The changing face of foreign aid

The changing face of foreign aid

Cuts to the Australian foreign aid budget have been severe, the May budget saw $1 billion sliced from aid funding and over the next three years this will be slashed by a further $3.7 billion. This means that in 2016-17 Australia’s aid spend will be a mere 27c out of every $100 of income.

In trying to understand these cuts we must keep in mind that a Lowy poll from May suggested 53% of Australian’s support these cuts; so it’s not surprising the government felt comfortable swinging the axe.

In fact it’s this apparent lack of understanding of the Australian aid budget that I find more surprising.

My view is that we have a responsibility to be generous with aid. We’re a rich, developed country and in helping our less-developed neighbors lift themselves out of poverty, our region as a whole will be better off.

So… trying to stay positive – we’re told that in 2015-16 DFAT and AusAid will spend $4 billion on aid, I’m keen to understand where this will be spent and what’s driving the policy choices.

New aid paradigm

Julie Bishop released her mission statement for the Aussie aid effort in June last year and while there was no tectonic shift in approach, there was a tremble.

Aid-for-trade appeared to be the new buzzword and while the traditionalists remain critical of linking aid with that most capitalist ideal of ‘trade’; there is a practical aim of driving out the negative baggage of poor accountability that has stymied aid’s effectiveness in past decades.

As DFAT says “ODA (Official Development Assistance) must be a catalyst for promoting economic growth and reducing poverty through a strong emphasis on ‘aid for trade’ and building an enabling environment for the private sector.”

With a growing threat that the line between aid and trade could become blurred, it’s useful to more clearly define the purpose of aid. If we can agree that reducing poverty is the core aim, then it becomes a question of how best to go about that. Julie Bishop’s language shows pretty clearly her belief that economic growth is the best way to fight poverty.


This is the preferred approach of the heavyweight international institutions like the United Nations and its many offshoots, and in 2000 it launched the Millennium Development Goals (MDGs); a set of eight priorities regarding poverty alleviation. It was a rousing call to arms and it defined economic growth as being the most pragmatic way to deal with issues such as infant mortality, poor education levels and environmental destruction. The target date of the project was 2015 and while its level of success is much debated, there is equally vigorous debate about the post-2015 development agenda. This next phase has been titled the Sustainability Development Goals, but that’s a story for another time.

It should be noted that even DFAT concedes economic growth may not help everyone equally, “Strong economic growth may not be associated with poverty reduction, and it may be associated with growing inequality. When the poor cannot participate in economic expansion then poverty is not reduced and inequality rises.”

The argument goes that economic growth is the rising tide that lifts all boats, but what happens if you’re not in a boat?

Oxfam argued that growth alone is not enough, there must be a more nuanced end-game, “Rather, what sustainable and equitable growth has the ability to create must be the final goal.”

There’s a fine line to tread here, economic growth can help bring about the poverty reduction and health improvements that are so vital, but it’s only one piece of the puzzle. On the ground, in the world’s most impoverished regions, there are much more basic and urgent issues to be addressed – and this is where well-trained Australian aid workers step in and they need funding.

Regional focus

With aid being increasingly linked to trade we’ve seen regional relationships become the focus.

While the Pacific Islands and Papua New Guinea (PNG) saw their aid funding cut only slightly this year, Indonesia lost 40 per cent along with the Philippines and Mongolia. And further afield Sub Saharan African countries saw cuts of 70 per cent. North Africa and the Middle East were slashed by 82 per cent.

aid indonesiaPNG has a large rural population with parts still living a traditional subsidence lifestyle and poverty levels are high. On the flip side gas mining is seeing the country’s economy grow rapidly, its GDP will see the fastest growth in the world this year. The potential for development has never been greater but the process must be managed with care to ensure gains are broad and sustainable.

With big cuts in aid to Indonesia, PNG has become Australia’s largest aid recipient. Julie Bishop has made clear her wish for Australia’s aid efforts to be focused on the Pacific, and now, with cooperation on the detention of refugees on Manus Island; and with huge gas mining interests, the relationship looks set to grow stronger.

The wisdom used to suggest it’s better to “teach a man to fish” than simply give him one. This seems to have evolved and the mantra has become “teach a man to sell fish on the global market while maiximising profit and return on investment.”

Fortunately the Aussie aid program has maintained a good balance. So far around 15 per cent of aid funds are allocated to aid-for-trade. This is scheduled to grow to 20 per cent by the end of the decade. Monitoring the impacts and effectiveness of these resources is important and of course it’s plagued with problems like any other aid project. But what it must do is complement the traditional focus on health and education projects to deliver tangible assistance for those most in need.

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