Belt-tightening at Armscor


State-owned defence and security acquisition agency Armscor will, like the national defence force, have to do more with less judging from National Treasury’s Estimates of National Expenditure (ENEs) for the current financial year.

This will, at least in part, have to be accomplished without a permanent chief executive or chairman. Both positions are presently occupied by acting incumbents.

Retired SA Navy chief Johannes Mudimu handed his resignation as Armscor board chairman to Defence and Military Veterans Minister Nosiviwe Mapisa-Nqakula soon after the Africa Aerospace and Defence (AAD) exhibition closed last September and chief executive Kevin Wakeford tendered his resignation on 30 October last year. Indications are he was working a six-month notice period and would have left Armscor at the end of April. This was cut short, with no reasons given, earlier this month when an Armscor statement indicated his “immediate departure”.

According to the ENE’s tabled when Finance Minister Tito Mboweni delivered his national budget on 20 February, Armscor will fill only “critical vacancies over the medium term, particularly those that would contribute to increased revenue generation in management of strategic facilities” and the agency’s research and development programme.

A further cost containment measure will see expiring fixed-term contracts for Simon’s Town Dockyard employees not renewed.

Overall, Armscor’s salary bill will increase from R1.25 billion in 2018/19 to R1.32 billion in 2021/22 with personnel headcount “expected to stabilise at 1 705 over the medium term”.

The ENEs also note that “Improvements in internal controls over the medium term are expected to ensure adherence and compliance to procurement regulations, resulting in acquisition of economically efficient capital assets. As a result, the percentage of the Department of Defence’s capital requirements converted into orders placed is expected to be maintained at 95% over the period ahead”.

Armscor plans to spend R407.8 million over the medium term to improve compliance with procurement regulations. It will also continue supporting the South African defence industry.  This ranges from facilitating participation in international defence exhibitions, promoting the industry and managing requests from the private sector to use SA National Defence Force (SANDF) equipment, personnel and facilities for marketing purposes.

As far as funding is concerned just on 70% (R4.6 billion) of Armscor’s projected total revenue is a transfer from the Department of Defence. The transfer, the ENEs note, do not cover operational costs, which, with expenses related to administration, training, maintenance of buildings and other goods and services, are covered with interest earned from investments.

Armscor’s turnaround strategy, announced in 2016, is to transform it into a self-sustaining organisation.

“To achieve this, Armscor will continue to diversify revenue sources through commercialisation of intellectual property and strategic facilities as well as brokering defence sector deals in Africa. In 2017/18, new revenue streams assisted Armscor in achieving a surplus of R1.7 million, instead of a budgeted deficit of R25.5 million.”