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Improving the Effectiveness of Australia's Bilateral Aid Program In Improving the effectiveness of Australia’s bilateral aid program in Papua New Guinea: some analysis and suggestions A submission to the Foreign Affairs, Defence and Trade Reference Committee Stephen Howes1 1 Professor of Economics and Director, Development Policy Centre, Australian National University. This submission represents my opinions, and are not those of The Australian National University nor necessarily of any of my co-authors of works I cite. 1 Table of Contents Summary and recommendations............................................................................................................ 4 Introduction ............................................................................................................................................ 6 Part A: PNG, and aid to PNG ................................................................................................................... 7 A1. Papua New Guinea: an overview .................................................................................................. 7 A2. Global aid to Papua New Guinea ................................................................................................ 11 A3. Australian aid to PNG .................................................................................................................. 14 Part B: Cross-cutting issues ................................................................................................................... 23 B1. The need for greater consistency of approach ........................................................................... 23 B2. The need for realistic expectations and focus ............................................................................ 25 B3. The limited utility of benchmarks ............................................................................................... 27 B4. The loss of Australian leverage due to Manus ............................................................................ 28 Part C: Sectoral issues ........................................................................................................................... 30 C1. The new emphasis on infrastructure .......................................................................................... 30 C2. Service delivery and non-state actors ......................................................................................... 34 Part D: Technical assistance and capacity building ............................................................................... 35 D1. Technical assistance ................................................................................................................... 35 D2. Dethroning the advisory approach. ............................................................................................ 36 D3. Supporting long-term linkages ................................................................................................... 39 D4. Economics training ..................................................................................................................... 39 D5. Scholarships ................................................................................................................................ 40 Conclusion ............................................................................................................................................. 41 2 List of Figures Figure 1: GDP and GDP per capita, 2012 prices ...................................................................................... 7 Figure 2: Mineral rents as a percentage of GDP, 2010 ........................................................................... 8 Figure 3: Top 25 countries on Gini index ................................................................................................ 9 Figure 4: Top 50 perceived most corrupt nations ................................................................................... 9 Figure 5: Total net ODA received by PNG, 1975 to 2013 ...................................................................... 11 Figure 6: PNG aid dependence (net ODA received as per cent of GNI), 1975-2012 ............................ 12 Figure 7: Top 50 country recipients of net ODA, 2013 ......................................................................... 12 Figure 8: Top 60 most aid dependent countries (aid as per cent of GNI), 2012 ................................... 13 Figure 9: PNG rank in aid volume (net ODA received) and aid dependency (net ODA as per cent of GNI), 1975-2013 .................................................................................................................................... 13 Figure 10: Top 10 recipients of Australian ODA (2013-14 est. outcomes) ........................................... 14 Figure 11: Total Australian ODA to PNG, 1975-2015 ............................................................................ 15 Figure 12: Aid to PNG as a share of total net Australian ODA, 1975-present ...................................... 15 Figure 13: Australian aid to PNG and Indonesia, 1975-present............................................................ 16 Figure 14: Australian ODA as a share of total ODA received by PNG, 1975-2013 ................................ 17 Figure 15: Per cent share among 10 largest donors of ODA to PNG, 2013 .......................................... 18 Figure 16: Top 15 countries dominated by a single aid donor, 2013 ................................................... 18 Figure 17: Proportion of Australian ODA to PNG delivered by AusAID/DFAT, 2001-2015 ................... 19 Figure 18: Proportion of Australian aid to PNG delivered as budget support and program aid, 1975- present .................................................................................................................................................. 19 Figure 19: Sectoral composition of the Australian aid program in PNG, 1999-2014............................ 20 Figure 20: Share of net Australian ODA to PNG delivered as TA, 1975-2013 ....................................... 21 Figure 21: Share of top 10 recipients and PNG net Australian ODA delivered as TA, 2003-2013 ........ 22 Figure 22: Performance of Australian aid programs against program objectives ................................ 22 Figure 23: Efficiency and effectiveness of PNG and all Australian aid interventions, 2013-14 ............ 23 Figure 24: Development spending as a share of total government expenditure - PNG trends and international comparisons .................................................................................................................... 31 Figure 25: Rebuilding and maintenance requirements in schools and clinics, 2012 ............................ 32 3 Summary and recommendations Part A (PNG and aid to PNG background): summary • PNG is experiencing an extended period of economic growth, but there are heightened economic risks at the current time. • Many of its people are very poor. • PNG is an exceptional country: an outlier on a number of international indicators. • Development in PNG is a long-term project, requiring long-term engagement for success. • Global aid to PNG has fallen over time and is becoming less important. • There has been a slight and partial reversal of these trends in the last couple of years. • Australia has deliberately reduced aid to PNG for most of the period since independence. Again, there has been a partial reversal of this more recently. • Australia’s dominance of total aid to PNG is unusually high by world standards. • Australia’s aid to PNG continues to have a wide sectoral spread. • The most common form of aid is technical assistance (TA), though the share of TA in the aid program has fallen in recent years. • DFAT performance management systems indicate that the Australian aid program to PNG is a relatively weak performer. Parts B, C and D (aid issues): summary and recommendations An opportunity exists at the current time to give the aid program the focus it needs, but that this opportunity will be wasted if the commitment is made just to spend half of Australian aid across a variety of sectors on economic and social infrastructure. Rather, if the focus is to be on infrastructure, then it should be on economic infrastructure, and on transport in particular. In the social sectors and law and justice – the service delivery sectors – the emphasis should be on supporting better performing organizations, on strengthening the demand for service delivery, and on training the professionals of the future. Throughout the aid program, there should be greater emphasis on supporting and working with PNG organizations, but long-term partnerships with committed externals are useful to build their capacity. Levels of technical assistance should be reduced, and more use made of in-line personnel. There should be greater engagement with tertiary institutions in areas of priority to the aid program to train PNG’s doctors, nurses, economists, teachers and lawyers. The scholarship program should be overhauled to give greater attention to quality and selecting the best through a more open, competitive process. A summary of each of the 11 sections in Parts B, C and D follows below. Part B: Cross-cutting issues 1. Australia’s aid program has suffered over the years from inconsistency of approach: less “chopping and changing” and more continuity is needed. Initiatives that succeed should be continued with for a period of decades. 2. Realistic expectations are needed for the aid
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