Defence likely to get the MTEF blues

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The military is unlikely to see a hoped-for hike in their budget in the Medium Term Expenditure Framework Finance (MTEF) Minister Trevor Manuel will announce in Parliament tomorrow, defence analysts say.  
The MTEF, announced every October, spells out government`s three year spending priorities and provides the context for the finance minister`s annual budget speech, made in February.
The latest Department of Defence (DoD) Annual Report provides a glimpse of the still-to-be-approved Defence Update 2025 that recommends a one-third budget increase on 2008 from 2011, taking the budget from a current R30 billion to R40 billion.
The report says this increase will help create a “credible force design” by 2031.
But analysts say the domestic political situation and global financial crisis makes it unlikely the DoD will get any above-inflation increase before 2015 at the earliest and perhaps not even that as budget priorities change.
Economic policy sea change
This morning`s Business Day reports that the outcome of a weekend economic policy summit involving the ruling African National Congress (ANC) and its alliance partners is a “fundamental shift to the left … with clear signs that the SA Communist Party (SACP) in particular is scoring huge successes in redirecting national policy.”
It reports changes to policy decided at the summit include the creation of a two-tier cabinet, a planning commission, and an industrial policy that focuses more sharply on job creation.
“The changes will surprise, if not shock, analysts who had been taken in by repeated assurances by the new ANC leadership that no policy changes were envisaged,” the paper says.
A joint statement released by the ANC, SACP and Congress of SA Trade Unions says the focus of the meeting was “to consolidate the economic policy perspectives that will inform our common election manifesto” for next year`s general election, expected by April.
“The ANC government, with a renewed popular mandate, must be able to hit the ground running after next year’s elections,” the statement added.
“We know that millions of South Africans want to know what we will do together to greatly speed up ensuring decent work for all, in overcoming poverty and deep-seated inequality, and in addressing rural marginalisation. The challenges of transforming the health and education sectors and the criminal justice system are also key challenges.
“The Summit occurred in the context of an extremely grave financial market crisis with its epicentre in the US. South Africa’s financial sector has borne up relatively well and for several reasons, including, as is widely acknowledged, remaining exchange control measures.
“But the global economic crisis will certainly impact upon South Africa’s economic growth prospects over the next years and pose challenges for job creation and other developmental goals. The global crisis will also impact upon our persisting systemic points of vulnerability – currency volatility, the current account and inflationary pressures.
“All of these challenges require fundamental micro-economic interventions that transform the structural character of our economy. However, macro-economic interventions need also to be constantly monitored in this turbulent situation,” the statement says.
Opposition agreement
The opposition Democratic Alliance appears in broad agreement with the summit statement, saying “poverty, jobs, economic growth and empowerment should remain priorities for Mid-Term Budget Policy Statement.”
DA economic spokesman Ian Davidson noted inflation is upwards of 13% and economic growth is slowing, with some predicting an increase of just 2.8% of GDP next year versus the often-stated minimum requirement of 6%.
Davidson suggests funds to relieve poverty and fund service delivery “should be liberated by reducing unproductive funding commitments and the wastage of resources” – for example state arms manufacturer Denel.
Torrid times
Institute for Security Studies (ISS) defence analyst Bossie Boshoff says SA is currently in a transition phase that makes it difficult to predict policy and budget.
He says President Kgalema Motlanthe`s emphasis on health, education and fighting crime bodes ill for the DoD`s hopes. But this is offset by government`s continued foreign policy focus in which the SA National Defence Force (SANDF) plays a key role as a provider of peacekeepers.          
Military Academy political science professor Theo Neethling says it is extremely difficult to say or predict how government or Manuel “will balance the above-mentioned with this MTEF”.
“Be that as it may, I see some even darker days and more difficulties for the SANDF if more funding would not become available. The required state of readiness and levels of trained and skilled personnel will simply be sacrificed in such a scenario.”
ISS defence programme head Major General (retired) Len le Roux adds that there has long been a mismatch between defence policy and the DoD`s budget, with government expecting too much from the SANDF on its existing financial allocation.
“We have to bring the two in line, either by reducing that expectation or by increasing budget. I`m in agreement with the latter but can`t speculate if that budget will materialise. The demand is not unrealistic and I hope there will be some movement in the MTEF,” Le Roux says.  
But other analysts are less sanguine.
“A blanket increase is highly unlikely,” says MMAGS Consulting MD Rear Admiral (retired) Rolf Hauter. “It is not only the financial crisis that needs to be considered but also the recent spending priorities indicated by the NEC (national executive committee) of the ANC. Defence will be lucky if they are able to get increases that keep up with inflation.”
“To make a real difference to the defence budget, Defence will need to motivate additional funds on a project by project basis. Each motivation will need to illustrate the expected outcome that can be achieved through a specific project. This will have to be in support of the broader policy priorities,” he says.
“In addition each project will have to be costed in a credible way, something which presented Defence with major challenges in the recent past.”
Professor Mike Hough, director of the Institute for Strategic Studies at the University of Pretoria says there is a good argument for spending more on defence but he cannot see where the money would come from. “They can forget about it. That kind of money is simply not lying around anywhere.” 
He adds that money must be found for peace support operations, many of which are foisted on the DoD as unfunded mandates. The military must then cancel vital training, for example, to fund peacekeeping; which is very damaging to both force readiness and capability.    
Brenthurst Foundation defence analyst Rear Admiral (retired) Steve Stead says there is “little likelihood” for any increase in budget before 2015 “and certainly not for navy ships”; a reference to the Defence Update`s hopes of funding the acquisition of strategic support ships to carry troops and supplies in sustainment of peacekeeping deployments. “I`m pessimistic, and that`s being diplomatic.”