Australia Shows the Way for Engaging Private Sector in Aid and Development

Last week Australia’s Minister of Foreign Affairs Julie Bishop released a Ministerial Statement outlining a vision for collaborating with the private sector on global development challenges. Australia’s new aid strategy should be a guidepost for other donors looking to adjust development spending in a changed global landscape. The statement not only signals Australia’s commitment to working with the private sector, but reflects the expanded role corporations have taken in solving social and economic challenges globally. Both donors and companies see opportunities for collaboration that advance development while expanding market opportunities.

In recent years, Australia has redefined its role as an aid donor in recognition of new realities in the international development arena. There is an emerging global consensus that private sector activity by entrepreneurs and profit seeking companies—investing and growing, employing people, and sourcing a variety of products and services—not foreign assistance spending, is the most central factor for economic progress for developing countries.

As stated in CSIS testimony before the Australian Parliament’s Joint Standing Committee on Foreign Affairs, Defence and Trade last year, many developing countries have enjoyed high rates of growth over recent decades, and today official development assistance (ODA) accounts for a small and shrinking share of total development finance. Australia’s Ministerial Statement notes that in developing countries, the private sector provides an average of 60 percent of GDP, 80 percent of capital flows, and 90 percent of jobs.

Under the announced framework, all development investments from the Australian Government “will explore innovative ways to promote private sector growth or engage the private sector in achieving development outcomes.” The Australian Government offers businesses the ability to convene, broker, and influence; deep knowledge of the business, political and regulatory environments where Australia’s aid program operates; support in creating a more attractive business operating environment; and catalytic funding to support business. For their part, businesses bring knowledge, ideas, capabilities, and resources beyond what the Australian aid program can offer on its own.

The Ministerial Statement also lays out core engagement principles and long term investment priorities to guide foreign aid decision making. Australia will look to work with partners that have complementary priorities, and that offer value and return on investment beyond what could be achieved without collaboration. All partnerships will be viewed through the lens of Australia’s aid priorities in the Indo-Pacific region, including:

· Agriculture, fisheries, and water

· Building resilience: humanitarian assistance, disaster risk reduction, and social protection

· Education and health

· Effective governance: policies, institutions, and functioning economies

· Gender equality and empowering women and girls

· Infrastructure, trade facilitation, and international competitiveness

Beyond having enormous and economically significant emerging markets operations, some of the world’s largest companies have proven themselves active and capable partners in tackling modern development challenges. As we’ve written before, companies like Chevron, Nestle, and IBM have embedded social investment in their core business strategies. Increasingly, companies see engagement on social and economic challenges not as philanthropy but as long-term strategic investment. Given the resources and capabilities the private sector has at its disposal, this type of commitment has far reaching consequences.

In this context, donor agencies must be willing to adapt both strategy, priorities, and approaches to maximize their impact. In 2014 Australia announced a new national aid policy that recognized the private sector as the primary driver of development progress. Ms. Bishop’s Ministerial Statement builds upon this policy, as well as commitments made by the development community at large to pursue deeper partnership with private sector. Beginning with the UN Global Compact in 2000 and continuing with this summer’s Financing for Development Conference and the upcoming implementation of the Sustainable Development Goals, there is a clear trend towards a brand of development driven by innovative partnership between traditional donors and corporate actors.

Donor countries like Australia still have a critical role to play, but that role is changing because of the shifting landscape in which donors operate. Official donors are being asked to leverage their expertise in conjunction with far larger forces such as domestic capital, FDI, and supply chain buying power. Today, donors share financial risk and help develop the capacity of host country governments that are increasingly able to finance their own development with their expanding tax bases and other domestic resources.

Especially in an environment where OECD countries are still experiencing budgetary stress, there will be pressure to ensure aid dollars are spent effectively and efficiently. This means leveraging or catalyzing other resources. This policy also underscores the opportunity that Australia has to lead on the trade and aid agenda, especially financing the WTO's Trade Facilitation Agreement, which has the potential to increase global trade by $1 trillion by addressing blockages to global trade through targeted assistance dollars and focused diplomacy. Australia’s recent moves should be watched closely and hopefully emulated by other OECD donors.

Daniel F. Runde holds the Schreyer Chair in Global Analysis and directs the Project on Prosperity and Development at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Charles Rice is a research assistant with the CSIS Project on Prosperity and Development.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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