A man helps load onto an aircraft humanitarian supplies provided by the Australian government for victims of the earthquake in Chile in 2010. The Australian Agency for International Development was integrated into the Department of Foreign Affairs and Trade in October 2013. Photo by: AusAID / DfAT / CC BY

In October 2013, a group of Australian government officials in Canberra were summoned to the cavernous atrium at the Department of Foreign Affairs and Trade for an address from senior management. One segment of the group — those connected to the Australian Agency for International Development — were bused across town for the meeting and filed into the space on the ground floor, while others — mostly career DFAT people — peered down from the balconies above.

The awkward arrangement did nothing to improve the atmosphere of what was already a tense meeting. Even worse, according to reports, the gathered AusAID staff were mocked by a junior DFAT official who fired an imaginary machine gun down at them, implying that they were to be mown down.

The small, but potent incident exacerbated the significant anxiety already being felt among AusAID staff following the surprise decision to merge the country’s independent aid agency into the foreign affairs ministry and eliminate its brand entirely.

In the aftermath of the global financial crisis, voters in many developed countries ushered in or reinforced conservative governments to constrict public spending and shore up financial standing at home.

In Australia and Canada, two of the most important donor nations, conservatives executed plans to bridge fiscal austerity, national security, diplomacy and trade with foreign aid through organizational amalgamation.

The conservative overtures were also reactions to changing circumstances in the developing world. For instance, more developing countries are reaching middle-income status and more private money is entering emerging markets so, as the international relations logic goes, the way bilateral donors think about and deliver foreign aid must change too.

Still, much of the international development community was caught off guard by the decisions in Canberra and Ottawa. The most passionate critics contend that amalgamation is a troubling reflection of self-interest and, more specifically, commercial self-interest, trumping the humanitarian value governments once placed on poverty alleviation overseas. On a more practical level, amalgamation meant career insecurity for thousands of international development professionals and funding uncertainty for nongovernmental and civil society organizations at home and abroad that depend on these donor agencies for their livelihoods.

More than a year since the merger announcements, many of the more tactical details remain unresolved and the longer-term outcomes are not yet known, but the policy rationale behind the mergers, the way they have been managed, and some of the early impacts reflect an industry that is being disrupted by new players and forces. And while there are similarities and differences between the two cases, a Devex review helps shed light on the winners and losers and the general direction both aid programs might take in the future.

The path to amalgamation

The decision to amalgamate AusAID was one of the very first changes Australia’s newly elected Prime Minister Tony Abbott, the leader of the center-right Liberal Party, made upon being sworn into office in September 2013.

“We're going to bring aid back inside the department because we want Australia's aid program to be fully integrated into our overall diplomatic effort. We don't want our diplomacy going in one direction and our aid program going in another direction,” Abbott declared at a media conference less than two weeks after winning the 2013 federal election.

It was not that the new government was in principle hostile to aid. At one time it shared with its predecessor a goal of lifting aid spending to 0.5 percent of gross national income and, while in opposition, current foreign minister Julie Bishop had regularly argued there should be a minister for overseas development.

But, by the time of the election, the position of AusAID itself had become politically precarious.

Since 2006, the Labor government had moved to extend and consolidate the independence of the aid program from foreign affairs. And in 2010, under Abbot’s predecessor Kevin Rudd, the government designated AusAID as an executive agency — a subtle but important shift that freed its director general from having to report to the foreign affairs secretary on administrative matters.

AusAID’s dramatic expansion and growing autonomy helped feed the perception — rightly or wrongly — that the aid program was becoming increasingly unhinged from serving the national interest.

“We don't want our diplomacy going in one direction and our aid program going in another direction.”

— Australian Prime Minister Tony Abbott

“This attempt at independence was brave and, in the end, foolhardy, perhaps even suicidal,” former AusAID deputy director general Anne-Marie O’Keeffe observed.

A few months prior in March 2013, the Canadian government provided Canberra a ready model for action by announcing the folding of the Canadian International Development Agency into the Department of Foreign Affairs and International Trade to create the Department of Foreign Affairs, Trade and Development.

Though the idea of merging CIDA into the foreign affairs department had been around for decades, the initiative came from the political side — from Minister for International Cooperation Julian Fantino’s office and from other senior Conservative government officials and central departments working on the federal budget — rather than from within the departments.

“As the linkages between our foreign policy, development and trade objectives continue to grow, the opportunity to leverage each of these grows at equal pace,” revealed the 2013 national budget, which laid out the justification for the decision.

Adding the aid agency to the existing foreign affairs and trade department, which the Conservatives in Ottawa had reunited in 2006, would further contribute to policy coherence and “maximize the effectiveness” of development assistance.

“We talk about these things in silos in government. Our geopolitical advice goes to our foreign affairs minister and our development advice goes to our development minister and never do they cross,” said Neil Desai, who served as Fantino’s chief of staff when the merger was announced. Increases in foreign direct investment and remittances are also putting donor agencies “on a trend line toward irrelevance,” he said in an interview with Devex explaining the merger’s rationale.

The moves fit well with how the conservative governments wanted to portray themselves.

In Canada, the Conservatives, under Prime Minister Stephen Harper, had been pushing a more “results-based” approach to aid in the years leading up to the merger and cuts across the public service in the 2012 federal budget should have served as warning signs of things to come.

In Australia, the amalgamation was used to help the coalition government render itself as a foreign policy realist, more focused on the national interest and less on international citizenship than its predecessor. The amalgamation also fit handily with the new government’s fiscal message about the need for budget austerity following what it labeled as the Labor Party’s reckless spending, opening the way for the announcement of an immediate $653 million cut in aid spending.

The changes in both capitals were continuations of the aggressive push to integrate the private sector and development work — a prominent trend across the global development industry, but one that is more commonly associated with business-minded and public spending cautious conservatives.

“We will use our aid to strengthen the private sector,” openly declared Bishop in a video announcement titled “The New Aid Paradigm,” which introduced a “reshaping” of the Australian aid program weeks after the amalgamation announcement.

Since then, Bishop and other government officials have sought to establish a more explicit link between private sector development and human development — the two main strategic pillars that now bolster the country’s aid program — as well as aid for trade or using development assistance to help partner countries develop their trade capacity.

A prime example is in the extractives sector where both the Australian and Canadian governments have been increasing public sector funding support for extractive companies operating abroad, as revealed in a 2014 Devex analysis.

The Conservative government in Ottawa, which was elected in 2006 and re-elected with another minority government in 2008 before winning a majority in 2011, was already well on a more trade-oriented path following a November 2012 House of Commons report, as the Conservatives were preparing the spring budget, calling for CIDA to develop a strategy for increased private sector engagement in achieving international development objectives.

“The merger, in great part, responds to the logic that these things should be closely linked,” said Julia Sanchez, president and CEO of the Canadian Council for International Cooperation, a coalition of development organizations. “It’s a vision that our government strongly holds so that’s continued to happen.”

Integration or takedown?

Following years of slow but steady foreign aid budget increases in both countries, the programs were similar in size with annual spending at approximately $5 billion — an amount not necessarily big enough to tip the scales of the global development industry, but plenty substantial for aid recipient states, for-profit and nonprofit partners, and beneficiaries to take notice.

But beyond just the numbers, the abruptness of the amalgamation announcements added a degree of drama and anxiety.

“It came like a rabbit out of the magician’s hat,” said Hélène Laverdière, international development critic for the official opposition New Democratic Party in Canada, herself a former foreign service officer.

Testifying at a parliamentary committee reviewing the budget bill in May 2013, Nadir Patel, a former assistant deputy minister at Canada’s DFAIT, said he was informed of the merger “just a couple of days before the budget.” Meanwhile, Vincent Rigby, vice president of CIDA’s strategic policy and performance branch at the time, said he found out on budget day.

Yet, CIDA had been suffering a slow decline. According to several ex-officials and analysts, there was a long-standing uneasy relationship between CIDA and DFAIT and a feeling that the aid agency was on a lower level. If additional cuts after the first round in 2012 would happen, many believed CIDA would be the first to feel them.

“Working at CIDA, we didn’t feel like we were valued for the work that we were doing,” said Ruby Dagher, who worked at the agency from 2006 to 2012 and is now pursuing her doctorate’s degree at Carleton University in Ottawa. “It often felt like we were buying time.”

Despite the change in government in Canberra and what was perceived by the opposition as out of control foreign aid spending during the Labor years, few predicted that Abbott would do away with AusAID, largely because the agency appeared on an irreversible growth path and destined for greater influence on the global stage.

Between 2007 and 2013, the aid budget jumped from 1.1 percent to 1.3 percent of total government outlays, pushing aid spending as a proportion of gross national income from less than 0.28 percent to 0.35 percent. Furthermore, the aid budget was expected to grow 12.1 percent in real terms in 2013-14, and by 22.1 percent in the following four years, to reach 0.5 percent of GNI in 2017-18.

At one time, Australia’s total development giving was projected to reach approximately $8 billion by 2015-16, which would have placed the country among the top bilateral donors in the world. A larger portion of that money would be spent away from the country’s Asia backyard, in places such as Africa and Latin America.

The ramp up in AusAID staffing levels was even more eye-popping — between 2007 and 2013 the agency employed 907 extra public servants — a 126 percent increase in six years. As part of its rapid expansion under the Labor government, AusAID looked to tap into local labor and expertise to help improve its capabilities in its overseas offices so the agency also engaged a significant number of local staff in each country in which it operated.

At the time of integration, DFAT had a $1.495 billion annual budget and employed 2,521 staff, while AusAID’s budget had reached $5.58 billion and a workforce totaling 1,724.

There were obvious challenges associated with the scale of the undertaking — melding two organizations with markedly different missions and outlooks into a coherent whole — but the way senior DFAT management went about integration, particularly in its early stages, made a difficult situation worse, according to Hugh White, an Australian foreign policy expert and a professor of strategic studies at the Australian National University.

White said that soon after the merger announcement AusAID staff were told that they would need to find their place in the “DFAT spine.”

“The way they have gone about it is very significant,” White asserted. “The minimalist model would have been to stick as a separate division within the DFAT structure. They could have done that, but instead what they chose to do is to take AusAID apart and sprinkle its component parts throughout the policy division. That is a much more radical and disruptive thing to do.”

O’Keefe said one of the virtues of a separate AusAID was that it shielded development work — which by its nature is long, slow and hard — from “diplomatic brush fires and initiatives.”

A leaked survey of DFAT staff, obtained by the Australian Broadcasting Corp., laid bare the dissatisfaction felt by many former AusAID employees regarding the merger of the two agencies, revealing that just 33 percent of former AusAID staff felt “part of the team,” compared with 70 percent of their pre-merger foreign affairs colleagues.

The organizational adjustment has been handled differently and, for many aid advocates, better in Canada. While critics of the amalgamation lamented the lack of consultation and worried that development would lose out to trade and foreign policy interests in the new department, the Harper government has taken some important steps to confirm development voices will be heard within the newly merged organization. The legislation implementing the merger for the first time mandated a minister for international development. It also preserved the Official Development Assistance Accountability Act, which defines Canada’s poverty alleviation role.

The new department will be organized under three deputy ministers — one each for development, foreign affairs and trade. According to a government spokesperson, the new structure brings staff from the three streams “into groupings focused on geographic regions, global issues or policies,” which will “encourage greater interaction and consultation between the streams, and will result in advice and recommendations to ministers that represent the full range of issues.”

Michael Small, the assistant deputy minister at DFAIT who was responsible for the transition team (he’s now the Canadian high commissioner in Australia), told the committee studying the merger that it had taken about 18 months for the structure to take shape when Canada’s foreign affairs and trade departments were reunited, and that would be a realistic timeframe for this merger. Creating “one culture” would take longer, he said.

Desai, the former CIDA chief of staff, believes it will take five to 10 years to get both the structure and the culture of the new department right.

Practical impacts and future implications

All of these changes are happening against the backdrop of smaller aid budgets that require tough strategic choices and prioritization. To date, both Australia and Canada have acknowledged a stronger regional and sectoral focus for their aid which will result in overall smaller footprints.

In addition to the immediate loss of $653 million, the Abbott government announced in its official budget released in May that it would slash aid spending by 7.6 billion Australian dollars ($6.2 billion) over the next five years. In December, it announced a further cut of AU$3.7 billion ($3 billion) over the next three years, pushing total reductions from aid spending since it came to office in late 2013 to more than AU$11 billion ($8.9 billion). Contrary to its pre-election commitment, the Abbott government has also shelved the previous government's pledge to increase ODA to 0.5 percent of GNI. The most recent cuts would plunge Australian aid spending to levels unseen since the last Conservative government, which ended in 2007, according to some estimates.

The coalition government’s vision for a more tightly focused aid program is still taking shape. So far, funding for the Africa program has been halved, gender and innovation are being accorded a higher priority, and funding for aid for trade programs is due to increase from 13 to 20 percent by 2020.

“The new aid strategy is not that different from the old aid strategy,” according to professor Stephen Howes, former AusAID chief economist and director of the Development Policy Centre at the Australian National University.

In a blog post assessing the amalgamation in Australia one year later but published prior to the latest budget cut, Development Policy Centre Associate Director Robin Davies highlighted that the 2013-2014 aid budget was expended in full and that while a “new coat of paint was applied,” the changes do not necessarily constitute a reshaping.

The same can be said for Canada, which has not reported any major staffing slashes in the past year — 26,000 public service jobs were cut three years prior — and is staying the course in its drive to align the Canadian aid program's countries of focus with Canada's economic interests.

In June 2014, Canada’s current Minister for International Development Christian Paradis (Fantino stepped down shortly after the merger announcement) disclosed the department’s 25 countries of focus and announced that 90 percent of bilateral development assistance will be channeled there.

Canadian sources stressed that the merger on its own probably did not affect the list. A common refrain is that Canadian aid organizations were already adjusting to the reality that their core government funding wasn’t secure at least a couple of years before the merger, but recent funding request rejections and subsequent shutdowns have sparked even more uncertainty. Others see the pursuit of alignment, as evidenced by the focus country selection, as an early risk indicator for Canadian aid.

“This is about aligning all our international resources to promote our economic agenda, and that is problematic,” Sanchez said. “We’re observing a very trade-driven agenda on the international scene. If the merger is serving that objective, it diverges significantly from the discourse around the merger — that it is about putting the three objectives on the same playing field. I don’t think that’s what we’re going to see.”

Indeed, staff marginalization, as well as morale and development expertise losses, remain among the biggest threats and haunt the future of the Australian and Canadian aid programs.

“Every DFAT official is now going to be an AusAID official as well. The thought there is that they are all trying to achieve the same set of objectives. But they are very different activities and require very different skill sets. Aid is a very specialized business. Spending money well is actually a very hard thing to do,” said professor White, who is among those seeing gaps and risks in the way the DFAT-AusAID integration has been implemented.

As of June 2014, 272 DFAT staff had accepted a voluntary redundancy. A majority 56 percent were 50 years or older and 55 percent were executive-level staff (including 18 at the senior executive service level), from which the next generation of senior officials would typically be drawn. While the department has not provided a breakdown of how many of these departures are former AusAID staff, there are good reasons to think the majority were, not least the fact that DFAT came to the amalgamation having a period of prolonged hiring restraint.

Davies, who warned a Senate committee that executing staff cuts could very well lead to a very significant loss of professional expertise in the organization, predicts “roughly 220 more departures to come in the course of the present financial year” and warns that “the second half of the staffing-cut marathon looks likely to be more painful than the first.”

So while the amalgamation process in both countries has plenty of room to run, 2015 will be a telling year. Analysts see little chance that either merger will be reversed and the majority of sources interviewed for this article in both countries admit that there was considerable anxiety at the time of the mergers and even something of an identity crisis for lifelong employees who identified with the AusAID and CIDA brands, but much of that anxiety has subsided and was probably more general unease about change and nostalgia for a brand.

There is also broad agreement that the mergers can work based on experiences in other countries and that both governments’ longer-term foreign aid policy and commitment to international development will prove more significant than the organizational structure under which it is delivered.

But there is also concern that organizational restructuring is just the beginning and once the organizational chart is set and amalgamation logistics are completed, programmatic changes could be next. After all, these mergers were orchestrated to align aid and trade objectives and that simply cannot be accomplished by shifting offices and updating nameplates. Already there is anecdotal evidence to suggest that contracts and disbursements have slowed, affecting a range of aid program partners.

Time will tell if conservatives put their stamp on this more integrated foreign aid model and carry the brand forward. If the movement has the legs and global appeal it could affect aid politics in other important donor countries, such as the U.K. and U.S, which are both already onboard with increased diplomatic and private sector involvement in international development affairs. With the hands of budget hard-liners still strong in the aftermath of the global financial crisis and foreign aid an easy target for reform, amalgamation in Australia and Canada may be just the beginning of more radical disruption.

Adrian Rollins from Canberra and Mark Burgess from Ottawa contributed reporting.

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About the author

  • Pete Troilo

    Former director of global advisory and analysis, Pete managed all Devex research and analysis operations worldwide and monitors key trends in the global development business. Prior to joining Devex, Pete was a political and security risk consultant with a focus on Southeast Asia. He has also advised the U.S. government on foreign policy and led projects for the Asian Development Bank and International Finance Corp. He still consults for Devex on a project basis.