DOD update on budget cuts, irregular expenditure on the compensation of employees & funding of exit mechanism for military personnel; with Deputy

Meeting report

The Chairperson said the Committee would be receiving three presentations from the Department of Defence and Military Veterans (DODMV):

The implication of budget cuts for the DoD and its discussions with National Treasury;
Assistance to the DoD to curb irregular expenditure with respect to the compensation of employees.
Funding on the DoD’s exit mechanism and its application this year and next year.

The three items had been intertwined and it was important that they all be discussed in one meeting.
 
Mr Thabang Makwetla, Deputy Minister, DoD, said the Department was in attendance, led by the Secretary for Defence. The Minister had sent an apology as she was attending a Cabinet meeting.

DOD update on engagements with Treasury

Ms Sonto Kudjoe, Secretary for Defence, said the compensation of employees (CoE) was the only area where the Department was overspending or where it had exceeded its ceiling, and the Portfolio Committee had requested the Department to indicate how it would deal with the over-expenditure. The Department had drafted a human resource (HR) plan that had been approved by the Council on Defence (CoD) and eventually shared with the Committee and National Treasury. The Department had targeted having a strength of 75 000, but the HR plan stipulated that the target should be reduced to 73 000. Currently, the Department was sitting at a strength of just over 70 000. The Department had also to reduce the ‘man-days’ from 2.6 million to 1.97 million.

The Military Skills Development System (MSDS) was an exercise that was supposed to be happening on a yearly basis in an ideal situation, but it had been revised to take place bi-annually. The Department was also looked into freezing allowances. There were a lot of tasks that had been given to the Department. The Defence Force was present in the Democratic Republic of Congo (DRC) and Mozambique and had also been called to augment the capacity of the police within the country, leading to more ’man-days’ than anticipated.

As of the financial year starting on 1 April 2022, the Department was going to receive R1 billion, and R800 million in the subsequent financial year, for the Mobility Exit Mechanism (MEM). As at 1 April, the Department’s budget would be R49 billion. In terms of the Special Defence Account (SDA), the Department had not yet received funds from the National Treasury.

Admiral Asiel Kubu, Chief of HR, DoD, said the Committee would recall that the Department had already made the presentation addressing the compensation of employees, and had been given the green light to continue with its plans. In the current meeting, the Department was going to give an update on what had been done since its last meeting with the Committee in November 2021. A lot of work had been done and documents were shared with National Treasury for the approval of reducing the CoE.

In the last meeting there had been some discussion around the strength of the DoD and the discrepancy in the numbers. The personnel strength of the DoD had been changing from day to day. People resigned every day, contracts came to an end every day, so the personal strength being discussed in the current meeting might be different in the next two days. As of the end of February, 1 900 persons had reported for training in different units -- the army, navy and air force -- for the military skills development programme (MSDP). The effective date for implementing the MEM would be 1 April, when the rolling out of all the interventions that have been discussed were going to be implemented.

Strategic plan to implement measures for reducing HR costs

A member of Admiral Kubu’s planning team said the presentation aimed to address the HR matters that had been raised by the Portfolio Committee on 9 March and to provide a status report on the measures to reduce HR cost pressures. The HR interventions included maintaining an average planned HR strength of 73 000 over the medium term expenditure framework (MTEF); reducing the Reserve Force man-days to 1 990 259; recruiting personnel for the MSDP every alternate calendar year; and capping the annual increases of regimental and operational allowances, as well as allowances paid in lieu of scarce skills retention.

He said the DoD remained committed to implementing the HR cost saving measures aligned to the planned HR interventions. Since the last report, great strides had been made to inculcate the implementation across the services and divisions, as well as in engagements with National Treasury. The relationship between the Department and National Treasury had strengthened, and regular engagements had taken place at both the staff and senior levels.

Indicative of the positive relationship and on the back of high level intervention, Parliament had appropriated Defence Vote 23 for the 2022 MTEF and had confirmed the CoE ceiling as R30.6 billion for 2022/23, R29.6 billion for 2023/24 and R30.9 billion for 2024/25. Additional funding had been allocated to the implementation of an exit strategy for the members of the SANDF of R1 billion for 2022/23 and R800 million for 2023/24. The forecast additional CoE budget requirement for the 2022 MTEF was projected to remain at an estimated R3.1 billion per year for the foreseeable future.

For 2021/22, the CoE allocation had been increased by R354 million for Operation Prosper and Operation Vikela, and an additional allocation of R1.313 billion was received to cover the expenditure related to the implementation of Resolution 1 of 2021(improvement of conditions of service). The CoE ceiling was increased from R29.3 billion to R31 billion. In essence, the additional allocations had stabilised the forecast final HR expenditure of the DoD. The projected CoE budget deficit for 2021/22 was now estimated to be R2.731 billion. The DoD had re-prioritised its operating budgets to fund the shortfall as duly authorised by National Treasury.

He presented the progress/status report on the HR interventions the DoD had made since last November:

Achieving an average planned HR strength of 73 000 over the MTEF

The unfunded vacant normal posts had been identified with the approval of post establishments, and an estimated 20 000 posts would be deactivated as from 1 April 2022. The average planned HR strength for 2022/23 was 73 098, 72 864 in 2023/24, and 72 597 in 2024/25. The CoE budget requirement for the corresponding planned HR capacity was R33.7 billion for 2022/23, R32.8 billion for 2023/24 and R34.4 billion for 2024/25. The break-even point was expected to be reached by 2025/26.

Reducing the Reserve Force man-days to 1 990 259

The Reserve Force man-days had been adjusted downward from 2 691 811 and were projected to reach 1 987 213 by 2024/25.

Recruitments for the military skills development system

The recruitments would take place in March 2022, with an uptake of 1 997, in January 2024, with an uptake of 2 207, and in January 2026, with an uptake of 2 207.

Capping annual increases of regimental and operational allowances

All discretionary allowances had been identified that would be capped at a rate of tariffs as at 31 March 2022. The estimated savings were projected to be R88 million per year.

Re-activation of the implementation of the exit strategies -- the Mobility Exit Mechanism and Employee Initiated Severance Package (EISP)

Regulations on the termination of service had been amended and were in the process of approval.
 
Discussion on progress with HR interventions

The Chairperson said that in 2019, National Treasury had been unwilling to discuss the issue of adjusting the ceiling placed on the personnel costs since the DoD was not willing to change its personnel strength, but the new planned reduction in the DoD’s personnel strength had opened the door to discussing the ceiling. Looking at the CoE, which would require a budget of R33.7 billion in 2022/23, R32.8 billion in 2023/24 and R34.4 billion in 2024/25, the ceiling was moving in the opposite direction -- R30.6 billion for 2022/23, R29.6 billion for 2023/24 and R30.9 billion for 2024/25. This meant that despite the interventions, the DoD would still have a deficit/ How was that going to be addressed?

There was an issue of the Occupation Specific Dispensation (OSD) in the Military Health Services, wherein the doctors claimed they had not been paid their OSD for a number of years. Had that issue been addressed, and if not, was the issue not going to compound the problems of the DoD? That money was owed, by law, to the doctors. Did the ceiling placed by National Treasury on the DoD take into account inflationary increases, or not?

Mr S Marais (DA) said if there had been a consistent CoE over the ceiling that meant the problem had not been addressed and was exacerbated by every year’s deficit. The DoD had already confirmed an over-expenditure of R2.7 million for 2021/22, giving a total of R12.43 billion over the current MTEF. That meant there was a shortfall in the other two components. The money would have to come from somewhere other than National Treasury -- where would it come from? The money could not always come from the re-prioritisation of other programmes, as that would impact the readiness of the military to carry out its constitutional mandate. Had the Commander in Chief been made aware of that issue? Was National Treasury aware of the practical implications that the issue would have on the Defence Force?

Where the presentation addressed the planned attritions, the personnel strength was projected to be 61 389 -- did that imply that nearly 13 000 posts were filled by civilians? It also seemed as if there were no exits/attritions from the civilian posts -- was it only the uniformed employees who were to carry the burden? Why were so many civilians needed in the Defence Force? The biggest age group in the Defence Force was that of individuals aged 35 to 49 -- could the DoD give information on the average age of privates, officers, middle management etc? There were more older soldiers than youngsters -- what did that mean for the object of rejuvenation in the military? On the 20 000 vacant posts that were supposed to be deactivated, had that been done already? Which operations (Corona, Vikela etc.) had the DoD provided for, and at what strengths?

DOD's response

Ms Kudjoe said the DoD was still contending with R4 billion budget cuts every year, meaning that over the current MTEF, the Department would lose R12 billion. National Treasury had been happy with the presentation that the DoD had made, and in the HR plan, it had been stated that the DoD would have to freeze the allowances. The Department had paid for Operation Corona using its budget for baseline joint operations. It would be good for other operations to be budgeted for by National Treasury so that the Department could tap into that money as and when it was required to do so. It was clear that those operations were not going to end soon, so it was important to plan for them financially.

Answering about the number of civilians in the defence force, she said there were less than 5 000 civilians employed. The MEM had been designed to deal specifically with the employees in uniform. The Department was committed to the implementation of the HR plan. It did not know what tasks it would be given in the new financial year, and some of the issues it faced were due to the fact that at the time of planning, the Department had no knowledge of the tasks that would be assigned to it. The following presentation would address the implications of some of the budget cuts in the Department.

Admiral Kubu, responding on the issue of the ceiling, said the DoD could confirm that the issue was under discussion with National Treasury to indicate that if the ceiling was not lifted, the DoD would continue to have irregular expenditure in the sense that the money it currently had would not be enough to compensate employees. National Treasury had already committed itself to put aside the R7.4 billion, which was already irregular expenditure, once the DoD implemented the said interventions. However, there had not been any discussion on dealing with future irregular expenditure. Increasing the ceiling on HR was not going to be a viable long term solution, as it would not address the bigger problem of the DoD. The budget that was being allocated to the Department was the problem.

Regarding the capping of allowances (OSDs), he said the Department did not regard OSDs as discretionary allowances -- they were part of the salary and would not be affected by the capping of allowances. 

Answering the impact of inflation, he said the budget that was under discussion had factored in the effects of inflation.

As to the Commander in Chief being informed about the interventions, he said Deputy Minister would talk about that, but from a military command perspective, the information was that the Presidency had been made aware of the budget cuts, and the President was fully aware of the challenges that were being faced by the Department. 

Regarding the precept posts, he confirmed that there were almost 21 000 precept posts that were available in the DoD. Over 8 000 of the posts had been stopped. The 61 000 posts that Mr Marais had spoken about were of uniformed members, and not precept posts.

Answering the average age, he said the DoD had already done the assessment and was having talks on the rejuvenation of privates who were over the age of 40 and were not fit for deployment. The problem was that the DoD had not had an effective exit strategy, but there was a policy from 2004 that dealt with the rank-age pyramid. Once the exit mechanism got fixed, the policy would be used.

Answering the provision for operations, he said most of the operations of the DoD were planned for as part of its mandates. The only operations that would require extra funding from National Treasury were unplanned operations, such as the June/July unrest. The DoD had never experienced problems from National Treasury in acquiring funds for unplanned operations, and there was a system in place for accounting for those unplanned mandates.

Further discussion

Mr Marais said the DoD had confirmed that it had about 5 000 civilians, which brought the total strength to about 66 000 when added to the uniformed members. The DoD had presented its strength to be about 70 000, so how did it account for the difference of about 4 000? Why did it seem like National Treasury was not keen to respond to the realities of the DoD? On the personnel appointments, the DoD had indicated that it would still provide for new appointments over the MTEF -- what kind of appointments were those, and to which positions would they be?

Admiral Kubu, answering on precepts, said there were about 8 760 appointments in the precepts currently, against the 61 482 uniform members, giving a total strength of 70 242. It was difficult to comment on the issue of the ceiling, and there were ongoing engagements with National Treasury, as there was a continuous challenge in terms of Treasury not wanting to increase the ceiling. He asked the Committee to give the Department some time to conclude its engagements with the Treasury on the ceiling. For now, only the R7.4 billion had been resolved.

The Chairperson confirmed that the Committee understood that the discussions with National Treasury were ongoing and that the issue of the historical deficit had been resolved. The question was about the deficit going forward, which was part of the discussion the Department was engaging National Treasury on. He acknowledged that lifting the ceiling was not the solution, and that point had been made clear.

Admiral Kubu, answering on the appointments that were to be made, said they would be for critical services, and the HR department would always validate the need for the appointments. Every service had been given an allocation.

The Chairperson asked if the appointments would be re-prioritised within the total strength of 73 000.

Admiral Kubu confirmed that indeed that was the case. The Department would not exceed the end strength of 73 000, even with the new appointments. 

Ms Kudjoe said that the next presentation on the budget reductions would help to put everything into perspective.

Budget reduction trends

Major General Thembelani Xundu, Chief Director: Force Structure, said the 2022 MTEF had remained financially constrained, having an adverse impact on the ability of the DoD to fully execute its constitutional mandate and causing inability to fully implement the national policy on defence execution. The trajectory of defence under-funding was not recent. Over time, DOD allocations had been reduced to fit with government’s programmes of action and priorities. The most recent reductions of the Defence allocation had been based on the perceived competition between government’s priorities -- such as jump-starting the economy, decreasing unemployment, addressing inequality, youth upliftment and providing services -- and the Defence expenditure requirements to sustain and maintain defence capabilities.

For the 2022/23 MTEF, it had been foreseen that the force employment programme would continue to employ defence capabilities, as ordered by government. However, the budget reduction would adversely impact the ability of the force employment programme’s ability to provide special operational capabilities to meet the National Defence Policy (SA Defence Review 2015), the ordered government obligations and requirements (internal and external deployments), and multinational exercises with identified stakeholders.

Referring to border safeguarding, he said the porosity of the country’s borders would result in rampant transnational crime, free and uncontrolled flow of undocumented immigrants, all at the expense of the national economy and security. It remained the DoD’s intention, pending available resources, to increase the SANDF`s footprint on the RSA’s landward borders of approximately 4 471km, from 15 sub-units to 22 sub-units and to implement the utilisation of technology such as sensors in support of the national security strategy.

The Southern African Development Community (SADC) standby force consisted of forces across the domains of warfare (land, air, maritime and cyber) and appropriate support elements, such as military health and logistic support. Due to the decline of the defence capabilities as a result of budget reductions, the RSA’s pledge to the SADC had been revised downwards to reflect the current resource levels' availability.

Formal courses and training exercises had been reduced across the services, thus impacting combat readiness. The SANDF had generally reduced formal courses across the board due to budget cuts, resulting in the cutting of formal courses and joint interdepartmental, agency and multi-national exercises, and would impact the safety of troops during deployments.

The SANDF was clearly having combat readiness challenges which were exacerbated by the reduced training and the unavailability of ammunition, unserviceable combat vehicles, aircraft, vessels and other related training equipment. Additional training exercises had been reduced, and in the long term would not take place at all, leading to unskilled personnel resulting in a risk that may lead to the loss of lives.

The SANDF was engaged in internal and external operations. With the current situation in the region, the country risked losing its credibility, respect, economic influence and security along the borders and internally.

The current status was that the SANDF’s infrastructure was old and not maintained due to the lack of funding, and that had an adverse impact on the morale and image of the SANDF, giving rise to a significant maintenance backlog which had a direct effect on the operational readiness of the SANDF and its ability to prepare and deploy forces.

Discussion on budget reduction implications

The Chairperson said the point to take away from the presentation was that essentially the budget cuts over the years had been weakening the capability of the state to protect itself, and there was an impact on the whole defence industry.

Mr Marais said the presentation had illustrated a disheartening picture, showing a downward spiral of the state’s defence capabilities. In the year coming, the cost of employees would be 68.6% of the budget, the year after that it would be 68.39%, and 69.8% in the subsequent year. The situation was unsustainable given that 70% of the Defence budget would go to the compensation of employees. Did National Treasury and the Commander in Chief have this picture -- did they know the predicament that the Defence Force was in? The situation was going to cause soldiers to be killed, as had been the case in Mozambique and the DRC. Was the DoD complacent in the situation that it had been put in? There had been talks about re-prioritising the mission and objectives of the Defence Force, but there had been no indication of that happening. It was important to have discussions on what the essential components of the defence force were, and which could be moved to other state departments or got rid of.

National Treasury had to give an indication as to what replacements were to be made on the Special Defence Account (SDA). He asked the DoD to comment on the eventual loss of local original equipment manufacturers (OEMs). On the fruitless and wasteful expenditure, it had been indicated that certain contracts might lapse, but the Committee had been told that Project Biro was fully funded, The only other project that was under consideration was Project Hoefyster -- which other projects were the DoD talking about in terms of funding?

On the underfunding of the Defence Force, had there been any engagements with National Treasury and the Executive? On border safeguarding, what would be the implications of the DoD’s involvement with Operations Copper, Corona and Vikela. In the cases where the DoD’s equipment had maintenance backlogs, maintenance had been reduced from being done four times a year to twice a year, and recently there had been no provision for that in the MTEF. What would be the impact of that on the operations of the DoD? With the 2015 Defence Review, had the Department started on an alternative defence policy?

Mr T Mmutle (ANC) said he had mixed feelings about the presentation, particularly with reference to the equipment that the military was using. The presentation had depicted a worse picture compared to the one the Committee had received previously on Operation Thusano. He asked for clarity on that matter, as he was under the impression that the maintenance was being carried out under Operation Thusano. There had been a resolution for Denel to be taken back to the DoD, and it was not understandable as to why the DoD was refusing to take the company back. The demise of Denel was going to negatively impact the life of Armscor.

The Committee had seen that the budget cuts were impacting the Special Defence Account (SDA) negatively, and if the SDA was not salvaged, Armscor would follow suit. How was the DoD going to ensure that it kept Armscor alive when there was no money in the SDA? Armscor was left with only two projects, projects ‘Hotel’ and ‘Biro.’ What would be the use of Armscor upon the completion of those projects?

DOD's response

Ms Kudjoe said Project Thusano was a result of a bilateral agreement between the SA Defence Force and that of Cuba, wherein work was being done to salvage some of the vehicles of the SANDF, and that was separate from the maintenance the DoD was doing via Armscor. The maintenance by Armscor covered the Air Force and other areas. 

She said the DoD had previously tried to describe the situation at Denel to the Committee. At the last presentation, it had been indicated that Denel had caused the Department to be 54 months behind on one of its projects. Denel did not have the warm bodies to complete the project. The situation was not good for the security cluster as a whole, and there had been engagements with the National Security Council in terms of how the matter could be dealt with. The Department had considered the re-prioritisation of funds but had to carefully consider from where the money would be taken and to where it would be allocated. The Department could re-prioritise its budget for the current month, but would not be able to do that for the foreseeable future.  Although the Department was experiencing budget cuts, its responsibilities were continuously increasing.

Maj Gen Xundu, answering on the replacement of the SDA, said the discussions between National Treasury and the Department were continuing. As and when the two entities reached a consensus on a model to use, the model would then be implemented, but a concrete replacement of the SDA was not foreseeable.

Answering the implications for projects involved in border safeguarding, he said there may be a further reduction of subunits, a withdrawal from external operations and a reduction of coastal operations.

Answering the re-prioritisation of funds, he said there was a process that was comprised of six stages; stage four was the development of the force design, stage five was the development of the force structure, and stage six was the force development plan. Stage six was where the re-prioritisation was going to be implemented. The current focus would be on efficiency and maintenance of the current combat systems. 

Deputy Minister's summation

Deputy Minister Makwetla said the issues flagged by the Department in the meeting had painted the same challenges that had persisted for some time. There was a positive development in that National Treasury had increased, the ceiling for the compensation of employees by R1.6 billion, and some money had been channelled to the Department to expedite the deployment of troops for Operations Prosper and Vikela. However, in the broader sense of things, there was not much progress made. The savings that would be realised by the Department were going to come from the reduction of ‘man-days’ in the Force. That did not answer the question of whether the Defence Force had sufficient warm bodies to do the things that it had to do. The Defence Review of 1998 had postulated an arrangement where the Permanent Force would always be smaller than the Reserve Force, but the 2015 Defence Review had postulated that the Permanent Force would be the larger component. Those issues needed to be revisited and dealt with in more practical terms in relation to the current state of affairs. A more comprehensive discussion was required.

It was not enough to talk about funds being available for deploying soldiers to Projects Vikela and Notlela and paying them allowances, as if the soldiers had been well prepared for the job. There were no ‘man-hours’ to train and prepare them, and money was brought in only when the soldiers had to be utilised. In the real world, things did not work like that. On the impact of the general cuts, the discussion had to be moved to another space and should be about what needed to be done and what should not be allowed to happen, instead of just having the Department lamenting to the Committee about the budget cuts.
The other challenge was that the Department's intellectual property and technology had to be industrialised because soon it would be obsolescent, sitting on the shelves. The world was forward-moving and the value of intellectual property would soon be lost. The funding of the Department had dropped drastically and unimaginably, but there was a lot of money within the Department that could be utilised to ensure that it delivered on its mandates. There were too many leakages causing wastage, and these had to be closed. The Department had to handle the little money it had with diligence, and the environment could change.

The Chairperson said it was important to start with the issue of HR because the compensation expenditure on the budget was becoming a serious threat to the Department’s other capabilities. The DOD had mentioned four areas it was attending to: reducing the strength over the MTEF, reducing reserve force ‘man-days’, dealing with the Military Skills Development System (MSDS), and addressing all the discretionary allowances. The point that was missing in dealing with the budget issues, was that of combating fraud and corruption in the Department and strengthening internal controls. Once those measures were firmly in place, they would increase the chances of the Department being able to fight for more resources.

2022/23 first term programme

Due to time constraints, the adoption of the Committee's meeting minutes was deferred, and the Chairperson presented the Committee with the programme for the first term of 2022/23; it was agreed that the first meeting would be held on 20 April 2022, and the programme was adopted.

The meeting was adjourned