Foreign aid and strategic competition in the South Pacific

On February 26, a 7.5 magnitude earthquake struck 35 kilometers underneath the Southern Highlands in Papua New Guinea, causing at least fifty deaths. An Australian Air Force plane carrying relief supplies landed five days later amid criticism that aid had been too slow to arrive.

The effectiveness of the Australian response in PNG will only become evident in time. Yet similar criticisms were also made in the response to Cyclone Pam, which hit Vanuatu three years ago. An internal report into Australia’s assistance in the recovery effort by the Department of Foreign Affairs and Trade (DFAT) found that progress was ‘less than expected’ and the program required ‘restorative action’. Australia committed $35m in long-term recovery money, but how that money was spent is unclear.

Cutting foreign aid

These events are a stark reminder that Canberra has been steadily cutting its foreign aid budget for years. The Abbot government retired AusAid and undermined the internal skills and knowledge built up over the years when the program was absorbed into DFAT. Similarly, the Turnbull government’s 2017 White Paper does not provide a clear guideline for Australian aid and only alludes to the program in the context of broader issues. Australia’s current aid program is consequently the least generous in history. The share of aid to gross national income was .22% in 2016-2017, and Australia’s aid program has dropped to 17th out of 29 in OECD rankings (which measure aid spending as a proportion of GDP).

These declines will be strongly felt in the South Pacific, the destination for most of Australia’s foreign aid. Climate change will adversely affect low-lying Pacific nations sooner, and to a greater extent, than most other places on Earth. Sea levels are expected to rise at least a meter by 2100, and tropical cyclones are expected to increase in frequency and intensity. Over the last ten years inclement weather has caused economic losses equivalent to 15-25%of GDP. The government of Kiribati is seriously considering abandoning the country altogether in the face of declining space and the contamination of freshwater supplies.

Australia remains the dominant donor to Pacific Island states, followed by the United States. Yet much of Australia’s aid program is now run by four private companies; Cardno Emerging Markets, Palladium International, Coffey International Development and ABT Associates, which have together been granted almost $4 billion since 2014 and $461.8 million in the last financial year. Paul Ronalds, chief executive of Save the Children, has said that outsourcing to private companies means ‘less contact’ with aid groups that have experience in local communities. It also reduces the visibility of the Australian government.

China’s growing influence

There is increasing concern that China will fill the gap. Beijing has been stepping up aid activity across the region in recent years. For example, it has committed a total of $632 million in grants and concessional loans to fund infrastructure in Papua New Guinea, including hospitals, universities, and government IT systems. Interestingly, these IT systems are contracted to Huawei, a Chinese company that was banned from participating in the construction of Australia’s National Broadband Network due to security concerns raised by national intelligence services (the company is accused of having opaque links to the Chinese military). Unlike Canberra, however, the government in Port Moresby is not in a political or financial position to refuse Beijing, as doing so may jeopardise other Chinese aid projects.

The second-largest regional recipient of Chinese aid is Fiji. Beijing is funding the construction of major roads, bridges, and seawalls, and donated 500 tons of essential supplies in the wake of Cyclone Winston in 2016. It has also donated computers to the Fijian military and anti-riot equipment to Fijian police forces in the lead-up to an election. China is now the largest foreign aid donor to Fiji, followed by Australia, and unlike Canberra has maintained ties with the government in Suva following the coup in 2006. Fijian Prime Minister Frank Bainarama has said that Fiji’s cooperation with China “reminds [Australia and New Zealand] that countries like Fiji have options”.

The strategic effects of Australia’s cuts to foreign aid funding are not yet clear. However, the Trump administration’s plan to cut foreign aid by a third will only increase the aid gap already opened by Canberra. It is therefore no surprise that Beijing has seen an opportunity to expand its influence. China is set to become the largest foreign aid donor to Samoa and Tonga, and will soon overtake Washington as the region’s second-largest donor. It is also increasing economic and military ties. Trade between China and Pacific island states doubled between 2014 and 2015 alone, and Beijing has signed memorandums of understanding with the Fijian military. It seems that the strategic competition between superpowers is spilling into the blue waters of the South Pacific.

This article was first published by Global Risk Insights, and was written by Ewen Levick.