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Basis of Australia's aid programme

With its geographical location, Australia's security and economic progress are probably more closely linked to the fortunes of a particular set of developing countries than is the case for most other Member countries in the Development Assistance Committee (DAC). Promoting prosperity and stability in the Asia-Pacific region is at the forefront of Australia's foreign policy, as demonstrated by its continuing response to problems linked to the Asian financial crisis and events in East Timor at the end of 1999.

With a strong policy framework, consistent with the orientations agreed upon by the DAC in Shaping the 21st Century: The Contribution of Development Co-operation (1996), Australia's development co-operation programme is contributing substantially towards achieving Australia's national and foreign policy objectives. There exists in Australia the requisite level of political and popular support to enable it to fulfil its strategic role. However, expressed as a share of its expanding gross national product (GNP), Australia's official development assistance (ODA) has fallen to its lowest level ever. Based on the ambitions Australia rightly sets for its aid programme, Australia should increase its ODA and move closer towards the 0.7% ODA/GNP target set in its present aid policy statement.

Australia's White Paper on foreign and trade policy, In the National Interest (1997), recognised development co-operation as a strand of external policy - alongside foreign, trade, defence and immigration policies - and the importance of an integrated approach to policy making. Australia has accomplished a great deal in integrating development co-operation into external policy. Some improvement may still be possible, however, for example government guarantees for investments in developing countries are not currently benefiting from the policy advice of the development agency, despite its reservoir of expertise on key issues in developing countries and the important, sometimes decisive, impact such investments can have on the economies of these countries.

An independent review of Australia's overseas aid programme, conducted in 1996 by the Simons Committee, resulted in a detailed report entitled One Clear Objective: poverty reduction through sustainable development (1997). The government's subsequent policy statement, Better Aid for a Better Future (1997), included a response to each of the committee's recommendations. This policy review process was well prepared and transparent, a model for a national review of development co-operation.

The Australian Agency for International Development (AusAID) is responsible for the management of the development co-operation programme and administers most ODA. The Simons Committee recommended, and the government agreed, that management of the aid programme by a single organisation ensured its coherence and integrity, and should be re-affirmed. AusAID's 1998-2000 Corporate Plan defined AusAID's core business as "advising on development issues and delivering Australia's development co-operation programme with excellence". Following reforms in the Australian Public Service, the government now "purchases" two specific outputs from AusAID - policy advice and programme management - at agreed prices for the 1999/2000 financial year of 9.9 million Australian dollars (AUD) [approximately 6.5 million United States dollars (USD)] and AUD 53.7 million (about USD 35.0 million), respectively.

Australia's aid policy statement: Better Aid for a Better Future

Better Aid for a Better Future set as an over-riding objective for the aid programme to "advance Australia's national interest by assisting developing countries to reduce poverty and achieve sustainable development". The policy reconfirmed Australia's support for the United Nations (UN) target for ODA of 0.7% of GNP, with the proviso that Australia will "endeavour to maintain [its] aid at the highest level, consistent with the needs of partner countries and [Australia's] own economic circumstances and capacity to assist". To guide policy formulation and programme implementation in the future, the policy set out:

Six key principles:

• partnerships (including country strategies);

• responsiveness to urgent needs and development trends;

• practical;

• targeted;

• incorporating an Australian identity; and

• outward looking.

Five priority sectors for concentration:

• health;

• education;

• agriculture and rural development;

• infrastructure; and

• governance (cited as a priority for the first time).

Two critical cross-cutting issues:

• gender equality; and

• environment.

The policy recognised that Australia's bilateral aid is concentrated in the Asia-Pacific region and that this should continue, with Papua New Guinea, the Pacific and East Asia as high priorities and selective concentration on development needs in South Asia, Africa and the Middle East. So that the programme remains identifiably Australian, only firms registered with the Australian Securities Commission or with a head office in Australia or New Zealand can be engaged to manage projects. The policy acknowledged that non-governmental organisations (NGOs) play a vital role and recommended that AusAID develop a formal statement of policy principles and objectives for its co-operation with NGOs.

Australia is to continue to support a range of international organisations - some multilateral development banks; UN development agencies and funds, in particular international environment, agriculture and health agencies; Commonwealth organisations; and regional organisations, particularly in the Asia-Pacific region - but will adopt a strategic approach to their performance assessment. Decisions on support will take account of each agency's efficiency, effectiveness and the extent to which its mandate contributes to meeting Australia's aid objectives. The Multilateral Assessment Framework has been developed for this purpose.

Improving the quality of the aid programme was given renewed emphasis in Better Aid for a Better Future. As a result, AusAID is adopting a more rigorous, outcomes-oriented approach to programme planning, implementation and evaluation. To advise the Minister for Foreign Affairs and to provide a forum for discussion of aid and development issues with community representatives, an Aid Advisory Council has been established.

Aid volume

As a share of GNP, Australia's ODA has been on a declining trend since 1975 when it peaked at 0.65%. Australia's ODA amounted to USD 960 million in 1998, or 0.27% of GNP. Australia's gross domestic product grew by 4.5% in real terms in the 1998/99 financial year. The OECD's latest Economic Survey assesses that the Australian economy has entered its ninth year of expansion and that the sustainability of that expansion is underpinned by a number of positive factors. Noting this, and conscious of the great development needs that still exist in partner countries in the Asia-Pacific region, the DAC encouraged Australia to increase its ODA/GNP ratio. AusAID estimates that current budget allocations for aid, combined with additional funding for urgent development needs in the region, imply that the ODA/GNP ratio should rise by at least 0.01% in 1999.

Australia's approach to the development partnership strategy

Poverty reduction

AusAID's approach to poverty reduction emphasises investment in human capital and protecting the most vulnerable groups in society. Following the Asian financial crisis, AusAID is giving a high profile to governance issues across a wide front. Australia's policies in gender equality and environment are well-articulated and these issues are being integrated into programmes and projects in support of other objectives. Health and education programmes are progressively being re-oriented towards the primary and basic levels. In 1997-98, 11% of Australia's bilateral ODA was directed to basic social services. While the number of students from developing countries receiving scholarships for tertiary studies in Australia is on the decline, expenditure on this part of the programme has exceeded 10% of total ODA in recent years and requires substantial administrative support from AusAID, although administrative reforms have reduced costs since the last DAC peer review.

AusAID's country assistance strategies are critical for determining the nature of its bilateral assistance as programming decisions derive from them. The sectoral breakdown of aid expenditures results from country programming decisions and are not determined in advance in the budget process. Partly for this reason, Australia has not adhered to the "Copenhagen 20/20 Initiative" which calls on donors to target 20% of their total ODA, and recipient countries 20% of their spending, on basic social services.

The Simons Committee recommended devising an overall poverty reduction policy framework, and a plan for implementing it. While the government accepted this recommendation in principle, it sees individual country assistance strategies as the framework for addressing how bilateral programmes will contribute to reducing poverty. As for most other DAC Members, making poverty reduction the overarching goal requires considerable adjustment of approaches and capacities. The effectiveness of country strategies and of present analytical tools and implementation arrangements designed to contribute to poverty reduction needs to be reviewed and monitored against clearly identified indicators of output, outcome and impact.

Partnership

AusAID is working to strengthen development partnerships. Its country strategies are developed in consultation with partner countries and dialogue with partners occurs frequently, including with civil society. AusAID supports and participates in aid co-ordination mechanisms, where possible hosted by partner countries. Aid activities are generally monitored and evaluated, if possible, jointly with representatives from recipient countries.
One third of Australia's bilateral ODA is tied. Four-fifths of bilateral ODA is goods and services supplied from Australia. AusAID must, therefore, reconcile the principle of promoting the Australian identity in the programme with partnership, the need to build local ownership and local capacity, cost-efficiency and maximising development impact. AusAID operations in the field encourage partners to take on greater leadership, where partners are capable of doing so. Aid may be provided through local systems and processes, if it can be done effectively and with adequate safeguards on accountability. Similarly, NGOs in developing countries can be supported directly. At the same time, with the emphasis on Australian identity and the high ratio of Australian procurement, there was a question as to whether Australian aid encourages partnership sufficiently and whether it optimises the integration of talent and know-how from within developing countries into the development process. Australia provided the DAC with a series of examples of its efforts to promote partnership and participation in its aid relationships.

Another crucial aspect of partnership involves designing projects and programmes appropriately for sustainability and cost recovery, thus including a donor exit strategy. These are difficult problems for donors requiring locally adaptable designs and a search for workable local solutions. Whether these issues are being adequately addressed is another question. Indications, both on the design contracting side, where some contractors feel insufficient time and resources are available for this work, or in health and education projects, where cost recovery or sustainability are at times given only light treatment, suggest that this is an area AusAID needs to consider.

At another level, a recent AusAID report questioned whether many of Australia's aid partners have the revenue or policy base to maintain a basic level of infrastructure. Partnership involves working on these basic issues of economic and administrative capacity.

Gender equality

Australia is among the leaders in the DAC in devoting time and resources to gender equality policies and corresponding implementation tools. AusAID's Guide to Gender and Development provides impressive coverage of the institutional requirements needed for mainstreaming gender equality, as shown by the fact that other DAC Members have used AusAID's Guide as a basis for their institutional development. AusAID has not yet fully integrated the gender dimension into all aspects of its operations, however. In 1998/99, 23% of total expenditures funded projects which include gender as a primary objective or which have mainstreamed gender dimensions. There may consequently remain some scope for the gender content of activities to be reinforced beyond dialogue on gender equality towards a more explicit day-to-day use of gender analysis in projects, policies and reports. The Simons Committee recommended conducting regular gender audits of the aid programme. Such an audit was conducted in 1999.

Environmental sustainability

AusAID addresses the environment in both the design and implementation of projects, where the environmental impact is taken into consideration in accordance with legislative requirements, and by targeted activities such as sustainable resource management, urban environmental management and sustainable energy and by participating in global initiatives. The Asian financial crisis helped sharpen AusAID's focus in the environmental area, in particular through an AusAID-commissioned study by an Australian academic of the environmental impacts of the crisis in this region. This report raised awareness and should improve understanding of the importance of environmental management, bio-diversity and natural resource management in the region.

Good governance

Australia sees good governance - "the effective management of a country's social and economic resources in a manner that is open, transparent, accountable and equitable" - as a prerequisite for aid effectiveness. As a response to the Asian financial crisis, Australia has adopted a wide interpretation of activities in governance, including economic policy, public sector management, human rights and the legal sector, and has a large portfolio of projects. These can be sensitive areas for AusAID and a challenge for the programme, as the experience in Indonesia is demonstrating.

Respect for human rights has a special place in Australia's foreign policy. Australia tries to apply the approach of supporting practical efforts which can make a difference, such as through establishing and strengthening human rights institutions and encouraging discussions about human rights issues. As an expression of this approach, Australia has created the Centre for Democratic Institutions which, through training courses and workshops for parliamentarians, judges, electoral officials, ombudsmen and journalists, is supporting democratic processes in the Asia-Pacific region.

Conflict, peace and development

AusAID has experience in complex, long-standing conflict situations close to home. The island of Bougainville in Papua New Guinea was unstable for a decade. The status of East Timor has been controversial since 1975; Australia now leads the UN-sponsored peacekeeping efforts there. Both Bougainville and East Timor are high priorities for AusAID. Australia is the largest bilateral donor in both cases, underlining the important role of development co-operation. In Bougainville, Australia is contributing to reconstruction through its support for the re-establishment of basic services and infrastructure, such as schools, health posts and roads.

Australia's approach in conflict situations has been patient and persistent. Along with its own experience and capabilities in conflict resolution, AusAID has drawn on other resources, such as the Australian Defence Force, Australian police forces, the Australian Electoral Commission, NGOs and actions in co-ordination with other donors and international organisations.

Policy coherence

Australia's mechanisms for checking and enhancing the coherence of its policies impacting on developing countries are comparatively strong and well-functioning. The need for such coherence has been endorsed as Australian government policy. In the National Interest stated that an integrated approach "applies not only to domestic and international policies, but also to the various strands of external policy, especially foreign, trade, defence, immigration and development co-operation policies." Policy coherence seems to have been enhanced by the grouping of development co-operation, foreign affairs and trade policy within the same ministerial portfolio since 1996.

AusAID operates in co-operation with the Department of Foreign Affairs and Trade (DFAT). Other departments and agencies also contribute to the aid programme or provide core funding to multilateral agencies, including the Treasury; the Australian Centre for International Agricultural Research (ACIAR); Environment Australia; Agriculture, Forests and Fisheries Australia; the Australian Defence Force; the Department of Health and Aged Care; and the Australian Electoral Commission. Through such mechanisms as inter-departmental committees and the circulation of documents for comment, AusAID liases with these other bodies to ensure a "whole-of-government" approach to issues. To enhance this approach, an explicit effort to articulate the interlinkages and complementarities between the various strands of external policy could help to generate public understanding of the role of aid.
The Export Finance and Insurance Corporation (EFIC) provides Australian exporters and investors with a range of insurance, guarantee and financing products. EFIC's operations are fully guaranteed by the Australian government. A large proportion of these operations involve activities in developing countries in the Asia-Pacific region. EFIC is an autonomous government-owned corporation, now under the oversight of the Minister for Trade. The coherence of Australia's policies would be improved if AusAID, where it has relevant development experience, were invited to provide consultative guidance to EFIC when government guarantees for investments in development countries are considered.
Australia provides substantial technical assistance and training to help countries develop legal and regulatory frameworks that promote trade and investment flows, including assistance to meet environmental, health and food safety requirements, to improve economic governance and for infrastructure needed to promote effective participation in the global economy. Australia played its part in the international response to the financial crisis in Asia, including convening a meeting in Sydney in March 1999 which contributed to firming up international support. Australia has also provided development assistance to respond to the crisis as well as loans on commercial terms to Indonesia, Korea and Thailand and support for international rescue packages led by the International Monetary Fund (IMF).

Support for debt reduction initiatives

As of March 1999, developing countries owed an estimated AUD 4 billion (about USD 2.2 billion) in sovereign debts to Australia. Although Australia has a grants-only aid programme, mixed-credits were previously extended as part of the now discontinued Development Import Finance Facility (DIFF).

Australia's official view is that while debt relief is not a substitute for development assistance, the initiative developed by the World Bank and IMF for heavily-indebted poor countries (HIPC) is the most credible way to provide debt relief. Australia contributed USD 19 million (AUD 31 million) to the initiative in June 1998 by re-allocating funds already on deposit at the World Bank and IMF. The Treasurer announced in September 1999 that Australia would support the proposed enhancements to the HIPC initiative and committed an extra AUD 35 million (approximately USD 19 million). This latter commitment will be funded from supplementary allocations to the aid budget over several years.

Improving programme quality: organisational changes

AusAID has gone through a series of substantial changes recently to respond to the double challenge of improving the quality of the aid programme while moving to a results-based management culture and switching from cash to accrual accounting systems. To up-grade staff capacity, manuals and guidelines have been revised and training packages developed. A challenge which continues for AusAID is managing aid in a context where staff mobility is high and there are many evolving guidelines and systems. This point was raised in a performance audit conducted by the Australian National Audit Office (ANAO) in 1996.
AusAID's current organisational structure was adopted in January 1998. The bringing together of reinforced sectoral advisory, contracting and quality assurance functions in the Programme Quality Group was an important innovation resulting from the Simons Committee's review. New systems and processes for quality control, performance information and results-based evaluation have also been instituted. The Simons Committee recommended establishing an independent "Office of Evaluation", headed by a statutory officer, but this was not accepted by the government since statutory, independent performance assessment and accountability checks will continue to be made by the ANAO.
AusAID's Corporate Plan 1998-2000linked the agency's priorities to the government's objectives and defined the agency's ten "Key Result Areas", which relate to the management of the programme, its five priority sectors, its two cross-cutting issues and some of its key principles. The cornerstone of this work is the Performance Information and Assessment Section (PIA), which undertakes real-time evaluations of activities at country and regional levels, with results fed back into programme design and implementation. Performance information collected will be scrutinised and verified, internally by PIA and by external audits, conducted by contractors and the ANAO.

The delivery of much of AusAID's programme is outsourced and so improving the quality of the performance of external agents is critical. To do this, AusAID is introducing performance-based contracting and exploring ways of improving the selection of contractors, management of the contracting process and dispute settlement. Similar reforms have been introduced for NGO schemes.

In Papua New Guinea, Australia's largest bilateral partner, budget support has been gradually phased out and replaced with jointly programmed aid. AusAID can point to some important achievements that have already occurred during the transition period in the areas of health, education and infrastructure. A new development co-operation treaty has been negotiated which will take effect from 1 July 2000. Through the new Incentive Fund, a growing share of Australia's aid will be allocated according to performance criteria and disbursed through a range of public and private sector organisations as well as through national government agencies. This should result in increased competition for funds, enhanced effectiveness and improved service delivery.

In their design, AusAID's new systems and processes place Australia at the top end of management practices in DAC Member aid agencies. The challenge for AusAID is to ensure that these systems and processes are adopted by its management and staff. Translating these approaches into developmentally effective results will also require flexibility and local ownership.

Assessing programme quality and performance

Evaluations of some aspects of Australia's ODA are thoroughly done and well documented while little evaluation material is available on the impact of some substantial parts of the programme, such as large infrastructure projects, tertiary scholarships, and, in the past, budget support to Papua New Guinea.

AusAID is moving from using ex post evaluations as their prime vehicle for providing feedback to a focus on assisted self-evaluations to guide adjustments during all the project cycle. Inevitably, there is a need to ensure that all those involved in self-evaluation understand the process, have ready access to expert guidance and have sufficient time to ensure the system works. Management needs to support this process by using the system wisely and consistently in its decision making.

For each activity in its country and regional programmes, AusAID prepares an Activity Monitoring Brief, which is both a monitoring and reporting tool. These Briefs are stored in a database known as the Activity Management System. While these two management tools have existed and evolved for several years, their value and use have expanded with AusAID's increased focus on quality and the Australian government's introduction of accrual accounting and results-based management.

To receive funding from the aid programme, Australian NGOs must adhere to a Code of Conduct, demonstrate continued support from the Australian community - as indicated by public donations of at least AUD 30 000 annually - and maintain their accreditation with AusAID. AusAID worked closely with NGOs and ACFOA to prepare the new Code of Conduct. It defines standards of governance, management, financial control and reporting with which NGOs must comply and identifies mechanisms to ensure accountability in the use of public monies. The accreditation of NGOs is determined jointly by AusAID and NGO representatives, for renewable periods of five years. Many NGOs are finding that adherence to the Code of Conduct and AusAID's accreditation process are helping them improve their own performance and management of development activities.

To assess the relevance, effectiveness and efficiency of multilateral agencies receiving annual core funding, and so determine what Australia's relations and eventual support for them should be, AusAID has developed the Multilateral Assessment Framework (MAF). The Framework has two components:

• Annual assessments.

• In-depth reviews, which are less frequent.

AusAID appreciates that the Framework should not duplicate other donors' assessments and should be an open and consultative process which will lead to improving the performance of multilateral agencies. Multilateral development banks will not be included in the assessment process at this stage.

During the 1998/99 pilot year, 27 annual assessments were completed. A review of the pilot year is being undertaken. Staff mobility is an issue for AusAID to the extent that it hinders the building up of capacity to manage the assessment process.

In the in-depth reviews, priority will be given to: international organisations receiving significant contributions from Australia; those for which there are significant information gaps; or those for which there are significant disparities in performance. AusAID will continue to explore opportunities to conduct in-depth reviews together with other donors as appropriate. A first in-depth review involved the Commonwealth Fund for Technical Co-operation (CFTC) and a field review of the United Nations Children's Fund (UNICEF) is underway.
Public opinion and development education

A joint AusAID/ACFOA public opinion survey conducted in 1998 found that 84% of Australians support foreign aid and are motivated by humanitarian concerns, but that support is fragile as understanding of issues is generally weak. Previous analyses showed similarly that while support was broad it was not deep, and there was a lack of knowledge in the public about the official aid programme. Consequently, Australian authorities have been making concerted and imaginative efforts, with substantial political support, to educate the public about the aid programme. The range of activities have included outreach seminars, conducted by the Parliamentary Secretary to the Minister for Foreign Affairs, where over 5 000 former aid volunteers have been presented with Certificates of Appreciation and where information is provided about the aid programme and business opportunities through the aid programme. NGOs have been mobilised to inform their members about the official aid programme.

Given the relatively strong favourable opinion for development aid and the effort being made to educate and inform the public, the issue is how can the favourable current of opinion and understanding be transformed into stronger effective support for the overseas aid programme, and for higher levels of ODA.

Summary of main recommendations

Drawing together these various elements, the DAC recommends that Australia:

• Increase its ODA/GNP ratio.

• Continue the re-orientation of bilateral assistance for health and education towards the primary and basic levels.

• Monitor the extent to which country strategies are playing an effective role in poverty reduction and whether present strategic orientations, analytical frameworks and implementation arrangements require adjusting, including in their gender equality dimensions.

• Strive to maximise the use of developing countries' own resources and systems in the implementation and management of projects and programmes.

• Ensure that long-term financial viability is built into project and programme design.

• Work to increase the proportion of development activities which include gender equality as a primary objective or which have mainstreamed gender dimensions.

• Help generate public understanding of the role of aid by articulating the interlinkages and complementarities between the various strands of its external policy.

• Consider AusAID being invited, where it has relevant development experience, to provide consultative guidance to EFIC when government guarantees for investments in developing countries are considered.

• Examine ways of improving the management of aid by fostering staff continuity.

• Share with other interested donors experience of systems and processes developed for assessing programme quality.

• Follow through on the innovative efforts of promoting public awareness through development education activities