Submission to the Department of Foreign Affairs and Trade Review of Australia's Development Program

I welcome the opportunity to make a submission to the Morrison government’s review of Australia’s development program. Since 2014, through successive budget cuts, a hasty merger of AusAID into the Department of Foreign Affairs and Trade (DFAT), and the consequent attrition of development professionals, the aid program has been placed under considerable strain. Despite the best efforts of both diplomatic and development professionals the merger of cultures, objectives, personnel and resources of these entities has been very disruptive. To improve the strategic and development effectiveness of Australian aid, more reasoned and well measured policy and administrative reforms are necessary. 

This submission focuses on the following areas: the size of Australia’s aid program, the objectives of Australian aid, Australian aid governance within DFAT, modalities of Australian aid, Australian aid transparency, and development policy beyond aid in the Pacific.

This submission draws heavily from my 2018 submission to the Joint Standing Committee on Foreign Affairs, Defence, and Trade’s review of Australia’s aid program. It includes additional recommendations based on observations of the operation of the aid program over the last 18 months. A forthcoming Lowy Institute policy brief on Australia’s aid program to Papua New Guinea will provide additional recommendations from which this DFAT review could benefit. 

After an unprecedented scale-up of foreign aid under both the Howard and Rudd/Gillard/Rudd governments, the Australian aid program has experienced a dramatic contraction under the Abbott/Turnbull/Morrison governments. The aid program peaked in 2013–14 at A$5.5 billion, but by the end of the forward estimates period the aid program will be more than a third smaller in inflation-adjusted terms than at its peak. The results of these cuts have left the Australian aid program the least generous it has ever been in Australia’s history. 

By 2020 Australia will be placed in the bottom third of OECD nations when measuring aid as a proportion of Gross National Income (GNI) — the standard measure of assessing generosity and effort of different-sized economies. Despite the uninterrupted economic growth that Australia has enjoyed for nearly 30 years, by 2021 our donor peers in terms of generosity will be Spain, the United States[1], Portugal, Slovenia, Greece, Korea, Czech Republic, Poland, Slovak Republic and Hungary. We are no longer a generous nation.

Considering the degree of poverty in Australia’s immediate region, in which the vast majority of Australia’s closest neighbours are aid recipients, this level of aid funding is incompatible with Australia’s status as one of the world’s richest nations on a GNI per capita basis. Further, given the critical role foreign aid plays in prosecuting Australian foreign policy at a time of heightened geopolitical tension in the Indo-Pacific, Australia’s development assistance program is not only inconsistent with our record but risks harming our status and influence as the preponderant power in the Indo-Pacific. 

A question that has been vigorously debated over the history of Australian aid is why Australia gives aid. There is a constant struggle between the dual objectives of the aid program, which are to meet both humanitarian and national interest goals. 

The most recent articulation of the overall objective of Australian aid comes from the 2017 Foreign Policy White Paper (where aid received little overall attention), which states: 

“Australia’s development assistance is focused on the Indo-Pacific and promotes the national interest by contributing to sustainable economic growth and poverty reduction.”

This justification for aid, in common with all previous justifications, does not adequately frame why aid is in our national interest. It should be acknowledged that the national interest is not just an outcome of our foreign aid program, but it directly shapes the aid program in many ways. Since the 1950s our geography has dictated that aid is not only a good thing for Australia to do but is also in our geostrategic and commercial interest. There are many reasons why our aid program is good for the Australian national interest. It builds goodwill and strong institutional linkages with our immediate neighbours. It is in our commercial interest to help promote the economic growth of the countries around us. It is in our security interest to assist neighbouring countries to remain stable and sustainable. And, most critically, it also helps improve people’s lives. Aid investments are made with a consideration of all of these factors. 

Our aid program has never been, and will never be, allocated along purely development or performance lines, and we should stop pretending so. Ultimately the stated objective for aid matters little for aid implementation. But the articulation of the objective of our aid program remains important to justify its expense both in political circles and with the general public. 

If we are to readdress the objectives of Australian aid, equal weight should be given to serving Australia’s national interest both in the way in which aid is given, as well as the outcomes it promotes. For example, the objective could be articulated as follows:

“The objective of Australian aid is to promote sustainable economic growth and poverty reduction. Australian aid is focused on areas that support our strategic and national interest.” 

More fully enshrining national interest as a key driver of Australian aid, alongside economic growth and poverty reduction, could inoculate the aid program from opportunistic and short-term focused budget cuts — and could build a greater, non-partisan and committed constituency of support among the Australian public and Parliament. 

The aid program has always laboured under multiple and competing objectives, both implicit and explicit. The complete integration of AusAID into DFAT has resulted in many challenges for aid management. The difficulty of balancing diplomatic, trade and development priorities and expectations, which in many cases may counter each other, is acute. This runs the risk of making our aid program more flexible, reactive and transactional, which in turn can blunt the development effectiveness of our aid in the long run. 

There have been some positive signs of the continuing professionalisation of the aid program within DFAT, such as the retention of the Office of Development Effectiveness and the production of annual aid performance and statistical summaries. There have been other benefits from the merger. There is significantly enhanced policy alignment between our development and diplomatic efforts, which is critical especially within our immediate neighbourhoods of the Pacific and Southeast Asia where aid is a major vehicle for broad institutional engagement. Development capacity has also helped fill some of the ‘diplomatic deficit’ that DFAT has experienced over the past decade. 

Despite these benefits, overall the integration of AusAID into DFAT has been detrimental to the aid program. Significant work is needed to both re-professionalise our aid program, from project design through to implementation and monitoring and evaluation, as well as streamline the responsibility of aid management to make individuals more accountable for performance. 

This dramatically reduced accountability in particular has a negative impact on the long-term effectiveness of our aid. Aid is becoming more transactional, in large and small ways. Management of bilateral programs by in-country missions also favours short-termism, with DFAT staff, despite best intentions, often working to solve problems of the day, and losing focus on the long-term strategic objectives of aid projects. No DFAT staff are held accountable for performance of Australian aid.

The least disruptive remedy to this issue would be to create a new senior position within the DFAT bureaucracy that sits in between the secretary and deputy secretary level and has overall responsibility for aid policy and performance. This ‘associate secretary’ would have final responsibility for development policy and aid management, and would report only to the secretary, the Minister for International Development and the Pacific, and the foreign minister. 

The role of the private sector in development has been hotly contested since the private sector first became engaged in this area. The reality is that the private sector has had, and will continue to play, a crucial role in aid. The Australian Government should remain agnostic when it comes to modalities of aid delivery for any given aid project. It should, however, be careful about the ways in which it engages the private sector, and the nature of the roles filled and services provided. As capacity has thinned out within DFAT there has been a growing tendency to engage the private sector to handle more of the burden of project design, project review, and in some instances independent project oversight.

The Australian aid program has always relied on the private sector and consultants to varying degrees to supplement and provide as-needed independent reviews and assistance on project design. However, the extent to which this has increased under DFAT needs to be reviewed, and the department’s in-house capacity needs to be rebuilt so that the it does not run the risk of ‘outsourcing its brain’. DFAT should also be pressed harder to develop a learning culture in which these products of review and evaluation are actually absorbed and built upon. 

The implementing modality of private sector ‘facilities’ (complex single contract arrangements managing aid activities in an entire sector, the benefits of which are extoled here) has also become a more popular method of engaging the private sector. There are currently around 20 active facilities in the Pacific Islands region alone, accounting for more than A$1.5 billion in aid commitments over a ten-year period. Facilities are justified on the assumptions of value for money (one overhead instead of many), efficiency (reducing demands on Embassy/High Commission time), and greater flexibility/responsiveness. There is, however, little evidence that they are delivering these benefits. They have the additional downside of increasing the complexity of programs which in turn disempowers recipient counterparts, significantly reduces the pool of contractors that can bid on programs and greatly increases implementation and performance risk. 

Aid transparency is critical for a number of reasons. Transparency contributes to the aid effectiveness agenda by giving developing-country governments information to help them allocate resources; giving civil society information needed to hold governments to account; assisting multiple development actors to coordinate their aid efforts; and helping people who care about development share and learn from their experiences. It also helps donors to learn from one another, and from the past. 

As it stands, it is impossible to determine what DFAT’s active investments are in any country. Some countries perform better than others largely due to personnel prioritising reporting. Public reporting should be streamlined and automated. 

It is commendable that the Australian Government has focused this review on Australia’s efforts in development broadly, and not just on our aid efforts. An area where beyond-aid approaches have had the most significant impact is the Pacific Islands region, and in particular with regard to labour mobility. The Seasonal Workers Program (SWP) and other maturing labour schemes have the potential to match and one day eclipse the significance of Australia’s aid effort in the region. These initiatives must continue to be supported. As a part of its refocus on the region the government must continue to look at innovative ways to integrate the economies of the Pacific with Australia’s. Labour mobility opportunities should be expanded, including providing a permanent migration path. Australia should continue to work with the Pacific to develop pooled service provisions in niche and specialist areas such as drug procurement, while respecting Pacific sovereignty.  

This review comes at an opportune time. The Australian aid program has been under significant strain since 2014, and more change is necessary to make sure that the long-term objectives and effectiveness of aid are preserved. But these changes should not be dramatic or radical. They should be well considered and implemented over time to ensure that the disruption and short-term costs of change can be minimised. 

I thank the DFAT Steering Committee for the opportunity to make this submission, and I look forward to discussing my recommendations in more detail, should the Committee be interested. 

[1] The United States is the largest donor given its absolute size, however its generosity when measured by foreign aid as a proportion of Gross National Income – currently at 0.18% – puts it in the bottom third of OECD donors. The OECD average is 0.31%. Australia is currently at 0.21%.

This submission represents the personal views of its author, Jonathan Pryke, and may not reflect the broader perspective of the Lowy Institute. The Lowy Institute’s Pacific Islands Program receives support from the Australian aid program.