2.1
This chapter establishes the context of the present inquiry.
2.2
The chapter begins with an overview of Australia’s aid program. It then notes some regional and international developments relevant to Australia’s aid program. It concludes with a summary of significant announcements relating to Australia’s aid program that have been made since the commencement of the inquiry in March 2018.
Overview of Australia’s aid program
2.3
This section gives a short overview of Australia’s aid program. Further evidence on the effectiveness and outcomes of the program, and on specific priority areas of the program identified in the inquiry’s terms of reference, is discussed in subsequent chapters.
2.4
Australia’s aid program is administered by the Department of Foreign Affairs and Trade (DFAT).
2.5
Prior to 2013, Australia’s aid program was administered by an autonomous executive agency, the Australian Agency for International Development (AusAID). In 2013, AusAID was integrated with DFAT to more closely align Australia’s aid and diplomatic objectives.
2.6
In a submission to the inquiry, DFAT described Australia’s aid program as a ‘whole-of-Australia commitment to reducing poverty and promoting prosperity for people in developing countries, predominately in the Indo‑Pacific region’.
Australia’s aid policy
2.7
In 2014, the then Minister for Foreign Affairs, the Hon. Julie Bishop MP, released the Australian Government’s new aid policy, Australian aid: promoting prosperity, reducing poverty, enhancing stability. The policy introduced significant changes to how and where Australia delivers its official development assistance, with an increased focus on the Indo‑Pacific region.
2.8
The policy states that the purpose of the aid program is to ‘promote Australia’s national interests by contributing to sustainable economic growth and poverty reduction’.
2.9
In a submission to the inquiry, DFAT explained how Australia’s aid program contributes to Australia’s national interests:
Australia’s development assistance magnifies the influence that Australia brings to bear on regional and global problems ... The development assistance program also provides an opportunity to promote Australian expertise and to develop deep links with countries in our region.
More broadly, Australia’s development assistance program gives us soft power, influence, credibility and leverage in our region. It enables us to project Australia’s values – including political, economic and religious freedom; liberal democracy; racial and gender equality and mutual respect – while supporting our national interests.
2.10
The policy introduced a focus on two development outcomes:
strengthening private sector development; and
enabling human development.
2.11
These development outcomes are set out in further detail:
Expanding opportunities for people, businesses and communities is the key to both promoting economic growth and reducing poverty. People leave poverty when they get a job or a better paying job, and when they have the opportunity to use their time and skills more productively.
Nine out of ten of these jobs are created in the private sector. The private sector encompasses informal sector activities, including individual farmers and street vendors, through to large locally owned firms and multinational corporations. Australian support will strengthen the private sector in our partner countries through improving the business enabling environment, and helping create better functioning markets.
We know that a focus on the private sector alone is not enough. Promoting economic growth and poverty reduction requires a foundation of strong human development. Improving education, health, gender equality and women’s empowerment are essential to both building a skilled and competitive workforce and lifting living standards. Educated women have fewer, healthier children who are themselves more likely to go to school. Healthier adults have better opportunities to earn an income, and children who are well-nourished and free of disease are able to learn at school and gain the skills needed to break out of poverty.
2.12
The policy also outlines six priority areas that contribute to the achievement of the development outcomes:
infrastructure, trade facilitation, and international competitiveness;
agriculture, fisheries, and water;
effective governance: policies, institutions, and functioning economies;
building resilience: humanitarian assistance, disaster risk reduction, and social protection; and
gender equality and empowering women and girls.
2.13
The policy states that these six priority areas reflect Australia’s expertise and strengths, regional barriers to growth, and challenges affecting poverty, and that investment in the priority areas will be balanced to reflect Australia’s national interests and the context in each country.
Increased focus on the Indo-Pacific region
2.14
As noted above, Australia’s new aid policy introduced an increased focus on the Indo-Pacific region.
2.15
The 2017 Foreign Policy White Paper defines the Indo-Pacific region as ‘the region ranging from the eastern Indian Ocean to the Pacific Ocean connected by Southeast Asia, including India, North Asia and the United States’.
2.16
The aid policy includes a commitment that from 2014-15 at least 90 per cent of country program aid will be directed to the Indo-Pacific region, particularly South-East Asia and the Pacific.
2.17
The policy states that this limited geographic focus:
... reflects the reality that the vast majority of our nearest neighbours are developing countries. Many of them face significant development challenges. Ten of Australia’s 15 top partner country aid recipients are considered to be fragile or conflict-affected. Their fragility has a direct impact on our national and security interests.
2.18
The policy also states that a focus on the region is an expression of Australia’s national interest:
... stronger growth, prosperity and stability in the region is of direct benefit to Australia, Australians and citizens of our neighbouring countries. It is also where Australia’s aid can make the biggest difference.
2.19
Further background on the Indo-Pacific region is outlined later in this chapter.
Aid funding
2.20
The Australian Government allocated $4.2 billion for overseas development assistance (ODA) in 2018-19. This allocation represents approximately 0.86 per cent of Commonwealth Government spending.
2.21
According to the Organisation for Economic Co-operation and Development (OECD), in 2017 Australia’s ODA funding represented around 0.23 per cent of gross national income (GNI). In terms of ODA funding as a percentage of GNI, Australia ranks 18th out of OECD Development Assistance Committee (DAC) member countries, with the average across all DAC member countries being 0.31 per cent.
2.22
Australia’s aid budget has contracted in recent years, in real terms and as a percentage of GNI (noting though an increase in real terms of Australian aid targeted to the Pacific). According to the OECD DAC, since 2013, the aid budget in cumulative terms has been reduced by over 30 per cent, and the ratio of ODA to GNI is now at a ‘historic low’.
2.23
Further evidence in relation to the contraction of the aid budget is considered in the following chapter.
2.24
The majority of Australia’s aid funding is directed to the Indo-Pacific region, including:
$1.3 billion in the Pacific;
$1.0 billion in South-East and East Asia; and
$284.8m in South and West Asia.
2.25
Approximately half of Australia’s aid funding in the Pacific is directed to Papua New Guinea ($572.2 million). Australia also provides $187.0 million to the Solomon Islands, where the Regional Assistance Mission to the Solomon Islands (RAMSI) concluded in 2017.
2.26
Outside of the Indo-Pacific region, Australia directs $258.5 million to the Middle East and Africa and $5.9 million to Latin America and the Caribbean.
2.27
Australia also provides $563.8 million to international organisations (including the United Nations) and multilaterals, and $737.3 million in humanitarian aid and other assistance not attributable to any particular region.
2.28
In its 2018-19 Budget summary, DFAT outlined total aid funding by region, together with sectoral and global allocations.
2.29
DFAT’s website lists the countries and regions where Australia gives aid and provides links to the individual country programs.
Aid delivery
2.30
Australian aid is currently delivered on a grant basis.
2.31
DFAT described a range of approaches for delivering aid within the current policy framework, including bilateral programs, co-operation with international partners, partnerships through multilateral organisations, and regional and sectoral programs:
Bilateral programs allow DFAT to respond directly to priorities identified jointly with partner governments. This also allows DFAT the most direct oversight.
At the same time, there are other development challenges that are best managed in cooperation with other international partners-whether they be other bilateral donors, multilateral development banks, expert international organisations, parts of the United Nations (UN) system or international civil society.
DFAT achieves greater impact through partnering with other donors through multilateral organisations that specialise in tackling particular global problems and which can pool resources from a range of sources (alongside Australia’s). In this way Australia’s funding can achieve more in conjunction with other resources and pooled expertise.
Regional and sectoral programs are used most frequently where there are cross-border issues that can be best tackled through a common approach across several countries. Examples can include regional health security to avoid pandemics; water management in river systems that cross borders; or gender equality efforts where stakeholders can learn from the experience of their neighbouring countries.
2.32
DFAT explained that the aid program has undergone significant changes over the last four decades and suggested that the program continues to be dynamic and responsive.
2.33
The Australian Government’s aid policy released in 2014 introduced changes to the ways in which Australia delivers aid. These changes included:
working with the most effective and innovative delivery partners with a particular focus on value-for-money and achieving results;
consolidating aid investments at country level, focusing on fewer, larger investments; and
actively engaging with and managing risk.
2.34
DFAT also explained that, given the diversity of the Indo-Pacific region, the Department tailors its development assistance to ‘the realities of regional and country contexts’:
Our approach cannot be the same for small island developing states (SIDS) in the Pacific, with small and geographically dispersed populations, as it is with our populous Asian neighbours with a growing urbanised middle class, strong civil society and a productivity-oriented private sector. For example as countries become more capable and prosperous, and have access to a greater quantity and range of other finance, our approach needs to shift to support reform, and to consider how Australia can be a credible partner on key policy or institutional reform issues.
Regional and international context
2.35
The Committee is aware that Australia’s aid program operates in a complex and changing regional and international environment. This section briefly notes relevant regional and international developments that were raised in evidence to the inquiry.
2.36
This section is intentionally limited in detail as the Committee appreciates that stakeholders are likely to be familiar with these matters.
2030 Agenda for Sustainable Development
2.37
In 2015, the Australian Government was one of 193 United Nations (UN) member states that committed to the 2030 Agenda for Sustainable Development (the 2030 Agenda). The 2030 Agenda was endorsed by the UN on 25 September 2015.
2.38
The 2030 Agenda comprises two components:
17 Sustainable Development Goals (SDGs), which form a roadmap for global development efforts to 2030 and beyond; and
the Addis Ababa Action Agenda on Financing for Development (the Action Agenda), which is a global plan for financing achievement of the SGDs.
2.39
Under the 17 SDGs there are 169 targets and each goal has a set of indicators (232 distinct indicators in total) to help measure progress.
2.40
The Action Agenda recognises the funding gap required to achieve the SDGs and calls for mobilisation of other forms of public and private finance to address this gap.
2.41
DFAT submitted that Australia’s aid program is ‘firmly grounded’ in the 2030 Agenda:
The SDGs reflect and support the government’s international and domestic priorities. Within all of Australia’s bilateral development assistance programs, we are prioritising assistance to partner countries to meet the SDGs.
2.42
Each member state committed to producing a voluntary review on implementation of the SDGs at least twice over the 15-year timeframe for the 2030 Agenda. The reviews are to reflect a country's efforts and achievements against the SDGs. Australia delivered its first review on 17 July 2018.
2.43
As noted in the previous chapter, the Senate Foreign Affairs, Defence and Trade References Committee is currently undertaking an inquiry into Australia’s implementation of the SDGs.
World Humanitarian Summit Grand Bargain
2.44
In 2016, 30 of the biggest donors and aid providers, including Australia, agreed to the World Humanitarian Summit Grand Bargain, which aims ‘to get more means into the hands of people in need’. The Grand Bargain was conceived to address—in part—the financing gap between humanitarian needs and the resources available from donors and aid providers to meet those needs, estimated in 2015 to be US$15 billion.
2.45
The specific purpose of the Grand Bargain is for donors and aid providers to improve the efficiency of humanitarian action through a range of commitments:
The Grand Bargain includes a series of changes in the working practices of donors and aid organisations that would deliver an extra billion dollars over five years for people in need of humanitarian aid. These changes include gearing up cash programming, greater funding for national and local responders and cutting bureaucracy through harmonised reporting requirements.
The Grand Bargain commits donors and aid organizations to providing 25 per cent of global humanitarian funding to local and national responders by 2020, along with more un-earmarked money, and increased multi-year funding to ensure greater predictability and continuity in humanitarian response, among other commitments.
2.46
By 2018, the number of signatories to the agreement had increased to 51.
Foreign Policy White Paper
2.47
In 2017, the Australian Government released the Foreign Policy White Paper, which sets out a framework for Australia’s international engagement.
2.48
The white paper identifies five ‘objectives of fundamental importance to Australia’s security and prosperity’, which include to promote an open, inclusive, and prosperous Indo–Pacific region in which the rights of all states are respected and to step up support for a more resilient Pacific and Timor–Leste.
2.49
In its submission, DFAT describes Australia’s aid program as part of Australia’s broader foreign policy as articulated in the white paper.
2.50
The white paper expands on the importance of promoting sustainable development:
As a prosperous country, Australia has a responsibility to contribute to global efforts to reduce poverty, alleviate suffering and promote sustainable development. This also serves our interests because the more that countries can provide economic opportunity for their citizens the more stable they will be. They will be less vulnerable to challenges such as irregular migration and extremism. In an interconnected world, investing in the development of other countries helps to limit negative impacts on our own security.
2.51
The white paper also reiterates Australia’s commitment to the 2030 Agenda, including the SDGs:
The 2030 Agenda is not just for and about government—it also engages the private sector, civil society, academia and international organisations.
In working with partners to achieve the SDGs, Australia will use its overseas development assistance, including through aid for trade, to catalyse sustained and inclusive economic growth to help reduce poverty.
Transition in the Indo-Pacific region
2.52
As noted earlier in this chapter, Australia’s aid program is increasingly focused on the Indo-Pacific region.
2.53
The Foreign Policy White Paper provided context on the changing strategic and economic environment in the Indo-Pacific region:
Economic growth in Asia continues to re-shape our strategic landscape. The compounding effect of China’s growth is accelerating shifts in relative economic and strategic weight... In parts of the Indo–Pacific, including in Southeast Asia, China’s power and influence are growing to match, and in some cases exceed, that of the United States. The future balance of power in the Indo–Pacific will largely depend on the actions of the United States, China and major powers such as Japan and India. The responses of major Southeast Asian states, such as Indonesia and Vietnam, will also be important.
... In this dynamic environment, competition is intensifying, over both power and the principles and values on which the regional order should be based.
2.54
The white paper also emphasised Australia’s interests in the region:
We want peace to help sustain the growth that has brought the region to the centre of the global economy. Equally, we want a region where our ability to prosecute our interests freely is not constrained by the exercise of coercive power.
For Australia, the stakes could not be higher. The Indo–Pacific encompasses our most important economic partners and its dynamism supports economic growth in Australia, creating jobs and increasing our standard of living.
Our cultural, educational and people-to-people links are also deep. The region is the source of many of our biggest migrant communities, which are vital to our modern, vibrant nation.
2.55
Similarly, DFAT submitted that Australia’s security and prosperity are ‘intrinsically linked’ to the Indo-Pacific region.
2.56
DFAT explained that there is significant diversity among the economies of countries in the region:
While some of our partner countries in Asia are experiencing dynamic economic growth and a growing middle class, many still struggle with significant pockets of poverty, rising levels of inequality and domestic unrest. Other partner countries, including in the Pacific, have fewer prospects for sustainable high economic growth and instead look to countries like Australia to assist their economic integration with the broader region and help build greater economic resilience.
2.57
DFAT noted that, as a result of strong economic growth in the region, some partner countries are increasingly able to finance their development, with ODA representing a diminishing fraction of their gross domestic product (GDP):
While we work to promote sustainable economic growth in Asia, we are also responding to the reality of partner countries being increasingly able to finance their own development. A number of key countries in the Indo-Pacific region - including Indonesia and Sri Lanka and Vietnam - are experiencing strong economic growth with ODA now representing a tiny fraction of their GDP. As countries in the region develop this trend will continue.
2.58
However, DFAT also noted that emerging economies face ‘increasingly complex development challenges that require more effective and efficient state institutions and policies’.
2.59
By contrast, DFAT explained that the smaller island states of the Pacific region had seen limited income growth compared to Asia’s emerging economies. DFAT expanded on their unique characteristics:
They are more remote, more dispersed, have a higher risk of natural disaster, less access to global capital markets and fewer options to diversify their economies than countries in most regions of the globe. ... Those in paid employment represent a small proportion of the total population... Opportunities for paid work are limited for those people living in remote regions, for women and for people with disabilities. Pacific island economies are some of the most severely affected by disasters in the world.
2.60
The Committee also received evidence in relation to the influence of emerging donors in the Indo-Pacific region.
2.61
For example, DFAT submitted that emerging donors, including China and India, are having ‘an important and growing influence on development in our region and globally’, noting also that it is Australia’s interests to engage more strategically with these donors.
2.62
Research undertaken by the Lowy Institute outlined the scale of China’s aid program in the Pacific:
... Chinese aid in the Pacific has grown substantially, with China committing more than US$1.7 billion in aid to eight Pacific Island countries (including Timor-Leste) [from 2006 to mid-2016]. To put this into context, total traditional aid to these countries over the same period was over US$9 billion, with aid from Australia making up almost two-thirds this amount.
2.63
The Institute described how China’s approach to development assistance differs from the approach taken by Australia and other ‘traditional’ donors:
China typically engages in large infrastructure projects by providing low interest, or 'concessional', loans that eventually have to be repaid. There is often scant information beyond an announcement, with no detail on the terms of these loans or repayment schedule. Australia and other traditional donors typically provide one-way grants that do not need to be paid back and engage in more complex (albeit far from perfect) forms of assistance across multiple sectors, from humanitarian assistance to governance support.
2.64
More broadly, China’s ‘One Belt, One Road’ initiative involves infrastructure development and investment, including in the Indo-Pacific region.
2.65
The School of Archaeology and Anthropology at the Australian National University submitted that ‘China is the largest development partner in many of the countries in which the Australian aid program operates’.
2.66
However, the Committee is aware that some concerns have been raised in relation to China’s aid and development activities in the region, including lack of transparency, exclusion of local suppliers and services, and risk of unsustainable debt burden, particularly for smaller Pacific island states.
Recent announcements
2.67
The Committee is aware of several significant announcements relating to Australia’s aid and development program—particularly with respect to infrastructure development in the Indo-Pacific region—that have been made since the commencement of the present inquiry in March. These announcements are summarised below.
Coral Sea Cable System
2.68
On 19 June 2018, the then Minister for Foreign Affairs, the Hon. Julie Bishop MP, announced that the Australian Government would partner with telecommunications company Vocus to manage the construction the Coral Sea Cable System, a system of high-speed undersea telecommunications cables from Australia to Papua New Guinea and Solomon Islands.
2.69
Australia is majority funding the project, with additional contributions from Papua New Guinea and Solomon Islands. The project is due to be completed by the end of 2019.
Trilateral partnership for infrastructure investment
2.70
On 31 July 2018, the then Minister for Foreign Affairs, the Hon. Julie Bishop MP, announced that Australia, the United States, and Japan would form ‘a trilateral partnership to invest in projects in the Indo-Pacific region that would build infrastructure, address development challenges, increase connectivity, and promote economic growth’.
2.71
On 12 November 2018, DFAT and the Export Finance and Insurance Corporation, the United States Overseas Private Investment Corporation, and the Japanese Bank for International Cooperation signed a memorandum of understanding to operationalise the trilateral partnership.
2.72
In a joint statement issued on 17 November 2018, the governments of Australia, Japan, and the United States described the purpose of the trilateral partnership:
Through the [memorandum of understanding], we intend to work together to mobili[s]e and support the deployment of private sector investment capital to deliver major new infrastructure projects, enhance digital connectivity and energy infrastructure, and achieve mutual development goals in the Indo-Pacific.
The Trilateral Partnership seeks to be a force-multiplier in the Indo-Pacific, providing a new vehicle through which countries in the region can coordinate to advance their infrastructure priorities. Importantly, the Trilateral Partnership intends to work with governments of the Indo-Pacific to support and encourage infrastructure projects that adhere to international standards and principles for development, including openness, transparency, and fiscal sustainability. This approach will help to meet the region’s genuine needs while avoiding unsustainable debt burdens for the nations of the region.
2.73
The three governments stated they would—in consultation with governments of Indo-Pacific countries, investors, and infrastructure companies—identify and evaluate infrastructure projects for potential development and financing.
Australian Infrastructure Financing Facility for the Pacific
2.74
On 8 November 2018, the Australian Government announced a package of security, economic, diplomatic, and people-to-people initiatives intended to strengthen Australia’s engagement with the Indo-Pacific region.
2.75
As part of this announcement, the Australian Government committed to establishing the Australian Infrastructure Financing Facility for the Pacific, a $2 billion infrastructure initiative to support for infrastructure development in Pacific countries and Timor-Leste. The initiative comprises a $1.5 billion long-term loan facility and a $500 million grant component.
2.76
In a speech made in conjunction with the announcement, the Prime Minister, the Hon. Scott Morrison MP, explained:
[The initiative] will use grant funding combined with long term loans to support high priority infrastructure development. This will also enable these projects to leverage broader support. It will invest in essential infrastructure such as telecommunications, energy, transport, water and will stretch our aid dollars even further.
2.77
The announcement also included a proposal to provide $1 billion in additional capital to the Export Finance and Insurance Corporation (EFIC) along with new financing powers to support investments in the region that have a national benefit for Australia. The Prime Minister explained that this new measure would also complement Australia’s aid in the region.
Papua New Guinea Electrification Partnership
2.78
On 18 November 2018, Papua New Guinea, Australia, Japan, New Zealand, and the United States announced their intention to join together in a Papua New Guinea Electrification Partnership.
2.79
The initiative aims to increase the proportion of Papua New Guinea’s population that have reliable access to electricity to 70 per cent by 2030 from the current level of 13 per cent.
2.80
In a media release, the Prime Minister, the Hon. Scott Morrison MP, outlined the principles underpinning the initiative:
The Papua New Guinea Electrification Partnership is intended to focus on the importance of principles-based, sustainable infrastructure development that is transparent, non-discriminatory, environmentally responsible, promotes fair and open competition, upholds robust standards, meets the genuine needs of the people of Papua New Guinea and avoids unsustainable debt burdens. It is intended to adopt a strong focus on investments that provide employment and training opportunities for local contractors and communities. It is also intended to focus not only on delivering high impact investments but ensuring improved coordination and governance within the energy sector.
Committee comment
2.81
While supportive of the provision of one-off development assistance for the Coral Sea Cable System and the Papua New Guinea Electrification Partnership, the Committee is particularly interested in what may be achieved by the Trilateral Partnership for Infrastructure Investment, the Australian Infrastructure Financing Facility for the Pacific and the provision of additional capital to the EFIC.
2.82
The Committee is concerned about the risks that debt traps present to some countries in the Indo-Pacific, particularly to the smaller and more vulnerable economies of the Pacific Islands.
2.83
The establishment of the Trilateral Partnership for Infrastructure Investment—with the participation of the Japanese and United States Governments and private sectors—and the Australian Infrastructure Financing Facility for the Pacific have the potential to provide a very significant boost to infrastructure investment in the region, especially if these initiatives can leverage the participation of private capital on sustainable terms. The Committee expects the initiatives to provide an alternative source of capital on reasonable terms that remain within the capacity of countries to pay.
2.84
The Committee is concerned to see that the Australian Government vigorously pursues the following outcomes from the initiatives:
thorough cost benefit analysis of all proposed projects so that only projects that demonstrate economic and social benefits that are financially sustainable for the recipient country are funded;
partner (recipient) countries are involved in the cost benefit analyses with the objective of skills transfer and development so that they can critically evaluate other project proposals;
partner (recipient) countries are encouraged to consider their capacity to meet their total existing liabilities in considering proposals with an element of long-term loan funding;
partner (recipient) countries and, as far as possible, local contractors are involved in the design and construction of projects with the objective of skills transfer and development and to support local employment;
grant funding, or a high ratio of grant to long-term loan funding, be available for high quality projects in circumstances where the partner (recipient) country’s capacity to pay is limited; and
skills transfer and development to ensure local capacity to provide for the ongoing operation and maintenance of the constructed infrastructure is considered and provided for in the project evaluation.
2.85
Finally, the Committee expects that Australia’s announced commitment to support more infrastructure investment in the Indo-Pacific, and the Pacific Islands in particular, will not be at the expense of existing funding. If infrastructure projects that are funded under pre-existing arrangements are transferred under the announced finance facilities, the Committee expects the funding to be reallocated to other aid projects.