Armscor a service organisation where 74% of funding goes to salaries

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As defence spending continues to slip ever further down government’s priority list, its defence and security acquisition agency is “actively engaged” in improving what Armscor chief executive Solomzi Mbada terms “the net (sic) financial position for future sustainability”.

Addressing Parliament’s Portfolio Committee on Defence and Military Veterans (PCDMV) this week, Mbada described Armscor as “a service organisation” with personnel its major expense. Seventy-four percent of the funding Armscor receives from the national defence budget and other sources goes to salaries and wages of personnel at its head office and operating divisions and entities. These include Alkantpan, Gerotek, Ergotech, Flamengro, Protechnik, the Institute for Maritime Technology and the Simon’s Town dockyard.

The lion’s share of Armscor funding from the defence budget (79.5%) is a defence budget allocation and payment for services to Minister Nosiviwe Mapisa-Nqakula’s Department of Defence (DoD) and in turn the SA National Defence Force (SANDF).

This funding, according to the Armscor chief executive, is not sufficient to sustain the capability required and is supplemented by income from commercial services (13.1%), investment income (3.3%) and the ubiquitous other income (4.1%).

Parliamentarians heard Armscor has “a marginal surplus” of R3 million for the current financial year (2021/22). This is under pressure from COVID-19 related government expenditure and reductions in National Treasury allocations.

As a counter to this scenario Armscor is exploring new revenue streams. These include sweating assets (mainly property) and offering unspecified services to other government departments. This appears to presume the DoD/SANDF will remain Armscor’s major user – and borne out in Mbada’s presentation where he makes note of the “declining capital budget for defence spend”.

Other challenges faced by Armscor to ensure future survivability of the organisation are slower than anticipated new revenue streams and revenue from commercial sources under pressure with coronavirus the main culprit.

As always in the wider defence sector, the risk of further reduction in National Treasury allocations remains the Sword of Damocles over the figurative Armscor head.