Australia pushes 'economic diplomacy' — for whom?

A busy market in the Caribbean. What could Australia’s new “economic diplomacy” strategy mean for its country partners? Photo by: Department of Foreign Affairs and Trade / CC BY

Australian Foreign Minister Julie Bishop announced on Monday the Abbott government’s new plan to push for “economic diplomacy” as the keystone — or the final piece of the puzzle — of the country’s continuously evolving foreign, aid and trade policies.

In a speech in Sydney, Bishop explained that the new comprehensive policy will focus on trade, investment and growth as the main driver of national and, to an extent, global prosperity while highlighting the importance of the private sector in promoting Australia’s brand of economic cooperation worldwide.

“Economic diplomacy would boost Australia’s prosperity and global prosperity,” she said in a DFAT press release. “The global economy is a highly competitive space and sustaining Australia’s position as the 12th largest economy globally requires strong international engagement.”

The announcement follows a long list of updates detailing the changes in the country’s foreign, aid and trade policies following the Abbott government’s decision to integrate all three in one unified approach — a move that has divided opinions among the local and international development and business communities.

Some of the significant changes during the first year of the Coalition government include the huge foreign aid budget cuts amounting to over 7 billion Australian dollars (around $6.5 billion), the amalgamation of the country’s aid agency into the Department of Foreign Affairs and Trade, and the push for an aid for trade approach.

The new economic diplomacy policy will focus on four pillars: trade promotion, growth encouragement, attracting investment and supporting Australian business, while promoting the country’s expertise and skills to the world. DFAT released two charters focusing on Australian business and sovereigns.

The Australian business charter portfolio will focus on supporting and promoting Australian businesses in international markets including legal, regulatory and advisory assistance. Of the 12-point agenda, the importance of explaining “how business can interact with [the] aid program and partner with government to improve economic and social outcomes in developing countries” is highlighted. The charter on state and territory governments generally highlights knowledge and information-sharing as well as improving trade opportunities and relations in partner countries.

“Better outcomes from our economic engagement with the world result in stronger economic growth, more jobs and greater prosperity for Australians,” Andrew Robb, trade and investment minister, said in the DFAT statement.

Good but…

The announcement was generally perceived positively by the local aid community, with CARE Australia chief Julia Newton-Howes describing the new policy in a blog post as “appealing” with “Australia effectively leveraging [its] resources and know-how through [the] four pillars for mutual benefit within our region and beyond.”

Private contractors echoed this sentiment. Mel Dunn, vice president for international development at URS, said the concept of economic diplomacy is good, but stressed that the private sector is only a part of the solution.

“In the information that has been released, the aid program is seen as a core part of one of the four pillars — not the reverse,” he told Devex. “While I believe this further highlights the important role of the private sector in development, I don’t believe this is synonymous with the private sector being the only solution.”

Despite the inherent merits of the new aid policy, several questions remain to be addressed, including whether the “prosperity” will in fact only favor Australia and not developing partner countries.

While Bishop mentioned in her speech that the “real driver of poverty elimination will always be economic growth,” sticking to this commitment will be a bigger challenge. Aid groups mentioned that the reductions in poverty in the region will (and should) be the key measure of success for this new strategy.

“The alignment of Australia’s foreign policy, trade, tourism and development interests under the banner of economic diplomacy has enormous potential for the world’s poor,” Melissa Wells, Save the Children Australia’s senior economist, told Devex. “But, we should also not lose sight of the comparative advantage of aid which is to reach the most poor and vulnerable. There is often no economic imperative to go to the hardest to reach populations or places. This is the true value of aid.”

Newton-Howes further explained that while it is generally accepted that investments and economic growth benefits development, the connection is not always direct given the countries’ different level of institutional development and capacity.

In other words, trade and growth as drivers of poverty elimination may only be successful if institutions in partner countries that should regulate and protect local interests when engaging in international trade are strong and functional.

“The key challenge is to adopt policies and programs that enable poor people to reap the benefits flowing from that growth,” she said, adding that environmental sustainability should also be included even if it seems to be among the last of the Abbott government’s priorities.

Read more development aid news online, and subscribe to The Development Newswire to receive top international development headlines from the world’s leading donors, news sources and opinion leaders — emailed to you FREE every business day.

About the author

  • Lean Alfred Santos

    Lean Alfred Santos is a former Devex development reporter focusing on the development community in Asia-Pacific, including major players such as the Asian Development Bank and the Asian Infrastructure Investment Bank. He previously covered Philippine and international business and economic news, sports and politics.