17 August 2005

DEPARIMENT OF DEFENCE

DRAFT STRATEGIC BUSINESS PLAN, BUDGET PROPOSALS AND POLICY OPTIONS OF THE DEPARTMENT OF DEFENCE FOR FY2006/07 TO FY2010/11
By Mr A. Visser Chief Director Strategic Management

17 August 2005

SCOPE

Background
Layout of the Plan
Discussion per Chapter
Budget proposals
Policy Proposals forwarded to NT
Conclusion

AIM

To brief members of the Council on Defence on the presentation to be made to the Portfolio Committee on Defence (on the 17 August 2005) on the Draft Strategic Business Plan, Budget Proposals and Policy Options of the Department of Defence for FY2006/07 to FY2010/11

BACKGROUND

Required by law to be tabled in Parliament after the Budget speech within specific time scales.
Contents of plan directed by Government priorities and imperatives, DPSA Regulations and National Treasury.
Commitment by the DOD to Parliament and public as to how the DOD intends to utilise resources allocated to it.
The Plan shows, among other things, DOD outputs and risks.
DOD Plan for FY2006/07 is a product of serious departmental reprioritisation in order to stay within budgetary allocation.
Main challenges: 21 Options (risks) identified

[PMG Note : DOD PLANNING PROCESSES not included made available on request]

DOD Strategic Business Plan FY2006/07 to 2010/11

LAYOUT OF PLAN

Chapter One: Strategic Profile and Objectives
Chapter Two: Defence Strategy
Chapter Three: Organisational Management
Chapter Four: Administration (Programme 1)
Chapter Five: Force Employment (Programme 8)
Chapter Six: Landward Defence (Programme 2)
Chapter Seven: Air Defence (Programme 3)
Chapter Eight: Maritime Defence (Programme 4)
Chapter Nine: Military Health Service (Programme 5)
Chapter Ten: Defence Intelligence (Programme 6)
Chapter Eleven: Joint Support (Programme 7)
Chapter Twelve: Special Defence Account (Programme 9)
Chapter Thirteen: Conclusion

CHAPTER ONE: Strategic Profile and Objectives

Confirms the following:

DOD Mandate
Vision
Mission

DOD Vision

"Effective defence for a democratic South Africa"

CHAPTER ONE

Minister of Defence's

Defend and protect the sovereignty and territorial integrity of the RSA.
Contributing to global security.
Ensuring good governance and accountability.
Ensuring continuous improvement of Defence capabilities.
Implement the "One-force Concept"

Departmental PrioritiesFY06/07 for the DOD

Re-organisation of the DOD for greater efficiency and effectiveness.
Address the state of deteriorating infrastructure.
Defence materiel organisation to be established.
Implementation of Strategy HR 2010 with emphasis on gender representivity and rejuvenation of the SANDF.
Implementation of the "One-force" concept with special emphasis on Reserves.
Disposal of old and redundant ammunition and equipment.
Training for maximum operational efficiency and effectiveness.

CHAPIER ONE

Minister of Defence's Guidelines FY2006/07 and their alignment with Cabinet Priorities
Functions of the Secretary for Defence and the Chief of the SANDF

Defence Outputs

Defence Programmes

Departmental Values

Affordability and Sustainability

Budget constraints are adversely affecting the ability of the SANDF to maintain and sustain certain capabilities, specifically in the Landward Programme, including Military Health Service requirements.
Defence Update 2005 - Review of the WPD and DR and in particular landward capabilities

CHAPTER TWO: Defence Strategy

Defence Strategy. Is derived from Govt strategic direction, priorities and imperatives and indicates the intent of the Minister of Defence with the DOD within the broader framework of Government such as support to the AU, ASF and SADC Brigade.
The Defence Strategy directs the Military Strategy which contains the following Military Strategic Objectives:

Enhance and maintain comprehensive Defence capabilities.
Promote peace, security and stability in the region and the continent.
Supporting the People of South Africa.

CHAPTER THREE Organisational Management

Strategic Direction

Cabinet Makgotla
NT Guidelines
Government Programme of Action (POA)
DOD Aligned Planning Processes Framework

Strategic Control

Quarterly and Annual Reporting on SBP
Bi-monthly reports to Clusters
End-of-year-report to Presidency
Monthly EW report to NT

CHAPTER THREE

Strategic Direction and Strategic Management Bodies in the

DOD

Council on Defence (COD)

Defence Staff Council (DSC)

Military Council (MC)
Defence Secretariat Board (DSB)
Defence Planing Forum
DPBEC
Accountability Management Committee
Defence Reserve Board (DRB)
Human Resource Staff Council
Operations Staff Council
Logistic Staff Council
Others

POST STRUCTURE

Planned macro personnel strength

- FY2006/07 - 79 932

- FY2007/08 - 81 284

- FY2008/09 - 80 575

Force Structure and Design

Not affordable at present
Closure of Commandos
Rejuvenation of the SANDF, especially Conventional Reserves
Defence Review Update 2005- Chapter 5 looks at new affordable force design and structure

Note : Increase in planned personnel strength due to MSDS

CHAPTER FOUR Administration

Sub-Programmes

Political Direction (Mm of Defence)
Departmental Direction (Secretary for Defence)
SANDF Command and Control (Chief of SANDF)
Policy and Planning
Corporate Staff Office
Financial Management Division
Acquisition and Procurement Services
Strategy and Planning Office
Inspection Services Equal Opportunities and Affirmative Action

Human Resources Support Centre
Military Legal Services
Religious Services
Corporate Communication
Reserve Component
Defence Foreign Relations

CHAPTER FOUR

Risks Budget constraints which have adverse effect on the following:

Servicing of Memoranda of Understanding (MoUs)
Renewal and sustainment of IT-based internal control systems for resource management.

Mitigating Action. Re -prioritisation on and additional finding requested (See Policy Option).

Services to be scaled down, suspended or abolished.

None

Note - The outcome of Defence Update 2005 (Review of White Paper on Defence and Defence Review) may influence structure and services provided

CHAPTER FIVE Force Employment (Joint Operations)

Outputs. Operations and Joint and Multinational Exercises

Risks.

Retention of Spec Force Operators
Training area (Madimbo)
Capacity, Budget and Resources to meet any increases in commitments.

Mitigating Action. Request for additional finding (See Policy Proposals), re-prioritisation and reduction in internal deployments.. A contingency fund for PSOs to be discussed with NT

Services to be scaled down, suspended or abolished. Deployments will be aligned with budget as approved by Parliament.

CHAPTER SIX - Landward Defence

Outputs. Landward Defence Capabilities

Risk

Prime Mission Equipment obsolescence and serviceability
Combat readiness is affected by health status, aging HR profile and insufficient finding. Thus, deployment of troops for internal and external purposes and also joint and multinational exercises may be affected negatively.
Budget constraints may result in losing strategic industry support. - Continued deterioration of facilities.

Mitigating Action. Re-prioritisation and request for additional finding (See Policy Proposals)
Services to be scaled down, suspended or abolished. Special Infantry capability to be closed down. Other capabilities maintained at minimum levels due to under-finding.

CHAPTER SEVEN

Outputs. Air Defence Capabilities

Risks

Cost of integrating SDP aircraft
Deterioration of main equipment, weapons systems and ground support infrastructure.
Retention of suitably qualified and experienced personnel.

Mitigating Action. Re-prioritisation and request for additional funding (internal).

Services to be scaled down, suspended or abolished - Flying hours for force preparation and force employment will be reduced

CHAPTER EIGHT :Maritime Defence

Outputs. Maritime Defence Capabilities.

Risks.

Spares and support contracts for SDP vessels
Deterioration of facilities and equipment due to under-funding.
To balance resources between the running of two systems in parallel (Strikecraft and Corvettes)

Mitigating Action. Reprioritisation and see Policy Proposals.

Services to be scaled down, suspended or abolished - Certain stores depots and maintenance units will be closed down. These functions will be incorporated in existing units.

CHAPTER NINE Military Health Service

Outputs. Military Health Services and Capabilities.

Risks.

Deterioration of hospitals, facilities and equipment
Effect of legislation on depots and pharmacies
The high rate of medical inflation.
Inability to recruit sufficient members into uniform
Provision of operational military health support
State of main equipment and vehicles
Failure to benefit from national health system special grants (eg hospital recapitilisation, incentives, etc.)
Funding of the ARV roll-out (See Policy Proposals)

Mitigating Action. Incentives introduced, reprioritisation and PPP (medical services rendered to remote areas). Upgrade of infrastructure in line with SA Army recapitilisation.

Services to be scaled down, suspended or abolished. None.

CHAPTER TEN - Defence Intelligence

Outputs. Defence Intelligence and Counter-Intelligence Capabilities.

Risks.

Inability to collect digital information and imagery
Deteriorating conditions of Defence Intelligence HQ building
Retention of experienced personnel.

Mitigating Action. Request for additional funding and reprioritisation (See Policy Proposals). Intelligence ICT equipments will be dealt with separately from the DOD Enterprise Information System requirements
Services to be scaled down, suspended or abolished. None.

CHAPTER ELEVEN - Joint Support

Outputs. Joint Support Capabilities (Log, HR, ICT, MP, J Trg, Service Corps)
Risks.

Disposal of ammunition.
Defence facilities.
Maintenance and repair of facilities, vehicles and equipment.
Retention of skills and experience levels.
Lack of suitable Enterprise Application System for the DOD.

Mitigating Action. Re-prioritisation, donor funding, NIP and DIP initiatives (See Policy Proposals) Service Corps will no longer be transformed and relocated outside the DOD.

Services to be scaled down, suspended or abolished. Reduction in level of ICT services provided

CHAPTER TWELVE - Special Defence Account

Outputs. Special Defence activities and purchases.

Risks. - Inadequacy of funding

Local industrial capabilities.
Broad based ageing of SA Army prime mission equipment. Will depend on MinComBud outcomes (See Policy Proposals)

Mitigating Action. NT has responded favourably to motivations for initiating the rejuvenation of SA Army prime mission equipment in the last years of the MTEF.

Services to be scaled down, suspended or abolished. None.

CHAPTER THIRTEEN Conclusion

Plan is aligned with Government priorities.
Plan is affordable but not sustainable. This is now mentioned for 4^th consecutive year and is visible in the continued deterioration of equipment and buildings and the request for additional funding to NT.
Peace Support Operations. The SANDF will only be able to sustain current levels within the present allocation.
Despite budgetary constraints, the DOD is committed to excellence in service delivery as per mandate and to maintain its core SANDF capabilities.

Way forward includes

Phased withdrawal from routine SAPS support.
Closure of Commandos.
Increased implementation of Military Skills Development, supported by a viable exit mechanism.
Successful integration of the Strategic Defence Packages in Medium Term.
Implementation of Strategic decisions (Seven Parys Resolutions) in 2004
Progress in health issues through Project MASIBAMBISANE and Project PHIDISA to address the HIV/AIDS pandemic. - Possible establishment of a "Special Service/Construction Battalion".

General mitigating action for budgetary constraints is reprioritisation.

BUDGET PROPOSALS - FY2006/07 TO FY2010/11

2006 Budget Preparation Process

Activity	Date
Submission of Policy Proposals - Options for Additional Funds	7 July 2005
Minister's Committee on the Budget (MinComBud) Meeting	13 July 2005
MinComBud Meeting - Deputy Minister of Defence	1-2 August 2005
2006 Defence Budget/Medium Term Expenditure Committee (MTEC) Submission	5 August 2005
Submit Developed Policy Proposals	2 September 2005
MTEC Hearing - Secretary for Defence	9 September 2005
MinComBud Meeting - Preliminary MTEC Recommendations	12 October 2005
MinComBud Meeting - Finalisation of 2006 MTEF Allocations	9 November 2005
Cabinet Meeting-Approval of 2006 MTEF	14 November 2005

2006 Defence Baseline

2005/06: R22,459,432, 000

2006/07:R22,587,704,000

2007/08: R22,152,268,000

2008/09 : R22,474,256,000

R22494,859,000

2006 MJEF Baseline Allocation per Main Programme

Main Programme	2005/06 R’000	Growth	2006/07 R’000	2007/08 R’000	2008/09 R’000
Administration	681,398	6.16%	723,405	751,835	781,340
Landward Defence	3,575,142	8.61%	3,882,791	4,152,296	4,379,327
Air Defence	2,395,243	4.86%	2,511,618	2,650,266	2,879,880
Maritime Defence	1,211,774	8.66%	1,316,772	1,391,197	1,458,813
Military Health Support	1,577,578	5.80%	1,669,029	1,780,040	1,875,032
Defence Intelligence	148,786	-1.71%	146,236	153,877	160,944
Joint Support	2,490,426	6.87%	2,661,445	3,062,909	3,292,360
Force Employment	1,363,706	3.75%	1,414,877	1,468,556	1,540,008
Special Defence Account	9,015,379	-8.36%	8,261,531	6,741,292	6,127,254
TOTAL	22,459,432	0.57%	22,587,704	22,152,268	22,494,958

Note: Includes provisions for 5% improvement in conditions of service and 1% pay progression

2006 MTEF Baseline Allocation per Economic Classification

Economic Classification	200506 R’000	Growth R’000	2006/07 R’000	2007/08 R’000	2008/09 R’000
Current Payments	12,837,175	6.46%	13,666,292	14,687,750	15,618,929
Compensation of Employees	8,604,458	5.76%	9,099,689	9,600,732	10,098,840
Goods and Services	4,232,717	7.89%	4,566,603	5,087,018	5,520,089
Transfers and Subsidies	9,357,388	-7.89%	8,619,090	7,112,633	6,515,993
Provinces/Municipalities	16,632	-11.87%	14,658	15,032	15,297
Departmental Agencies/Accounts	9,337,845	-7.89%	8,601,381	7,094,414	6,497,365
Non Profit Institutions	2,911	4.81%	3,051	3,187	3,331
Payment for Capital Assets	264,869	14.14%	302,322	351,885	360,036
Buildings/Fixed Structures	70,203	5.50%	74,065	77,768	81,656
Machinery/Equipment	193,019	17.45%	226,700	272,670	276,832
Software/lntangible Assets	1,647	-5.46%	1,557	1,447	1,548
TOTAL	22,459;432	0.57%	22,587,704	22,152,268	22,494,958

Reprioritisation /Baseline Changes

Programme-Budget Holder	Purpose	Amount(RM)
		2006/07	2007/08
Administration
Military Legal Services Acquisition Division	Military Justice Capacity Expansion Implementation & Roll-Out of E-Procure	8 2	8 2
Landward Defence- SA Army	Procurement of Ammunition	11	24
Air Defence - SAAF	M&R Air Base Infrastructure	17	18
Maritime Defence - SA Navy	Statutory Qualifications & Requirements	30	40
Special Defence Account	Rooivalk Combat Support Helicopter Programme	0	200

Value Added Tax on Transfer Payments to Public Entities

Impact on to Public Entities ARMSCOR

2005/06	Provision for Armscor	R 315,363,782	R 315,363,782
	Provision for VAT	R-	R 51,338,290
	Total Requirement	R 315,363,782	R 366,702,072

2006/07	Provision for Armscor	R 333,583,790	R 333,583,790
	Provision for VAT	R-	R 54,304,338
	Total Requirement	R 333,583,790	R 387,888,128

2007/08	Provision for Armscor	R 350,262,980	R 350,262,980
	Provision for VAT	R-	R 57,019,555
	Total Requirement	R 350,262,980	R 407,282,535

2006/07	Provision for Dockyard	R 86,297,367	R 86,297,367
	Provision for VAT	R-	R 14,048,409
	Total Requirement	R 86,297,367	R 100,345,776

	Provision for Dockyard	R 93,832,470	R 93,832,470
2007/08	Provision for VAT	R-	R 15,275,053
	Total Requirement	R 93,832,470	R 109,107,523

2008/09	Provision for Dockyard	R 101,679,437	R 101,679,437
	Provision for VAT	R-	R 16,552,466
	Total Requirement	R 101,679,437	R 118,231,903

DOD POLICY OPTIONS EMANATING FROM DPBEC PROCESS (21)

FINAL PRIORITISED OPTIONS SUBMITTED TO NATIONAL TREASURY

Option	06/07 (Rm)	07/08 (Rm)	08/09 (Rm)
Military Skills Development System	492	517	514
Renewal of DOD Information and Communication Systems	213	526	573
Enhancing the Capability of Intelligence Services	142	247	414
Readiness and Serviceability of Operational Vehicles	495	495	620
Infrastructure	84	421	258
Landing Ships	1 000	3 000	2 100
Expanded Anti-retroviral Roll-out	26	32	58
Total	2 947	5 814	6 081

Note: A 400M Transport to be funded from outside DOD. FY05/06 (Rm495), FY06/07 (Rm576) & FY07/08 (Rm1 544)

DOD POLICY OPTIONS EMANATING FROM DPBEC PROCESS (21)

Option	06/07 (Rm)	07/08(Rm)	08/09(Rm)
CMI- Renewal of DOD ICS (2 components)	99	112	140
SAAF - SDP operating funds	68	84	156
Log - Migration to OSIS	3	33	74
Army - Force Training Exercise	914	1 035	1 045
Pol & Plan - Structure Management Control System	13	13	13
SAN - Maintenance and rejuvenation of maritime capabilities	56	112	112
CSD - DFR representation on the Continent	5	4	4
Army- MSDS	491	515	512
Armscor - IMT	4	3	3
SAAF-Avionics for Astra	16	8	-
Spec Forces - Barracuda Boat System	-	0.32 4	4
SAMHS - 1 Mil infrastructure	30	30	30
Spec Forces - Madimbo training area	3	1	1
SAN - Operational Boat Squadron	14	38	39
HRSC - MSDS (2 sub-options)	4	3	3
Armscor - Gerotek	5	3	3
Armscor - Alkantpan	11	11	10
MPA - Criminality nodal point	3	3	3
SAMHS - ARV roll-out	26	32	58
CPP - DCAC Inspectorate	3	3	3
MPA - HQ Structure	3	3	4

QUESTIONS& DISCUSSION