Seven patterns and trends in Australian aid

This is the a summary of the first installment of the Aid Open Paper, a series of articles that look at different aspects of scaling up Australian aid. In this first section, we set the scene by considering recent patterns and trends in Australian aid. How much aid does Australia give? Where is it spent? What is it spent on? How does Australia compare to other donors? We hope that you will find this overview interesting and informative. It is not intended to be exhaustive, and we encourage you to share ideas and provide feedback.

1. Australia’s aid has been expanding rapidly, doubling in the last five years. Australia gave $1.6 billion in 2000-01, $2.2 billion in 2004-05, and $4.3 billion in 2010-11. There is now a bipartisan commitment to increase aid to 0.5% of our gross national income (GNI) by 2015. As long as the mineral boom continues, and our fiscal position stays favourable, there is a good chance that we will reach this target. This means that our aid is set to double again to about $8.6 billion in 2015-16.

2. There has been a shift in aid from PNG and East Asia to Solomon Islands, Indonesia, and Iraq and Afghanistan. Aid to every major country and region is up, except for PNG. The biggest increases have been in:  aid to the Solomon Islands (due to the RAMSI stabilization intervention), up from from $27 million in 2000-01 to $216 million this year; aid to Indonesia (due to the Tsunami response), up from from $169 million to $440 million over the same period; and aid to Iraq and Afghanistan, for obvious strategic reasons – Middle East aid (which largely goes to these two countries) is up from $26 million to $237 million over the same period. Aid to South Asia and Africa has roughly doubled, but so has the overall aid program, so their share of the program has remained the same.

3. Governance is the biggest spending area for the aid program, though in recent years the biggest increases have been in rural/environment and infrastructure. In the first half of the last decade, increases in aid were targeted at governance. Improving governance is a worthwhile but difficult objective, and by 2005, the “governance first” strategy was starting to run it course. Since 2005, governance spending has been held steady in real terms, and we have seen large increases in funding to education, health, infrastructure and rural/environment. Note though that governance remains the largest area of spending and that even within other sectors a significant proportion is spent on sector-wide governance.

4. The share of aid given to technical assistance is declining, but is still very high. More than half of Australia’s aid used to go to technical assistance (some of it technical training and scholarships, but the bulk on advisers). While this ratio has declined now to around 40-45%, it is still very high compared to other countries. Among OECD donors, Australia is at the top end in terms of reliance on technical assistance, and well above the share of TA in the typical donor’s aid program which is about 20%. The future of technical assistance is clearly one of the big issues for the aid program.

5. Contributions to multilateral donors have not kept pace with aid budget. An important strategic issue for donor countries is how much of it they should give themselves (bilaterally) and how much through international organizations (multilaterally). Measured in terms of core contributions to multilateral organizations, Australia is the most bilateral of all OECD donors. In fact, our contribution to multilateral donors has fallen rapidly as a share of the total aid budget, from 23%  in 2000 to 10% in 2008, compared to about 31% in the typical donor’s aid program.

6. AusAID provides 70% of the Australian aid program. In the mid-nineties, the Australian government started using other departments, apart from AusAID, to deliver the aid program. In 2005-06, AusAID’s share of the aid program fell below 50% for the first time. But that trend has now been reversed, and AusAID’s share of the aid program is now higher than at any time over the last decade. How well AusAID performs will be critical to how effectively aid is scaled-up.

7. Project size has fallen over time. Aid is given through projects. In 1973, the first year for which data is available, Australian aid supported 123 projects. By 1983, this had grown to 211, by 1993 454, by 2003 1,598 and by 2008, the most recent year for which data is available, 2,476. Average project size fell from $20 million in the 1970s, to $10.7 million in the 1980s, $3.6 million in the 1990s and $1.3 million last decade. This tendency towards more, smaller projects is known in the aid industry as ‘fragmentation’. It tends to escalate the administrative and transaction costs associated with aid. These can be especially serious for recipient governments, some of whom run the risk of being overwhelmed by the costs of trying to administer a thinly-spread aid program. If the average aid project size is not increased, then by 2015, we will have some 6,800 projects. That sounds unmanageable, and undesirable, and almost certainly is. Scaling up will have to mean not only more but larger projects.

There is much more that could and needs to be said about recent trends in Australian aid, but the aim of the first section of the Aid Open Paper is to provide a broad introduction and context. More specific issues will be taking up in the coming months as different topics are addressed. We look forward to your comments and feedback as we move forward.

Stephen Howes is Professor of Economics at the Crawford School and the Director of the Development Policy Centre. Matthew Morris is a Research Fellow at the Crawford School and Deputy Director of the Development Policy Centre.

Download the full PDF version of the section of the Aid Open Paper on ‘Patterns and Trends in Australian’ Aid here.

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  • An interesting range of facts. It contributes and I trust will be a catalyst to the discussion that should surround development assistance and how it is delivered. I have been unable to download the pdf atti stage but in contribution I share the following thoughts:

    Regarding the geographic shift. One of the downsides regularly raised is that aid is spread too thin and the number of projects is potentially a parrallel. In this context should there be a greater focus on selected nations in order to achieve economies of scale and efficiency in aid delivery? If so where should a geographically based focus be oriented? i.e. should Australia be focusing on its backyard rather than further afield? If so how does this relate to the use of multilateral agencies for aid delivery?

    While it is clear that there is a difference between Australia and other donors in terms use of Technical Assistance and/or Bi-lateral mechanisms it begs the question is this a positive rather than a negative? History is littered with bad decisions based on a lemmings mentality.

    As discussion points:

    In an environment where there sound governance systems in place it would make sense to focus on infrastructure investments to promote development but in the absence of good governance questions surround the sustainability of infrastructure investments. A disaggregation of development assistance type by the state of governance systems would make for an interesting by-line to the discussion. The related question would then have to be: Does the nature of the nations that Australia assists suggest a requirement for Technical Assistance in preference to other forms?

    In a similar vein to the above. The gap from the majority approach of using multilateral aid vehicles is acknowledged. The question is whether this is desirable or undesirable and raises a host of questions such as: are Multilateral Aid agencies poised to deliver the sort of Technical Assistance that might be required? do they have an effective presence in the countries in which Australian Aid is focused?
    I would be interested to see the responses and data to address some of these questions and indeed whether the different profile in Australian aid delivery is a desirable and warranted element.

  • Nick, thank you for your kind comments and your very good questions. A quick response here, and then more in future installments of the Aid Open Paper. Others may also want to add comments as well.

    On multilateral aid, we’ve not done a detailed analysis yet of who Australia supports and how this compares to other donors, but here are a few thoughts.

    1. We wrote an article last week on support to IDA that found that Australia was about average, but less generous that the top donors.

    2. We note in the first installment of the Aid Open Paper that one of the reasons that Australia’s multilateral aid is low is that we are not part of some multilateral clubs, notably the European Union which accounts for a significant share of European donors multilateral aid. But this also means that Australia has more resources available to give more to other multilateral agencies.

    3. Australia is a contributor to various UN agencies and the Asian Development Bank. And one question is whether Australia should contribute to other multilateral agencies, such as the African Development Bank or the Inter-American Development Bank.

    On fragmentation of aid, you make a very good observation. One of the reasons for the proliferation of projects is a change in the way aid is delivered. In the 1970s and 1980s, Australia gave a lot of aid in the form of budget support grants. In the 1990s, this was phased out and aid became more project based. And we note in the paper that multilateral aid fell as a proportion of aid in the last decade. This largely explains why project size has fallen, but not how AusAID is responding.

    As part of the Aid Open Paper, we’re planning a section on multilateral aid and will also explore the fragmentation issue in more detail, so we will keep your questions in mind. Thanks again for your comment and we look forward to hearing more insights on these issues.

  • Fantastic first post Stephen and Matthew – a very welcome and needed look at the trends within Australian aid. This kind of data and analysis has been missing from a debate that is increasingly focussing on how Australia’s aid program can be more effective – so I look forward to further installments in your open paper. A few questions:

    With regard to multilateral giving, are there any trends in what Australia IS giving to, and what it isn’t? Is our lack of commitment to multilaterals across the board, or are there individual areas where we are particularly behind on?

    Also, what do you think is driving the trend towards smaller projects, and the associated fragmentation? Surely AusAID would be aware of the costs an manageability issues associated with this, so I’m curious as to why this trend remains nonetheless.

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