Published daily by the Lowy Institute

Aid: investing in impact

DFAT’s innovationXchange has created momentum in public–private aid partnerships, but cannot fund long-term innovation.

Photo: DFAT/Flickr
Photo: DFAT/Flickr
Published 10 Aug 2018 

This article is based on episode 9 of the Good Will Hunters podcast with Giles Gunesekera, CEO of the Global Impact Initiative.

In March 2015, the Coalition committed $140 million over four years to an innovation hub within the Department of Foreign Affairs and Trade. The hub, known as innovationXchange, was established to enable more private-sector contributions to the Australian aid program, and has remained a pet project of Foreign Minister Julie Bishop in the years following.

Since 2015, Bishop has delivered three major speeches on the topic of innovation in foreign aid, and has strongly associated herself with the work of innovationXchange.

When lauching the hub, Bishop announced that partnerships with the private sector would be leveraged to enable greater financial efficiency in the aid sector. Cost was increasingly important amid cuts to the aid budget, and the aid program began partnering with organisations such as Coca-Cola to make use of their supply routes to remote villages in the Pacific.

InnovationXchange should assist in the development of innovative approaches to aid. But it shouldn’t aim to fund innovative projects in the long-term, given the enormous amount of private-sector capital available.

The nature of private-sector aid partnerships has continued to evolve: recently there has been increasing interest in impact investment in the not-for-profit sector.

Last week I sat down with Giles Gunesekera, CEO of the Global Impact Initiative (GII). Gunesekera’s organisation creates bespoke impact investments which use private-sector capital to fund innovative not-for-profit projects.

Guneskera reflected on the abundance of “lazy capital” in Australia, particularly in the superannuation market, and how this could be used to fund projects such as GII’s impact investment in women and girls.

The UN’s Sustainable Development Goals (SDGs) are often portrayed as the domain of the not-for-profit and philanthropic sectors. But the enormous amount of capital required to achieve the goals does not exist in those sectors.

GII is seeking the capital it needs to achieve the SDGs from the private sector. The organisation focuses on the effective use of that private-sector capital in partnership with not-for-profit organisations. 

Organisations such as the UN Global Compact have encouraged private-sector organisations to institutionalise the SDGs in their internal frameworks, and to explore ways to achieve the goals, including through partnerships with not-for-profit organisations.

The innovationXchange initiative was set up to bridge the gap between the private and not-for-profit sectors. However, it recently faced criticism for investing too little capital in too many organisations, thereby limiting the impact of their investments. The hub also faced questions on what qualifies as “innovation”.

My view is that innovationXchange has succeeded in creating greater momentum for private-sector partnerships with the aid program, and in providing encouragement for organisations considering impact investment. As momentum for private-sector investment continues to grow, it is vital that the Australian aid program continues to demonstrate an appetite for fostering innovation and entrepreneurship to improve the efficiency and agility of foreign aid.

The hub should assist in the development of innovative approaches to aid. But it shouldn’t aim to fund innovative projects in the long-term, given the enormous amount of private-sector capital available. Innovators that receive innovationXchange investment may scale their projects and receive investment from other organisations similar to GII or the Global Innovation Fund.

Impact investment and private-sector partnerships in the not-for-profit sector have demonstrated great success in recent years. The sector is undoubtedly aware of not only the importance of new sources of funding but also partnerships that go beyond financial collaboration.

On a global scale, organisations such as the Global Partnership for Effective Development Cooperation advocate for the importance of multi-stakeholder dialogue on aid and public–private cooperation. The UN Development Program Social Impact Fund fosters social impact investment across 170 countries, with great success evident at their recent Pacific Youth Leadership, Innovation and Finance Forum in China.

It is critical that positive effects at the community level remain at the forefront of all impact investment. In some instances, transitioning to impact investment from other forms of funding can result in a switch from grants to loans, among other variables. It is vital that communities remain involved in all stages of negotiation on impact investment – after all, impact investment is about creating greater opportunities for people.

You may also be interested in