How to develop strategies for Security Sector Finance?
1. Why are security sector finance strategies important?
Security Sector finance is abut ensuring that there is financing to deliver the security sector objectives. Security actions need to be funded, soldiers paid, fed, and necessary equipment delivered and infrastructure built.
This paper discusses strategies for security sector finance. Its an issue that has been very difficult to resolve in post-conflict countries.
In this context, we provide some examples from Somalia, a country that spends more of its budget on security than most other nations on this earth.
About 4 of 10 tax dollars are spent on security.
About half, if not more, of total international support to Somalia is spent on security.
The international spending exceed the national tax-funded spending by a factor of about 20.
Resolution of the financing systems for security sector is necessary to achieve any other strategic and operational efforts in the security sector.
Without the financing systems in order, the troops will not get paid, morale will suffer, equipment and supplies will not be allocated effectively, and control and coordination of the forces will be very challenging.
2. Focus on resolving two key dimensions of security sector finance: Strategy and operational systems
The issues raised here are drawing upon experiences from strategy processes that Abyrint supported in Somalia. It focused on resolving structural financial issues, and also addressed a number of administrative systems issues. The work involved preparing analytics, strategies, actions-plans, and design implementation tools to help resolve the situation. Government has since embarked on implementing structural reforms.
The two are closely related. Strategies and systems. Without functioning finance, administrative and human resource, the millitary and police will not be able to operate effectively. Strategies will remain paper exercises, at best garnering political will, but impossible to act on.
The work discussed here was done in parallel to a World Bank Security Sector Expenditure review on Somalia that has since been made fully public. There was much collaboration between the government team that Abyrint supported, and the World Bank expenditure review team, during the process. Underlying data from primary research, and some of the quantitative modeling, was shared between the teams.
The process that Abyrint supported focused on front-end problem-solving. It dealt exclusively with security forces under the federal government mandate: the Somali National Army and the Federal Police. The related World Bank studies focused on longer-term fiscal sustainability, had a nationwide focus, beyond the federal government, and included regional perspectives on security finance and fiscal sustainability. The IMF also aligned its debt relief reform program against this. Structural benchmarks were supportive of security reforms and this helped accelerate progress.
The key issues encountered here are not unique for Somalia and will be encountered in other post-conflict countries intent on resolving the situation.
We discuss key issues of strategy for security finance here, discuss important operational issues in rebuilding security sector finance systems in this other article.
Caption: Security sector finance reform in Somalia focused on: (i) resolving critical strategic constraints: and (ii) building new operational systems for finance and HR. Similar process was developed for the Federal Police
3. Key challenge: Misalignment of objectives, force structure, and finance
3.1. The concept is obvious, but in practice very difficult
In Somalia, as in many other countries, there is a disconnect of:
Security sector objectives,
Force structures, and
Costs and financing.
Security sector objectives are set, and plans developed, often within complex negotiated political processes. A core objective is often to maintain a fragile government coalition, and balancing a fragile situation may matter more than being aligned with technical realities.
The challenge is that when negotiations are highly politicized, as in peace processes, reconciliation and stabilization discussions, it disconnects from other factual realities. Numbers, maps and sectors are redrawn without much consideration for the factual status of the forces, their structures and quality, and all is decoupled from realistic notions of cost and financing.
Consequently, the cost of reaching the security sector objectives may not be considered.
And much less the capacity of the financial and administrative systems to deliver.
While the problem is intellectually speaking, obvious, it may be hard to spot in practice, and even harder to align these factors in real world situations.
This is challenging in the most advanced nations also. We have worked with NATO nations on aligning security sector objectives, force structure, base architecture, cost and financing, with political decision. This is challenging, politically and technically. But in such countries there is typically a more robust financial planning regime, a robust Ministry of Finance that sets down rules for structural planning, and this leads to more sustainable outcomes.
In fragile and post-conflict states, however, the difficulties are compounded by several factors. And we stick to the technical ones here.
Critical decision making information is not available. Leadership struggles to make informed decisions without a real factual basis, without reliable numbers of cost, financial flows, personnel numbers and logistics. This is not only a problem for long-term planning, but also a critical operational constraint.
Much primary research is needed to understand basic financial and expenditure facts, numbers of soldiers, unit designations and the like. While basic registries and accounting may be in place, it is poorly structured, cannot provide decision making information, not digitized, inaccurate and unreliable.
Strategic decisions, plans and ambitions go wrong, or most likely, fail to become more than papers. They lack foundations in critical facts and realities.
Caption: Connecting objecties, structures and financing. Seems obvious, but very hard to implement for security sector reform in post-conflict states.
3.2 Build financial planning models, and watch out when the process breaks down
Build proper planning models, and integrate highly capable financial modeling teams into the process. Political and strategic decisions on military, and on police, on issues of force structure, equipment levels, and infrastructure should be based upon facts. Facts about what items cost, what it Weill take to sustain a illitary force of a certain size, and whether thee is financing available to fulfill all the objectives.
Such models are best built up with good unit cost estimates, multiplying costs of various alternatives, and with consideration for how much financing that is available from the government treasury. The cost implications of all decisions on force structure, equipment and infrastructure should be understood.
Ideally, security sector planning takes place within a financial framework. These are the types of frameworks that Ministries of Finance will develop. They set financial envelopes and expenditure constraints. No sense in planning for stuff you can’t afford. Thats just fantasy, its not strategy.
The alternative approach, planning without financial constraints, is surprisingly common.
There are different rationales for the breakdown. Watch out for these. Question cautiously whether the rationales justify lifting the financial assumptions for the planning. They rarely do:
Hopes for more (government) revenue in the future. Maybe it is realistic that government revenue will be rising. But, demand on this revenue will come from all types of directions, not only security, and in absence of holistic macro-fiscal planning frameworks, this is unlikely to be accounted for. Such assumptions are best discounted heavily.
Poor technical financial models with weak empirical basis. This is harder to spot. Modeling may be part of the process, but it may be of poor quality, based upon wrong assumptions, and poor empirical foundations. In high performing governments there is considerable effort placed on ensuring the qualities of the model frameworks. Major public investment decisions, including for security forces, undergo stringent quality assessments, often with dedicated reviews of the modeling frameworks and assumptions.
Realism is not important, politics of stabilization override. Financing constraints are simply not considered. Stabilization processes may be so fragile, sensitive and vulnerable, that whether or not the plans are realistic, is not important. All that matters is that parties agree and the situation stabilizes. Security sector issues are at the heart of stabilization processes, and alignment of ideas between key parties is the overriding concern.
When coming from the third type of situation, where short-term stability concerns override, one needs to carefully concider how much that one can feasibly depart from the financial realities, and when that reality will eventually catch up.
Eventually, the poorly founded security sector plans will fail. Predictably. Poorly founded plans may have a basis in a political agreement, but not in (other) factual realities, including finance or the systems capability to deliver.
The realities will catch up and cause another round of disappointment, failed expectations and instability.
Consider the exhibit below, from Somalia, where plans and ambitions of the security sector architecture will triple the spending on the sector. And thats a sector that already consumes 40 percent of government spending.
Plans and realities can quickly become very disconnected. Realities will catch up, and ambitions will be difficult to realize.
3.3 Accept that realities on-the-ground will diverge from the plan
There is considerable tolerance for poor execution in post-conflict states. Security forces may be more nominal, and exist only in name, than in reality.
Underpaid, underfed, and ill equipped forces. And in situation like below, even the minimal model of basic pay and food is not delivered, much less a fully paid and equipped force.
Half empty, or half full. While there is a degree of tolerance for these ambiguities, to a degree, and for some time, chances are that this will break down.
Such equilibriums may be maintained for a long time. This is about calibration of a political equilibrium. It is not about developing an effective security sector that actually meet stated targets. Political equilibriums developed on basis of faulty foundations will probably crumble. If nothing else, they certainly will not result in an effective security sector.
Sustained under finance of security forces. Possible for a while, chances are that it is not sustainable.
4. Build capacities at the center for decision making on security sector finance
Build the capacity for financial planing into the core center for strategic security sector management. This would be at Ministry of Defense, or at the Executive office, whatever is the center fo gravity for strategic decisions.
This capacity should be part of parcel of all strategic planning, and feed decision makers with factual basis for making informed decisions.
These capacities should also be integrated into peace negotiations, settlement and various stabilization efforts that are contemplated.
This has been challenging. Other studies have also pointed to the systematic lack of integration of security sector finance conciderations. There is perhaps more attention being paid to this now, including these studies by the World Bank on security sector finance, but robust operational examples are few.
International partners are often significantly involved in security sector reforms. There is, however, a lack of those integrative approaches on the civilian side. It is possible that the international responses reflect that institutions like the IMF and the World Bank are to a large extent constrained from engaging on security sector matters. These institutions have an integrative function on civilian reforms, but are constrained form acing out this role on security sector issues.
Governments themselves need to step-up. Capacities need to be built at the center.
International financing should be requested to build robust capability. Such capacities may be expensive, but are highly leveraged and will have significant impact. The costs of the most high powered strategy consultant team is minimal compared to the enormous funds being channeled into operational security sector in post-conflict countries.
Beyond strategy comes the implementation. And in this respect, the qualities and capacities of the security sector systems to deliver financing, to keep account of personnel, and to deliver logistics, is a whole different story. We discuss these matters security sector financing systems here.
Ivar founded Abyrint in 2013. He is trained in public administration and economics including at Johns Hopkins University where he attended with a Fulbright Scholarship. Ivar worked for years at the World Bank in Washington D.C and also served as a Director with PwC advising corporate and government clients.