Hon Murray McCully
Minister of Foreign Affairs
Embargoed until 12.30pm, 1 May 2009 Speech Notes

New priorities for New Zealand aid

Speech to the New Zealand Institute of International Affairs
Government Building, Victoria University, Wellington
12.30pm, 1 May

I appreciate this opportunity to address the Institute today.

I want to use this as an opportunity to outline the thinking of the National-led Government in relation to the provision and delivery of overseas aid.

And I will briefly outline some decisions that we have made in line with that thinking

There is not much that I shall say to you today that should come as a surprise.

In Opposition the National Party made an explicit promise that it would, in government, review the effectiveness and efficiency of aid delivery.

We also made clear the nature of the concerns we held, and the sort of changes we would consider.

In that sense, much of what I shall say to you today is entirely predictable.

At the outset, let me deal with the proposition advanced by my political opponents and by some self-interested individuals from within the aid community that New Zealand’s aid budget is some kind of sacred cow that should be placed above and beyond the stewardship of the government of the day, and subject only to the attentions of so- called “development experts” who might bring their superior intellects and sensibilities to this task.

Let me be very clear about this:

The nearly half-a-billion dollars in aid that this country gives away each year is the property of New Zealand taxpayers.

Those taxpayers are entitled to look to their elected government to ensure that those funds are allocated in a manner that is well targeted; effective; efficient, and broadly in line with their expectations.

They are, after all, the ultimate donors.

The idea promoted by some that aid money should be beyond the reach of the government of the day is fundamentally undemocratic.

This is public money.

Its expenditure should be overseen by elected office-holders able to be held to account at the ballot box – not by faceless, unelected, unaccountable, aid bureaucrats.

That is especially so when there is room for grave concern about the extent to which monies intended to benefit some of the poorest people on our planet are siphoned off by a range of government and other bureaucracies along the way – a topic I shall have more to say about later in this speech.

For those who wish to characterize the decisions I announce today as “political,” I simply remind you that the current semi-autonomous NZAID structure is entirely a creature of politics.

It was the price of a political coalition deal between the Labour Party and the Alliance back in 2002, and any claim to greater purity of origin than that is simply not supported by the facts.

When the Prime Minister invited me to take the Foreign Affairs portfolio I made clear my wish to retain responsibility for NZAID and the $472 million aid budget.

That was a departure from the previous practice of delegating this responsibility to an associate minister.

I see stewardship of the substantial overseas aid budget as a key part of the Foreign Affairs portfolio, which needs to be aligned, so far as possible, with the management of New Zealand’s wider foreign policy interests.

I also see providing forceful advocacy for the Official Development Assistance budget as a key component of the job.

That is not an easy task in the current economic environment.

This is one of the key reasons that I am so committed to ensuring that we maximize the value of the existing budget.

If we cannot demonstrate value for money, we have no basis to ask for more.

I am pleased to be able to tell you that we have, on the basis of the changes that I am announcing today, been successful in promoting the case for steady increases in the ODA budget.

The figures to be released on Budget day will show the ODA budget increasing to $500 million for the up-coming financial year, and rising to $525 million in 2010-11, $550 million in 2011-12, and to $600 million in 2012-13.

Over the five months since the general election, the new Government has been reviewing the current approach to aid delivery.

We have had input from a range of sources: the State Services Commissioner, the Treasury, the management of the Ministry of Foreign Affairs and Trade and NZAID, as well as a number of private citizens and a good many organisations active in the field.

But the decisions we have made are the Government’s decisions.

And the recommendations which the Government received in order to make those decisions were mine.

Driving these changes is a fundamental belief that we can, and indeed must, do better as a force for positive change in our region.

On the basis that a key objective of our aid strategy should be to reverse the negative trends that we see in our own region, by any objective measurement our policies simply have not succeeded.

Something just has to change.

While we can point to individual achievements and areas of improvement, the overall picture in our Pacific neighbourhood is unacceptable.

Our aid dollars have done little to build sustainable economies providing employment prospects and the promise of a brighter future.

Depopulation has continued at an alarming rate in parts of Polynesia.

Our billion-dollar export trade into the Pacific has been reciprocated by imports from Pacific nations so miserly that they should be a source of national embarrassment.

Air and shipping services – the arteries for trade and tourism – are under threat and in decline.

Substantial sums of aid monies are fed into unproductive bureaucracies – a classic example of mistaking activity for achievement.

Yet when real and genuine challenges have arisen, as with the need to commence the re-building of downtown Nuku’alofa in Tonga following the November 2006 riots, we were missing in action.

And there, as has been the case in too many other locations around the Pacific, others, from outside the region, have moved in to the space that we have unwisely vacated.

So let me be clear about what improvements the Government wants to achieve in spending half a billion dollars of aid each year.

First, we want to see a greater share of resources expended within our own region.

In relation to our ODA budget we need to take the same approach we have taken, over the past ten years to our Defence expenditure.

We are too small to be good at everything.

We need to identify the areas which are important to us, and in which we can aspire to excellence.

In relation to the aid budget, that means being truly effective within our own Pacific region.

That does not mean that we completely exclude aid activities further afield in places like, for example, Afghanistan, where aid initiatives are an essential complement to the work of our Provincial Reconstruction Team.

But we should accept that, with our limited means and resources, it makes sense to give priority to a niche focus on the needs of our region.

Second, we need to be clear about our goals, and invest in long-term economic sustainability.

That is why we need to do better than simply rehearsing the mantra “poverty alleviation” as being our objective.

We need to make choices as to HOW we are going to alleviate poverty.

With finite resources available to us, we need to make choices that will result in long term economic sustainability for our aid recipients – a hand up, not a hand out.

Third, we need to prioritise the services that are the building blocks for sustainable economic growth.

The notion that we could keep on throwing money at regional NGO bureaucracies for little apparent reward while airline and shipping services dwindle to the point of constraining trade and tourism in the Pacific is frankly absurd.

Fourth, we need to ensure that every available dollar gets to the intended recipient.

That might sound a little obvious, but I want to be very clear about my own view that there are significant gains to be made in this regard.

Too often, recipients of our aid dollars have commented to me that the aid budget is subjected to an unacceptable level of ticket-clipping on the way to its intended destination.

My own impression, five months into this role, is that those assertions are correct.

Currently, approximately eight per cent of the entire aid budget is spent on NZAID overheads – including a staff of 281.

Some further administrative costs are carried out of the MFAT budget.

A substantial amount of the balance ends up funding the overheads of NGOs, regional bureaucracies, bureaucracies in the recipient nations, and then carrying the costs of the inevitable monitoring and auditing process.

I cannot tell you precisely how much of the aid budget actually gets, in cash or kind, to the intended recipients – and that in itself is something of an indictment of our system.

But I can tell you that, were New Zealanders to understand in detail how much of the budget gets soaked up in bureaucracy and process, as opposed to providing services and resources to the poorest people on the planet, they would assuredly be demanding that I make changes.

And that is precisely what I intend to do.

The changes that have been determined by the Government are modest, yet, in my view important.

They fall into two parts.

First we have decided to remove the structure by which NZAID was created as a semi-autonomous body.

That will mean that NZAID will be accountable in the same way as any other branch of government, under the State Sector Act, through the chief executive, as a division of the Ministry of Foreign Affairs.

This decision is driven directly by the need to establish proper accountability mechanisms for the reasons that I asserted earlier in my address.

This is public money.

Taxpayers are entitled to hold someone to account for efficient, effective expenditure of the budget.

Under our system of government that person is me.

And I in turn should hold the chief executive of the Ministry to account.

It will also mean that we can achieve a greater sense of alignment with our overall foreign policy goals.

Most important in this respect will be our ability to align aid policy with trade policy within our region.

For that reason, Trade Minister Tim Groser and I have adopted a joint strategy, along with our Australian counterparts, designed to achieve sustainable economic growth in the Pacific through an alignment of trade and aid policies.

We met jointly with those Australian counterparts a few weeks ago and will host a meeting of Pacific trade ministers in the coming weeks in order to make progress.

I confidently predict that the sky will not fall in as a consequence of this structural change to the status of NZAID.

It actually took place 10 days ago.

Mr Murdoch has indicated to me that right now the pre-existing operating procedures remain in place.

Change will take place gradually, over time, and after careful consideration.

Some of our political opponents have attempted to suggest that the changes are designed to ensure that our aid budget will be dispensed by a series of random, politically-motivated handouts.

On the contrary, what we seek to achieve is a logical, sensible framework by which we can make difficult decisions regarding expenditure priorities in a manner that is broadly compatible with our identified national interests, and therefore likely to maintain public confidence and support.

We will release that framework in the form of an amended mandate, approved by the Cabinet, so that everyone can be absolutely clear about the instructions from the Cabinet to MFAT and NZAID.

Which brings me to the second tranche of changes which relate to NZAID’s mandate.

Currently that mandate focuses on the rather nebulous concept of poverty alleviation.

Of course poverty alleviation is important.

But it is only a starting point.

With limited resources to work with, we need to make choices about where our aid dollars will go.

Poverty alleviation is too lazy and incoherent a guide for that very important purpose.

And so the Government has approved a more detailed mandate against which NZAID, the ministry, and the Government may be judged in relation to this half-a-billion dollar budget.

In summary, that mandate will now require a clear focus on sustainable economic growth as the means by which we seek to improve the lives of our poorer neighbours.

It will specify a clearer focus in our own Pacific region, with a greater percentage of the budget being allocated within the region.

It will seek to use objective measures like trade and tourism statistics as the indicators of success or failure over time.

That will require us to pay more than lip service to our support for the fledgling private sectors in developing Pacific nations, through micro-financing schemes and other initiatives that create opportunities for enterprise.

It will require that we can demonstrate value for money.

And it will ask that we bring to the difficult task of allocating limited resources a clearer set of priorities.

Achieving the gains we wish to make will not be easy.

You may have observed that over the weeks that we have been conducting our review, we have been careful not to attack NZAID, or even to respond to some of the gratuitous criticism that has come my way.

We have been careful not to damage the machinery or relationships that we intend to rely upon to improve our aid and development performance from our existing budget, and to make significant gains from upcoming Budget increases.

Getting better value for money will call for more co-operation, more teamwork, more creativity, and more focus.

It may not have not escaped your notice that the comments I have made today, as on previous occasions, are not laced with lofty rhetoric regarding Millennium Development Goals and full of carefully-crafted calculations of ODA as a percentage of GNI.

Those may be important, but it is my own view that they are too often used to obscure the very much more important questions that should be asked about the quality, effectiveness, and efficiency of our aid programmes.

The fact that we will increase the ODA budget next fiscal year by about $28 million to $500 million, at a time in which our economy is contracting, should make it obvious that we will, in fact, have the highest ODA budget, as a percentage of GNI, for several decades.

But that, ladies and gentlemen, doesn’t mean anything if we cannot translate those substantial resources into a vehicle for positive change for some of the poorest people on our planet, who happen to be our close neighbours.

And that is where the focus of this government clearly lies.

Thank you.

ENDS

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