Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697634014706.pdf (Australia)
Committee Secretary Joint Standing Committee on Foreign Affairs, Defence and Trade PO Box 6021 Parliament House Canberra ACT 2600 15 June 2018 Dear Secretary Inquiry into the strategic effectiveness and outcomes of Australia’s aid program in the Indo-Pacific and its role in supporting Australia's regional interests Please find attached a submission to the above Inquiry.
The submission addresses the terms of reference as they relate to the implementation and efficacy of: • increased private sector and trade development outcomes; particularly: • the Aid for Trade program, including a re-examination of the target percentage; • business partnerships, social enterprise and community investment in delivering development outcomes, with a focus on local entities This submission argues the case for a Digital Economy Aid Investment Strategy - focusing on the Pacific.
In describing the importance of digital economy development as a key area for aid investment to tackle development challenges.

The case describes the roles of key parties and stakeholders and it highlights the need for a new targetted approach to partner with the private sector.
The submission reflects more broadly on the missed opportunity in the private sector partnership component of DFAT’s aid for trade policy, and the opportunity that exists for DFAT to share risk and investment with selected large firms from strategically significant sectors.

It points to the potential models for achieving large scale, accountable development investment, resulting in value for money impact through blended investment in core operations.
It points to the need to bring a more focused value proposition to engage CEOs and CFOs in areas of mutual interest with DFAT.

Digicel, a major private sector telecommunications provider, and the digital sector in the Pacific are used as examples of what might be achieved.

The digital sector is an example of how a targeted, sector specific aid investment strategy with strong private sector partnership component could form part of an aid for trade strategy.
Such a strategy would allow DFAT to align development efforts and associated spending with private sector investment plans for reaching more people with more digital services.

For DFAT this would: • ensure development dividends can be genuinely achieved through the major investment in undersea cable links in the Pacific.
A targeted digital sector strategy with a strong private sector component will ensure digital inclusion and that the benefits of these cable links reach more remote and marginalised target beneficiaries of DFAT’s aid programs.
1 Inquiry into the strategic effectiveness and outcomes of Australia's aid program in the Indo-Pacific and its role insupporting Australia’s regional interestsSubmission 43 Inquiry into the strategic effectiveness and outcomes of Australia's aid program in the Indo-Pacific and its role insupporting Australia’s regional interestsSubmission 43 Contents About Prospr........................................................................................................................................................ 4 The Case for A Digital Economy Aid Investment Strategy ................................................................................... 4 Accelerating the Pacific’s Digital Economy ...................................................................................................... 4 PNG – a focus for the Pacific ........................................................................................................................... 4 The Digital Economy - Delivering The SDGs .................................................................................................... 5 Focus Areas for a Digital Economy Aid Investment Strategy .......................................................................... 6 A Digital Economy Aid Investment Strategy Depends on Private Sector Partnership .................................... 7 Missed Opportunity - Aligning Interests and Leveraging Capital with the Private Sector .................................. 8 Aid for Trade and Private Sector Partnerships ................................................................................................ 8 Current Practice – Private Sector Partnerships ............................................................................................. 10 Leveraging Capital at Scale and Commercially Rational ‘Inclusion’ .............................................................. 12 Comment on the Business Partnership Platform .............................................................................................. 15 Recommendation – A Private Sector Partnership Strategy for the Digital Sector ........................................ 16 3 Inquiry into the strategic effectiveness and outcomes of Australia's aid program in the Indo-Pacific and its role insupporting Australia’s regional interestsSubmission 43 About Prospr Prospr is new organization seeking to facilitate and demonstrate private sector partnerships that enable scaled impact, new forms of capital allocation and social venture innovation in development.
Prospr is a for-purpose for-profit joint venture between Save The Children Australia, John Marsh a private sector partnership expert with executive experience in the development and private sectors (formerly Oxfam, EY), and Steve Watt an education technology and e-learning executive and expert (formerly Blackboard, Moodle).

The Case for A Digital Economy Aid Investment Strategy Accelerating the Pacific’s Digital Economy PNG and the Pacific have unique development challenges.
Small underdeveloped economies, isolated populations, and large distances create extreme challenges for business, for governments and for development investment to progress the SDGs.

A Digital Economy Aid Investment Strategy will cement the benefits of DFAT’s undersea cable investments by ensuring inclusion of DFAT’s aid program beneficiaries in the benefits delivered by the cable.

Without a strategy, there is a serious risk that benefits will not be distributed.
Furthermore, investment in the acceleration of the digital economy will ensure DFAT’s annual aid commitment of $1.3Bto the Pacific will go much further in achieving SDGs for the region.
A Digital Economy Aid Investment Strategy will support existing service providers - public, private and civil society - to innovate and accelerate digital inclusion and high impact services including financial and insurance services, e-government, e-learning, e-health as well as enabling empowerment, transparency and democracy.

A Digital Economy Aid Investment Strategy will need to develop a sophisticated private sector partnership strategy, because the key change agents are private sector organisations.
The evidence of the importance of digital economy development is well established: “On average, not even one in two people in Africa has a mobile phone, and many have to walk for miles to get a signal.

The economic costs of this low penetration are enormous: every 10% increase in mobile phone penetration in poor countries speeds up GDP growth per person by 0.8 – 1.2 percentage points per year.
And when people get mobile internet, the rate of growth bumps again.”1 PNG – a focus for the Pacific This perspective is reinforced by the data on internet penetration and its relationship to GDP.

As indicated in Table 2, PNG at 11.7% is ranked #174 - behind Mali, Haiti, and Djibouti.

Digital network services in PNG are dominated by Digicel.

In the ten years since Digicel began operations in PNG, ~70% of the population are now within reach of 1 The Leapfrog Model.

The Economist, Nov 2017.


4 Inquiry into the strategic effectiveness and outcomes of Australia's aid program in the Indo-Pacific and its role insupporting Australia’s regional interestsSubmission 43 Digicel’s network.

Digicel’s subscriber base is 1.9M and it is the only network which reaches deep into island and rural populations.

The only other available network is the BMobile Vodaphone partnership, which extends to concentrated urban centres, with a subscriber base of ~400,000.
Today, 46.6% of the population use mobile phones, 6.1% subscribe to mobile broadband, and 11.7% use the internet.

is extreme geographical and economic In the context of PNG’s mountainous terrain and island communities there isolation through inadequate transportation infrastructure.

Evidence shows that progress in key SDG development areas including education, health, governance, and poverty alleviation is greatly hampered by the country’s unique context.
Digital services provide alternative delivery models, and create new opportunities and pathways for people and communities who are geographically cut-off from participating in national development.

With PNG being a rural, high decentralised population, and with the process of government decentralisation taking place, greater access and uptake to Digital services in the regions and rural areas will ensure development and opportunity benefits are inclusive, and that rural areas are not left behind.
It appears that the reality of a digital services network that reaches deep into rural areas and is being delivered by the private sector has not been recognised by DFAT and, consequently, is not being leveraged as a complementary achieving pathway development targets.

to Beyond conomic opportunities, access to digital services also underpins the potential for empowerment, transparency and rights and democracy transformation.
People have access to one another, to join together to press demands for transparency and accountability.

Digital access enables people to seek support and opportunities beyond their village.

Digital services also support grass-roots change.

For example, many attribute the political change in Myanmar to the emergence of widespread internet use and the associated increase in the capacity for political participation.
In a similar way, it is foreseeable that digital services could greatly enhance the efficacy and accountability of processes surrounding the forthcoming referendum in Bougainville.

The Digital Economy - Delivering The SDGs The GSMA2 the global association of Telco Operators through its donor sponsored M4D program, is the leading global agency supporting Mobile for Development.
It is a clearing house and hub for a community of practice on use case and leveraging best practice in partnership with Telco and Digital operators to advance the digital economy and digital services innovation in emerging markets.
2 The GSMA represents the interests of mobile operators worldwide, uniting nearly 800 operators with more than 300 companies in the broader mobile ecosystem, including handset and device makers, software companies, equipment providers and internet companies, as well as organisations in adjacent industry sectors.

The GSMA also produces industry-leading events such as Mobile World Congress, Mobile World Congress Shanghai, Mobile World Congress Americas and the Mobile 360 Series of conferences.
5 Inquiry into the strategic effectiveness and outcomes of Australia's aid program in the Indo-Pacific and its role insupporting Australia’s regional interestsSubmission 43 The GSMA in its latest annual report points out how digital services creates impact across most of the SDGs.3 “The latest report finds that during 2016, the mobile industry increased its impact across all 17 SDGs, with the greatest improvement in SDG 3 (Good Health and Well-being), SDG 11 (Sustainable Cities and Communities), and SDG 13 (Climate Action).
The study identified three key trends that contributed to this positive progress: • • • “Better Networks – Mobile operators have invested heavily in expanding infrastructure and improving quality of service.

As of the end of 2016, more than half the world’s population was within reach of a 4G network, while nearly 85 per cent had access to 3G networks.
With broader coverage, improved network quality and increased resilience, mobile networks also play a critical role before and during epidemics, conflicts and natural or climate-related disasters, supporting emergency communication and broadcast services and providing accurate and timely information on the movement of affected populations.

“Greater Connectivity – Operators continue to connect the unconnected.
At the end of 2016, the total number of mobile subscribers reached 4.8 billion and 3.5 billion people used mobile to access the internet.

The benefits of this are wide-ranging, with connectivity driving improvements in economic growth through improved productivity, infrastructure development and efficiency.
Operators have been particularly proactive in pursuing more innovative solutions to roll out mobile networks in remote areas, making mobile services more affordable to the poorest individuals and driving efforts to accelerate digital inclusion for women.

“Increased Use of Mobile – Users are becoming increasingly sophisticated in how they use mobile devices and are starting to access more advanced mobile-enabled services.
In 2016, the number of registered mobile money accounts surpassed half a billion, giving users greater access to financial services that enable them to make investments and manage expenses.

Additionally, the number of social media users on mobile reached 2.5 billion, helping promote social and political inclusion and facilitating the development of education networks.
Focus Areas for a Digital Economy Aid Investment Strategy The digital economy is based in consumers and citizens, business and government having access to the 2 core infrastructure and service components that underpin a Digital Economy: 1.

The Platform which provides the ability for users to access and consume data, and to financially transact.
This includes a. the technologies needed for society to connect and consume data (network/ infrastructure, devices and the energy devices to charge them), b. mobile money, and c. digital identity.

2.

Digital Services which run on the Platform.

With a digital identity, the ability to connect and transact, a rich diversity of public and private digital service providers completes the architecture.
This includes new education and health services models, e-commerce and digital entrepreneurship opening market and trading opportunities, e-government and citizen participation, insurance products, agricultural services.

3.

Regulatory regime, support environment, and safeguards.

Cybersecurity, digital services regulatory environment (finance, insurance, commerce), privacy and digital identity are some of the features that need to be supported.
3 https://www.gsma.com/newsroom/press-release/new-gsma-report-highlights-mobile-industry-progress-achieving-sustainable-development-goals/ 6 Inquiry into the strategic effectiveness and outcomes of Australia's aid program in the Indo-Pacific and its role insupporting Australia’s regional interestsSubmission 43 A Digital Economy Aid Investment Strategy Depends on Private Sector Partnership A Digital Economy Aid Investment Strategy will include an approach to engage key stakeholders and support innovation for new business and organisational delivery models across private sector, government and civil society.
A private sector partnership model will be fundamental to an effective Digital Economy Aid Investment Model given their key role in rolling out both the Platform and digital services outlined in the model above.

The assumption that a Digital Economy will evolve in an inclusive way without engaging private sector stakeholders is a mistake.

1.

Network services will only be available where the commercial business case makes sense.

Remote communities beyond major towns will not have access.
Access to devices and data will be a challenge for the poorest.

When Telcos are unable to generate positive revenues, digital networks will be closed down, and people will not have access.

Private sector partnership and capital blending and risk sharing models are critical.

2.

Digital service providers need to innovate and take risks to crowd users in.
In the context of the Pacific, service providers (insurers, governments, SMEs providing goods and services, education institutions, INGOs) need to find ways to innovate to transfer their existing operating model to a digital service or to partner with successful digital service models from other parts of the world.

Efficiencies, positive revenue streams and sustainability occur when scale and critical mass is achieved through higher digital service use rates.
In risky environments donor co-investment is required to pilot, reach critical mass and support scaling and sustainability.
7 Inquiry into the strategic effectiveness and outcomes of Australia's aid program in the Indo-Pacific and its role insupporting Australia’s regional interestsSubmission 43 Missed Opportunity - Aligning Interests and Leveraging Capital with the Private Sector DFAT like other donors does not have a specific strategy and approach as part of its private sector partnership and aid for trade strategy to use its own capital to create specific incentives in the market to leverage private sector capital directly to target development challenges and SDG outcomes Aid for Trade and Private Sector Partnerships As recently reported4, DFAT has achieved against its ‘aid for trade’ indicator, spending 23% of the aid budget in this category – surpassing its 2020 target of 20%.
But how much of this spending is allocated to partnering with the private sector?

Given that the CEOs and CFOs of large firms drive decisions of the private sector to allocate the increasing flows of private capital to poor countries, what is the intended logic that links aid for trade spending to achieve leveraging of private capital to target development challenges?
At the time the Sustainable Development Goals were agreed in 2015, it was acknowledged that government funding alone would not be sufficient to meet the ambitious aim of leaving no man, woman or child behind.

The SDG commitment was made in the context of changing ODA and private capital flows.

Private investment in developing countries has grown enormously since 1990, including foreign direct investment, remittances and private debt and equity (see Table 1).
At the same time, Official Development Assistance has been relatively stable globally, and Australian aid has fallen to record low levels as a proportion of GNI.

Donors globally, including Australia’s Department of Foreign Affairs and Trade (DFAT), agreed that it is critical to leverage private capital flows to drive progress towards achieving the SDGs.
Despite this growth in private capital flows, there is no clarity on donor led mechanisms that might enable – in a scaled transactional efficient way – partnerships where business might align with donors to jointly and directly allocate capital in a way that enables both parties to achieve the returns they seek.

DFAT’s Aid for Trade strategy endeavours to address this.
The strategy states: “This Aid for Trade Strategy establishes a framework to help ensure our aid for trade investments are effective, meet the needs of developing country partners, and align with Australian interests.
The 4 May 2, 2018 8 Inquiry into the strategic effectiveness and outcomes of Australia's aid program in the Indo-Pacific and its role insupporting Australia’s regional interestsSubmission 43 Strategy encourages innovative approaches, including by applying new technologies, partnering with the private sector, and promoting market based solutions5.” And further “Delivery of effective and efficient aid for trade will require the right partnerships, including with other donors, multilateral and regional organisations, and the private sector.
A partnership with the private sector allows for leveraging of their resources, networks and expertise6.

Importantly, involving the private sector in development investments would help improve the sustainability of those investments.” The policy does not provide information on the vision, strategy or operating models of partnership with the private sector to specifically leverage their resources, the principle resource being private sector capital.
The strategy does, however, provide an oblique reference as to how private capital might be leveraged through the effects on exports.
DFAT’s Aid for Trade Strategy states Innovation in partnership models with larger businesses from high impact sectors - in capital sharing and risk taking - is needed if the goal of private sector partnership is to be realized as a substantial plank of aid for trade “ The OECD finds that aid for trade investments are effective—one dollar of aid for trade investment is associated with an increase of eight dollars in additional exports7.
However, the link to development outcomes remains unclear: “These recent evaluations point to the persistence of some challenges and the existence of a few new ones, including: While virtually all the programmes have found that aid for trade has been effective for the most part in helping developing countries to take advantage of opportunities in international trade, tracing the complex link from donor funds as inputs through the results chain to greater trade and greater trade-led growth, much less poverty reduction, remains a persistent challenge”8 The author is not seeking to make an argument against traditional Aid for Trade investment modalities.
On the contrary, the author fully supports traditional ODA investments in, for example, trade and economic policy, infrastructure, capacity building and markets development, as this helps to create the environment for increased economic development.
The purpose of this paper is to shine a light on the missing opportunity for donors to partner directly with larger private sector organisations and, specifically, to share capital and risk in business projects which directly reach those most in need providing job and income opportunities, and/or life changing goods and services.

One of the potential benefits of this approach, compared with traditional aid for trade investment approaches, would be to increase accountability.
Greater direct investments into business projects creating tangible, measurable development impact means that a direct line can be drawn between the ODA investments and impact so donors can report more reliably on the value of capital allocated, and can more readily make evidence based choices about investment decision.

Ironically, one of the main challenges of 5 P5.

http://dfat.gov.au/about-us/publications/Documents/strategy-for-australias-aid-for-trade-investments.pdf 6 Ibid p 11.

7 Ibid p 10.
7 Ibid p 10.

8p151 OECD and WTO.

2013.

Aid for Trade at a Glance 2013: Connecting to Value Chains 9 Inquiry into the strategic effectiveness and outcomes of Australia's aid program in the Indo-Pacific and its role insupporting Australia’s regional interestsSubmission 43 donors’ blending capital with business is also accountability.

Donors are accountable to tax payers, and businesses are not understood as traditional ‘development organisations’.
This results in donors not having the confidence to go to scale with sharing investments with the private sector.
The emergence of shared value, inclusive business, social business and related themes would mean a genuine shift away from the traditional binary model where: • development organisations (including consultant contractors) have an unchallengeable monopoly on the ability to purposefully deliver development outcomes financed by donor grant investment, while; • businesses financed by commercial capital simply deliver profits.
Business practice, enabled by skills migrating from the development and for purpose sector, are maturing to be capable of taking on grant capital and delivering both development and commercial outcomes through new blended capital business models.

Donors appear to be increasingly comfortable to share capital with small, local SMEs, entrepreneurs, start- ups, and self-styled social businesses.
This is done through such mechanisms as enterprise challenge funds, and innovation funds including the Australian Government’s innovationXchange.

However, there seems much greater reluctance to work with larger high impact private sector players, and thus the opportunity to achieve scale with the private sector is being missed.
The challenge now is to find a way to move to a new aid paradigm, where donors are agnostic about whether an organization is for-profit or for-purpose and where development financing is provided to whichever partner offers value for money, is able to deliver development results at scale in a sustainable, cost effective, and transparent way, and is able to ensure appropriate standards and safeguards are fully addressed.
Innovation in partnership models with larger businesses – in capital sharing and risk taking - is needed if the goal of private sector partnership is to be realized as a substantial plank of aid for trade investment.

Current Practice – Private Sector Partnerships The development community does have a history of risk and capital sharing with the private sector through Public Private Partnership models in various forms.
For example, DFAT has various private sector partnership models where capital is made available to businesses.

The Enterprise Challenge fund, Business Partnership Platform (BPP), Markets Development Facility, Pacific Rise (impact investing) and SEED Pacific (part of the Innovation Exchange) are some examples.

However, these have tended to be small scale and to be at a business transaction and partnership level.
DFAT has also entered into Memoranda of Understanding with high profile businesses in the Pacific including Carnival Cruises, ANZ and Westpac where resources are aligned, although capital is not aligned or shared.

In the author’s experience, DFAT and other donors, are involved in a number of high profile ‘business partnerships’.
However, these tend to be essentially brand sharing, license to operate or simple corporate 10 Inquiry into the strategic effectiveness and outcomes of Australia's aid program in the Indo-Pacific and its role insupporting Australia’s regional interestsSubmission 43 social responsibility partnerships which sit outside “core business”.

The result of such limited partnerships is that development impacts are not embedded as part of core business operations.
Further, in the author’s experience, key decision makers (CEOs and CFOs) of larger firms in target countries with potential for scale find working with donors convoluted and complex, and in general “not worth the trouble”.

The opportunity cost of their time mitigates against involvement particularly as the partnership models are unclear, and tend not to be about access to capital that might allow extension of core business to include new workers or new customers.
The result of this is that the types of businesses that end up aligning with donor funded projects are not necessarily the most strategic.

Often, they are not capable of partnerships that will result in large scale impact in the most significant areas of development challenge.
This alignment gap is highlighted by the OECD9: “While donors see the benefits of public-private partnerships in improved outcomes (Figure 1.9), they also point to key challenges inherent in developing and effectively implementing and managing PPPs (e.g.

different organisational structure, inadequate trust, communication problems, differing expectations, and staff turnover).

The expertise and skills to develop and manage PPPs are frequently in short supply.
Germany lists a number of other difficulties associated with PPPs: scepticism on the public side regarding the benefits of PPPs (they must not only be profitable, but above all must be politically feasible); lack of awareness of PPPs as an alternative procurement method; and difficult framework conditions for operating them”.

Development practice is anchored in commitment to, and investment in, strong effective partnerships.
All donors, including DFAT, seek deep partnerships with the most influential actors in the countries and contexts in which they operate.

It is long established practice that donors work together, co-investing large amounts of capital in aligned development initiatives.
However, when it comes to the selected and specific private sector players – whose business models would be independently judged to be most likely to be able to deliver large scale impact in line with specific development challenges - models for engaging, partnership, co-investing and sharing risk are weakly developed or non-existent.

Consequently, donors are not leveraging the resources of the most significant businesses because the models to engage are not developed.
DFAT’s capability to leverage private sector capital towards meeting development challenges and ensuring inclusive growth is inhibited by lack of a clear value proposition to business and private capital.
This 9 P51 https://www.wto.org/english/res_e/booksp_e/aid4trade13_e.pdf 11 Inquiry into the strategic effectiveness and outcomes of Australia's aid program in the Indo-Pacific and its role insupporting Australia’s regional interestsSubmission 43 complexity results in the current reality that many businesses with high value partnership prospects are not ‘in the market’ to partner with donors.
Leveraging Capital at Scale and Commercially Rational ‘Inclusion’ DFAT’s private sector programming approaches like the Markets Development Facility, although intending to leverage private capital do not achieve significant leverage compared to overall financing.

The focus on smaller firms is less risky, but is not creating a breakthrough for private capital leverage.
Propositions to activate key decision makers of large firms (CEOs and CTOs) need to create the conditions for commercial rationality to allocate private sector capital into business projects that can create development impact.

Clearer propositions for capital blending as part of private sector partnerships can enable this.

One of DFAT’s main programmatic mechanisms to engage the private sector is the Markets Development Facility.
The MDF program, an approach which is increasingly scaling has operated since 2012 and applies in Fiji, Timor Leste, Sri Lanka, Pakistan, and Papua New Guinea .

At its core, MDF’s purpose is to share risks with businesses and SMEs to result in new business activity which targets beneficiaries and achieves development results.

One of the MDF’s operational objectives is to leverage private capital.

MDF’s phase 1 investment was $45M10 (forming part of the 23% aid for trade target).
Of this, $3M 11was capital allocated directly to businesses, and this resulted in the leveraging of $9M additional private investment.

The project report is citing a 3-fold capital leverage ratio ($3M leverages $9M), where from development investment point of view, the figure should be 20% ($45M leverages $9M).

Although its wider results are pertinent to developing markets and supply chains, the MDF to date could not be put forward as a model to achieve private capital leverage at scale.
A more robust private sector partnership approach, seeking to leverage private sector capital should consider the effectiveness and efficiency relative to total aid investment allocation.

Through using simpler transaction and partnership models, and working with larger firms, this can be achieved.
While the MDF model has the very laudable ambition of supporting the emergence of local firms and SMEs within local economies, the transaction cost of such an approach will naturally be higher and capital leverage ratios consequently lower.

It appears that DFAT does not have a strategy for scaled direct private sector capital leverage.
To enable a higher proportion of DFAT’s investment in aid for trade to leverage private capital, value propositions that engage decision makers (CFOs and CEOs) of large firms in target geographies (eg the Pacific) are needed.

A new value proposition from DFAT should enable the creation of genuine corporate level partnerships, shared plans, and identification of the strongest areas for potential alignment and for taking investment risks together.
Australian representatives in embassies and high commissions need support to: 10 DFAT expenditure on MDF as reported in http://dfat.gov.au/about-us/business-opportunities/tenders/Documents/market- development-facility-phase-ii-investment-design.pdf 11 The Dec 2016 review of MDF reports USD2.53M allocated to business, with USD7.831M in additional private capital was invested (leverage).
http://marketdevelopmentfacility.org/wp-content/uploads/2017/06/AAR-2016-web-version.pdf 12 Inquiry into the strategic effectiveness and outcomes of Australia's aid program in the Indo-Pacific and its role insupporting Australia’s regional interestsSubmission 43 • develop private sector engagement strategies, and • to engage business in new partnerships and project transactions.
Businesses need support to: • ensure development impact results can be embedded in investment project designs and plans; and • responsibility to achieve, measure and report results can be internalized within business operations.

To approach transactional efficiency and scaled leverage of private capital, ODA donors need to offer a model where potential private sector partners can see that co-investing with donors is commercially rational from a capital allocation viewpoint.
This is the area where commercial decision makers (CFOs and CEOs) exercise their most critical business decisions.

The donor partnership proposition needs to move from corporate affairs (where decisions are based purely on corporate social responsibility brand sharing and/or licence to operate criteria) to core business if capital leverage for development purpose is to be a serious objective.
Value propositions which will deliver development dividends and which will make clear business sense to chief decision makers therefore need to embody the follow core principles: ODA Value Proposition Core Principles Suggested Reform needed Clarify the material basis for partnership.

Do this in detail on a sector level.


ODA actors must clearly understand which sectors are capable of delivering priority impacts and develop sector specific strategies, partnership models and transaction propositions: Recognize that the ways that core business operations in sectors might deliver high priority development impact is different.

Some sectors impact through supply chain opportunities, others through the goods and services they deliver.
Simplify the models of how specific sectors potentially create the most material development impact, and base engagement processes and propositions around this.

Donor Value for Money is fundamentally determined by lowest marginal cost to core business operation.

This statement represents the ‘sweet spot’ for donors and business sharing capital risk.
For specific outcomes in a sector, the challenge is to be propositional to the private sector to identify and partner with those capable of delivering the sector priority outcomes through their i) ii) Priority supply chain creates impacts like jobs and income primarily through, agriculture, inclusion of microentrepreneurs in supply chains, employment in processing and some service sectors eg mass tourism, and; Goods and services provision creates impacts across a multitude of SDGs, including financial services, digital services, energy, basic goods and services (health and education).
CEOs and CFOs can then engage with donors around how their core business creates the most material development benefits.
The simplicity of a sector based approach demystifies development complexity and enables alignment around selected indicators targets which can be practically embedded - as non-financial KPIs in standard business cycles (design, plan, invest, execute, monitor, report performance) Donors should create a focus on partnership and shared risk around core business, and offer to blend grant and commercial capital to extend core operations, where grant capital provides the additionality to reach target beneficiaries who would be excluded from normal commercial inclusion.
This approach makes it commercially rational to roll-out inclusive business models.

The mechanisms below based on outcomes price can be developed over time to optimize value for money.
The partnership model delivers outcomes through core business to ensure sustainability, propositions should be based on commercial constructs, and development impacts designed as integral to (not added onto, or sitting aside 13 Inquiry into the strategic effectiveness and outcomes of Australia's aid program in the Indo-Pacific and its role insupporting Australia’s regional interestsSubmission 43 core business at the lowest unit marginal cost.

from) commercial operations.


Impact models and theory of change is part of business model development.

Value for money will not be achieved by going to market through current procurement models.

This is not how businesses can be engaged.

Market value (price) of outcomes.

Businesses which ultimately figure as DFAT’s private sector partners should be the ones that include target beneficiaries in supply chains or deliver goods and services and achieve this at scale and at lowest marginal cost.
The value of outcomes will be country/context/beneficiary group specific.

Donors can offer to the market either Grant capital owners (donors) must identify the financial value to them of specific outcomes and present this in the propositions to the market.

Clarity around this signal enables a response from the market through various transaction mechanisms and partnership models.
i) ii) The proposition of a bilateral partnership and related co-invested venture projects where the donors’ investment contribution is linked to a specific set of outcomes.

This indicates an anticipated development ROI/grant capital performance.

This approach has precedents in existing programming investment12, or a payment by result financing model – with donor pools of funds for a specific small number (even single) of high priority specific outcomes.
Businesses compete and bid to access this capital and design projects which deliver the outcomes.

This differs from Social and Development impact bonds in that, rather than being a financing risk shift to third parties for donor financing of non-profits to deliver social programs, capital is made available to business to invest alongside its commercial capital in new revenue generating commercial operations which will lead to self-sustaining the outcomes provided the business endures.
Third party auditing and verification.

3rd party verification enables key risks to be addressed: i) ii) Transparency for taxpayers, competitors of the businesses partnering with donors, traditional recipients of aid Transparency creates market confidence enabling scaling.

Moving to market mechanisms for capital allocation will require independent verification outcomes are achieved.
By focusing on limited sets of outcomes and sector specific partnership models and standards, a higher quality auditing standards can be developed.

Outcomes measurement practice within consultancies as well as auditing firms (eg Big 4) is maturing to support Impact investing practice, SROI methods etc.
Prospr believes that for private sector partnerships to figure more prominently in an Aid for Trade Strategy, value propositions for partnership should engage business leaders, specifically CEOs and CFOs, around their key responsibilities of commercial capital allocation to new business activity.

To do so means that DFAT needs to be much more propositional on simple capital and risk share models that provide partnership and transactional clarity.
There should be a focus on proposition and engagement for key sectors and around a limited set of development outcomes where scaled sustainable impact can be delivered for lowest marginal cost.

We are presently quite some distance from this model.

It is recommended that DFAT consider accelerating the establishment of new models to use ODA capital to leverage private capital flows in a blended capital model for new business projects that achieves both commercial and development returns.
12 A relevant analogy in DFAT’s current programming investment is one of the next phase of PHAMA’s key performance targets.

The program design document has a term its calls SROI, where the program target is to deliver $1.7/annum in new smallholder farmer income for every $1 invested in the PHAMA program.

This concept can be extended to a range of material KPIs identified for a sector, then performance based propositions can be taken to market by DFAT.
http://dfat.gov.au/about-us/business- opportunities/tenders/Documents/phama-plus-investment-design-document.pdf.

14 Inquiry into the strategic effectiveness and outcomes of Australia's aid program in the Indo-Pacific and its role insupporting Australia’s regional interestsSubmission 43 Comment on the Business Partnership Platform The BPP’s ambition to follow up the initial grants with an approach to form deeper relationships with business has not materialized.
The BPP is extending to have a larger number of smaller impact transactional partnerships rather than investing in potential high value, scalable and transactionally efficient relationships The Business Partnerships Platform (BPP) is a core innovation for DFAT’s Private Sector Strategy.

The author worked with the CEOs and the respective strategy and planning teams of Digicel Pacific in PNG (round 1) and Dialog Axiata in Sri Lanka (round 2) to win BPP grants.
Furthermore, the author has continued to work with Digicel in PNG and the Pacific with the expectation that BPP grant success would transform into deeper partnership via DFAT’s stated aspiration of corporate partnership.

On the BPP webpage, DFAT states: “We aim to work together to leverage each other’s assets, connections, creativity and expertise to achieve mutually beneficial outcomes.
We will achieve this by being a credible, capable partner to the private sector and by engaging with the private sector as one of our mainstream partners.

:13 In the case of Digicel, the author has worked continuously with Digicel, since 2015 with a particular emphasis on PNG.

Digicel has attempted to move beyond the initial project partnership14 , but there has been a significant disconnect between the stated aspirations of the BPP and relationship progress for Digicel with DFAT.
At face value, one would assume the following points would make Digicel a key partner for DFAT: • Digicel is the largest Telco in PNG and the Pacific.

• Traditional development in the Pacific is challenged by the tyranny of distance, infrastructure challenges.

The Digital economy, and digital inclusion offers opportunity and empowerment for youth, women and disadvantaged communities, and offers leapfrogging alternatives for government services, education, commerce, health etc.
• Digicel has invested in a tower network reaching at least 70% of the population in PNG.

Digicel has 1.9M subscribers in PNG and is the only network providing services outside urban centres.

Its competition is only offering services in towns, reaching ~0.4M subscribers • Through this network, Digicel is actively seeking to partner with a range of development actors and business to accelerate the digital economy.

Its effort on this front is unequalled in the private sector in PNG.
Digicel has proposed various approaches to partnership with DFAT, and has a pipeline of projects including: • Extending digital services and networks • Mobile financial services • E-learning • E-health 13 http://dfat.gov.au/aid/who-we-work-with/private-sector-partnerships/Pages/private-sector-partnerships.aspx 14 The BPP funded a solar lantern project so people could charge phones, could have access to light, save on kerosene and improve household air quality.
15 Inquiry into the strategic effectiveness and outcomes of Australia's aid program in the Indo-Pacific and its role insupporting Australia’s regional interestsSubmission 43 • Data and measurement services • DRR and humanitarian services However despite best efforts on the part of Digicel, the existing mechanisms have not supported the material progress of a relationship operating at strategic and project levels in multiple Pacific geographies that might realise the ambition of scaled blended capital and shared investment which would deliver significant dividends and benefits at the core of operations for both parties – a true shared value approach.
Given DFAT’s increased commitment tothe Pacific, with $1.3 billion of aid going to the region in 2018-19, including the significant investment in undersea cables, there would appear to be a logic to develop a digital economy strategy and a specific private sector engagement approach to work with the key actors in this sector, including Digicel.
Recommendation – A Private Sector Partnership Strategy for the Digital Sector Digital infrastructure and services are being delivered by the private sector across the Indo-Pacific.

Given the critical role of digital services in development, and the central role of the private sector in rolling out these services, it is recommended that DFAT develop a digital sector strategy.
This should involve more sophisticated partnership models, that target private operators to ensure digital sector growth is effective, inclusive and offers alternative service delivery modalities for governments and aid projects so more can be achieved from Australia’s aid investment in the Pacific.
Beyond Digicel (>2M subscribers in Pacific), Dialog Axiata (recipient in BPP phase 2 as mentioned above) is part of the Axiata group, which has more than 200million subscribers and is the number one or two telco in Sri Lanka, India, Bangladesh, Nepal, Myanmar, Cambodia, Indonesia and Malaysia.

Without clarity on how the BPP is supposed to enable deeper corporate partnership and scaled risk sharing there is little to distinguish the BPP approach from enterprise challenge fund approaches, or the MDF.
If, indeed, the BPP is a mechanism through which strategic partnerships with bigger businesses can be created and developed, suggestions for enhancements include: ▪ Clarity on vision, structure, process and outcomes for business partnership.

o What is the vision for the partnership and what is DFAT seeking (capital leverage, impact) and bringing (capital in the short, medium and long term)?

Does DFAT have a capital figure it would like to make available, a leverage target, a group of development targets?
o What is the partnership proposition for CEOs and CFOs, what can they expect?

Is there sufficient capital blending/risk sharing on offer for them to engage and to allocate private capital to include beneficiaries such as workers, suppliers, customers who would not otherwise have benefitted from this investment?

o What are the anticipated stages to partnership formation?

o What strategy and project development cycles are going to be shared and jointly progressed?
What capital - blending models are going to be used?

What commitments and intentions can be clear, and what areas are experimental?

o Would working with others eg Development banks commercial banks to align grants with loans be an alternative model to direct grant allocation?

Is the relevant Australian embassy or high commission in a position to support this model?

o o What brokers and service providers can enable the above?
16 Inquiry into the strategic effectiveness and outcomes of Australia's aid program in the Indo-Pacific and its role insupporting Australia’s regional interestsSubmission 43 ▪ Execution and approach to market (part of the BPP or alternative) - to build a high value pipeline and ultimately formalized group of high value, strategic private sector partners, the following points are key: o Approach the market in a clear, purposeful and systematic way.
o Engage through peak bodies and industry groups such as the Chamber of Commerce to refine proposed strategy and value propositions in each market/country.

o Be selective on sectors and businesses.

Invest in strategy and approach and target the partners most likely to bring value.

Clarify the offering and plan the approach to market.

o Execute the engagement process in-country involving CEOs, CFOs and key executives in a business-like way to create trust and secure interest.
o Seek interest from businesses to identify high value, scalable business ideas, and be clear on process, timeframes, partnership/transaction models.

o Use brokers to facilitate.

Ensure brokers are experts capable of understanding and translating the language and operating cultures from both business and the development sector.

Brokers support businesses to comply with measurement, accountability and safeguarding standards.
o Ensure Australian representatives in country and those in Australia are aligned and ensure support to the relevant consulate is in place to execute the above.

17 Inquiry into the strategic effectiveness and outcomes of Australia's aid program in the Indo-Pacific and its role insupporting Australia’s regional interestsSubmission 43