Aid Program Priorities and New Initiatives
The 2007-08 Budget represents a major step in the implementation of new programs to support the key themes of the White Paper's strategic framework for Australian aid. Details of the principal elements within the strategic framework highlighted in Diagram 1 (page 4) and the approaches Australian aid will take in 2007-08 are as follows.
Accelerating economic growth
Generating broadly based and sustainable economic growth is the single most important challenge for Australia's aid over the next 10 years. The evidence shows clearly that regions which have seen the fastest poverty reduction are those which have grown most quickly. To promote stability and reduce poverty, growth needs to be employment-intensive and also encompass regions that are lagging. Growth also needs to be environmentally sustainable.
In 2007-08, a range of new initiatives will support accelerated economic growth, through investments in infrastructure, environment and climate, and rural and enterprise development.
Infrastructure
Context
Despite impressive export-led growth in the Asia–Pacific region, there are severe disparities between and within countries, with many countries needing to generate higher levels of growth to make inroads on poverty. Poor infrastructure is a consistent binding constraint to growth throughout the region.
Analysis by the World Bank indicates that countries need to be investing around seven per cent of GDP in infrastructure — in new and upgraded works as well as maintenance of what is already in place. Many countries in the region (including Indonesia, the Philippines and Cambodia) invest significantly less than this. Countries that are investing at this level (such as Vietnam and China) struggle to maintain the quality and impact of investment.
Many developing country governments lack the institutional expertise and resources to effectively manage and maintain critical infrastructure. Poor management, corruption and insufficient maintenance can triple the real cost of infrastructure over a fifteen to twenty year period.
Response
Australia's engagement in infrastructure will be significantly increased through a new Infrastructure for Growth initiative outlined in Box 1.
Bilateral programs will be expanded where Australia has established cooperation on infrastructure and policy reforms, for example in Papua New Guinea and Indonesia. In selected areas in eastern Indonesia, Australia will assist provincial and district administrations in infrastructure planning, provision and maintenance to boost the local investment climate and accelerate growth. At the national level, assistance will focus on policy reform, helping to develop public-private partnerships in infrastructure and improving the effectiveness of multilateral development bank financing of infrastructure investments. In Papua New Guinea, the Transport Sector Support Program will be expanded, continuing to attract PNG Government maintenance funding, augmenting this with Australian resources and strengthening the capacity of the PNG government to plan, budget, and manage the transport sector in support of improved economic opportunities and access to services.
In the Mekong, partnerships with the multilateral development banks will help overcome physical and non-physical barriers to increased regional integration and economic growth, particularly in lagging regions. Physical infrastructure investments, for example link roads and border crossings, will be combined with technical assistance to address other barriers to trade such as customs policies and practices along major trade routes.
In East Timor, Solomon Islands and elsewhere in the Pacific, activities will strengthen government management of infrastructure and use of their own budget resources, while investing in functioning and reliable transport and other infrastructure networks. Construction will, where possible, use labour intensive construction and maintenance methods to stimulate local employment.
Environment and climate change
Context
Economic and population growth in the Asia-Pacific region pose major challenges to the environment. Large-scale rural-urban migration, exploitation of the natural resource base, and poor management of industrial and household waste have severe impacts on the environments in which people live and on which many, especially the poorest, depend for their livelihoods. Effectively addressing environmental challenges is crucial to sustaining growth and reducing poverty.
The developing countries of the Asia-Pacific region are also highly vulnerable to the impacts on their environments of extreme weather events. Many are already grappling with cyclones, droughts and extreme tides. Small Pacific island states are particularly vulnerable. Significant climatic change would have a net negative impact on food and water security in many countries, and could render uninhabitable large areas of some low-lying countries.
Several Asian developing countries are, or will become, significant contributors to greenhouse gas emissions through energy generation, transport, industry and, importantly, deforestation. Reducing carbon emissions from deforestation and forest degradation in the Asia-Pacific region (which accounts for some 20 per cent of global emissions) is among the most cost-effective ways of combating climate change.
Response
This Budget includes $196.9 million in major new investments to address the pressing environment challenges of deforestation and forest degradation, climate change, water and environmental governance. Two new initiatives — the Global Initiative on Forests and Climate, and Climate Change Partnerships — are outlined in Box 2 and Box 3. In mid-2007, AusAID will release a new policy on environment and aid as foreshadowed in the White Paper, providing a framework for effective and well-targeted contributions to addressing environmental challenges.
Rural and enterprise development
Context
Despite growing urbanisation, poverty in the Asia-Pacific region is still overwhelmingly a rural phenomenon. Integration of the rural poor into the economy by increasing rural productivity, employment and income growth is essential to reduce poverty. Promoting sustainable rural development also mitigates environmental degradation and protects the natural resource base. Challenges include poor infrastructure, decreasing or fluctuating commodity prices, increased competition for resources and markets, and vulnerability to natural disasters and emerging infectious diseases such as avian influenza.
Response
Australia's aid program addresses constraints to rural growth through investments in a range of sectors and country and regional programs. Rural areas benefit from investments in health, education, infrastructure and local government capacity building as well as direct investments in agriculture and natural resource management. Investments through new initiatives, including in infrastructure (Box 1), health (Box 6) and education (Box 7), will include substantial investments in rural areas.
The White Paper strongly emphasised the importance of the private sector as a driver of rural growth and it foreshadowed the development of a pilot program in support of private sector-led rural enterprise development. The Enterprise Challenge Fund ($20.5 million) will be launched this year, initially in Papua New Guinea, Fiji, eastern Indonesia and southern Philippines. It will provide grants through open competition to business projects that can demonstrate results that benefit the poor and will become commercially viable within three years. Other private sector-led initiatives include the Indonesia Agribusiness and Smallholder Development Initiative ($38 million) and the Cambodia Agricultural Value Chain Initiative ($45 million). The rural growth component of the Australia Nusa Tenggara Assistance for Regional Autonomy (ANTARA) program in eastern Indonesia ($7 million) is being restructured to increase private sector activity and value adding to primary production. In Vietnam, AusAID will join a donor consortium to support a large, innovative national program titled "Program 135 – Phase 2" that targets poor, upland minority groups to improve income growth, market development, food security and livelihoods.