Australia has taken two giant leaps to establish stronger ties with the private sector in the delivery of foreign aid.

On Monday, a government inquiry into the role of the private sector in promoting economic growth and reducing poverty in the Indo-Pacific region marked its final public hearing. Beginning in February 2014, the inquiry has received submissions from 152 government agencies, businesses, nongovernmental organizations, education institutes and individuals. The committee will now retire to consider submissions and provide recommendations to the government.

On the same day, innovationXchange, a new unit within the Department of Foreign Affairs and Trade was launched with the aim of developing innovative and more effective and efficient ways of delivering Australia’s foreign aid program.

The two milestones are a step closer toward implementing the Australian government’s new aid policy and performance framework, the new aid paradigm, which Foreign Minister Julie Bishop launched in June last year.

In her speech to the National Press Club during the launch in Canberra, Bishop said the new framework would see the private sector playing a greater role in the future of foreign aid.

Australian Foreign Minister Julie Bishop launches innovationXchange in the Department of Foreign Affairs and Trade’s premises in Barton, Canberra. Photo by: Stephan Postles / Wildbear / DFAT.

“The government will invest over 90 percent of our country and regional program funding in our region. We will harness the private sector in those countries, so that Australia’s aid program promotes the major driver of poverty reduction — economic growth,” Bishop said.

Recognizing the role of the private sector

The inquiry and establishment of innovationXchange both show a greater desire for the Australian government to strengthen ties with the private sector in delivering aid.

In referring the inquiry to parliament, Bishop recommended that the committee focus on the “possible return of investment to Australia of private sector partnerships and specific financial instruments.”

According to Liberal member of parliament and committee chair Sharman Stone, the inquiry will produce recommendations on how to better engage the commercial sector in development.

“We have long depended on nongovernment, not-for-profit agencies to partner with government in delivering aid,” Stone said late last year, when private sector representatives gave evidence to the parliamentary inquiry. “Now we need to consider how and what the for-profit commercial sector has been achieving in alleviating poverty.”

Accenture was among those that presented evidence to the inquiry, discussing the connection between commercial and social objectives driving large businesses and their role in growing developing nations. The Global Fund gave evidence as well, providing information on partnerships with BHP Billiton, Chevron, the Bill & Melinda Gates Foundation and more to create economic growth and help in the fight against AIDS, tuberculosis and malaria.

For the development sector, the government’s direction is welcome, especially its “strong emphasis” on the private sector’s role in general and on the push for inclusive business in particular.

“We believe the inquiry is going to help to normalize the idea that the private sector can be considered a genuine and credible partner in development,” Mark Ingram, CEO of Business for Millennium Development, told Devex. “Ultimately this will be of benefit to the government, NGOs and the private sector as they consider the opportunities for partnership that exist.”

According to Marc Purcell, executive director of the Australian Council for International Development, cuts to the aid budget and staff have also forced the government to look toward the private sector for assistance. The parliamentary inquiry and announcement of innovationXchange are part of the “live debate” currently occurring on foreign aid.

“It is not surprising that this government is pushing toward this model,” Purcell expressed to Devex. “It is part of the world view on economic growth and private sector needing to drive it. What we are seeing mirrors what has occurred in other countries, such as Canada and the U.K., in recent years — the move from aid to trade.”

Innovative aid

InnovationXchange, meanwhile, is a 140 million Australian dollar ($108.7 million) project that seeks to find innovative ideas from individuals and organizations on how to deliver development solutions to the Pacific in a cheaper, faster and more effective manner.

The innovative facility will contribute AU$20 million to a $100 million Data for Health partnership with Bloomberg Philanthropies, which intends to build the capacity of governments in developing countries to collect health information quickly and efficiently.

Another AU$20 million will be channeled to the SEED Pacific Initiative, which aims to broker and support partnerships between global businesses and local organizations in the Pacific.

Chris Vein, World Bank’s former chief innovation officer, will helm innovationXchange for its first two months before DFAT looks to other secondments from the private sector, NGOs and philanthropies. The unit will be supported by a 14-member International Reference Group, which includes Michael Bloomberg from Bloomberg Philanthropies and Sally Osberg from the Skoll Foundation.

Robert Dunn, CEO of Opportunity International Australia, believes innovationXchange is an important step toward improvement in the aid sector. But he does acknowledge that it might take a while to see concrete outcomes.

“The results will take a while to bubble to the surface but with technology, smarts from business and businesses cases showing impact on developing countries, we could see a lot of great work,” he told Devex. NGOs, according to the chief executive, will have important knowledge to contribute to the program through their innovative ways of engaging with local communities, minority groups and forming local partnerships for economic development.

“We certainly need to look at innovation in this sector and encourage greater engagement with private industry,” Dunn stressed, but also noting that while this is an innovation that needs to happen “it should not be a replacement for proper funding. The sector still needs a sustainable funding stream from the government.”

Beyond innovative finance

The move toward an innovative approach to the delivery of aid leads to one important question for the development sector: How does one define innovation?

“DFAT needs to move beyond handing out grants,” ACFID’s Purcell said, emphasizing that for true innovation to happen, the government needs to move outside of its comfort zone. Business for Millennium Development’s Ingram agrees, noting that handouts alone will not promote economic growth in developing countries.

“The single greatest way in which the private sector can be utilized more effectively to contribute to development outcomes is the harnessing of core business activity via inclusive business models,” he elaborated.

Ingram said that the private sector often is just seen as providing philanthropic contributions through their corporate social responsibility programs. But while this can remain a critical source of funding for international NGOs, “it is important to recognize that this involvement of the private sector only touches a small aspect of the company’s operations, which is typically removed from core business activity.”

In their submission to the inquiry, the U.S.-based Center for Strategic and International Studies recommended Australia establish a development finance capability similar to the Overseas Private Investment Corp. and Development Credit Authority — a recommendation that Purcell supports.

“What we need to see through these new strategies is more action in developing countries sooner, working to empower poor people in enhancing and growing their own business activities,” he said, noting that the creation of innovationXchange could be an avenue for the development sector to further share their wealth of knowledge and push public-private partnerships in the right direction.

“We have significant experience in the development sector and we’re waiting for government to focus their attention here,” Purcell said.

From left to right: Australian Capital Equity and Seven Group Holdings CEO Ryan Stokes, CBR Innovation Network Ltd. CEO Sarah Pearson, PNG National Museum & Art Gallery Director Dr. Andrew Moutu, Copenhagen Consensus Center USA Inc. Director Bjorn Lomborg and Australian Foreign Minister Julie Bishop. Photo by: Stephan Postles / Wildbear / DFAT

Outsourcing the public sector

In addition to grants, DFAT currently engages with the private sector by contracting out the management and delivery of aid programs.

Contracts published in the Australian government tender site since Jan. 1 reveal almost $AU400 million in work targeting foreign global and regional aid projects. Indonesia has benefited from contracts worth $AU263 million, followed by Cambodia ($AU51 million) and global programs ($AU31 million).

Sam Spurrett, international development general manager for Asia-Pacific at Coffey International, said the work they and other similar organizations do on behalf of the Australian aid program can support greater links between the public and private sector.

“Within existing programs we manage on behalf of the Australian government, there are mechanisms for the private sector to engage with government and community to provide economic stimulus, and therefore lift people out of poverty and improve lives,” he told Devex.

More than three-quarters of contracts since January have been awarded to Australian-based companies and with the government facing a reduced capacity to deliver aid program, utilizing external organization to deliver aid programs is likely to increase.

“The diminished size of aid and loss of capacity within DFAT means there is more opportunity to engage with Australian corporates, focused on development, for delivering aid services and programs,” Purcell said. “It is a kind of private sector engagement.”

Looking to the future

For the foreign minister, the future of public-private partnerships will ensure the aid program enhances the economy and capability of developing nations, an idea that is strongly supported by the development sector.

“We believe that inclusive business provides a meaningful way for DFAT to engage the private sector to deliver development outcomes,” Ingram said. “This harnessing of private sector partners has the potential to solve entrenched development problems that governments, civil society and INGOs cannot solve on their own.”

The question is whether this is something that can be delivered by the Australian government.

“I don’t know if this is business the government can engineer,” Purcell said. “Public servants and the government are not necessarily good at picking winners in this space.”

What Australia’s new aid program will look like is still a work in progress for now.

Recommendations from the government inquiry as well as policy and program directions from DFAT are not expected until late 2015, with the implementation of the new aid program unlikely to be seen until the middle of 2016. But the development sector is eagerly awaiting them.

“We look forward to the roll out of DFAT’s specific policy and programs which are currently under formation,” Ingram said.

In the meantime, the Australian government’s intentions appear clear with the partnerships formed as part of innovationXchange in addition to a recent announcement of the partnership with ANZ to enhance economic growth in the Pacific — the way forward for foreign aid is in partnership with the private sector.

What are your thoughts on Canberra’s push to increase the private sector’s role in delivering Australian aid? Let us know by leaving a comment below.

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About the author

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    Lisa Cornish

    Lisa Cornish is a freelance data journalist based in Canberra, Australia. Lisa formerly worked with News Corp Australia as a data journalist for the national network and was published throughout Australia in major metropolitan and regional newspapers, including the Daily Telegraph in Melbourne, Herald Sun in Melbourne, Courier-Mail in Brisbane and online through Lisa has recently been awarded the 2014 Journalist of the Year by the New South Wales Institute of Surveyors.