Should more Australian aid to the Pacific be spent on infrastructure?

Rehabilitation of the Hiritano Highway, Gulf Province, PNG, 2016 (Credit: Matthew Dornan)
Rehabilitation of the Hiritano Highway, Gulf Province, PNG, 2016 (Credit: Matthew Dornan)
Written by Matthew Dornan

After decades in the background, infrastructure has become sexy once again.

Twelve months ago, just about any Australian aid official working in the Pacific would have told you that the construction of infrastructure, while important, was not a key strength of the aid program. Big infrastructure projects – roads, bridges, ports – were instead something left to organisations that specialised in such things, with the Asian Development Bank and World Bank being top of that list. Where Australian aid was used to fund infrastructure, this was done in partnership with such organisations, often by providing grants that increased the concessional element of projects. The other focus of Australian aid for infrastructure was the provision of ‘soft’ infrastructure, or the technical and managerial expertise that is needed to operate and maintain ‘hard’ infrastructure (roads, bridges, ports).

Fast forward to today and the tenor of discussion has changed. Foreign Minister Julie Bishop has said that Australia will “offer alternative options for countries beyond BRI” – China’s Belt and Road Initiative, which is heavily focused on the construction of infrastructure such as roads. The Australian Government is already funding internet cables to Solomon Islands and PNG without the involvement of the multilateral development banks, in response to concern about Huawei building the cables. Earlier this week, the Foreign Minister announced a trilateral partnership for infrastructure investment in the Indo-Pacific with the USA and Japan, though with no detail the announcement was underwhelming (as was the US promise of a minuscule US$113 million, if that forms part of the trilateral initiative).

Labor has also shifted its stance. In February in a keynote address at the Australasian Aid Conference, Shadow Foreign Minister Penny Wong emphasised the role of social and human capital in reducing poverty, arguing that education and health will “be the hallmark of a Shorten Labor Government’s approach to development assistance policy.” Infrastructure was not mentioned once in her speech. Fast forward to July, and Penny Wong used her address to the University of Sydney’s US Studies Centre to call for greater emphasis by Australia on infrastructure in the Pacific, noting that: “One obvious need in the region is greater infrastructure investment. The deficit is particularly acute in the Pacific Islands.”

This shifting view of infrastructure as a focus of the aid program is the result of Chinese infrastructure spending in the Pacific. Perhaps as important has been media scrutiny of the ‘influence’ that spending has bought (some of it exaggerated).

The term “benign neglect” is sometimes used when referring to Australian Government engagement with the Pacific Islands region. In this case, what is increasingly argued is that Australia has focused too heavily on governance and not sufficiently on physical infrastructure in the region. This is certainly the argument of Pacific Island governments that have taken on Chinese loans. The Vanuatu Government, for example, has justified its use of Chinese loans to fund the Luganville Wharf and roads on Tanna and Malakula on the basis that:  “No donor was willing [to] help provide assistance on these projects although the economic benefits [are] huge.”

My own view is that there is a case for greater emphasis on infrastructure in the Pacific by Australia, even when only considering poverty alleviation objectives (I’ve voiced my scepticism of the China ‘threat’ previously). There is a clear infrastructure deficit in the region. That is evident when one drives on clogged up roads in Honiara, Port Moresby or Port Vila, where severe traffic congestion is common in towns that are smaller than Canberra (with the exception of PoM, which is larger). It is more evident still when one visits remote communities that are lacking access to basic transport services, to electricity, and to water and sanitation infrastructure.

There is considerable evidence that points to the importance of infrastructure for poverty alleviation, and to the benefits of aid-funded infrastructure. Poverty rates are highest in remote areas with poor access to transport infrastructure (see this study for PNG). Evaluation data generally finds higher rates of success for projects and programs in the infrastructure sector than in other sectors (see this analysis of ADB evaluation data).

Having said that, I’m also of the view that a renewed interest in the construction of infrastructure in the region carries risks for the aid program.

One is neglect of ‘soft’ infrastructure, or the technical and managerial capacity and systems (including regulatory frameworks) that ensure that physical infrastructure such as roads and ports are managed well. Without ‘soft’ infrastructure, physical infrastructure fails to deliver its promised benefits – something that is evident in many Pacific Island countries that suffer as a result of the build, neglect, rebuild cycle. Andrew Mako’s account of the decline of Kolombi in Enga province, following the deterioration of its airstrip, is a tragic example of such neglect.

The risk here stems from the argument that Australian aid has focused excessively on governance, to the detriment of providing physical infrastructure. While I’m sympathetic to that argument, such scepticism shouldn’t be allowed to undermine what is an important undertaking – improving the governance of infrastructure. Past support for ‘soft’ infrastructure may not appear to have achieved much (the lack of a counterfactual makes measurement of this impossible). But that doesn’t mean that the management of infrastructure can be ignored.

Instead, the provision of support for ‘soft’ infrastructure should be seen as a way to differentiate Australian support in the sector to that of other donors. An ‘infrastructure plus’ model, in which the aid program looks beyond the short-term project cycle and provides long-term support for infrastructure over its life cycle – in tandem with construction of physical infrastructure – is an attractive model.

Another risk associated with a greater focus on the construction of infrastructure stems from DFAT’s limited expertise in the sector. DFAT is an organisation of generalist staff. It is not in its ambit to deliver large infrastructure projects. Addressing this constraint will require novel thinking about how Australian aid for infrastructure can best be managed.

In an ideal world, Australia would simply channel money through multilateral development banks, such as the Asian Development Bank (Jeffrey Wilson has argued the case for use of the AIIB by Australia in Asia). Such specialisation might be sensible from an effectiveness standpoint, but the political reality is that Australia, in moving into the infrastructure space, wants greater recognition of its bilateral aid to the region.

In light of this, it makes sense, in my view, to establish an aid-funded concessional financing institution that has both relevant expertise and the ability to provide loans for infrastructure in the Pacific. Such an organisation would address capacity gaps in DFAT. It would provide an alternative to grants as a means of funding infrastructure, thus helping the aid dollar go further and minimising the impact on aid in other sectors. It goes without saying that loans would need to be provided responsibly so as to avoid the build up of unsustainable debt. Loans should also be coupled with the provision of long-term, grant-based support for ‘soft’ infrastructure and (where appropriate) recurrent spending on maintenance.

Critics will no doubt point to the duplication such an organisation creates in the Pacific; to the lack of any comparative advantage in infrastructure that the Australian aid program enjoys; to the potential downsides such a move poses for sectors that are a real strength of the aid program, such as education. All are valid risks. All can be managed.

What is increasingly clear is that Australia will move to build more infrastructure in the region, whether in an effort to curb the influence of China, or in response to criticism of its aid program by Pacific Island governments. We would do well to ensure that this shift occurs in a way that maximises its poverty alleviation effects while minimising its potentially adverse impacts.

image_pdfDownload pdf

Matthew Dornan

Matthew Dornan is Deputy Director of the Development Policy Centre. He heads our program of research into Pacific development. His research focuses on aid flows, regional integration, energy, and broader infrastructure challenges in the Pacific islands region. Matthew has a PhD from ANU, and previously worked for the Australian aid program in the Pacific.

10 Comments

  • I think it is useful to acknowledge that the AIIB is intended to have an counter-hegemonic effect (i.e. against the Bretton Woods institutions and their neo-classical paradigms of economic development).

    The AIIB web-site is admirably transparent as to the organisation and its aims and makes no mention of counter-hegemonic goals. For what these might be it is necessary to turn to recent Chinese literature discussing economic development and economic growth. This brief paper (One Belt, One Road: China’s Strategy for a New Global Financial Order (https://archive.monthlyreview.org/index.php/mr/article/view/MR-068-08-2017-01_4)) does explain the underlying rationale for both the establishment of the AIIB and its fixation on infrastructural development. Here is a quote:

    ‘Yet the discourse of “peaceful development” has its own blind spots, which reflect China’s domestic contradictions. For instance, how can the AIIB avoid the damage done by the World Bank and others to the environment and indigenous livelihoods? How can China promote infrastructure investments that drive local development through diversity and sustainability, and not simply serve its own need for export outlets? The challenge, in other words, is to ensure that the AIIB and Silk Road Fund do not simply become East Asian counterparts of the IMF and World Bank. Given that OBOR is a contest for institutional influence in East Asia, the deciding factor for success or failure may be the competitiveness of its guiding discourses. China must promote a message of social justice and equitable development to counter the soft power of institutional transition that the United States has pushed since the 1980s.’

    But in my view what is of even greater interest is to understand the Chinese view of economic development, poverty alleviation and social justice – the Chinese theory of economic development. The best exemplar of these views is Wen Tiejao whose work encompasses both rural reconstruction and classical political economy and I suggest that it is his views that have been persuasive in the creation of the AIIB.

    Three useful papers are listed here (http://commons.ln.edu.hk/southsouthforum/ia/wen_tiejun/)

    ‘Deconstructing Modernization’

    ‘Centenary Reflections on the ‘Three Dimensional Problem’ of Rural China’

    ‘Four Stories in One: Environmental Protection and Rural Reconstruction in China’

    Also useful is:

    ‘The Development Trap of Financial Capitalism: China’s Peasant Path Compared’
    (Agrarian South: Journal of Political Economy 2(3) 247–268)

    Economic development discourse in China seems to make little use of the practice of referential literature citations as is the practice of western neo-classical economists. Instead concepts and ideas are referenced to development policies and historic events. From a western perspective Chinese economic development thinking shows some connections to and similarities with the classical political economy of David Ricardo and Piero Sraffa (both ‘Commodities’ and ‘re-switching’). One can also find a certain resonance with the Soviet Russian NEP debates between teleological planning (plan maximalism) and genetic planning. Other background to the thinking of Chinese economists about economic development is the realisation that the neo-classical economists, World Bank and its sister organisations have no credible and coherent theory of economic growth (this was the subject of an op-ed in ‘The Economist’, (April 14, 2018, p.67)).

    Should Australian aid to the Pacific be directed towards infrastructure? A key part of the AIIB initiative is that it expects governments of sovereign countries to define their problems and bring their projects to the AIIB ‘shovel ready’. For an example see the AIIB/India Gujarat rural roads project. It will be interesting to see how ‘facility shopping’ pans out over the long term.

    Vailala

  • Thanks for the post Matt, thought-provoking as always. As you say, there are some obvious drawbacks to the proposed approach, which, as you also state, can be managed. The better question though is: will they be managed if this shift is triggered more by geopolitical considerations than aid effectiveness?

    One further issue I would like to see gain more prominence in the hard infrastructure discussion in the Pacific is climate resilience. Australia has made climate finance commitments and is also moving to integrate climate change across the aid program (see here: http://dfat.gov.au/aid/topics/investment-priorities/building-resilience/climate-change/Pages/climate-change.aspx). If Australia invests more in hard infrastructure in the region it will be critical to ensure the systems and processes are in place to make sure these large-scale investments are designed, built and managed in ways that make sense both in today’s climate and the less hospitable climate we are rapidly heading towards; and will, undoubtedly, arrive during the lifecycle of any new hard infrastructure investments commissioned in the next few years.

  • Hi
    Australian Foreign Minister Julie Bishop’s comments on Monday that Australia will compete with China in the Pacific over funding infrastructure projects, to ensure that small island countries “retain their sovereignty”, sounds rather ironic given Australia’s highly interventionist stance towards the region in recent decades.

    However, irrespective of the merit of Chinese infrastructure projects and the sustainability of the debt accumulated by Pacific states to pay for them, the Australian Government’s decision to use the aid program to fund infrastructure is welcome and long overdue.

    Thank you !!

  • I get wary of debate about ‘infrastructure’ that suggests everybody knows what is meant when they hear the word. I am continuously attending meetings in Dili where people speak about infrastructure as if it is something that can be installed once, and then forgotten. Many people fail to recognize that infrastructure covers a number of sectors – transport and communications, health, education, small business and commerce etc. etc. and that it includes both hardware and software. The term ‘soft infrastructure’ I find ridiculous as it seems to ignore the fact that all infrastructure, even road building, requires software, i.e. the personnel network of knowledge and skills to make it work, keep it maintained and not fall into disrepair.
    I find the most neglected component of infrastructure is knowledge infrastructure, i.e. the cables and wires, plus the personnel with knowledge and skills which will enable a country to have a functioning, post office, library and internet system to get books and learning materials around to all educational institutions for teaching and learning of the knowledge attitudes and skills needed to develop the country. Such a system, if it existed, would inevitable help the small and medium enterprise sector as well (as happens in Fiji). The UN’s World Summit on the Information Society had a great deal of sensible recommendations to make on this but they are rarely discussed. Timor-Leste came to independence at a time when it was widely believed the private sector (in reality foreign telcos) could take care of all that, it didn’t happen. Timor-Leste is at the bottom of the WEF’s computer readiness index and, despite offers by Australia’s AARNET to assist universities, little has been done to ensure students and academics have access to good library and computing facilities.

  • Thank you Mathew for this post. Unfortunately, to date, much of the commentary focussed on the China Belt & Road Initiative and the China AIIB concessional loans has tended to emphasise a geopolitical perspective. Instead I would prefer that the China concessional loans initiative be evaluated in development terms because I think that the initiative to fund infrastructure has a basis in the Chinese experience of development and reflects evolving Chinese theories about poverty alleviation and how sustainable economic growth and development is achieved.

    The Chinese emphasis on infrastructure investment concentrating on roads seems to have crystallised following the ‘Global Learning Process and Conference on Scaling Up Poverty Reduction’ held in Shanghai in 2004.

    The Roads Improvement for Poverty Alleviation (RIPA) program was launched with World Bank support in selected provinces in the mid-1990s. RIPA focuses on linking those rural villages and townships which do not currently have basic all-weather access to the existing road networks. In the case of Henan Province, quantitative analysis resulting from an ex-post evaluation of the RIPA components showed that remote settlements that had been engaged in subsistence farming prior to the program had made markedly better progress in economic development, social development, and poverty alleviation than comparable populations in control areas.

    http://web.worldbank.org/archive/website00819C/WEB/PDF/CASE_S-4.PDF

    Your reference to the paper by John Gibson and Scott Rozelle (‘Poverty and Access to Roads in Papua New Guinea’) is very appropriate. A scheme for measuring the poverty alleviation effect of roads in PNG was included in a report to the World Bank in the 1990s. This scheme was based on using Gibson’s earlier work on household income and consumption, modified and applied by a questionnaire to be administered by the PNG National Volunteer Service in selected areas where there had been significant road development.

    In my view this is still research waiting to be done in PNG. Doing so would be especially appropriate in the context of the PNG LNG Project and the Papua LNG Project where significant road infrastructure is being created under the tax credit scheme.

    Vailala

    • Very interesting – thank you for the comment. You don’t happen to know the name of the World bank report from the 1990s to which you refer?

      • Thank you Mathew for your comment. The relevant World Bank document is the ‘Papua New Guinea – Road Maintenance and Rehabilitation Project’ (http://documents.worldbank.org/curated/en/262651468775145760/Papua-New-Guinea-Road-Maintenance-and-Rehabilitation-Project). This report includes some details of the Social Impact Monitoring Plan and makes brief mention (in a somewhat incoherent way) of the proposed research on pp 97 and 99.

        ‘The effect of the sub-projects on the population served by the roads involved will be assessed periodically through social studies to be undertaken under the project. The assessments will be designed to detect changes in: household incomes; cash crop/commodity production and sale; prices of commodities imported from other regions; changes in school attendance/reduced drop-out rates; health benefits from improved access to aid posts, clinics and hospitals; etc. The Project Implementation Plan (PIP) contains the terms of reference of the study for monitoring the socio-economic impacts of road and bridge improvements under the RMRP.

        The PNGVs will collect basic social mapping data and the SIA component will supplement this with surveys designed to villager satisfaction with the implementation of the RMRP sub-projects and gather information about the poverty alleviation effects and any adverse impacts. Baseline studies will be conducted before implementation, at mid-point and at the end of the RMRP.’

        The relevant TOR for the PIP contained precise details as to the content of the survey research and methodology and the use of PNG Volunteers for data gathering. I have not been able to find these documents in the World Bank archive.

        Very briefly the research design was prepared as a response to a casual remark by a World Bank staffer that while the WB spent hundred of millions of dollars on road improvement schemes it had no idea as to any measurable effects this expenditure might have on poverty reduction – especially in countries where the informal economy and subsistence agriculture were demographically dominant.

        The research design drew on John Gibson’s valuable data on PNG household consumption patterns and the Agogo Mawuli and Ogis Sanida NRI paper ‘Landowners’ Mineral Rent-quest and Use in Papua New Guinea’ which provides a useful guide as to how rural PNG households spend cash income. Also of relevance were studies made of artisanal fisheries and small business development along the Morobe coast. The questionnaire (about 26 items) was designed to elicit data not only on domestic household consumption but also data relevant to household welfare and household capital formation and the linkage of these to the provision of low quality rural roads.

        The WB RMRP project although initiated in the 1990s was not implemented until around 2004. The WB appeared to have farmed out the SIA components to Ausaid for review following which the SIA parts were assigned to SMEC/Finnroad. The involvement of PNG Volunteers appears to have ended and the focus of the research/questionnaire greatly altered. Much of the emphasis on non-monetised subsistence production (the consumption basket) and village household capital formation appears to have been lost in translation. The final analysis, done by Finnroad in 2007/8 paid little attention to these matters, concentrating instead on conventional measures of cash income and transport accessibility. The WB project assessment document describes the SIA findings here (http://documents.worldbank.org/curated/en/845161468286308542/pdf/NonAsciiFileName0.pdf) on pp 40 – 42. A brief Finnroad account can be found here – https://trid.trb.org/view/877540.

        So, yes I do think that the research is yet to be done, at least in PNG. Why am I making a point of this? Because I saw the research as an attempt to step beyond the usual framework of road infrastructure investment evaluation in terms of the EIRR. This is an issue of concern to Chinese development economists, especially Wen Tiejun, and, in my opinion underlies the anti-hegemonic orientation of the AIIB.

        Vailala

  • Whatever happened to the Pacific Regional Infrastructure Facility (PRIF)? As the name suggests, this was the mechanism used by Australia, Japan and the ADB for infrastructure projects in the islands, before it was overshadowed by China’s AIIB. Where is the analysis of PRIF and the pluses and minuses of projects it has funded in past years? How will PRIF relate to the new Asia-Pacific mechanism (merger, takeover, co-ordination?)? Why a new mechanism – is it simply to persuade Washington that the America’s JANZUS partners are acting on China??

    • Nic,
      PRIF is not really a mechanism for funding infrastructure projects. It’s a coordination mechanism for the major donors operating in the infrastructure space in the Pacific (though China is not a member) . And it provides technical assistance/knowledge products. So quite different to AIIB. As far as I’m aware, there’s next to no information available about the Asia-Pacific trilateral initiative

Leave a Comment