FlightCom – August 2019

23 FlightCom Magazine

South Africa’s Department of Defence was recently informed by the National

Treasury that the Special Defence Account (SDA), through which it manages

acquisitions, would be closed by the 2021/22 financial year.

Defence

DaRRenoLivieR

HOW SAAF

ACQUISITIONS WORK

T

HE South African Air

Force (SAAF) had already

been informed, in the

Medium Term Expenditure

Framework allocation, that

its own allocation to the SDA

would be reduced from R1.5 billion to just

R37.6 million in 2020/21. This potentially

disastrous shift has gone unnoticed by the

general public and media, as few understand

how the SDA and acquisitions in general

work. This article will attempt to clarify by

explaining both in the context of the SAAF.

It’s important to understand just what

the SDA is, and what makes it ‘special’.

The way the national funds allocation

process works is that every department

and entity has been allocated an account

and each year at budget time the allocated

amount is transferred to it from the National

Revenue Fund. However, any unspent funds

at the end of the financial year are returned

to the National Revenue Fund and be

reallocated as part of the next budget cycle.

The equivalent one for the Department of

Defence is the General Defence Account

(GDA), from which nearly all of the South

African National Defence Force’s (SANDF)

annual spending is funded.

The SDA is different: Unspent funds are

kept in the account across financial years

and can be rolled over for up to three years

per project, or longer if special approval

is received from National Treasury. And

revenue from both the sale of excess/retired

defence equipment and from technology

royalties can be kept in the account to

fund future acquisitions, rather than being

surrendered to the National Revenue Fund.

This makes it very useful for acquiring

complex military systems, as arms of service

can pay for expensive purchases by building

up funds in the SDA over a few years while

staying within their annual allocation and

avoiding the need to use costly external

financing and loans. In addition, any money

in the account can also be invested with the

Public Investment Corporation, earning

interest that helps to offset exchange control

costs and losses. Both of these save South

Africa money on arms purchases.

On average about 10% of the defence

budget is allocated to the SDA, and thus

acquisitions, in any given year. More