Defense funding levels and national security policy effectiveness

REALISTIC FUNDING FOR AN EFFECTIVE NATIONAL DEFENSE POLICY
INTRODUCTION
1. One of the most important national concerns for various countries has been the quest for security. Some of the threats to national security faced by nations include, ethno-religious conflicts, terrorism, regional conflicts, and arms proliferation. In that regard, therefore, nations embrace diverse approaches in their efforts to address security related concerns via the provision of sufficient resources. In the event of major threats, countries are often open to paying higher premium for their protection via the allocation of significant proportions of resources to defense funding. Nations view defense funding differently due to diverse accounting techniques and the differences in the degree of the state’s intervention in the economy.
1. Defense funding is deemed by Whites as being inclusive of capital and recurrent expenditure on the Armed Forces, which is essentially inclusive of MOD and peace keeping force, as well as other agencies that concern themselves with defense projects. Others include, but they are not limited to, Military Personnel retirement pensions expenditure and Payment for Social Service for not only Personnel, but also their families. It is also important to note that defense funding is inclusive of expenditure on Military aid, Military space, activities, and operations R&D.[footnoteRef:1] An adequately funded armed forces ensures effective national defense which is guided by a policy. National defense policy has got to do with a nation’s ability to sustain and further enhance its territorial integrity, Independence, as well as sovereignty. Towards this end, it is inclusive of not only the promotion of social, political, and economic values deemed critical for the maintenance of the quality of life, but also protection against internal subversion and Military attack or coercion.[footnoteRef:2] Key to provision of national defense policy at every point is the national defense resource allocation. It should be noted that although defense spending appears to be an activity focused on draining the economy, its relevance cannot be overstated as it is crucial for the creation of a conducive environment for economic activities investment, and thus provide the foundation national security as exemplified in some developed nations. [1: Charles j hitch and Roland N McKean the economics of defense in the nuclear age,(Cambridge ,Harvard university Press 1960) P.3 ] [2: Nigeria national defense policy 2016 ]

1. Defense funding has been on an upward trend globally within the last 10 years. SIPRI points out that the world defense spending in 2017 stood at $1739 billion – which is equal to 2.2 percent of the world’s GDP. It should be noted that 80 percent of the Military total world spending can be traced to the top 15 countries.?? In the U.S., defense spending has been trending upwards for close to 10 years.?? The US defense spending for the years 2010 was $698.2. This was effectively representative of 19 percent of the federal budget. It 2011, defense spending had risen to $711.4 billion. It is important to note that this was the highest figure recorded thus far. This increase could be deemed a consequence of the September 2011 terror attacks and the Afghanistan and Iran wars. In 2016 and 2017, however, the defense spending has been unchanged at $610 billion. Conversely, in 2018, is set to rise significantly to support increases in military personnel and the modernization of conventional and nuclear weapons.[footnoteRef:3]. This has gradually enhanced the defense policy and capabilities as was seen in not only the mobilisation, but also deployment efficiencies and capabilities of the US military Syria, Kuwait, as well as Iraq military campaigns. [3: ]

1. In Africa, South Africa defense funding has been shrinking over time. This is regardless of the country’s continued domestic as well foreign commitments. In 2011, the country’s defense funding was $4.59 billion. A year later, this fell to $4.49 billion. The trend continued in 2013 and 2014 – falling to 4.14 billion and 3.90 billion respectively. In 2017, South Africa spent $3.6 billion on defense or 1% of its total GDP.
1. In Nigeria, defense funding has been on an upward trend since 2009. At present, the country is ranked at position 57 globally.[footnoteRef:4] Defense funding increased from N291billion in 2010 to N340.33 in 2014 to N375.50 billion in 2015. It further increased to N429.128 billion and N465.87 billion in 2016 and 2017 respectively. It should be noted that in this case, only a small portion of the expenditure was for capital expenditure (9-16 percent), with the lion’s portion going to recurrent expenses. As a consequence of the low level of capital expenditure, the acquisition of modernized military equipment and platforms was adversely affected over the years. [4: ]

1. Defense happens to be an item of key relevance on the FGN funded exclusive legislative list. With that said, FGN bears the responsibility of allocating NA adequate financial resources so as to sufficiently fund the performance of allocated duties as captured in NDP. In line with global standards, a defense budget of 1.5 – 3 percent is stipulated by the NDP. In basic terms, there have been deviations from this stipulation, with the consequence being inadequate funding and equipment dearth in the NA – effectively having adverse effects on National security. The FGN has been funding the Defense sector through several interventions and extra budgetary allocations to carry out assigned roles. Despite all these efforts, the sector is yet to achieve its optimal level of performance. This therefore calls for a realistic funding of the sector to fulfill the objectives of the NDP.
1. The purpose of this paper is to examine the effects of defense funding on the NDP. The paper will discuss an overview of defense funding in Nigeria and the defense funding of some selected countries to draw lessons for Nigeria. Thereafter, it will look at the effects of defense funding and the challenges mitigating against realistic defense funding. Finally, it will proffer ways for realistic funding of NDP. This paper will be limited to the funding mechanism of the NA in the last 10 years. It is assumed that the process of budgeting for NA funds is similar to other Services.
AIM
1. This paper seeks to discuss the effects of realistic funding of an effective NDP with a view to making recommendations.
OVERVIEW OF DEFENSE FUNDING IN NIGERIA
9. In the 1970s, Nigeria enjoyed an oil boom. This effectively ushered in a new approach to military spending and desire for this particular nation to possess modern military equipment. The termination of the civil war also triggered the race for re-equipping the country’s armed forces, with defense funding as a proportion of the total GDP expenditure increasing to 11.99 percent in 1975 (from 10.13 percent in the previous year). Two years later, i.e. in 1977, defense funding had decreased to 11.2 percent. The variation in this case was a result lack of a defense funding policy by FGN. The high priority accorded to the military translated to more allocation to the sector and made it possible for the NA to procure sophisticated equipment to facilitate effective performance.
10. At the end of the 1970 civil war, the need arose to not only demobilize but also slim NA’s staff from 300, 000 to 100,000. In essence, this induced the defense spending after the civil war. As a consequence, a large portion of military budget was diverted or allocated to costs related to military personnel, i.e. disability as well as gratuities allowances. At around this time, Nigeria’s defense funding also started inclining towards costs related to personnel. Platform and equipment acquisition, a capital expenditure, declined.[footnoteRef:5] Alhaji Shagari’s administration, between 1979 and 1983, is also considered an era of enhanced defense budget funding and increased procurement of military hardware. Some of the equipment still in Service were acquired during the period. [5: ]

11. The military regime between 1984 and 1999 witnessed a declined defense funding. During the period, defense expenditure decreased from N1.09 billion in 1983 to N928.2 million in 1984 and 736 million in 1987.[footnoteRef:6] In essence, this effectively corresponds to 2.1 and 1.6 percent of GDP in 1983 and 1984 respectively, which had further declined to 0.7 in 1987. This has been captured in Annex A. Consequently, within this period, very few equipment was purchased – which caused an equipment deficiency as evidenced at the time of the ECOWAS Monitoring Group (ECOMOG) operation in Sierra Leone and Liberia, and which interrupted the efficiency of the NA. Although the operation was deemed successful, equipment obsolescence and insufficient logistic support protracted the entire undertaking with consequent loss of lives and properties. In addition, the dearth of military equipment at this time was blamed on the fear that the equipment could be utilized in the planning, facilitation, as well as execution of military coups. In that regard, therefore, military equipment procurement was overlooked, bringing about the deplorable state of equipment holding in the AFN. In the end, this had an adverse impact on effective performance of the military and a poor interpretation of the nation’s defense policy. [6: ]

12. Improved defense funding was witnessed during the democratic regime of May 1999 to May 2017. This increased can be attributed to the need to improve military professionalism and the severity of internal security threats as well as international engagements. The Military Professional Resources Incorporated (MPRI) as well as the British Defense Advisory team (BDAT) were called in during specific periods and instances with an aim of facilitating and further promoting the re-professionalization programme. At this time, the AFN had to be cognizant of the increased internal security operations. This is as a result of insurgency in the NE, herdsmen and farmers clashes, militancy in the Niger Delta and kidnapping amongst other internal threats.
13. Defense funding increased to 58.6 billion in 2011 and 64.9 billion a year later, from N39.9 billion in 2000.[footnoteRef:7] This pattern continued and as at 2007, it stood at N126.3 billion. By 2013, it had risen to N364.16 billion and N375.49 billion in 2015. It further increased to N429.128 billion and N465.87 billion in 2016 and 2017 respectively. From the above figures, it should be noted that the yearly defense funding increase was largely steady. Essentially, this could be attributed to the system of incremental budgeting utilized for budgetary allocation. However, recurrent expenditure took the lion’s share of the defense funding, with capital expenditure getting an insignificant sum. A good example would be the 2014 NA budget. In this case, whereas the capital allocation was N4.89 billion, recurrent expenditure was 127.88 billion. The former was representative of the total defense funding. To make things worse, only 2.29 billion (out of the capital expenditure 4.89 billion allocation) was in actual sense disbursed for the year. This represents percent. Effectively, the procurement of Arms as well as equipment was undermined by the partial capital budget release. This also encouraged the sustenance of obsolete equipment as part of the NA inventory. This has affected the capacity of the NA, having a negative effect on national defense policy and undermining security. [7: ]

DEFENSE FUNDING OF SOME SELECTED COUNTRIES
13. The interactions between defense funding and national defense policy of some countries in terms of capacity to perform were analyzed. The defense funding of Algeria and Turkey was examined so as to draw lessons for the paper.
DEFENSE FUNDING AND NATIONAL DEFENSE POLICY IN TURKEY
14. The Turkey Armed Forces (TAF) is greater than those of both Britain and France in numeric strength, with a total of 514,000 men in service and another 380,000 in reserve.[footnoteRef:8] As a matter of fact, TAF is NATO’s second largest standing force after the United States of America with the world’s 8th largest number of troops in active service.[footnoteRef:9] As SIPRI observes, Turkey defense spending in 2017 was captured as 22.6 billion. This represents about 2 percent of its GDP. This made it one of the biggest highest spenders in the world in 2017. Apart from budgetary allocation, the Turkey Armed Forces have other non-budgetary sources of defense funding. These include, but they are not limited to, returns raked in by private companies operated and managed by the Defense Industry Support Fund (DISF) and the Turkey Armed Forces Foundation (TAFF) 2. The DISF is a scheme to see to it that stable as well as continuous extra budgetary financing of the TAF to enable modernization and development of the Turkish Defense Industry to enhance national security. [8: ] [9: ]

15. The DISF constitutes revenues from levies as well as indirect taxes on gambling, tobacco, and alcohol. The DISF gets up to about $1 billion is also being paid to the fund.[footnoteRef:10] Exception is granted by the conscription scheme to Turkish men of age 28 and above in return for a 18,000 liras lump sum payment.[footnoteRef:11]. Depending on their educational level, all male Turkish citizens who are of age 20 and above are required to engage in compulsory military service for several months. [10: ] [11: ]

16. The TAFF was established in the year 1987 with an aim of further enhancing military strength and minimizing dependency upon foreign entities through the establishment of a national defense industry which has the capability of producing its armament, equipment, and tools. TAFF has the ownership of shares in a number of private corporations (18 to be specific) and no funds are allocated to it by the government. In essence, it generates profit for not only re-equipment, but also modernization of the armed forces so as to promote readiness (in an operational sense). [footnoteRef:12]. The Machinery and Chemical Industry Corporation (MKEK) was established in 1950, and all the funds for its establishment were sourced from the government. As of date, its operations mimic those of a state economic enterprise with 12 facilities and approximately 7,500 staff engaged in the manufacture of various military tools and equipment for both local use and export. According to the Turkish President, Recep Tayyip Erdogan, Tukey exported $906.4 million in military and aerospace products in the first half of 2018, compared with $795.7 million during the same period of 2017.[footnoteRef:13] The statistics which is based on data compiled by Turkish Exporters Assembly, shows that the sector was responsible for 1.1 of Turkeys total export in 2018. This makes Turkey, a net exporter of military equipment. The Vision for 2023 for the centenary of the Republic of Turkey, declared by Erdogan, is a list of goals that includes ranking in the top 10 economies in the world and becoming self-sufficient state in terms of defense.[footnoteRef:14] The realization of this strategic plan will come in handy towards the further enhancement of the effective capacity of the TAF to further contain regional threats. [12: ] [13: ] [14: ]

DEFENSE FUNDING AND NATIONAL DEFENSE POLICY IN ALGERIA
17. South Africa was in 2009 overtaken by Algeria, which claimed the crown for Africa’s largest defense. Over the last 10 year, Algeria’s military spending has experienced a 176 percent increase. In 2013, the total annual spending stood at $10.4. What this means is that Algeria is Africa’s first nation to cross the $10 million mark as far as defense budgeting is concerned.[footnoteRef:15] In 2014, the country’s defense funding increased to $11.86 billion. This is effectively representative of approximately 13.5 percent of GDP. The per capita military expenditure stood was captured as $29710. This high level of defense capabilities is crucial to enhance capacity. Some purchases include German armored vehicles, Italian amphibious vessels, and Chinese self-propelled artillery whose assembly is to take place in one of Algeria’s newly established plants. There was also substantial acquisitions from Russia (which were inclusive of submarines and helicopters).[footnoteRef:16] All this has substantially enhanced Algeria’s army capacity to perform their traditional assigned responsibilities. [15: ] [16: ]

18. Algeria also has a military industrial company which was founded in 1998 and known as Military Industry of Central Direction. It produces military arms, vehicles, weapons, ships, jets, helicopters, tanks and other equipment. Algeria exports its indigenously manufactured weapons to Tunisia, Mali, Niger, Libya, Mauritania as well as Arab states in the Middle East[footnoteRef:17] The exports has really increased the revenue generated from the sale. [17: ]

18. Algeria is heavily reliant on the export of gas and oil - which accounts for approximately 40 percent of the nation’s GDP, 98 percent of its foreign exchange, and 70 percent of the country’s national budget. [footnoteRef:18] This kind of reliance has become the proverbial double-edge sword for the nation.[footnoteRef:19] The recent decline in the prices of oil notwithstanding, the country still has its sights set on its rearmament efforts with an aim of recapitalizing inventory in a way that could strengthen its capacity to deal regional terrorism and insecurity a decisive blow. [18: ] [19: ]

LESSONS FROM THE STUDY
19. The study of Algerian and Turkish examples presents some critical lessons. These are inclusive of the diversification of defense funding sources, military industrial base development, and keeping of a strong reserve force. These will be highlighted below.
20. Sources of Defense Funding Diversification To promote the realization of their goal of being a regional powerhouse, Turkey diversified funding of their TAF. Apart from budgetary allocation, the country has implemented some the TAF funding means that are largely non-budgetary. These are inclusive of returns from TAFF operated firms, funds from the DISF, as well as proceeds from MKEK. Nigeria ought to learn from Turkey’s diversified defense funding sources.
21. Military Industrial Base In establishing MKEK, the TAF facilitated the development of the Turkish defense industry. The MKEK at present has the capacity to produce various military items and equipment including howitzer, mortars, and artillery guns for the Turkish armed forces and exports to approximately 40 countries. In addition to satisfying the local needs for the relevant equipment and related pieces, this has also enhanced capacity of the TAF. Similarly, Algeria tows the same line of a military industrial base for generation of revenue for its military. Nigeria ought to learn the critical lesson of the existing and ever-present need for a country to advance its military industrial base.
22. Reserve Force Maintenance. The strong reserve force maintained by TAF is immediately and easily available whenever needed. Having low maintenance, the 380,000 men strong TAF complements the 514,000 men in active service. Countries ought to maintain a reserve force which could be called upon as a supportive or complimentary force to the regular forces.
CHALLENGES MILITATING REALISTIC DEFENSE FUNDING OF NIGERIAN ARMY
23. The challenges militating against realistic defense funding for effective performance in line with the NDP, include low capital budgetary allocation, incompatible budget system, partial capital budget release, low prioritization of NA budget, and non-compliance with the NDP. These have been discussed below.
NON-COMPLIANCE WITH THE NATIONAL DEFENSE POLICY
24. In Section 39, the NDP recommends that defense funding budget ought not to exceed 3 percent or be under 1.5 percent of GDP. Furthermore, in Section 40, it points out that “the government shall henceforth allocate resources based on adopted programmes and performance”[footnoteRef:20] It should, however, be noted that at the time of budget preparation, the FGN fails to give consideration to recommended percentages as has been highlighted above because defense budgetary allocation lurks around 0.9 percent. Also, the FGN may not necessarily make use of the Programmes and Performance Budgetary System (PPBS) in the preparation of defense budget. In its place, it makes use of the incremental budgeting system for the various ministries, departments and agencies (MDA). This tends to have a negative effect on the NA as inadequate budgetary allocation is advanced to defense – effectively undermining personnel welfare, equipment procurement, and in the long-term, the effective capacity of the NA to perform; hence undermining national security. [20: ]

25. Failure to comply with NDP provisions has resulted in a competition of sorts between the NA and other MDAs for funds. Various key projects are also not taken into consideration in the budget as a predetermined ceiling (which is largely arbitrarily) is in most cases fixed and various measures put in place to ensure adherence at the time of preparing the budget. Complying with the NDP could come in handy in seeking to ensure that realistic estimates are made by the NA for fund needs going forward. It should be noted that the ORBAT 2016 which is predicated on 8 – division structure has not yet been embraced in its entirety as a result of poor funding linked to failure to comply with the NDP.[footnoteRef:21] Towards this end, failure to comply with the NDP is a concern that militates against realistic defense funding for effective NA performance. [21: ]

LOW PRIORITIZATION OF THE NIGERIAN ARMY BUDGET
26. Nigeria’s defense funding within the last 10 years has been approximately 0.9 percent of GDP, which is not in line with the global recommendation of between 1.5percent and 3 percent. Nigeria accords this low priority to its defense sector as a result of an existing mismatch of sorts between the various objectives of national security, FGN procurements, NDP stipulation, and formulation of national budget by the Federal Ministry of Finance (FMOF). There are, therefore, questions as to whether the present capacity of the NA could be deemed sufficient to replicate the successes as captured in PSOs undertaken in the 1990s.[footnoteRef:22] Thus, inadequate attention is accorded to the NA in the budgetary process of the FMOF. In the end, this continues to undermine NA’s capacity and eventually negatively impacts national defense policy while at the same time impinging national security. [22: ]

27. No inter-state war with our neighbors was envisaged by the FGN – something which could have had a hand in the low defense budget prioritization. Given that Nigeria presently encounters intra-state crisis and insurgency, the FGN does not still find it necessary to adjust the defense sector prioritization to high. It should be noted that the low prioritization advanced to the NA in the past continues to impede its abilities and capacity to perform. The NA may intensify efforts in commercializing some of its services as well as assets to augment statutory funds.
PARTIAL RELEASE OF CAPITAL BUDGET
28. The NA is often constrained from advancing its agenda by the existing disparities between capital budget appropriation and releases. A good example would be the appropriation of N4.89 billion to the NA in the year 2014 for projects of a capital nature. In this case, the released amount amounted to only N2.29 Billion.[footnoteRef:23] In 2015, N5.57 billion was appropriated and N2.87 (representative of 49.99 percent) was released. For a while now, this has been the norm, and has resulted in delays in ongoing projects. [23: ]

29. NA’s operations as well as programmes are disrupted by the partial release of capital budget, with the most common consequence being equipment and logistics inadequacies. It remains somewhat unusual a nation fighting hard against terror could still have a 58 percent (in average terms) implementation level with regard to the capital budget. Although it would have been more appropriate for the FGN to release the whole defense capital budget as appropriated, the release was only partial (i.e. for the year) but the FGN proceeded to make a $2.1 extra budgetary release of to ONSA from the service wide vote for equipment and arms purchase for the armed forces. Only a few arms and other related items were acquired as the whole transaction became scandalous in what came to be known as Dasukigate. In this case, the equipment holding level in the AFN was effectively worsened in what ended up affecting capacity to perform. It could, therefore, be said that partial budget release impedes realistic defense funding for effective performance of the NA.
INCOMPATIBLE BUDGET SYSTEM
30. The incremental budget system is utilized by the FGN for resource allocation to the relevant economic sectors, which are inclusive of defense. In basic terms, incremental budgeting system has got to do with an addition to the budget of the previous year a pre-determined percentage without necessarily considering the various programs as well as needs of the ever changing contemporary society threats. MTSS’ planning assumption cannot, therefore, be said to be cognizant of the various changes so as to be aware and responsive to new developments, and this gets in the way of the NA as far as adapting the various courses of action in seeking to achieve the needed capacity levels needed to address security challenges is concerned.
31. A PPBS would have come in handy in seeking to afford the NA the leverage necessary for activities articulation projects and procurement and highlight estimates as well as the results expected. It is important to note that thanks to a budgeting system of this nature, the NA has the ability and green light to budget for the various undertakings deemed necessary without necessarily imposing a budget ceiling. This would have the effect of facilitating military equipment acquisition as well as NA modernization in a way that would have positive impact on capacity.
LOW CAPITAL BUDGETARY ALLOCATION
32. The level of military equipment acquisition needed for effective performance is limited by the low level of defense funding for capital expenditure limits. In essence, this not only hinders, but also gets in the way of the accomplishment of NA units’ specified TOE. For example, the APC scale of an infantry battalion happens to be 38, in comparison to less than 10 in majority of the NA units51. The low level of defense funding was to blame for equipment shortage or scarcity and the NA had to deploy equipment that was not only unserviceable, but also old for OP LAFIYA DOLE. Most NA infantry Battalions have equipment holding that falls below the approved standards of 20 percent52. The capacity to perform is thus affected.
33. Nigeria’s engagement in PSOs is a manifestation of the low level of equipment holding as a consequence of defense funding that is largely inadequate. For example, each Nigeria Battalion (NIBATT) comprised of three to five APCs, in contravention of the MOU call for 26 APCs per Battalion. The country rakes in a meager return for deployment of contingent own equipment (COE) in United Nations undertakings. Other countries rake in substantial amounts that they could make use of in their military modernization efforts. In 2012, Nigeria realized approximately 49.5 percent from United Nation missions in compensation. This amounted to $21 million. Insufficient defense funding for military equipment production and acquisition in most cases leads armies such as the Turkish Army to invite the private sector in not only the production, but also the procurement of military equipment. Their involvement in commercial ventures also becomes necessary so as to raise funds for military modernization. This is something that is yet to be exploited by the NA for the procurement of military equipment to enhance capacity. Therefore, inadequate funding is a challenge for effective performance in the NA.
THE WAY FORWARD
34. In order to mitigate the above mentioned challenges, it will be necessary to proffer strategies to overcome the challenges of realistic funding of the Nigerian Army to enable it effectively carry out constitutionally assigned responsibilities in line with the NDP. The approaches are inclusive of the enactment of a Defense Trust Fund Act (DTFA), commercialization of NA assets, as well as enactment of National Defense Act. There is also the private sector (PS) participation policy formulation and the adoption of PPBS for defense budgeting. The various approaches have been highlighted below.
A NATIONAL DEFENSE ACT ENACTMENT
35. NDP non-compliance concerns could be lessened or diminished via the National Defense (NDP) act enactment. The NDP could be reviewed before passing it into an act of NASS. The act would come in handy in seeking to facilitate and chart the way for defense funding as the foundation for a legally binding defense budget preparation. Recommendations would be made for 1.5 to 3 percent of the GDP in defense funding as highlighted in NDP on the basis of prevailing economic circumstances. An undertaking of this nature would guarantee a defense funding which is both reliable and adequate and that enhances or promotes the effective performance of the NA.
36. The DHQ could through the MOD initiate the draft bill. The relevant stakeholders in the defense sector, who include but are not limited to the office of the national Security adviser, the army, and the house and senate committees on Defense, could made aware of the relevance of the bill. By the fourth month of the next year, the commencement of the relevant ground work could be underway while the bill could still be forwarded by MOD to the NASS by the last quarter for it to be passed by the third quarter of the year.
COMMERCIALIZATION OF NIGERIAN ARMY ASSETS AND SERVICES
37. The challenges of low NA budget prioritization could be lessened via the commercialization of several service as well as assets of the NA. This would facilitate inflow of funds so as to allow for existing equipment maintenance as well as defense procurement. The internally-generated revenue (IGR) could be of great relevance in the augmentation of FGN’s insufficient budgetary allocation in what could effectively diversify defense funding sources. The company may place bids for available works, with the NA Engineers (NAE) expected to ratify such contractual engagements. The medical facilities run and operated by NA could have their functionality further enhanced and their services commercialized. The NA signals could engage in aerial surveillance using UAV for oil company’s pipelines.