Steady increase in Armscor funding

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State-owned defence and security materiel agency Armscor is being allocated more money over the next three years to carry out its mandate, as per the latest defence budget vote.

Armscor, owner of the building housing SA National Defence Force (SANDF) headquarters as well as the defence ministry and secretariat, receives the majority of its funding (68%) by way of transfers from the Department of Defence (DoD). The latest Estimates of National Expenditure (ENE) reveal that Armscor is getting R1.5 billion in 2022/23 and R1.6 billion in 2025/26 from DoD transfers, with the remainder derived through interest from investments. This will go to finance operational expenditure, administrative expenses, training, building maintenance as well as other goods and services.

Armscor’s total budget for 2023/24 is R2.2 billion, rising to R2.3 billion in 2024/25 and R2.4 billion the following year. Its budget was R1.98 billion in 2022/23.

Personnel and their costs have long been a major component of Armscor expenditure and efforts to stay “within the ceiling for compensation of employees (CoE)” saw 109 employees leave via voluntary severance packages (VSPs) in 2021/22. Vacant posts created by the VSPs will not be filled as they are seen to be not critical to core functions meaning, according to the Defence ENE, there will be no detrimental impact on performance.

“Critical posts will be filled. Spending on CoE is set to increase nominally, at an average annual rate of 6.4%, from R1.1 billion in 2022/23 to R1.3 billion in 2025/26.”

Looking to the medium term, the Defence ENE has it Armscor will continue to meet the acquisition, maintenance and disposal needs of the DoD and other clients for defence materiel and related products and services.

“In this way, the corporation maintains strategic capabilities and technologies and promotes the local defence‐related industry, ensuring the SA National Defence Force (SANDF) receives quality equipment to carry out its mandate.

“Over the medium term, the corporation will continue to focus on meeting DoD materiel requirements, as well as requirements pertaining to technology, research, development, analysis, tests and evaluation. To meet these requirements, Armscor will aim to ensure 95% of the department’s capital and technology requirements over the medium term are converted into orders placed and executed.

“To achieve these targets, spending is projected at R1.5 billion over the medium term,” the Defence budget vote released late in February reads.

One Armscor function is to manage research and development on behalf of the DoD and Defence Research and Development Board (DRDB) funding is allocated by the DoD for this. No funding was received in 2021/22 due to defence budget cuts, with R133 million available to Armscor divisions for 2022/23 (Institute for Maritime Technology R65 million; Protechnik R35 million; Ergotech R20 million; Flamengro R7.5 million; and Armour Development R4.7 million).

These divisions, along with Alkantpan test range and Gerotek test track, earn commercial and DoD revenue for Armscor. In 2021/22 commercial revenue from these entities amounted to R98 million and DoD revenue R86 million, down on previous years.