Who will benefit from Aust plan to boost aid to the Pacific private sector? | Pacific Beat

Who will benefit from Aust plan to boost aid to the Pacific private sector?

Who will benefit from Aust plan to boost aid to the Pacific private sector?

Updated 17 April 2014, 11:40 AEST

Since the Abbott government took office in Australia last year, Foreign Minister Julie Bishop has been making it clear she wants to put more emphasis on promoting the private sector in the Pacific.

It is yet to be revealled what form new programs or policies might take but they are likely to be informed by a parliamentary inquiry into 'The role of the private sector in promoting economic growth and reducing poverty in the Indo-Pacific region', which is taking submissions until 8th May.

Dr Tess Newton Cain, is a non-resident fellow at the Lowy Institute and former Vanuatu country manager for the Enterprise Challenge Fund - an 20 million dollar Australian initiative that provided matching grants for businesses in Asia and the Pacific.

In a peice for the Lowy Institute's Interpreter blog Dr Tess Newton Cain, says the first question is whose private sector is to benefit.

Presenter: Jemima Garrett

Speaker: Dr Tess Newton Cain, visiting fellow, Lowy Institute and former country Manager (Vanuatu), the Enterprise Challenge Fund ($20 million Australian initiative providing matching grants for businesses in Asia and the Pacific)

NEWTON CAIN: What we have seen so far is, for example, when Prime Minister Abbott went to Papua New Guinea he took a delegation from the Australian private sector, some quite high profile people, some of whom were visiting Papua New Guinea for the first time, and there has certainly been reference to encouraging Australian businesses to be doing more in the Pacific, to be setting up shop or to be engaged in the private sector in the Pacific. And that is something there certainly is scope for. We have also had reference to, and I guess this is where my interests lie more, is about supporting the private sectors of the Pacific as they already are, so the home-grown, indigenous private sector operators that are already working in Pacific island countries and how they can be better supported in order to grow, create more jobs, diversify, take on more exports or whatever it is, in order to grow the economies of their country and improve livelihood opportunities for more people in those countries.

GARRETT: And often those indigenous businesses are the very smallest businesses. How real is the risk that they will miss out?

NEWTON CAIN: Well, I think there is a risk that they could miss out, and that risk largely stems from things like the need or the drive to work to scale. So if interventions, whether it is financing or improving supply chains or even business advisory, if those opportunities, those interventions, are only available to businesses of a certain size and if that cut-off level is determined without reference to what we already know about the private sector operators, as you say, some of them are very small, then what you can end up with is that some sectors will miss out altogether and in some cases, at the very extreme level, some countries could miss out altogether because they just don't have businesses of the requisite size or sufficient size, or sufficient number of businesses of a requisite size. We have seen that previously. Obviously, there has to be a minimum rule, if you like, but for example, in the Enterprise Challenge Fund model that was run as a pilot program quite recently, the minimum amount of financing that was available was AUD $100,000 which had to be met by the business receiving that grant through a mixture of cash and in-kind. From an Australian perspective that is not a great deal of money, necessarily, and for some countries for example, Papua New Guinea, that is probably not unrealistic, but when you move to other countries, whether it is Vanuatu or Solomon Islands, there are very few businesses that are of a size that they can generate that kind of capital or even sustain an injection of that kind of capital.

GARRETT: Well, one of the problems is that it is very expensive to provide funding to micro or very small businesses. How should the Australian government look at overcoming that?

NEWTON CAIN: I think you are right, the transaction costs are high, and they are particularly high in the Pacific for all the reasons we know about small economies and them being very open economies and all the things that we've talked about. And I think to a large extent, you just have to accept that the transaction costs are going to be high and there are limited things that you can do to bring them down. I think there are opportunities to work strategically with other partners, including other donors to try and, if not reduce the costs, at least spread the load of those costs and be able to align processes and procedures so you are minimising not only your own transaction costs but also the transaction costs for the private sector enterprises you might be trying to work with.

GARRETT: Well, some people would be asking whether it is even appropriate for the private sector to be involved in development. What is your response to that?

NEWTON CAIN: Look, I think it is a good question. It is a question that gets asked on numerous occasions. Historically, we've thought of development as being on one side of the fence and the private sector, which is operated for profit, being on another side of the fence and there was no real congruity between the two. But, I think, when you look at what private sector organisations in the Pacific do, what they are doing is achieving development outcomes. Now they don't call them that, they might call them something else. The drivers for what they do might be different from your standard aid program or aid project, but the reality is that small and medium enterprises in the Pacific are the ones that create long-term employment opportunities often for unskilled and semi-skilled people. And when people have access to long-term employment opportunities it increases their livelihood opportunities. It means they are more able to access health services themselves and their families, they are more able to access education for their families and that is what happens. Now, there are a whole range of issues about managing risk, in terms of if you are going to use money from the aid budget in order to support for profit organisations. There has been some thinking done on that. There is some learning about that, for example through things like Enterprise Challenge Fund modalities, so there are opportunities going forward for policy-makers to look at previous experience to identify the lessons that have been learnt and to identify where the opportunities are, where the risks are, and how those risks can be managed.

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