Armscor defence budget allocation slashed

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State-owned defence and security acquisition agency Armscor is in for a belt-tightening year on the heels of being informed its funding allocation is to be cut by R351 million.

An in-house “broadcaster” issued by Armscor’s corporate communications division, which defenceWeb has seen, titled “A notice on the proposed reduction to the transfer payment during the in-year 2018/19” gives details.
“During the Armscor presentation to the Departmental Programme and Budget Evaluation Committee (DPBEC) in June it was recommended that the transfer payment to Armscor (from the Department of Defence budget) be reduced by approximately 24% (R351 million) during the in-year 2018/19.
“EXCO (the Armscor executive committee) will have a comprehensive understanding and finality on the matter by the end of June and then reassess the situation. A work group to urgently develop a robust strategy to manage further reductions has been established by EXCO and its outcome will be presented to the board of directors.”

The in-house communication noted five “critical and immediate directives” to be implemented as part of cost-saving.

On travel all foreign travel is limited to a maximum of three Armscor personnel, including specialists and marketing teams and local travel is limited to business requirements only, excluding seminars and conferences.

There is also an immediate moratorium on all vacancies at Armscor, salary negotiations are on hold, an immediate freeze on entertainment spending is in operation and all future sponsorships and donations are also frozen.

The austerity measures come in the year Armscor is marking a golden jubilee which a spokesman indicated will also be low-key.
“The Armscor executive committee took a decision to celebrate the organisation’s golden jubilee by marking the event, while recognising the need to contain costs in line with its fiscal allocation. There will be no major commemorative events, but the anniversary will be noted in a small stakeholder engagement event with key stakeholders,” Solomzi Mbada, Armscor Group Executive; Corporate Support, said earlier this month.

According to May meeting of the Portfolio Committee on Defence and Military Veterans, Armscor’s projected income for 2018/19 is R1,636 billion, higher than the R1,543 billion projected for 2016/17 and there are hopes Armscor will break even in the 2018/19 financial year.

The main cost increase for 2018/19 is direct personnel cost up from R1,203 billion in 2017/18 to R1,252 billion in 2018/19 and external services increasing from R84,1 million in 2017/18 to R128,5 million in 2018/19.

The Portfolio Committee said in previous yearsthe likelihood of all divisions of Armscor being loss-making was noted, this changed for the 2017/18 projections when it was expected that all components, except the Dockyard, will be profitable. This trend is expected to continue in 2018/19. In the Corporate Plan, financial projections are only included for Armscor Corporate, the Dockyard and the Research and Development divisions. Projected profit/losses for the 2018/19 financial year per components include:

Armscor Corporate: Surplus R31 million

Research and Development: Loss R200 000

Armscor Dockyard: Loss R30.6 million

Armscor Group: Surplus R200 000

When reviewing Armscor expenditure per activity, as presented by National Treasury, overall expenditure increases from R1,905 billion in 2017/18 to R2,081 billion in 2018/19. This translates to a real percentage increase in expenditure of 3,54%. The largest increase in expenditure is expected to be Armscor Logistical Support. Logistical support expenditure will increase from R235,6 million in 2017/18 to R276,3 million in 2018/9 translating to a real percentage increase of 11,16%. Administration expenditure is expected to increase by R51,3 million over the same period, translating into a 5,52% increase in real terms.



Spending for the 2018/19 Armscor budget includes R504 million on administration; R122 million on quality assurance; R405 million on defence materiel acquisition management; R276 million on logistics support; R302 million on the naval dockyard; and R470 million on research and development.