The Australian Government has announced plans to set up an infrastructure bank as part of a A$3 billion suite of measures aimed at countering China’s influence in the southwest Pacific and lifting its own engagement in the region. Regional analysts say the funds need to go to Micro, Small to Medium Enterprises (MSMEs), as well as SMEs, and for small projects in remote areas.

Australian Prime Minister Scott Morrison

The centrepiece of the Morrison government’s package is a $A2 billion (K4.67 billion) financial facility, called the Infrastructure Financing Facility for the Pacific (AIFFP).

Prime Minister Scott Morrison said it would offer loans and grants for transport, telecommunications, energy and water projects. The Export Finance Insurance Corporation (EFIC), Australia’s export credit agency will also get an extra A$1 billion (K2.33 billion) to encourage more Australian firms to invest in the Pacific.

… using local banks as that local vehicle, banks such as Bank South Pacific, ANZ/Kina, and the National MicroBank (NMB). ‘These local banks are fully engaged with Financial Literacy initiatives, which educate people how to bank and use money wisely. That’s probably the best way to minimise risk’.

To be known as the Australian Infrastructure Financing Facility for the Pacific, the package will be in addition to a Pacific funding plan announced in July by the US, Japan and Australia. Both are designed to take some of the air out of China’s US$1 trillion Belt and Road Initiative (BRI), which is gaining a Pacific foothold.

A first tranche of eligible projects under the trilateral arrangement is expected to be announced by the three countries at the Asia Pacific Economic Cooperation (APEC) Leaders Summit held later this week in Port Moresby.

New funding

Australia’s Assistant Minister for International Development and Aid, Anne Ruston, told the ABC the A$3 billion would not be funded by the aid budget. She denied it sets out to counter China’s growing influence, but admitted: ‘And yes, it is about regional security, it is about regional stability, it is about regional sovereignty.’

Two weeks before Morrison’s announcement, Australia’s Opposition leader, Bill Shorten announced a Labor government would set up a Pacific Bank, if elected next year.

‘My vision is for Australia to actively facilitate concessional loans and financing for investment in these vital, nation-building projects through a government-backed infrastructure investment bank.  Our neighbours in the Pacific are looking for partners to help them build infrastructure – and, as prime minister, I intend to make sure they look to Australia first,’ he told the Lowy Institute.

Shorten also denied the scheme is sets out to counter China’s growing influence but added the scheme will need to be carefully regulated.

Small business projects

Paul Barker, the Director of PNG’s Institute for National Affairs, told Business Advantage PNG funding should include helping reduce high production and particularly marketing costs for businesses in PNG, partly around critical infrastructure but also helping develop micro, small and medium enterprises, particularly in the agriculture sector.

‘To make it work, it requires sensible vehicles which can support innovation which generates jobs, and which can provide help to those SMEs and entrepreneurs needing to access capital.’

Barker suggests using local banks as that local vehicle, such as Bank South Pacific, ANZ, Kina, Westpac and the Nationwide MicroBank.

‘These local banks are fully engaged with financial literacy initiatives, which educate people how to bank and use money wisely. That’s probably the best way to minimise risk,’ he said.

Remote communities

Michael Shoebridge, Director at the Australian Strategic Policy Institute, has also welcomed the funding, especially for the Export Finance Insurance Corporation:

‘One hugely important if simple example is building small renewable power systems in remote island communities. Projects like this have foundered on the inability of small firms to obtain financing, owing both to their own small scale and to the perceived business risks of operating in the South Pacific.’

‘And yes, it is about regional security, it is about regional stability it is about regional sovereignty.’

The concept of a Pacific Infrastructure Bank is not new. It was first proposed in 2012 by former Labor Foreign and Trade Minister, Bob McMullan, during his subsequent work at the European Bank for Reconstruction and Development.

The concept was endorsed by the then World Bank’s Vice-President for East Asia and Pacific, Jim Adams: ‘..timely (for the Australian government) to consider a development finance company to support the development of long term finance in the Pacific. Perhaps jointly with New Zealand’.

Barker points out there was an agricultural innovation support scheme in the early 2000s.

‘But it was strangely dropped by Canberra, but not because it was a failure. Ironically, all it takes is for competition from China to revive the idea.’