Aid must cover more than infrastructure

The need for infrastructure in poorer parts of the Pacific is obvious. Outside of urban areas, once-paved roads are now muddy tracks. On some islands, planes land on grass runways that are frequently closed by rain. In some places, small boats take hours to move cargo from ships moored off coasts deprived of wharves.

Australia has always devoted aid to the Pacific’s infrastructure needs. In 2013, a recent low point, Australia still spent US$70 million on infrastructure in the region. Other OECD donors haven’t neglected infrastructure either. OECD donor countries, alongside multilateral institutions like the World Bank, spent US$327 million in the Pacific in 2013.

The infrastructure focus of Australian aid to the Pacific is set to ramp up in coming years. This will come through grants — how Australia typically gives aid in the region — and, increasingly, through the provision of loans.

Infrastructure is needed in the less affluent Pacific countries. But Australia’s newfound fixation on infrastructure spending is not guaranteed to be beneficial. There are two reasons why: recipient context and donor motivations.

Aid is never guaranteed to succeed and tailoring aid to the recipient’s context is crucial. It is hard to spend aid successfully on infrastructure in poorly governed countries, such as Papua New Guinea and the Solomon Islands, the two largest Pacific recipients of Australian aid. Unclear property rights and governments too weak to exercise eminent domain make new infrastructure projects difficult.

Such challenges have hampered the development of the Tina River hydroelectricity project in the Solomon Islands, to give one example. It is also hard to get governments in poorly governed states to play the crucial role of maintaining infrastructure. Part of the reason why roads are in such a bad shape in countries like Papua New Guinea is that governments have neglected the task of maintenance for decades.

Some Pacific Island countries are much better governed than the Solomon Islands and Papua New Guinea. But Australia’s infrastructure focus is primarily on these two countries.

Combined, on the basis of budget data, it is estimated that they will receive about 70 per cent of Australia’s aid for infrastructure in the Pacific this financial year. This could change in the future, but it is unlikely as both countries are central to Australia’s engagement in the region.

The challenges posed by poor governance don’t mean all infrastructure work is destined to fail. But they do mean that it needs to be carefully planned and only undertaken when it’s likely to work. In terms of donor motivations, aid donors that are truly concerned with helping developing countries are more likely to carefully scope and plan projects to ensure that they are appropriate for the given context.

Unfortunately, not all of Australia’s new found interest in infrastructure in the Pacific can be attributed to a genuine desire to help. Much of it seems to stem from a desire to stave off China’s rising influence. That possibly reflects a reasonable strategic concern on Australia’s behalf, but a preoccupation with China is unlikely to be a useful guide when it comes to aiding the Pacific.

Consider, for example, Australia’s promise made along with other aid donors to bring electricity to 70 per cent of the population of Papua New Guinea within 11 years. Electricity is beneficial, but the promise is unlikely to be met. Electrification rates in Papua New Guinea continue to be very low.

So why was the promise made? A popular rationale has been that the electricity work is a response to China’s increasing influence in the Pacific. This is exactly the type of decision making that undermines the chances of aid succeeding.

Another example is Australia’s spending on an undersea cable to improve internet and related telecommunications in the Solomon Islands and Papua New Guinea. Once again, the spend came in direct response to China.

As with electrification, improved telecommunications could bring development gains. Yet much of the impact of the cable ultimately depends on how the governments of Papua New Guinea and the Solomon Islands manage internal internet access arrangements and associated local infrastructure.

Both governments have had their failures in these areas in the past. The cable may bring benefits, but there were reasons why donors were wary of funding this type of work before China arrived on the scene.

Australia’s eagerness to use loans as well as grants to fund infrastructure in the Pacific complicates matters further. Loans have a role in aid work, but it’s also crucial they succeed. If an aid grant fails, the money is wasted. If an aid project funded with a loan fails, the money is worse than wasted.

Infrastructure is integral to development. Aid spent on infrastructure can help. But like all aid work, infrastructure spending is not guaranteed to succeed. Australia spends very little on foreign aid.

The least it could do is maximise its chances of success. Australia’s current lurch towards infrastructure spending is likely to make its aid less effective, not more.

This article was published by the East Asia Forum.