of Defence) explained that as they terminated the agreement with B-Matt, they needed to determine a new focus. He said that having B-Matt available on a support was a decision that they took as a response to a need they had. He stated that it was not only the British who were involved in the Peacekeeping support, and stated that they were also in consultation with countries like China and Romania. There were even countries within the Southern African Development Communities (SADC) that they had consulted with, he added.

Ms Modise expressed the notion that in terms of African peacekeeping, she would have thought that Nigeria would have been the most experienced. Maybe they would not be able to offer financial help, she explained, but there were other ways in which they could be helpful. If Africa is looking at Continental Defence, it makes sense to look within the continent. She explained that she was not suggesting that they dump the British, but that their focus should primarily be within the continent.

Mr Ntuli raised the issue of transformation within Defence. He noted that Defence had stated that the problem with transformation, especially in Senior Management level, was financial. He asked to what extent was finance prohibiting the transformation of the Department of Defence.

Mr Grundling explained that the policy of the Executive, on the advice of Treasury, was that no additional funds should be provided for transformation. Funds for Transformation would therefore be absorbed within the internal fund of the Department, he reasoned. Therefore, he continued, it would be difficult to advance a request for more money. They had to look within the Department and ask they needed to scale down in order to make more money available. The implication was that Departments had to transform at their own cost, he argued. In explaining further, he said that if 70% of the budget goes to personnel, the only way to make money available for transformation would be to dismiss. He suggested that they ought to be realistic about the resources that were needed for transformation.

Mr Ntuli what aspect of the budget was dedicated to civic education.

Mr Grundling explained that funding for civic education was borne in a sub-policy-planning budget. Civic education funding lay within the funding of other programmes of Defence. Their budget was not constructed to deal with the civic education of each aspect of Defence. It is within the specific budgets of each of the arms of Defence.

Mr Masilela noted that in their last meeting with the Committee, they had put forward problems pertaining to the funding of civic education that they were trying to rectify. The biggest weakness was that they needed to have a specific division that was a budget holder for civic education and represent it in the formulation of the budget. He revealed that the Minister of Defence had issued a Ministerial Instruction that Civic Education must be an objective within the Strategic Plan of the Department.

Mr Ntuli stated that one is also looking at it with more hope that it will be realisable.

An ANC Committee Member raised the issue of the Peace Operations Budget. He noted that the amount budgeted for next year to maintain the forces was R38,6 million. He asked whether the amount was divided into various units, for example health, armoury, and the like.

Mr Grundling replied that they have specific numbers which they need for specific operations. He explained that with Treasury, they could not apply for funding or budget for an activity that they did not have a commitment to. He illustrated his point by stating that in 1992 they could not foresee that they would be needing a deployment of forces in the Democratic Republic of Congo ten years or so later. He explained that at the moment, legislation made provision for the following: a departmental budget can be adjusted only when and if the Executive deems it necessary. The only alterations that they could get for the budget, he continued, were for events that were unforeseeable and unavoidable. They were now on tenter hooks with regards to budget change. Pertaining to donations received from other countries, financial or personnel, he said he was personally opposed to it.

Mr Dlali (ANC) returned to the issue of transformation in Defence. He said that what they would need as a Committee from the Department would be a specific plan, strategy and target so that they could be able to tell what it is that they achieved within a financial year. He explained that he was stating this because one will not budget for something that they did not want to achieve.

Mr Dlali asked about the cost-effectiveness and efficiency of operations within the Department. Figures in the budget did not suggest that Defence operations were being done cost-effectively and efficiently, as the Department had promised in a previous meeting.

Rear Adm Hauter stated that if one measures against policy, which is embedded in the Defence operations, they were performing adequately to ensure efficiency and cost-effectiveness. The Department was given guidelines to increase output.

Mr Ramfolo: Chief of Acquisitions, Department of Defence, added that in the Defence Business Plan, they evaluate efficiency and cost-effectiveness and show the shortfall. At the end of the financial year, they evaluate it and analyse the risks.

Mr Ramfolo also commented about the funding of the Peacekeeping Operations. He said that they were engaged with Treasury to resolve this problem, but it was not easy to adjust it quickly.

Mr Visser added that what they were saying was that this is what the Department would do within a specific budget. They also tried to align this with the Strategic Plan of the Department and the Performance Agreements of the personnel. This was all in their Annual Report and Committee Members could check this.

Mr Dlali requested comment on the conditions of Defence facilities and asked whether there was any dialogue between them and the Department of Public Works to improve conditions in this regard.

Mr Ramfolo replied that the issue of the renovation of Defence facilities was a difficult one. Two weeks prior they had met with the Minister of Public Works to discuss this issue. Some of the buildings were deteriorating and some were not living up to health and safety standards. They would meet with both the Minister of Defence and Public Works and suggest that they take it to Cabinet.

Adv Schmidt noted that the Public Finance Management Act was being amended. He suggested that the possible amendment of this Act would help in resolving some of the issues raised in the meeting.

Mr Grundlinh said that he doubted whether the issue raised by Mr Dlali would be addressed by amendments to the Public Finance Management Act.

Mr Dlali then asked the delegation to comment on any mechanisms set up by the Department to combat internal fraud.

Mr Masilela responded that they had set up mechanisms along with the Director-General, yet there were difficulties in capacitating this structure. He expected that in the near future they would be able to capacitate it. He had taken extra steps himself to fight the immediate cases of fraud. They had also been in contact with the Scorpions and the Justice Department. Therefore, he concluded, they did have an immediate plan for combating corruption but were also looking at long-term strategies.

Mr Kalako (ANC) commented that the aspect of peacekeeping that they did not budget for worried him, especially with South Africa's role in the African Union. It would also help if Defence could come forward with a proposal on how to prepare for an increased role in the African Union.

Mr Kalako revisited the subject of the deterioration of Defence facilities and the responsibility of the Department of Public Works. The problem was not only confined to the Department of Defence. They would have to find a way to resolve the issue. He mentioned that other Committees had begun to sit down with the Minister of Public Works and engage in dialogue. Thiis could be something the Committee could consider doing as well.

Mr Kalako disputed the delegation's assertion that transformation was being hindered due to the lack of funds. His understanding of the issue was that the problem could be resolved through an understanding of personnel, not a reduction of personnel. He gave an example that the Department could recruit the appropriate staff from schools and colleges and thereby gain the necessary skills for the Department while advancing transformation. The upgrading of skills and the level of personnel was also transformation. He expressed a desire to know what was reflected demographically in the administration of Defence. All Departments had been given the same mandates on the Budget and this should not be seen as a reason to stall transformation.

Ms Modise noted that the Department did not say there would be no transformation, but rather that there was no specific budget for it.

Mr Mohlala (ANC) asserted that the constitutional imperatives of the budgeting process provided for situations where Parliament could be involved in budget formulation. The more they became involved, the more they would understand.

Mr Grundling, in revisiting the issue of the budget for transformation, asserted that at the end of the current financial year the number of personnel under the employ of the Department was 74 906. He explained that since 1996 they had been downsizing the Department's full time component and thus the Department was constantly changing. He posed the question of how they could address the issue of transformation within this context. In reply, he said that they did this through an outflow balance. The emphasis therefore shifted towards rightsizing the current demographics of the Department to meet transformation challenges.

Mr Ramfolo forwarded a point supporting the justification of budget rollover by making the analogous assertion that if one can not justify a business plan, they lose business.

Mr Middleton (IFP) brought up the subject of salaries. He asked whether it was true that there were discrepancies regarding salary payments in the Navy, the Army and the Airforce. He also requested a breakdown of salary scales in Defence from the Privates upwards.

Mr Visser replied that Defence operated on the same salary scale as the broader public service. This would be covered by the New Salary Progression System effective from March 2003. The only difference was occupation-dependent and was only effective in the payment of allowances. The basic salary and pension contributions were the same.

Mr Grundling suggested that the Committee take a look at the Department of Defence's Annual Report, stating that this information was fully disclosed therein. From 1994, the gap between the top and bottom salaries was gradually closing because of the influence of tax and the annual improvements of salaries.

Mr Diale (ANC) raised the question of transformation. He suggested that they should not undermine the problem of transformation. He said that it was not easy because it implied a transfer of power. The administration may be willing but line management might have problems in implementing decisions taken by senior management. This could be the reason why the Minister of Defence might have deemed it necessary to have these transformation targets moved. Transformation challenges could be met if the proper structures were put into place.

Mr Oosthuizen (ANC) referred to the decrease in SDP as it appeared in slide 29 of the presentation. He asked at what exchange rate they calculated the given figures.

Mr Engelbrecht explained that the exchange rates utilised in calculating these figures were from 21 January 2003, where the Rand stood at figures of R9,20 to the United Sates Dollar, R14,05 to the British Pound and at R1,02 to the Danish Krone. They accepted the point that the rate of exchange does move up and down.

Mr Oosthuizen then brought out the subject of the State Information Technology Services (SITA) tariff increase. He asked whether the R19,8 million was the actual increase itself or was inclusive of the entire tariff figure.

Mr Grundling replied by firstly stating that SITA came into existence by virtue of legislation. Since its establishment, it had not been granted a tariff increase prior to this one, despite numerous applications. The tariff increase that they imposed recently was its first one and was granted with the blessing of the Department of Public Service and Administration. The figure quoted by Mr Oosthuizen was in fact the full tariff figure inclusive of the tariff increase. They would provide the Committee with the actual tariff rate at a later stage.

Mr Oosthuizen expressed concern there was not enough clarity on the funding of certain unit structures within the Department of Defence. He cited the example that a certain Admiral Retief, whom he knew to be in charge of a unit in the army but, according to the presentation, there was no budget for his office. He strongly stated that he thus objected to the presentation and requested clarity.

Mr Grundling responded that there were different directives within the different programmes mentioned in the Budget which would cover Admiral Retief's office. There were no substantial differences on how the directives structured themselves, but they were trying to refine the process so as to make the funding issue clearer.

Mr Schippers (DA) noted the fact that according to the Defence Budget, funding for the military took up 1,5% of the Gross Domestic Product (GDP) of the country. He asked how South Africa compared to the other countries within the Commonwealth in this regard.

Rear Admiral Haupter responded by quoting the New Zealand figure as standing at 1,1%, Australia at 1,87%, Morocco at 5,1% and Canada at 1,5%. He stated that overall, in developing countries, the figure should be within the region of 1,3%.

Ms Modise added a final comment that she was tired of hearing complaints about bad facilities from government Departments She hoped that there would be a complete overhaul of facilities so as to tackle this problem.

The meeting was adjourned.