Australian Aid mainly goes to Middle Income Countries

Australian Aid Policy

Key Points

  • Almost 90% of Australia’s country program aid goes to middle-income countries.
  • Middle-income countries have higher average living standards than low-income countries and are typically less reliant on aid. For example, aid accounts for less than 2% of Vietnam’s economy.
  • Almost all low-income countries in the world are in Sub-Saharan Africa. This is the region where Australia provides the lowest level of aid in per person terms.

Background

The World Bank defines a middle-income country as having over US$1045 income per person (2013 GNI Atlas Method). These countries are considered to be rich enough to be able to begin to access forms of finance other than grant aid, such as private sector loans.

Australia provides almost 90% of country program aid to middle-income countries. This is significantly higher than most other aid donors. The chart below shows that almost all of Australia’s top aid recipients are middle-income countries.

Income per person

Aid is typically only a small share of the economy in middle-income countries. The chart below shows how most of Australia’s top aid recipient countries are not very reliant on aid. In the case of Indonesia and Philippines, aid is actually a negative share of GNI because more money is spent paying off aid loans than they receive in new disbursements of aid.

Aid as a share of GNI

High economic growth rates in Asia in recent decades have meant that there are only a few low-income countries in the region. Sub-Saharan Africa is home to almost all low-income countries in the world and the region is the most reliant on aid. However Sub-Saharan Africa receives the lowest level of Australian aid in per person terms.

Should the region with the poorest countries in the world, which rely the most on aid and have the highest proportion of people in extreme poverty, receive the lowest levels of Australian Aid?

 

Sources

 

OECD 2014 <http://www.oecd.org/dac/stats/idsonline.htm>

World Bank 2014 <http://data.worldbank.org/data-catalog/world-development-indicators>

 

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Australia is set to benefit from Aid for Trade

Australian Aid Policy

Key Points

  • The Australian Government has a new commitment to redirect aid spending from traditional aid programs, such as health and education, towards ‘Aid for Trade’. Aid for Trade initiatives are meant to lower transaction costs, making it cheaper and faster for developing countries to buy and sell products overseas. This also benefits Australia because it makes it cheaper and faster to buy from and sell products to aid recipient countries.
  • Many of Australia’s aid recipient countries also rely on Australia as a major trading partner. For example, over one third of PNG’s exports and imports are with Australia.
  • While it is expected that Australia will benefit under this new approach, it is unclear whether the benefits to aid recipient countries from Aid for Trade will be similar, better or worse than those from traditional aid programs.

Background

According the Australian Government, Aid for Trade is about opening up new markets to help boost trade in developing countries. Examples of Aid for Trade initiatives currently funded by the Australian aid program include: paying for DFAT employees to negotiate a Free Trade Agreement with Pacific nations to remove trade barriers; and infrastructure projects such as roads or bridges to allow easier movement of products in and out of developing countries.

Aid for Trade is becoming the flagship of the Australian Aid program under the Government’s new aid paradigm. By 2020, one fifth of all aid will be spent on Aid for Trade. Australia will benefit significantly from an increased focus on Aid for Trade as this will lower transaction costs when trading with Australian aid recipient countries.

Australia is a major trading partner for Australia’s main aid recipient countries, especially in the Pacific. The chart below shows the share of Australian exports of the total exports to these countries. Australia is a top 20 trade partner for all of these countries and a top 5 trade partner for the Pacific countries.

Aid for Trade

To fund Aid for Trade, aid will be shifted away from traditional aid programs, including health and education. While it is likely Australia will benefit from more efficient trade, it is unclear what the impacts of this shift will be for aid recipient countries. Little analysis has been made available by the Australian Department of Foreign Affairs and Trade that discusses what the implications are, positive or negative, for developing countries when aid funding is shifted away from traditional programs to Aid for Trade initiatives.

Given that aid has been redirected away from traditional aid programs towards Aid for Trade, Australia is set to be a beneficiary of this and the benefits for developing countries have yet to be made clear, the question emerges, should Aid for Trade be the flagship of the Australian Aid program?

Sources

DFAT 2014 <http://www.dfat.gov.au/>

How much control do you have over your standard of living?

Global Development

Key Points

  • An individual’s standard of living is overwhelmingly determined by factors out of their control. As such poverty is largely entrenched from birth.
  • A person’s nationality and the level of income of their parents account for over 80% of global differences in standards of living. Nationality alone explains almost two-thirds of the difference.
  • All other factors such as effort, gender and ethnicity account for less than 20% of global differences in standards of living.

Background

Analysis by the World Bank finds that where you are born and who your parents are have huge implications on your standard of living. Nationality and parent’s income level account for over 80% of global differences in standards of living, as can be seen in the chart below.

Control over standard of living

This analysis provides further evidence to demonstrate that one’s standard of living is mainly due to circumstance rather than effort. A child born to parents in poverty in the Democratic Republic of Congo (one of the world’s poorest countries) will almost certainly live their life in extremely different conditions to a child born to middle class parents in Australia.

This has profound implications in regards to how one perceives poverty. Overwhelmingly it is not an individual’s own fault for being in poverty since they had no control over where their were born and how wealthy their parents are. This creates a profound impetus to address this injustice.

Source

World Bank 2009 http://www.arts.cornell.edu/poverty/kanbur/InequalityPapers/Milanovic.pdf

Australia’s 2014-15 Aid Budget

Australian Aid Policy

Key Points

On Tuesday, the Australian Government not only cut the aid budget, but it also further redirected aid away from the majority of the world’s poor.

  • Australia spends less than $1 in aid per person in the developing world each year. This makes it incredibly important where the aid is spent.
  • Australia’s largest aid partners in the Pacific receive up to almost a $1 per person every day. This is more than 1,500 times the amount of aid Australia provides per person to Sub-Saharan Africa.
  • While reducing the overall aid budget, the Government increased aid to the Pacific and more than halved aid to Sub-Saharan Africa.

Background

On Tuesday, the Australian Government cut the aid budget for the sixth time in two years and it further redirected aid away from the majority of the world’s poor. As outlined in this post here, the Australian aid program does not focus on the majority of the world’s poor, and disappointingly, the new Government is exasperating this. The magnitude of the bias towards Australia’s neighbourhood is shown in the chart below.

 Aid per person

While cutting overall aid spending, the new Government increased aid to the Pacific and East Asia, by reducing aid from South Asia and Sub-Saharan Africa. The chart below shows how regional aid allocations have changed under the new Government in terms of aid per person living in extreme poverty.

Aid per person living in extreme poverty

In the pursuit of budget savings, the new Government has not only, targeted the aid budget, but also disproportionately targeted people living in poverty outside of Australia’s neighbourhood. Given that the cuts to the aid budget make up over 20% of the total cuts to the budget, the Australian Government is trying to balance the books on the backs of the poor, in the poorest regions in the world.

Sources:

DFAT 2014 <http://aid.dfat.gov.au/Pages/home.aspx>

World Bank 2014A <http://iresearch.worldbank.org/PovcalNet/index.htm>

World Bank 2014B <http://data.worldbank.org/data-catalog/world-development-indicators>

 

How Generous an Aid Donor is Australia?

Australian Aid Policy

Key Points

Australia is not one of the most generous aid donors in the world (using 2012 data, the most recently available year for international comparison).

  1. The most accepted measure of aid generosity (aid as a percentage of GNI) ranks Australia around average.
  2. Even in per capita terms (the measure frequently used by the Australian Foreign Minister), Australia is barely in the top third.
  3. Since 2012, $4.5 billion worth of aid cuts have been announced by the new Australian Government, which will make Australia considerably less generous.

Background

The Australian Foreign Minister has repeatedly made the claim that Australia is ‘one of the most generous aid donors in the world in per capita terms’, however this is simply not the case.

Traditionally aid as a percentage of GNI is used to rank donors in terms of generosity. This measure accounts for the size of a donors’ economy. As such it factors in that Australia is one of the richest countries in the world. The chart below ranks aid donors in terms of aid as a percentage of GNI and it shows that Australia is around average.

GNI

Even using the measure often sited by the Australian Foreign Minister, aid in per capita terms, Australia barely ranks in the top third of donors. The chart below shows that using this measure Australia is still far behind the most generous donors in the world.

Per capita

Australia’s international ranking in both of these measures of aid generosity is set to decline as the Australian Government cuts the aid budget by $4.5 billion. Therefore no matter how you present the data, the evidence is clear: Australia is not one of the most generous aid donors in the world and is set to become even less generous.

Sources

DFAT 2014 <http://aid.dfat.gov.au/Pages/home.aspx>

OECD 2014 <http://www.oecd.org/dac/stats/idsonline.htm>