Defence Department of Defence 1 Information Brief to the Portfolio Committee on Defence Department of Defence’s 2007/08 MTEF budget (Vote 20). Presented

1DefenceDepartment of Defence

Information Brief to the Portfolio Committee on Defence

Department of Defence’s 2007/08 MTEF budget

(Vote 20).

Presented by Mr B.J. EngelbrechtDirector Budgeting


INTRODUCTION

• Planning and Budgeting guidelines – Sep 05

• Plan and budget scrutiny – May/Jun 06

• MTEC submission with Policy proposals to NT – Aug 06

• MTEC deliberations – Sep 06

• Final letter of allocation – Feb 07.


AIM

To present Defence’s 2007/08 budget as incorporated in the 2007 Estimate of National Expenditure and tabled by the Minister of Finance on 21 February 2007 to members of the Portfolio Committee on Defence.


SCOPE

• Aim.

• Historical trends.

• MTEC Submission and outcome.

• Vote 20 Budget allocations and trends.

• Probable changes to structure.

• Conclusion.

• Questions/Discussions.



Defence and GDP

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Defence as % of GDP % GDP Growth


DOD Budget Analysis

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Defence as % of GDP Defence as % of Gov Expenditure

•Declined from 15,5% of GE (1989) to projected 4,4% in 2009

•Declined from 4,4% of GDP (1989) to projected 1,2% in 2009


DOD HR BUDGET

•Budget principle – (HR Commitment)

•19% (89) → 58% (98) → 35% (02) → projected 40% (09)

•Changes to accounting policy – impact

•MSDS policy impact

•Impact of incentive schemes

•Perception

0%

10%

20%

30%

40%

50%

60%

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Personnel Budget Operating Budget Armament Acquisition Budget

Integration

Strategic Defence Procurement Programme



MTEC SUBMISSIONSer Policy Proposals (Options) 07/08

(Rm)08/09 (Rm)

09/10 (Rm)

1 General Modernization Capacity

Strategic Airlift Capability

48 984 1 868

Intelligence Systems

126 167 129

Op Vehicles

Total

345

519

432

1 583

500

2 497

2 ICS Renewal (Deficit last year) (New Requirement)

466150

37375

208295

3 Infrastructure (Facilities) (SAMHS - OECP)

341186

280

1940

4 MSDS (Army) (SAMHS – OECP)

31799

21499

20299

5 Landing Ships 0 0 0

6 Works Regiment Concept 0 0 0

7 Total 1 612 1 999 3 287


2007/08 2008/09 2009/10

2006 MTEF ALLOCATIONS

Departmental baseline

CHANGES TO BASELINE

Salary Adjustments

Military Skills Development

Remuneration of Health Professionals

Health Support

General modernisation capacity

Strategic Airlift Capability

Intelligence Capability

Operational Vehicle Fleet

Strategic Munitions

Foreign exchange rate adjustments

24 665 776

24 665 776

1 256 479

10 000

50 000

14 000

300 000

48 000

100 000

152 000

-

882 479

25 733 754

25 733 754

2 282 600

21 000

100 000

45 000

1 000 000

984 000

8 000

8 000

-

1 116 600

25 925 770

25 925 770

2 706 000

79 000

300 000

77 000

2 000 000

1 896 000

50 000

54 000

250 000

-

2007 MTEF ALLOCATIONS 25 922 255 28 016 354 28 631 770

VOTE 20: DEFENCEMTEF ALLOCATIONS: 2007/08 – 2009/10 (Final Letter of Allocation from NT)



2007 MTEF Baseline Allocation per Economic Classification

Economic Classification2006/07R'000

Growth2007/08R'000

2008/09R'000

2009/10R'000

Current Payments 14,912,947 6.82% 15,930,305 17,222,080 19,016,672 Compensation of Employees 9,085,985 4.27% 9,474,247 9,952,787 10,525,924 Goods and Services 5,826,962 10.80% 6,456,058 7,269,293 8,490,748Transfers and Subsidies 8,691,707 10.53% 9,607,151 10,370,172 9,167,376 Provinces/Municipalities 3,699 0 0 0 Departmental Agencies/Accounts 8,288,671 8.82% 9,019,934 9,779,878 8,565,999 Public Corporation/Private Enterprises 396,286 23.22% 488,314 512,393 537,276 Non Profit Institutions 3,051 12.49% 3,432 3,576 3,726 Households 0 95,471 74,325 60,375Payment for Capital Assets 271,650 41.65% 384,799 424,102 447,722 Buildings/Fixed Structures 47,497 64.45% 78,109 81,656 85,739 Machinery/Equipment 222,598 37.39% 305,830 341,639 361,145 Software/Intangible Assets 1,555 -44.69% 860 807 838TOTAL 23,876,304 8.57% 25,922,255 28,016,354 28,631,770


Main Programme2006/07R'000

Growth2007/08R'000

2008/09R'000

2009/10R'000

Administration 1,759,512 9.95% 1,934,669 2,054,175 2,345,774

Landward Defence 4,061,047 3.80% 4,215,453 4,507,860 4,851,545

Air Defence 2,504,488 5.86% 2,651,180 2,871,355 3,175,552

Maritime Defence 1,319,173 5.24% 1,388,315 1,488,024 1,671,187

Military Health Support 1,683,822 8.75% 1,831,201 2,000,621 2,278,324

Defence Intelligence 143,662 12.83% 162,101 164,594 181,915

Joint Support 2,713,717 20.01% 3,256,665 3,612,147 3,845,067

Force Employment 1,410,145 4.32% 1,471,128 1,546,515 1,725,310

Special Defence Account 8,280,738 8.83% 9,011,543 9,771,063 8,557,096

TOTAL 23,876,304 8.57% 25,922,255 28,016,354 28,631,770

2007 MTEF Baseline Allocation per Main Programme


Budget Overview• Annual growth over MTEF

• 11,9% (excl SDP)• 6,2% (incl SDP)

• 03/04 Rb 20,5 to Rb 25,9 in 07/08 to Rb 28,6 in 09/10.• Additional funding Rb 1, 26 (07/08), Rb 2,3 (08/09) and

Rb 2,7 (09/10)• General modernisation capability• MSDS• Foreign exchange rate adjustments• Remuneration of Health professionals• Strategic Munitions (09/10)• Salary Adjustments


Programme 1: Administration

• Admin has doubled due to devolution of funds from NDPW.

• Property Management – 12,3% average growth over MTEF.

• Departmental Direction – 27,8% increase due to relocation of NCACC inspectorate.

• DFR increase due to increased representation abroad.


Programme 2: Landward Defence

• 6,1% annual average increase over MTEF• MSDS• Op Veh fleet modernisation

• 41,6% increase in General Training• Expansion of conventional reserves training• MSDS member intake

• 12,6% and 11,4% increase in Artillery & Air Defence Artillery respectively is due to the commissioning of new generation art equipment.


Programme 3: Air Defence • 8,2% annual average growth over MTEF.• Base Support Capability – 31,32% of programme –

increase with 6,5% over MTEF for integrating new training and fighter aircraft• Systems integrity• Infrastructure• Training

• Increase in Strategic and Operational Direction sub-programmes over MTEF are due to acceptance and integration of light utility helicopters and Hawk training aircraft.


Programme 4: Maritime Defence

• 8,2% annual average growth over MTEF.• Decrease of 52,6% in Combat Capability and increase of

118,8% in Logistic Capability are because all items with log correlation are placed under Logistic Capability subprogramme.

• Increase of 15,3% in the Base Support Capability• Increased M & R of vehicles purchased in 2005/06• Increased use of contract workers in messes.


Programme 5: Military Health Support• 10,6% annual average growth over MTEF• 14,3% increase in Strategic Direction (06 to 07)

• Increased staff levels • World Military Golf Championships (CISM)

• 23,1% increase in Specialist/Tertiary sub-programme (06 to 07)• Skills allowance• Dignitary ward at 1 Mil & 2 Mil• Increased costs of referred patients• Ambulance & support vehicles

• MTEF increase of 19,6% and 10,8% in the Specialist/Tertiary & Training sub-programmes respectively• Increased MSDS intake• Trg of MSDS members in emergency care for 2010.

• Decrease of 11,6% in Product Support - internal relocation to Area & Spec/Tertiary to alleviate drug shortages.


Programme 6: Defence Intelligence

• 623,2% increase in Strategic Direction is due the centralisation of personnel related expenditure.

• Decrease of 22,7% in Operations is due to certain commodities relocated to the Support Services subprogramme.

• The 13,9% increase in Support Services is due to increased emphasis on recruitment, training and infrastructure rejuvenation at training units.


Programme 7: Joint Support• 12% average annual growth over MTEF• Increase of 21,3% in the Joint Logistic Services over MTEF

is due to Infrastructure investment• 2007/08 Rm 80, 2008/09 Rm 230

• Increase of 11,3% in CMI Services over MTEF is due to information and communication technology enhancements• 2006/07 Rm 50, 2007/08 Rm 118, 2008/09 Rm 200

• Increase of 17,3% in Joint Training is due to additional allocation for • SA War College• Warrant Officers’ Academy• Training of MSDS officers at the SA Military Academy


Programme 8: Force Employment

• 7% average annual growth over MTEF period• Special Operations increase with 13,7% on average

over MTEF period.• Personnel retention (Incentive scheme)• Acquisition of specialised equipment

• Decrease in Support to the People is due to the gradual withdrawl of support to the SAPS.

• Regional Security• Increase in OP MISTRAL due to replacement of

equipment.• OP FIBRE closes in July 2007 – replacement of

equipment over MTEF• Increases in Strategic & Operational Direction are due

to the effort to ensure fully staffed capabilities in the operations environment.


Programme 9: Special Defence Account• 1,1% growth over MTEF period (impact of SDPs)• The Procurement Services sub-programme grow

on average with 21,1% annually over the MTEF mainly due to the strategic airlift capability:• Rm 577 in 07/08 • Rb 1,5 in 08/09 • Rb 1,9 in 09/10

• 25,1% average increase in the Intelligence related sub-programme:• Rm 221 in 07/08• Rm 255 in 08/09• Rm 307 in 09/10



OBLIGA-TION

(Rm)

ACTUAL PERFOR-MANCE 2006-12-31 (Rm)

PERF VS OBLIGA-TION %

CUMULATIVE PLANNED

PERFORMANCE 2007-03-31

(Rm)

CUMUL. ACTUAL vs PLANNED %

CLAIMS UNDER

CONSIDE-RATION

(Rm)

1,194 1,102 92.33% 1,194 92.33% 39


OBLIGATION (Rm)

ACTUAL PERFORMANCE

2006-12-31 (Rm)

PERF VS OBLIG %

CUMULATIVE PLANNED


(Rm)


CLAIMS UNDER CONSIDE-

RATION (Rm)

553 142 25.75%

188 75.66% 6


OBLIGATION (Rm)

ACTUAL PERFORMANCE

2006-12-31 (Rm)

PERF VS OBLIG %

CUMULATIVE PLANNED

PERFORMANCE 2007-03-31 (Rm)


CLAIMS UNDER CONSIDE-

RATION (Rm)

4,252 2,95369.44

% 3,616 81.66% 1,595

24


OBLIGATION (Rm)

ACTUAL PERFORMANCE 2006-12-31 (Rm)

PERF VS OBLIG %

CUMULATIVE PLANNED



CLAIMS UNDER CONSIDE-RATION

(Rm)

5,050 3,434 67.99% 3,130 109.71% 42


OBLIGATION (Rm)

ACTUAL PERFORMANCE 2006-12-31

(Rm)

PERF VS OBLIG %

CUMULATIVE PLANNED


(Rm)

CUMUL. ACTUAL vs PLANNED

%

CLAIMS UNDER

CONSIDE-RATION (Rm)

2,941 1,811 61.57% 1,979 91.48% 41


OBLIGATION (Rm)

ACTUAL PERFORMANCE

2006-12-31 (Rm)

PERF VS OBLIG %

CUMULATIVE PLANNED



CLAIMS UNDER CONSIDE-RATION

(Rm)

1,121 708 63.15% 747 94.83% 23


Defence Industrial Participation31 December 2006

PROJECT OBLIGATION (Rm)

ACTUAL PERFORMANCE 2006-12-31

(Rm)

PERF VS OBLIG %

CUMULATIVE PLANNED


(Rm)

CUMUL. ACTUAL

vs PLANNE

D %

CLAIMS UNDER

CONSIDE-RATION

(Rm)

CORVETTE 2,941 1,811 61.57% 1,979 91.48% 41

SUBMARINE 1,121 708 63.15% 747 94.83% 23

LUH 1,194 1,102 92.33% 1,194 92.33% 39

HAWK 4,252 2,953 69.44% 3,616 81.66% 1,595

GRIPEN

5,050 3,434 67.99% 3,130109.71

% 42

MARITIME HELICOPTER

553 142 25.75% 188 75.66% 6

TOTAL (ZAR) 15,111 10,149 67.17% 10,853 93.51% 1,747


Possible changes to programmes• C HR (Administration Programme) which will include the following elements.

• Joint Training• Service Corps• HR Support Centres• EO & AA• Elements of CPP

• Admin: The roll-down of some elements of FMD to the services• J Sup:

• Roll-down of certain CMI elements to the services.• Certain Log elements to be moved to the services

• Total programme review underway• Consolidation of Research and Development focus.• Transfer Payments:

• Establish Defence Evaluation and Research Institute.• Transfer of Naval Dockyard to Armscor.


CONCLUSIONDefence is supporting Government’s Plan of

Action as alluded to in the Strategic Business Plan.• Defence’s budget composition reflects cluster priorities.• Capital renewal of Landward Defence and Military Health Service prime mission equipment remains mainly unfunded.• Defence has the ability to expend additional funding through capital investment in the replacement of prime mission equipment subject to defence related industry capability and capacity.



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Documents

Defence Department of Defence 1 Information Brief to the Portfolio Committee on Defence Department of Defence’s 2007/08 MTEF budget (Vote 20). Presented