A lack of money is hampering arms procurement agency Armscor to an extent that could be to the detriment of the defence force, says chief executive Sipho Thomo.

In the corporation's annual report - released in Pretoria on Thursday - he says the agency's annual payment from the government had decreased in real terms over the past five years.

"Armscor's limited funding capacity has forced the corporation to contract at a high level and, in some cases, could be to the SA National Defence Force's disadvantage."

Armscor chairman Fani Titi formally handed the report to Defence Minister Mosiuoa Lekota at defence headquarters. In the document, Thomo says money constraints also make it difficult to retain and acquire staff.

The agency has been unable to pay market-related salary increases in the past year.

"As a result, the number of resignations and the erosion of technical capabilities has increased."

Thomo says Armscor has an ageing and predominantly white workforce, making it imperative for the agency to transform and renew its personnel profile.

"However, this corporate goal has been frustrated by inadequate funding."

Armscor's primary task is to provide a technical service in the acquisition of defence material for the department of defence and other state organisations.

For this part of its role, the agency receives an annual transferred payment from the department of defence.

The corporation is also involved in commercial business activities, rendering services to the SANDF, defence-related industries, and to foreign defence forces and industries.

Armscor subsidiaries involved in these activities showed a profit of R31,8-million in the financial year that ended on March 31. This compared to a profit of R31,7-million the previous year. Thomo says surpluses from commercial activities were not enough to cover shortfalls in the payment from the government.

He says this grant was cut by 15% from R190-million to R162-million in 1998.

"Thereafter the payment was increased by a mere average annual rate of 5,3% for the past five years, which was a decrease in real terms."

Armscor received R209,4-million in the past year. Of this amount, R207,4-million was used to defray operating expenditure and R2-million for the acquisition of assets.

Thomo says Armscor's workload increased with the multi-billion rand strategic arms defence package projects it has to handle. This required some staff to be posted abroad.

"When this happened, Armscor's already-stretched project management capability was dealt a blow."

Thomo says negotiations are underway with the defence department and the national treasury to address the agency's funding constraints.

The report reveals, for the first time, the salary packages of top management.

It shows that Thomo earned a total package of R1,15-million in the past financial year. This was made up of a basic annual salary of R656 793, allowances of R216 792, other benefits of R142 577, and retirement and other contributions of R134 158.

Titi's fee as chairman came to R200 000. Other non-executive directors earned between R25 100 and R87 625.

With acknowledgements to Sapa and the Mail & Guardian.