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Where Australia’s case for aid went wrong – and what we can do to rebuild

Huge cuts to the Australian aid program have left supporters angry and in shock. Five years ago, there was bipartisan support for a 0.5 per cent of Gross National Income (GNI) target for aid. In this year’s budget, aid is just half of that—0.25 per cent of GNI. But instead of losing heart, we need to channel our energy into the business of building and renewal.

Rise and fall of political support for aid

Successive governments have supported the aid budget because it has been seen to be an important tool of foreign policy. As a middle power, largely surrounded by developing countries, Australia has been well served by the aid program. Across South East Asia and the Pacific, the aid program has helped Australia to win friends and influence. The aid program has enabled successive Australian governments to be part of ‘coalitions of the willing’ to provide global public goods; helping to address HIV/AIDs, trade reform, and environmental problems. And Australia’s aid program has created highly regarded infrastructure like the My Thuan Bridge and provided thousands of scholarships, gaining a strong constituency here in Australia and around the region.

Bipartisan support for ‘scaling up aid’ began to emerge in 2005. Prime Minister John Howard attended the UN World Summit in September 2005 and agreed to double Australia’s aid program by 2010. Then, ahead of the 2007 election, Labor committed to increase aid to 0.5 per cent of GNI in 2015–16. Later, both major Parties committed to a 0.5 target at the 2010 election, with the Liberal Party even committing to appoint a Minister for International Development. 2010, then, can be seen as the high water mark of political support for the 0.5 target.

Bipartisan support for the aid program didn’t disappear overnight; it slipped away slowly, starting with small steps and then gaining momentum—and arguably aid supporters were not as vocal in its defence as we should have been:

  • In the 2012 and 2013, Labor pushed back the timing of the aid target.
  • Significant volumes of aid started to be diverted to support asylum seeker policy, damaging the integrity of the aid program and making it look like a piggy bank ripe for raiding.
  • In 2012, the Opposition started to speak repeatedly about ‘waste and mismanagement’ in the aid program and then, on the eve of the 2013 election, the Coalition abandoned the 0.5 per cent aid target altogether and bipartisanship was gone.

Public support for aid is generally strong and this support is based on an understanding that aid is directed at ending poverty. For example, an ANU poll last year found that support for Australia’s foreign aid program remains strong at 75 per cent. Other polls, though, suggest that many Australians support cuts to aid. However, conclusions on public perceptions of aid need to be interpreted cautiously. Although the data is limited, we would argue that the major political shift away from supporting aid was not driven by changes in broad public opinion.

However, the rapid growth of the aid program following the 2005 World Summit occurred at a time when DFAT was feeling the strain of successive ‘efficiency dividends’. In 2009 and 2011, the Lowy Institute published reports (here and here) on Australia’s ‘Diplomatic Deficit’, pointing out that Australia had one of the smallest diplomatic footprints in the OECD. Sustaining support for aid when other departments, especially DFAT, were being starved of funds was a difficult challenge.

Most governments come to power focused on domestic issues, and only a small number of Parliamentarians understand and appreciate the value that the aid program creates for Australia. So the 2013 election was always going to be a dangerous one for the aid program, but not many people foresaw that it would be quite as disastrous as it proved to be.

Rebuilding support for aid and ending poverty

Whilst the cuts are painful, there is a clear challenge to rebuild support for Australian aid—and if we want a fair and prosperous Australia and a better world, then we have a responsibility to do so.

First, we need a broader and better narrative on the benefits of aid and international development, and this needs to be part of a new narrative on Australia’s future and our place in the world.

Australia’s future is intimately linked to broader events in the world. We are coming to the end of an era of prosperity that was buoyed by the mining boom, and we are now experiencing tougher economic and global conditions. If we want a future that is fair and prosperous, then we need make tough choices now and implement domestic and foreign policies to: improve productivity (e.g. education, infrastructure, and structural reforms); expand opportunities for our businesses; and chart a course through some formidable external risks (including global growth, commodity price shocks, a shifting balance of power and climate change).

It is beyond the scope of this post to give a fair appraisal of this agenda, but the point we wish to underscore is that in order to create a fairer and more prosperous future, Australia will need to stand tall in the world, and we will need to bring credible and coherent international development policies to the table.

Second, Australia’s aid and development policies are an important, yet poorly utilised lever for managing regional risks and expanding opportunities.

We, like many supporters of aid, strongly believe that the first priority of aid and development policies is poverty reduction—part of our moral responsibility, but also our international obligations.

At the same time, aid supporters also need to make the case that aid and development policies can also help deal with the root causes of risks that also affect us, such as migration, disease, terrorism and climate change. And that aid investments are also central to building markets for Australian businesses overseas and boosting growth in developing countries, which will end dependency on aid.

Third, in making these arguments, we will need rigour. We need to be mindful and realistic about what aid can and can’t achieve (and have evidence to support the claims that we make). We need to be hard-nosed about the effectiveness of aid and development policies: ensuring that they deliver the intended results and at a reasonable cost. And we need to consider how aid is used together with a broader set of development and security policies—the case for aid and development policy must be coherent.

Concluding remarks

The case for international development needs to focus on how aid can support a broad range of Australia’s and the region’s shared interests, built on a foundation of poverty reduction.

The case needs to be made primarily to the political class. If they are convinced, politicians are less likely to bag the aid program on spurious grounds (waste and mismanagement, borrowing money to send it overseas etc.). And with less political bagging, the public will be happier with aid.

Building the case will involve:

  • Reframing narratives on Australia’s future and our place in the world, and the role and benefits of aid and development policies;
  • Developing a new approach to aid and development policy that can deliver those benefits, and that we can work towards; and
  • Appealing to core supporters, in both the political and public spheres, who want to end poverty, as well as aspirational Australians who want a better Australia and a better world, and building networks of supporters who can drive change.

The aid program is down, but not out. As in other areas of public policy, we need a new vision, and we must rebuild and renew.

Matthew Morris is an economist with twenty years of experience in aid and development policy. He helped establish Devpolicy and served as its first Deputy Director. Julia Newton-Howes is the CEO of CARE Australia.

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Financing for Development: this year’s big debate

More and better financing for development will be required in order to end poverty by 2030 and achieve the proposed Sustainable Development Goals. The UN and member countries are currently working to reach agreement on priorities for reform ahead of a major meeting in July. This article looks at the ongoing debate.

The United Nations has circulated a discussion paper on financing for development, which is guiding debate on the financing framework for the Sustainable Development Goals (SDGs). The financing framework is due to be considered in Addis Ababa on 13-16 July, and the SDGs themselves at the UN General Assembly in September.

Seven elements of the financing framework

The discussion paper canvasses a broad range of sources of finance to support the achievement of the SDGs, and proposes seven ’elements’, which are broadly as follows.

The first is domestic public finance. On the revenue side, this refers to the taxes and government income generated by developing countries themselves. Despite increases in revenue over the past decade, they are insufficient and problematic: tax can have a negative impact on inequality; it can be difficult to capture resource rents; and tax evasion and avoidance lead to large losses. On the expenditure side, budget processes are often weak and efforts to tackle corruption insufficient.

The second element is domestic and international private finance, which have both increased substantially over the last decade. Nevertheless, it is recognised that these flows are primarily profit-motivated and as a consequence leave gaps (e.g. there are important market failures in the provision of public goods). Remittances are important, but the cost of sending money is often high. Finally, financial markets are often inadequate, leading to limited access to finance for poor people, especially women, and small businesses.

The third element is international public finance. Net Official Development Assistance (ODA) has increased significantly over the past decade, but remains below commitments (especially if climate finance is netted out), often doesn’t reach the poorest countries, and further efforts are needed to improve effectiveness (e.g. through results-based aid, and ‘smarter’ aid that leverages other flows).

The fourth element, trade, has been an ‘engine’ of development in many advanced and emerging economies, yet it has been elusive for many poor countries and small island states, who face capacity constraints, struggle against subsidies in trading partners, and need to tackle tough trade rules and fragmented agreements.

The remaining three elements cover:

  •  Technology, innovation and capacity building, which are constraints in many poor countries and negatively affect the productivity of the aforementioned flows.
  •  Sovereign debt and the challenge of balancing debt financing against the need to prevent debt crises.
  •  Systemic issues in global financial markets, essentially the need to be aware of the impact of liquidity, and prudential and regulatory policies on poor countries.

Towards an agreement on financing for development

The seven elements form the framework for specific commitments that are contained in the draft outcome document. There has been extensive consultation on the discussion paper and outcome document, and a number of countries, UN organisations and NGOs have provided comments (which are available here).

Clearly a one-size-fits-all approach won’t work

It’s beyond the scope of this post to fully review all of these. Nevertheless, it is instructive to consider some of the comments on the broad elements, especially ODA.

Broad elements

There seems to be general acceptance of the broad elements being proposed. At a very high level, they are hard to argue with, but important differences emerge in the emphasis, contextualisation and details.

There is debate in the various submissions about the relative emphasis on public versus private flows. There is also debate about the applicability of different flows to different country contexts (e.g. the scope of domestic resource mobilisation in small island states, or private investment in conflict-affected states). And there is debate about the detail, including who does what. Some countries, such as India, point out that the ‘South’ is being asked to do a lot, whereas the ‘North’ needs to offer to do much more (e.g. on trade, tax avoidance and climate finance).

ODA targets

There is a clear consensus that ODA has an important role to play in helping developing countries, especially the poorest countries, initiate and push faster rates of public spending to improve infrastructure and social services.

Given the important role that ODA plays, there is significant support across developing countries and civil society for the 0.7% aid target, with 0.15 to 0.2% of GNI to be directed to the least development countries.

Views diverge among donors though. For example, the EU, led by the UK and Scandinavians, reaffirms its commitment to the 0.7% aid target. While Australia, perhaps unsurprisingly, goes to great lengths to talk up the role that ODA can make in ‘leveraging’ other flows, whilst simultaneously sidestepping the issue of the aid target.

Another thorny issue is quantitative aid targets for emerging economies: something that the BRICS have baulked at so far, while at the same time enthusiastically pushing targets for advanced economies.

Rescheduling past aid commitments

Recipients are clearly aware that commitments to aid targets have not been honoured in the past.

The G77+China group have come up with an interesting proposal:

[T]he unfulfilled ODA commitments on the unfinished MDGs should be carried forward and be estimated in the context of the review of the implementation of the Monterrey Consensus and Doha declaration as a matter of urgency.

It’s a novel idea, and one that is sure to get the attention of donors—especially the more recalcitrant ones. But it is actually a milder form of my April Fool’s Day proposal, and no more likely to be accepted.

Aid predictability and monitoring

Developing countries and NGOs continue to express concerns that aid predictability is a problem.

NGOs have suggested the International Aid Transparency Initiative (IATI), should be reflected in the framework. There are also calls for donors to make clear, time-bound commitments: both in aggregate and for individual countries.

India has suggested that this is an area where the multilateral system can help, and where independent monitoring of aid commitments could provide valuable feedback. More generally, there is a need to ensure that some countries do not get overlooked by the international aid system. This can especially be a concern for fragile states, which present more pressing challenges for donors to do business with. Monitoring of aid commitments needs to keep a close eye on these countries and draw attention to unmet needs, if some countries look like being ‘left behind’.

Final thoughts

The ‘elements’ and discussion paper provided a sound starting point for the debate on financing for development. The consultations that followed illustrate the importance of the issues, as well as some of the tensions and challenges.

Clearly a one-size-fits-all approach won’t work, but the framework provides enough scope for tailoring to the country context. So long as common sense prevails, then it can be applied in practice.

On aid targets, I share some of the concerns expressed by developing counties and civil society that some rich countries are using the framework to divert attention away from their failure to honour aid commitments, and that there are risks going forward. This needs to be managed by pressing for individual and binding commitments, especially for aid to least developed countries, and backed up by independent monitoring.

Looking beyond aid, the proposals to stimulate trade and non-aid financial flows look like they need more substance. In particular, I would like to see more tangible commitments from the major economies (i.e. G20) on actions to deal with tax avoidance and tax evasion, including in the resource sector; what steps they will take to tackle trade barriers, such as subsidies and standards; and how they will encourage their major companies to honour their corporate responsibilities when investing in developing countries. None of these issues are new, but past efforts have been insufficient.

Overall, I am cautiously hopeful though—not for a perfect plan, but for an evolution of existing commitments and a stronger consensus on financing for development

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Towards the Sustainable Development Goals

A distant debate on the global agenda for sustainable development may seem far removed from the day-to-day realities of Pacific island countries, but it is an important discussion and one which will shape the way the rest of the world engages with the Pacific over the next decade or so. It is also an opportunity to get the rest of the World to pay attention to the issues that matter most to Pacific Islanders.

In 2000, most of the world’s countries, including Pacific island nations, signed up to an ambitious development agenda—the Millennium Development Goals (or MDGs for short)—which set poverty reduction targets to be achieved by 2015. There were seven goals that corresponded to various dimensions of economic and social development and an eighth goal that put in place a global partnership to accelerate development efforts.

Fifteen years later much progress has been made: many of the goals have been met (if not at the national level, then at a global level), many lessons have been learnt, but a lot more remains to be done.

It is against this backdrop that experts have been meeting in New York and around the world to discuss how the sustainable development agenda should be taken forward during the period 2016 to 2030. The plan is for United Nations General Assembly to formally adopt the Sustainable Development Goals(SDGs) in New York later this year.

Unlike other global fora, such as the World Bank, IMF or G20, where the Pacific has little or no voice, the United Nations General Assembly provides the equal voting rights for all countries, so Vanuatu, for example, has the same number of votes as much bigger countries such as Australia, the UK and the US.

This is important, because it means that small island states can potentially have a big say on global issues, and that is what the Pacific Institute of Public Policy has been supporting over the last year: bridging some of the distance between the Pacific and the debates in New York.

As ‘Open Working Group’ has help the United Nations to put forward a proposal for 17 Sustainable Development Goals, which are listed below:

Goal 1: End poverty in all its forms everywhere
Goal 2: End hunger, achieve food security and improved nutrition and promote sustainable agriculture
Goal 3: Ensure healthy lives and promote well-being for all at all ages
Goal 4: Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all
Goal 5: Achieve gender equality and empower all women and girls
Goal 6: Ensure availability and sustainable management of water and sanitation for all
Goal 7: Ensure access to affordable, reliable, sustainable and modern energy for all
Goal 8: Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all
Goal 9: Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation
Goal 10: Reduce inequality within and among countries
Goal 11: Make cities and human settlements inclusive, safe, resilient and sustainable
Goal 12: Ensure sustainable consumption and production patterns
Goal 13: Take urgent action to combat climate change and its impacts*
Goal 14: Conserve and sustainably use the oceans, seas and marine resources for sustainable development
Goal 15: Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss
Goal 16: Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels
Goal 17: Strengthen the means of implementation and revitalize the global partnership for sustainable development

At first sight the proposed goals and targets are a bit cumbersome, but they are ambitious and broad and build upon the MDGs.

Building on MDGs. Those familiar with the existing MDGs will notice straightway that many of the goals build on MDG targets: for example halving income poverty has become ending poverty in all forms, universal access to education has become quality education and lifelong learning for all etc. (For those interested in seeking how the SDGs compare to the MDGs, the diagram below provides a useful summary that you can explore further.)

A broader development agenda. The proposed SDGs are much broader than the MDGs, including more extensive goals and targets on climate change, environmental issues, including for managing forests, oceans, and marine resources. It also fleshes out in more details what is required to support economic growth, as a foundation for sustainable development.

Clearer intermediate steps. One of things that some commentators didn’t like about the MDGs was that they focused too much on development outcomes and not enough on the actions required to achieve them. This is being addressed in proposed SDGs through explicit goals on the steps for achieving development outcomes (e.g. improvements in governance and investment in infrastructure, including energy) as well as intermediate outcomes (such as economic growth) Whilst some might argue that this has made the SDGs more cumbersome, it also makes them more relevant and practical.

Global partnership. A big step forward, from a developing country prospective is that there is much more meat on the ‘global partnership’. In particular, it is good to see that the 0.7% of GNI target has been included in the goals themselves—though whether countries ultimately sign up to this or deliver it remains to be seen. The UK has enshrined the 0.7% target in law, whilst Australia has retreated the other way in the last year. From a developing countries perspective, and for NGOs, it will be important to keep pressure on rich countries to (re)commit to the 0.7% target—as an easily verifiable indicator of a global partnership. But more importantly will be the improvement to the ‘quality’ of aid, and ideally this would involve an overhaul of aid modalities and their archaic architecture—something that the IFIs, UN and donors themselves have long struggled to do.

Beyond aid, there is a lot more that can be done to improve the way that capital is allocated and used globally: action on money laundering, tax evasion, transnational crime, regulation of banks, as well as corruption in both developed and developing countries. These are not new items on the global agenda, but ones that sovereign states and global agencies have been either unwilling or unable to address—collective action on the provision of such global public goods (and others such as conflict prevention and climate change mitigation) are a core weakness of the UN/IFIs etc.

The proposed SDGs and the ideas on financing for development are a good starting point. They set out a bold vision for sustainable development, and without doubt the world has the resources and the know-how to make it a reality, but the question remains whether global institutions and sovereign states can rise to the challenge—the world will be a much better place if they can.

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Knowledge gaps on poverty in the Pacific

AusAID’s most recent assessment of poverty in the region, ‘Tracking Development and Governance in the Pacific 2009’, found that rising poverty is evident, with one-third of people living below national poverty lines.

According to the report, “poverty is a significant and growing problem for many countries in the Pacific, with approximately 2.7 million people… not having sufficient income or access to subsistence production to meet their basic human needs.”

Additionally, progress towards Millennium Development Goal number one — eliminating extreme poverty and hunger — has been slow.

Thus, the need to comprehensively measure poverty in the Pacific is critical, for four key reasons:

  • to keep poor people on the policy agenda;
  • to target aid interventions;
  • to monitor and evaluate projects and policy interventions;
  • and to evaluate the effectiveness of institutions.

In my recently released discussion paper for the Development Policy Centre, ‘Measuring poverty in the Pacific’ [pdf], I have examined how basic needs poverty is measured in the region, the limitations of current data and opportunities for further analysis.

The paper focuses on measuring poverty through examining a household’s command over commodities — an income measure of poverty. It uses a Basic Needs Poverty Line (BNPL) measure, which represents the level of income required to meet a minimum standard of living in a country. People falling below their national BNPL have insufficient cash income or access to subsistence production to meet minimum dietary needs and to cover basic expenses related to housing, health care, education, clothing, transport and customary and community obligations.

Unsurprisingly, there is disagreement among development experts on the cut-off for pronounced deprivations. This paper simplifies the approach by focusing on two conventionally accepted methods.

The first is to calculate the national poverty line based on the income required to meet a household’s ‘basic needs’ of food, shelter, etc (see Haughton and Khandker 2009, pp. 49-54). The second is to calculate an international poverty line, based on an average of national poverty lines and converted back in to local currencies using purchasing power parity (PPP) exchange rates (Haughton and Khandker 2009, p. 45).

Both of these approaches have their own strengths and weaknesses. National poverty lines are easier to calculate and provide a good measure of poverty in a given country. International poverty lines are more difficult to calculate because they require price data to estimate PPP exchange rates, but arguably they give a better measure of how poverty compares across countries. It is also the measure used in the MDGs.

The basic building blocks of measuring poverty are an indicator of welfare (income or consumption per person), a minimum acceptable standard (poverty line) and survey data (to aggregate a summary statistic). In practice most countries measure poverty at a household level rather than per person because it is easier to design good surveys for doing this, and a range of surveys can be used. Living standard surveys are widely used in developing countries and household income and expenditure surveys are used throughout the Pacific.

Household income and expenditure surveys (HIESs) provide information on people’s living conditions and income/expenditure patterns. Data from HIESs are used for rebasing a country’s consumer price index, in the preparation of national accounts and to analyse poverty and hardship in communities. The Secretariat of the Pacific Commission (SPC) helps Pacific Island countries to conduct these surveys and maintains a database of reports of surveys carried out during the last decade.

These reports provide a rich source of data on poverty and hardship in the Pacific that can be used to inform policy and program design and help evaluate policies and institutions. In-depth analysis of the kind necessary to assess basic needs poverty lines has only been conducted sporadically throughout the Pacific, often with the assistance of the UNDP.

Filling in the gaps

While countries such as Tonga, Fiji and Samoa have had recent HIESs, all of which have provided valuable information on areas of critical need for poverty reduction, in other countries policymakers have been left trying to fill in gaps in data.

Papua New Guinea is one such example. While a household survey is currently being finalised, the last completed survey was in 1996. In order to estimate the level of poverty in 2004, the World Bank poverty assessment used a modelling approach. Understanding the method used in this exercise can help policymakers to interpret results and to reflect on the accuracy of these estimates.

In order to model the patterns and trends in poverty, the World Bank research team used data on the rate and sectoral pattern of output and employment growth since 1996 and combined this with information on the sectoral profile from the 1996 household survey (World Bank 2004 [pdf], p.3, p.6). Based on this, they estimated that the proportion of the population living below a basic needs poverty line had increased from 37.5% in 1996 to 54% in 2003. They also estimated a similar trend for the international $1 a day poverty line — an increase from 24% to 39.6% over the same period. The World Bank’s assessment of poverty in PNG in 2003 is arguably conservative, for a number of reasons outlined in the discussion paper.

The PNG government is currently completing the household survey for 2008-09. The sample frame for this survey mainly focuses on urban areas (to collect data to re-weight the CPI) rather than rural areas where poverty has traditionally been highest. The implication may be that it could be difficult to get disaggregation of inequality, say to the district level, limiting the usefulness of the survey for the design and evaluation of projects and policy interventions.

Policymakers could also benefit from even greater detail, for example, from highly disaggregated geographical data and poverty mapping, as well as sourcing local case studies to examine the root causes of poverty (such as the recently completed study of Yelia, PNG).

Conclusion

There will always be disagreement over the definitions of poverty in the Pacific, with some favouring narrow indicators such as hunger and others broader multidimensional determinations such as ‘access to opportunity’. There will also always be political sensitivity about the use of the term poverty in the region.

However, this should not detract from the importance of identifying the most financially disadvantaged households and further analysing their experience of living below a basic needs poverty line. Quality household income and expenditure surveys are essential for measurement of income poverty and sound progress is being made throughout the Pacific in bringing such surveys up to date. However, this improvement is not uniform — PNG is a stark illustration of that.

Analysts should also be making better use of other data — there is a relative underutilization of Demographic and Health Survey (DHS) data for development policy analysis and a lack of harmonization between HIESs and DHS. Given the small size of many Pacific countries, censuses could potentially do more of the work that surveys encompass in larger countries.

The discussion paper shows that there is considerable data on income poverty in the Pacific that can be used as the basis for public policy, and that even where there are gaps, there are options for addressing these through a range of techniques. If donors and countries are serious about the MDGs, then it is imperative that these knowledge gaps on income poverty are addressed.

Matt Morris is the Deputy Director of the Development Policy Centre. He is the author of Discussion Paper #9 ‘Measuring poverty in the Pacific’ [pdf].

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Time to step up on EITI in PNG

The Australian government has recently announced that it will trial the Extractive Industries Transparency Initiative (EITI) — a global program for greater transparency and accountability in resource revenues. This move will place pressure on other resource rich countries in the region, such as Papua New Guinea, to also open up their books.

For those unfamiliar with the program, EITI is a global standard for transparency and accountability of mining and petroleum revenues. Implementing the standards requires countries to meet six criteria:

  1. Regular publication of all material oil, gas and mining payments by companies to governments (“payments”) and all material revenues received by governments from oil, gas and mining companies (“revenues”) to a wide audience in a publicly accessible, comprehensive and comprehensible manner.
  2. Where such audits do not already exist, payments and revenues are the subject of a credible, independent audit, applying international auditing standards.
  3. Payments and revenues are reconciled by a credible, independent administrator, applying international auditing standards and with publication of the administrator’s opinion regarding that reconciliation. Any discrepancies should any be identified.
  4. This approach is extended to all companies, including state-owned enterprises.
  5. Civil society is actively engaged as a participant in the design, monitoring and evaluation of this process and contributes towards public debate.
  6. A public, financially sustainable work plan for all the above is developed by the host government, with assistance from the international financial institutions where required, including measurable targets, a timetable for implementation, and an assessment of potential capacity constraints.

As the EITI  explains, implementing this standard has several benefits:

‘Benefits for implementing countries include an improved investment climate by providing a clear signal to investors and international financial institutions that the government is committed to greater transparency. EITI also assists in strengthening accountability and good governance, as well as promoting greater economic and political stability. This, in turn, can contribute to the prevention of conflict based around the oil, mining and gas sectors.

Benefits to companies and investors centre on mitigating political and reputational risks. Political instability caused by opaque governance is a clear threat to investments. In extractive industries, where investments are capital intensive and dependent on long-term stability to generate returns, reducing such instability is beneficial for business. Transparency of payments made to a government can also help to demonstrate the contribution that their investment makes to a country.

Benefits to civil society come from increasing the amount of information in the public domain about those revenues that governments manage on behalf of citizens, thereby making governments more accountable.’

Clare Short, the former Secretary of State for International Development who transformed the UK’s aid program, was appointed chair of EITI in March this year.

Under her leadership there has been growing and renewed support for EITI. Both Australia and the US have recently announced that they plan to implement the EITI standard, and there was a strong statement of support for EITI in the final communiquefrom the Commonwealth Heads of Government Meeting. Eight of the Commonwealth countries are implementing the EITI standard: Cameroon, Ghana, Mozambique, Nigeria, Sierra Leone, Tirindad and Tobago, Tanzania and Zambia. Globally, a total of 11 countries have already fully implemented the standard, and there are 22 candidate countries.

The Minerals Council of Australia (MCA) has welcomed the announcement on EITI, seeing benefits for measuring the total contribution of mining to the government and economy.

‘In the absence of the EITI, there has been no mechanism to fully measure mining’s total contribution to all levels of Government in Australia. The mining industry will pay $23.4 billion in company taxes and royalties in 2010-11, but there is an array of other statutory payments that fall outside these two revenue streams. These include native title agreements, payroll tax, conservation and rehabilitation payments, customs duties, excises, local Government taxes, assessment fees, land access compensation and public infrastructure user charges.’

Should PNG join EITI?

When I worked in the PNG Treasury in 2003, the British High Commission approached the government to join EITI. At the time it wasn’t a top priority and the bulk of PNG’s mineral revenues were clearly reported in the fiscal accounts (unlike in Australia).

Since then the need to join EITI has grown, yet a perennial excuse has been: why should PNG join if Australia won’t? With Australia’s recent decision, the ball is now back in PNG’s court.

PNG is already ahead of Australia in reporting mineral tax and dividend flows in its fiscal accounts and annual budget. This means that concerned citizens can see how much the government earns from the mining and petroleum sectors and can ask questions about how such revenues are spent. It means that economists can assess the underlying fiscal strength of public finances by looking at the non-mineral deficit. Overall, it means that there can be an informed debate about the contribution of the mineral sector to the PNG economy.

But there are three areas where PNG is badly lacking in transparency.

The first is that non-tax payments by resource companies to landowners and provincial governments are not reflected in the public accounts. Many people would like to know how much money has gone to Western province or Southern Highlands province or the Kutubu Development Authority, but the information is not readily available. There needs to be much more rigorous reporting of landowner and provincial payments.

The second is off-budget transactions through State Owned Enterprises (SOEs). The PNG government holds shares in several mining and petroleum companies on behalf of the people of PNG: 30% in Ok Tedi Mining Ltd, 17.56% in Oil Search, 100% of Petromin, the Independent Public Business Corporation /National Petroleum Corporation and the Mineral Resources Development Corporation. Currently only net dividends from these entities are reported in the fiscal accounts. Some of these businesses, such at OTML and Oil Search, produce timely audited accounts, but others are less transparent. Timely publications of accounts is needed so that off-budget transactions through majority state owned enterprises are made transparent. For example, the Independent Public Business Corporation borrowed A$1.68 billion from IPIC in 2008 to fund state and landowner equity in the LNG project, yet there are no publicly available accounts available to show how these funds have been used.

The third area that needs more transparency is the expenditure side of the budget. In recent years, there have been growing concerns about the misuse of funds, notably various trust funds and the development budget.  Greater transparency on public expenditure could discourage corrupt behaviour. Unfortunately though, the spending of mining and petroleum revenues is is not covered by EITI. Nevertheless, transparency and safeguards are needed for mining and petroleum revenues, not just as far as the consolidated revenue fund, but all the way to the point of service delivery.

EITI in Nigeria

One of the reasons that I am a big supporter of this program is that I led a team in Nigeria to manage their EITI project in 2004-2007. While it wasn’t the panacea to Nigeria’s governance challenges, it was a powerful driver of change.

Firstly, the Initiative helped the Nigerian government to undertake an audit of the financial systems for tracking oil revenue flows, then recommended ways to improve these. This enabled reformers to tighten up some of the country’s basic accounting systems to better track funds.

Secondly, improved data enabled Nigeria’s federal government to publish detail of payments to sub-national governments. Each month the newspapers would run full page spreads of data on how much money was being paid to each of the state governments. These newspaper editions would quickly sell out, and Nigeria’s finance minister, Ngozi Okonjo-Iweala, described them as ‘the most boring best seller’. The effect though was to empower concerned citizen to scrutinize state governments.

Thirdly, EITI also shone a light on big systemic weaknesses, notably the veil of secrecy and corruption around the Nigerian National Petroleum Corporation (NNPC), which was the main conduit for oil tax revenues and dividends. According to Transparency International, NNPC is one of the eight most corrupt oil companies in the world, so taming this beast remains one of the Nigerian government’s biggest challenges — and acts as a cautionary tale for other resource rich countries.

If you are interested, you can find out more on EITI in Nigeria here and more about NNPC here.

Conclusion

EITI is a valuable initiative to encourage greater transparency and accountability of resource revenues. Australia’s signing up is an important step forward and will contribute to a more informed debate about the contribution of the mining sector and fiscal policy.

Indirectly it will also put pressure on other countries that haven’t yet joined EITI. There is a strong case for PNG to join the scheme, not because Australia has joined, but because Papua New Guineans should have a right to know how their mining and petroleum wealth is being managed. A light needs to be shone on the payments to SOEs, provincial governments and landowners.

Nevertheless, we also need to be realistic about what EITI can achieve. The case of Nigeria illustrates how transparency can encourage improvements, but also that it needs to be part of a broader program of reform. EITI can help, but is is by no means the whole solution.

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Fighting the resource curse in PNG

Papua New Guinea is on the brink of it’s biggest resources boom. Will it be a curse or a blessing?

A new generation of mining projects and a massive LNG project are expected to double the size of the economy over the next decade. Yet there is skepticism about whether benefits will be shared widely among the nation’s seven million people. This is the third resource boom in as many decades, and despite the promises of the past, incomes today are barely higher than they were at independence in 1975 and PNG is unlikely to meet any of the MDGs.

Some argue that PNG has a classic case of the resource curse: Dutch disease, weak accountability and corruption, which all conspire to undermine economic, social and political development. A key question is how to break with this past experience and chart a new development path?

The economic debate on managing PNG’s next resource boom has focused on three areas:

  1. The design of a savings mechanism, such as a sovereign wealth fund, to manage the macroeconomic effects, such as Dutch disease and revenue volatility. (If you want to read more on this, the 2011 Budget has a good update on the LNG project and the proposed sovereign wealth fund.)
  2. The formulation of medium and long term development (and expenditure) plans on how to translate resource revenues into infrastructure and basic services. The PNG Department of National Planning and Monitoring provided a detailed overview of these plans for the Development Policy blog.
  3. A debate about governance: the accountability, capability and effectiveness of government to deliver on its promises. This is reflected in some of the comments from Paul Barker at the Institute of National Affairs, and also featured here and hereon the Development Policy blog.

My view is that Dutch disease and absorptive capacity aren’t the main problem. A great deal is already known about how to manage these, both in the context of scaling-up aid inflows and managing resources booms. (For more of this read Owen Barder’s paper on scaling-up aid and Menachem Katz’s book on managing the oil curse in Africa.)

Nor do I think a lack of planning is a big problem for PNG. The government has both long term and medium term development plans and a raft of sector and thematic plans, including one for the informal economy. We can debate whether or not these focus on the right policies, but most commentators would agree that the main problem is a lack of implementation.

There needs to be debate about and fine-tuning of macroeconomic policies and development plans, but the challenge is how to implement them and that brings us to the issue of governance, and the potentially corrosive impact of resource revenues on accountability, transparency and government capability in the delivery of services.

During the latest resources boom, indicators of the quality of governance declined. PNG is now in the bottom 5% of countries in terms of control of corruption. We need a lot more ideas on how to improve the accountability, transparency and government capability if we are to reverse this trend.

This includes evaluating existing approaches, such as aid, to improving governance. For example, a recent review Australian aid to PNG found that ‘several sources of evidence, from the decline in national governance indicators to a wealth of evaluation materials, and international analysis as well, suggest that the “capacity building through advisers” model is not working.’ If aid is not the panacea, then what?

There isn’t a single solution. Ultimately the key drivers need to come from within PNG and not from donors. There needs to be more debate about how to create the conditions for the emergence of stronger accountability, transparency and capability. The key to this is empowering citizens to hold government to account.

One idea is to share the benefits of the resources boom more widely and create a stronger constituency for government accountability. In an article for the National Research Institute, Ron Duncan picked up Todd Moss’ Oil to Cash idea and suggested that an ‘Alaska model’ of universal cash transfers could be implemented in PNG.

Of course, implementing universal cash transfers is easier said than done, though not beyond the realm of possibility. The government is already considering a unique ID card program that could be used to identify beneficiaries, and rapid progress in rolling out mobile telecommunications could provide a cheap platform for making payments. It’s something that deserves further consideration. And in the meantime, there are other ways to share benefits more broadly. The 2002 free education program was positive: more money reached schools and enrollments increased.

Another idea relates to how to empower citizens to hold governments accountable, and to enable governments to get better information to feed into policy.

Opinion polls in Australia provide this kind of feedback to political leaders. While sophisticated instruments like this are not yet available in PNG, there are alternatives. During the current sitting of Parliament, Sam Basil, the deputy opposition leader, posted a picture on Facebook of an empty parliament chamber. Within just an hour more than 50 people had posted comments of dismay at the performance of MPs, and by the end of the day there were over 100 comments.

A similar approach to feedback can be applied to service delivery. A toll free text message might be sent to inform providers about whether services are reaching intended beneficiaries. We are already seeing the start of this kind of community involvement with people posting photos of potholes in Lae on Facebook. An SMS-based platform would make it easier for people in rural areas to participate. Information can then be used by advocacy groups, government or aid agencies to improve service delivery. (For more on this see this recent post on crowdsourcing.)

Finally, what can be done to improve transparency? PNG has quite detailed budget documents, but where the money actually goes is less clear, a problem that is highlighted in the Parliamentary Accounts Committee’s scathing comments. And there are other areas where more transparency is needed. PNG is not yet a signatory to the Natural Resources Charter or the Extractive Industries Transparency Initiative, global standards for publishing revenues from the resources sector. Despite a great deal of donor support, the statistics office has a poor record of conducting and publishing statistical surveys on things like demographics, health and households incomes. Government has already done the hard yards of collecting this data, perhaps all that is needed is a nudge to get it into the public domain.

These are some suggestions about how to  improve governance. Its naive to think that improvements will be easy or that they will happen automatically. A concerted effort by all stakeholders – government, donors, NGOs and citizens – is needed. Fortunately, information and new technologies are creating opportunities for change: from cash transfers, to crowdsourcing feedback, to social networks for advocacy. As Rowan Callick commented in a recent article, if PNG and its supporters have the commitment to chart a new development path, the country can be ‘wired for change‘.

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Aid Innovations: 21st century aid

Note: This is a blog post of my presentation at the Doubling Australian Aid conference. A narrated slideshow can be found here. 

It’s a myth that aid is static, as we shall see there are some exciting changes taking place. What are the new innovations that are improving aid effectiveness in the 21st century aid?

As you read this blog post, I’d like you to keep at the back of your mind the determinants of aid effectiveness. (For more on this see a new discussion paper by Stephen Howes.)

  • We can improve the quality of recipients by selecting on the basis of performance and results, and (trying) to improve governance.
  • We can improve the quality of donors by reducing the knowledge burden and making donors more accountable.
  • And we can also improve the interactions between donors and recipients.

Yet all three of these challenges are compounded by imperfect information, principal-agent and political economy problems. Giving aid isn’t easy!

This blog post provide examples of four innovations that are already happening in aid agencies, and two innovations from the private sector that are yet to take-off in the aid world. None of these are panacea, but all have the potential to improve aid effective.

Innovation 1 – Cash on delivery aid

Cash on Delivery is a new approach to results-based aid, proposed by the Center for Global Development.

Traditional programs can create unintended incentives for rent-seeking and problems of dependence. And, as we know, they often have disappointing impacts on development outcomes.

Cash on Delivery aid differs from traditional projects and budget support. It seeks to address these problems by linking payments to progress on specific outcomes. For example, a donor might sign a contract with a recipient that says that for every extra child completing school, the donor will pay $100. A third party is contracted to verify the number of children completing school. And based on this an aid payment is made.

The approach is appealing because it tackles some of the  imperfect information, principal-agent and  political economy problems associated with traditional aid. This is why UK and Germany are planning pilots of Cash on Delivery aid.

Innovation 2 – Independent Evaluation

With these kinds of pilots taking place and increased scrutiny of aid programs, a growing number of donors are making the move to independent evaluation, and using more rigorous methods.

When it comes to scaling up aid, we want to make sure that we avoid two mistakes: a ‘Type 1’ error occurs when we don’t scale up something that works, and and a ‘Type 2’ error when we scale up something that doesn’t work.

Organizations such as the Jameel Poverty Action Lab at MIT, and 3ie (an international initiative on impact evaluation) are driving better evaluation standards to help reduce mistakes.

Better techniques, such as rigorous impact evaluations with control groups, are part of the solution, but we also need to reduce institutional biases associated with internal-models of evaluation. Such models can lead to overly positive assessments, uneven rigor, and delayed publication.

This is why a growing number of donors are making evaluation more independent. The World Bank and ADB’s evaluators both report directly to their respective executive boards. And among the bilateral donors:

  • Sweden already has an independent evaluator.
  • The UK has established an Independent Commission on Aid Impact (Commissioners were appointed last week)
  • The US has just released an independent evaluation policy.
  • And Germany is also planning to set up an independent evaluation agency.

Innovation 3 – Selectivity

Aid agencies have a large knowledge burden – the challenges of operating in large number of countries and many sectors.

Specialization and decentralization are two ways to manage this, but in a context where administrative costs are under pressure there are limits to how far agencies can pursue this strategy.

Meanwhile, the number of aid projects has increased exponentially over the last couple of decades – compounding problems of knowledge burden and coordination.

This is why nearly all donors are choosing to be more selective in where they work, the sectors they engage in, and the number of projects that they manage.

  • In 2009, the Canada announced that it would spend 80% of its bilateral aid money in 20 ‘countries of focus’ – chosen based on ‘their real needs, their capacity to benefit from aid, and their alignment with Canadian foreign policy priorities’.
  • DFID is conducting reviews of the UK’s bilateral and multilateral aid programs, to narrow down the scope of engagement: fewer countries, fewer sectors in countries, and fewer and larger projects.
  • And the European Commission is implementing a Code of Conduct on Division of Labour to reduce the proliferation of aid. This agreement also includes giving Commission funds to Member States to manage.

Innovation 4 – Aid Transparency

With disappointing progress in taking forward the aid management reforms agreed in the Paris Declaration there is a resurgence of interest in accountability. Better transparency is necessary for accountability and can also make coordination easier, in line with Paris Declaration goals.

The last couple of months have seen significant advances on the aid transparency agenda both internationally, and by individual donors.

The UK’s Department for International Development (DFID) last year announced their Aid Transparency Guarantee. This signals a move towards proactive disclosure, announcing that in future, detailed information about all new DFID projects and programs will be available online, and the information published will be “comprehensive, accessible, comparable, accurate and timely.”  The crucial thing here is that DFID acknowledges the importance of ensuring that aid information is published in ways that make it easily accessible and internationally comparable.

Meanwhile, 18 donors have so far signed up for the International Aid Transparency Initiative (IATI) – Australia being one of them – a further 15 countries having endorsed the initiative.

  • Last month, the US government said that it expects to publish details of its aid program in line with the IATI standard.
  • And the EU Foreign Affairs Council has agreed that member states would publish details of their aid in an internationally comparable format.
  • Last week the UK became the first donor to meet the new IATI standard for aid transparency.

Some donors are taking transparency further by opening up the vaults to their vast databases.

The World Bank’s Open Initiative makes the World Development Indicators and other datasets freely available, and their Apps for Development competition is encouraging innovation to make this data even more accessible.

Although the main focus of this presentation is on innovations from established donors, we shouldn’t ignore that recipients are also doing things differently to promote transparency. There are some exciting lessons from Africa, including the geo-coding of aid data in Malawi.

Innovation 5 – Crowdsourcing

New innovations can come from aid bureaucracies, but many of innovations above have their origins outside of aid agencies – in think tanks, NGOs and the private sector. The final two innovations that I will discuss are examples from the private sector that have not yet been adopted by aid agencies. These are future opportunities.

Broken feedback loops from recipients to donors are a recognized problem for aid accountability. How do we know projects are being implemented and services reaching recipients? Crowdsourcing recipient feedback is one way to find out.

Ushahidi is a a non-profit tech company that specializes in developing free and open source software for information collection, visualizarion and interactive mapping. Ushahidi is a pioneer in crowdsourcing data from citizens to map out crises as they unfold. Citizens can send an SMS message or an email to provide feedback and the data is collated in a form that is accessible to broad audience.

This is also a potentially powerful tool for fixing feedback loops on service delivery. Imagine PNG schools being able to send an SMSmessage to confirm that Australian-fund textbooks have been delivered, and school kids in Australia being able to see this information visualised on a map.

Innovation 6 – Technical assistance

Technical assistance accounts for about a quarter of bilateral aid from DAC member countries, and almost half of Australia’s bilateral aid, yet the evidence of its impact is tenuous. There are oft-cited problems of high costs and disappointing results. Yet technical assistance is firmly embedded and likely to remain a key instrument of foreign aid for some time to come. Perhaps there are ideas from private sector that can help us to make it work better – specifically to make the market for technical experts work better.

For example, web-based marketplaces and workplaces, such as Elance, have transformed freelance services in the private sector, yet are not a key feature of the delivery of technical assistance.

Web-based solutions have several attracted features.

First, they directly tackle imperfect information on the quality experts by introducing a transparent feedback loop.

Secondly, virtual solutions can also reduce the amount of work that needs to be done on-site. (That’s bad news for hotels and airlines, but good news for bank balances and the environment.)

Thirdly, they can also solve some principle-agent problems by lowering transaction costs so that recipients can recruit and pay for results themselves, with donors playing an ‘no objection’ and co-funding role.

Conclusion

These are just some examples of the exciting innovations and opportunities for the aid world. In the 21st century, the aid agencies that do best will be the ones who, experiment, adapt and evolve.

  • Donors who collaborate with new partners to capture the benefits of information, networks and new technologies.
  • Donors who experiment with new approaches to giving foreign aid – be it cash on delivery or smarter technical assistance.
  • Donors who evaluate and scale up programs that work.

These will be the donors that deliver the best aid. The future of foreign aid beckons – are we ready?

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