Wednesday, October 17, 2018
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Armscor also facing financial challenges

Armscor annual reportThe “financial shortcomings” outlined in the latest Department of Defence (DoD) annual report are repeated in that of its acquisition agency – Armscor.

Armscor board chairman, retired SA Navy chief Johannes Mudimu, makes the point that the report for the 2017/18 financial year is submitted “at a time when government has to reduce spending across the board, increase revenue and build a sluggish economy”. He quotes the Defence and Military Veterans Minister as noting “with some disquiet, the declining budget allocation for the national defence force and, correctly, pointing out the defence force budget allocation must be mandate and not budget driven”.

Mudimu is of the opinion this means the SA National Defence Force (SANDF) must be allocated sufficient funding to meet its mandate and should not have to tailor execution of its mandate to meet its budget allocation.

He goes on to point out Armscor is not immune to the reduced budget allocation and has “for some time faced the risk of a diminishing capacity to fulfil its legislated mandate to the SANDF”.

The former Navy chief is “concerned” about the local defence industry’s ability to meet milestones on capital projects.

“The impact of delays in meeting critical milestones and consequent delay in cash flows for the DoD has been the subject of careful management and measured intervention on Armscor’s part.”

On the credit side, Mudimu notes the “successful migration” of the Defence Transformative Enterprise Development Programme (DEFTED) and the Defence Engineering and Science University Programme (DESUP) to the state-owned defence and security acquisition agency. This, according to him, has seen an increase in the number of small, medium and micro enterprises (SMMEs) supported under the DEFTED, while a review of the reach and coverage of DESUP facilitated a more inclusive roll out of the programme to institutions not previously participating in the defence sector.

In his introduction to the annual report, chief executive Kevin Wakeford notes Armscor performed well against difficult global and local economic conditions.

He writes: “As a developmental state and from a political perspective, South Africa must balance its investment in defence against many other priorities. The defence sector should be recognised for the substantial peace dividend it unlocks, the value it adds to Gross Domestic Product (GDP) in the form of exports of defence products, the employment it provides and, importantly, the development of young South African engineers to globally competitive standards in the defence industry”.

Armscor researched the value provided to the South African economy by some local defence industry products.

As one example, the local industry’s expertise in the design and manufacture of armoured personnel carriers saw export earnings of R110 billion from an initial defence spending of less R1 billion on acquisition of the Mamba vehicle.

“For each vehicle acquired by the SANDF, 23 vehicles were eventually exported from South Africa,” according to Wakeford.

The South African defence industry has proven cases of excellent returns on investment from the national perspective, but he maintains innovative thinking is required to leverage value in a paradigm of reduced DoD funding.
 

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