With much fanfare, Prime Minister Scott Morrison announced on 8 November the establishment of a new facility to help fund infrastructure in the Pacific. But a much more effective solution is available.

While the initiative is sensible in intention, it essentially does what all Australian governments have done with the Pacific: it treats the region as if the private sector can’t, or won’t, assist. It’s as if the public sector is the only solution to infrastructure needs in the Pacific.

However, as I’ve argued before, we need to remember, among other things, the size of the pool of private-sector capital that’s ready, willing and able to invest in regional infrastructure. Specifically, the Australian institutional superannuation market is very large, at around $2.5 trillion.

As investors begin to appreciate the benefits of infrastructure investment, the search for ‘good’ infrastructure projects is, along with other factors, pushing new transaction yields lower and lower around the world.

However, despite the demand for infrastructure projects by the large Australian superannuation sector, virtually no institutional investor is looking to the Pacific for infrastructure investment opportunities. In many ways, the Pacific constitutes an investment vacuum, which institutional investors must traverse as they seek infrastructure opportunities elsewhere. The primary reason for their lack of interest remains market failures, of various forms.

These market failures are connected with the three main risks for investing in a foreign infrastructure project:

• Currency risk—A lender, in this case the private sector, needs to obtain regular payments in the currency that funded the investment—that is, Australian dollars. In many cases, selling Pacific currencies and buying Australian dollars is impossible in the short term, although medium-term US dollar flows allow some sporadic hedging. This is an example of a market failure, which might be addressed by the public sector.
• Sovereign default risk—Many infrastructure projects in Pacific nations link back to the state. Reference to a recent US dollar issue by one Pacific country might, in some cases, establish how much it would cost to hedge this risk through the credit default swap market. Even though hedging may emerge, the market depth is still woefully inadequate. This is another market failure, which might be addressed by the public sector.
• Project risk—These are the risks associated with the operational aspects of a project, which wouldn’t be borne by the public sector, but by the institution that funded the project.

Levelling the infrastructure investment playing field by introducing risk-sharing arrangements that address areas of market failure should significantly increase the private sector’s interest, and involvement, in the Pacific.

By insuring itself against currency and sovereign default risk, and charging subsidised premiums to institutional investors, the Australian government could provide a new, and much improved, solution to the problem of funding Pacific infrastructure that involves both the public and private sectors.

Instead of lending money, the Commonwealth would subsidise insurance for hedging against the main risks of investing in the Pacific, where evidence of market failure exists. Accordingly, the insurance provided by the Commonwealth could form the basis for large private sector involvement in Pacific infrastructure.

Instead of putting $2 billion of public sector money directly to work, as recently proposed by the prime minister, it would be better to use the suggested insurance technique to vastly expand the amount available to fund Pacific infrastructure—possibly allowing up to 10 times more investment.

Importantly, such an approach may begin to build bridges between the infrastructure needs in the Pacific, on the one hand, and the large institutional Australian superannuation sector, on the other.

While most large Australian institutional investors don’t know much about the Pacific infrastructure sector, the suggested approach may begin to build that all-important regional investment knowledge base.

The scale of Pacific infrastructure development required is large. But the suggested structure may provide something that’s closer to an adequate amount of funding over the medium term. By contrast, the government’s proposed approach probably won’t be adequate to address the medium-term infrastructure funding needs in the Pacific.

Alan McCormack’s recent Strategist contribution highlighted an approach used by other countries for engaging with the private sector under an outward foreign direct investment model. There are many things that can, and should, be learned from these models.

However, the specific risks I’ve noted with reference to market failures—namely, insuring against sovereign default risk and currency risk—need addressing before institutional investors can begin the task of adequately considering infrastructure investment in the Pacific.

Addressing these risks will help provide institutional investors with an adequate initial investment experience in the Pacific. That initial experience should then help ensure that, over the medium term, they’ll continue to provide infrastructure capital to the Pacific.

Editors’ note: Many of the issues raised in this post will be examined in greater detail in an ASPI report by Anthony Bergin and Rebecca Moore on Australian business and the Pacific to be released on 28 November.

Savour that rare headline. The Pacific wins over political argy-bargy.

Australia has listened to the South Pacific and done something to discomfit the ‘junior’ member of the governing coalition, the National Party.

Another way to render the headline would be: ‘Foreign policy trumps farmers’. It’s a catchy line but gives the wrong slant, because Oz farmers are going to do well out of the deal—although not in the way some in the Nationals were advocating.

The South Pacific win was announced on Thursday by the prime minister and foreign minister with a statement on the expansion of the Pacific Labour Scheme and the establishment of an ‘office of the Pacific’.

Currently, six Pacific countries send workers to Australia under the Pacific Labour Scheme (Kiribati, Nauru, Samoa, Solomon Islands, Tuvalu and Vanuatu) to do seasonal work. Now Australia will roll out the scheme to all island countries. Tonga will be the next to participate. And the government has promised ‘a pathway for Papua New Guinea to join the scheme’. PNG has been the absent giant—the elephant outside the room—in the Pacific labour program. Australia is edging the door open to allow PNG to enter the room.

The cap will be lifted so Pacific workers can do non-seasonal work for up to three years.

The push by the Nationals to break open the Pacific scheme and bring in Asian workers instead has been blunted. The statement says the government ‘will continue to prioritise the Pacific to help fill jobs where Australian workers are not able to do so’.

To get more whole-of-government Pacific policy, a new ‘office of the Pacific’ will be established in the Department of Foreign Affairs and Trade. It will second people from the Australian Federal Police and the Defence, Home Affairs and Attorney-General’s departments. It will operate as a one-stop shop in dealing with the Pacific Islands Forum and ‘better coordinate our efforts to develop even closer ties across the region’.

To use a much-abused cliché, this is win–win. Australian need matches South Pacific need. We need seasonal workers and the Pacific has a lot of workers to send.

Getting the politics to align with the policy is always problematic. Acknowledge the feat when it’s achieved. Governments often get little credit for what they do, and no credit for what they don’t do.

So give a tick to the Morrison government for a logical extension of a good policy that’s vital to the South Pacific. The invisible political medal of honour—fine outcome achieved, lousy outcome avoided—goes to the new foreign minister, Marise Payne, her predecessor Julie Bishop, and the former minister for international development and the Pacific, Concetta Fierravanti-Wells.

Also, confer the pundit prize for tough work in the policy trenches on Stephen Howes and his team at the Australian National University’s Development Policy Centre in arguing the case for the Pacific scheme rather than a new agricultural visa for Asian workers.

Oz farmers say they can’t get enough seasonal workers; the ANU centre offered the elegant response—don’t break the Pacific worker scheme, just open it to the whole of the South Pacific and use the large pool of available workers.

Worker mobility from the islands to Australia is a slowly evolving policy story, inching in the right direction. The gentle dance has well-established steps to a slow tempo: the islands push constantly, New Zealand eventually shifts a little, then Australia slowly follows. Restart the music and begin again.

The refusal of Australia and New Zealand to negotiate on labour mobility was a key reason it took nearly a decade to get the free trade treaty between Australia, New Zealand and the islands—the Pacific Agreement on Closer Economic Relations (PACER) Plus. The lack of a labour mobility chapter tells you most of what you need to know about the refusal of PNG and Fiji to sign PACER Plus.

As Matthew Dornan noted when the trade marathon staggered the last pace to the finish:

[T]he impacts of PACER Plus have been overstated by both advocates and critics. PACER Plus will not undermine export industries. But neither will it resolve the deep-seated development challenges in the region. Without strong labour mobility provisions, the impact of a PACER Plus agreement on Pacific island states is likely to be limited. There is not much to celebrate, beyond a deal being struck.

What Australia and New Zealand wouldn’t give at the multilateral trade treaty table, they are offering up bit by bit, bilaterally.

Australia might even be honouring its promise to listen to the South Pacific. Expanding the Pacific Labour Scheme to all the islands is Australia acting on what it hears.

To be kind to Canberra (and confound the headline) this is politics operating properly, delivering good long-term policy to serve Australia’s domestic needs and regional interests.

How could it be that many foreigners simultaneously love American films, music and fashion, yet, as Peter van Ham writes, they judge Washington so harshly as to say the US ‘got what it deserved on 9/11’?

Or that many people in Asia and the Pacific perceive Australia as rich, racist, transactional, subservient (to the US), and arrogant and exploitative? How to reconcile such perceptions with Australia’s recurring appearance near the top rankings in global surveys of ‘soft power’ attraction?

The ambiguity and contradictions associated with such questions have long muddied perceptions of soft power and its place alongside hard military and economic capacity in national policy. Ideally all forms of influence and force should be work together. But that’s easier said than done in the realm of ideas and perception.

Coming to terms with ambiguity and apparent contradictions should therefore be a cardinal marker of progress for the government’s soft power review. Despite the velvety quality of soft power jargon, the policy grist is anything but squidgy, especially since the relative benignity of the post-Cold War years has given way to international disorder.

As Allan Gyngell comments, Australian foreign policy has never before had to deal with a world like the current one. So the nation’s embrace of soft power strategy needs to be targeted, authentic and contextually appropriate. What’s required is not a universal franchise but rather soft power ‘with Australian characteristics’.

A starting point is to set aside the easy boasting rights that seem to accrue from Australia’s performance in global soft power rankings such as the annual Soft Power 30. Typically these branding-derived surveys highlight the status of advanced liberal economies engaged in peaceful competition with one another. But the world—and the Indo-Pacific region in particular—comprises a much greater diversity of post-industrial, industrial and agrarian or pre-industrial societies. To say nothing of the region’s marked disparities of power relations, demography, ideology, religion and cultural heritage.

Australian policy needs to differentiate clearly between manifestations of non-military power that sit within the purview of government control or influence and those beyond its reach that produce serendipitous results. It also needs to commit to the exercise of normative influence, not just the nation’s affective outreach (attraction). Many activities of culture and exchange contribute to the quality of relationships and the attraction of Australia internationally. But the emerging strategic environment demands more.

The miscellany of issues to be addressed could begin with:

• ideational challenges across the Indo-Pacific that have implications for security, trade, multilateralism and the moral authority of secular democracy
• the relative decline in Australia’s political influence and reputation in the Pacific
• Australia’s uneven visibility and reputation in Asia resulting from what John McCarthy calls ‘a challenge of cultural divides’.

So there’s a need to unbundle assumptions about ‘attraction’ and its relationship with power, and also to look beyond the generalised soft power rubric for more nuanced analysis. People may be drawn to Australia for different reasons but attraction does not necessarily translate to respect or political influence.

Peter Berglez differentiates between global culture and a global outlook. Global culture develops through the spreading of certain values. These may be embedded in music, fashion and transnational commercial brands. But that’s not the same thing as the development of a global outlook, which Berglez describes as a ‘distinctive mode of communication’. The fact that an Australian film or television program finds favour with international audiences does not mean those audiences will extend their approval to Australia’s values, mores or conduct.

Shin-wha Lee tackles the problem by discussing affective, normative and cognitive forms of power. Lee argues that affective power (attraction) arises when other nations like or dislike a state, regardless of its political, economic, and military strengths and weaknesses. Normative power depends on whether other countries regard a state’s policy and international role as being legitimate and justifiable; and cognitive power relates to the pragmatic evaluation other nations make of a state’s image and standing in international affairs.

Australia’s relationship with Pacific island nations provides a local example. This country remains the single largest aid donor to the region, a go-to provider of emergency assistance, and a self-appointed security guarantor. Yet Australia’s political influence and dominance in the South Pacific has been declining.

There are multiple factors to consider. But it is reasonable to speculate that Pacific nations adopt a pragmatic acceptance of Australia’s regional status (this country’s cognitive power) while being at once attracted to and/or repelled by certain manifestations of Australian policies, attitudes and conduct (affective power). This may compromise Australia’s capacity to assist peaceful region-building or exert influence over standards of regional governance and development (normative power).

Van Ham writes convincingly of ‘discursive’ rather than ‘soft’ power. Ultimately, the observer rather than the agent of Australian soft power determines who and what is attractive or credible. So he emphasises the importance of agenda-setting, the framing of issues and advocacy of norms, in the contest of ideas. Key policy instruments include media, public diplomacy and place (or nation) branding.

Australia needs to develop a multi-faceted and purposeful strategy if it is to address the apparent ambiguities and contradictions apparent in its status as a secular democracy in the Indo-Pacific. In a second post I shall sketch what a soft power strategy with Australian characteristics could include.

Each year the World Bank tackles critical development issues in its world development report. For 2016, it chose the topic of ‘digital dividends’. The researchers concluded that digital technologies have spread rapidly in much of the world, but that the dividends from these technologies—broader socioeconomic benefits—have lagged behind.

Their findings apply to the South Pacific as much as any other region. If you put the metrics of the UN’s human development index alongside the scores of ASPI’s Asia–Pacific cyber maturity report, Pacific island states all end up in the bottom half. Vanuatu, for example, ranks 134th on the human development index and scores only 34.2 out of 100 in cyber maturity. Other South Pacific countries show similar correlations.

It was therefore symbolic that Vanuatu hosted the 9th Asia–Pacific Regional Internet Governance Forum in August. Under the theme ‘empowering communities in the Asia Pacific to build an affordable, inclusive, open and secure internet’, more than 300 people attended some 35 workshops and heard addresses from Vanuatu’s prime minister, Charlot Salwai; Samoa’s deputy communications minister, Lealailepule Rimoni Aiafi; and the ‘father of the internet’, Vint Cerf.

Cerf shared his views as an internet entrepreneur—he’s also Google’s ‘Chief Internet Evangelist’ looking at future tech development and its commercial value—on connectivity in developing regions. The availability of submarine cable connectivity in the Pacific (see a global map of locations, owners and operators here) is crucial, but establishing a viable business case is even more important.

And here some wicked problems confront the countries of the South Pacific: challenging geographic conditions, small consumer bases, limited human resources to sustain modern IT infrastructure, and a social hesitance to embrace ICT-enabled health care, education and services.

Stemming from the 2005 World Summit on the Information Society, internet governance forums are held across the globe. They are the place for bottom-up and participatory policy dialogue on internet-related issues, where stakeholders from government, civil society, industry, the technical community and academia come together in a neutral environment.

This dialogue model, which relies on reaching a ‘rough consensus’, has a strong track record in the internet community. It is, for example, the way global internet standards are adopted and IP addresses and domain names are managed.

But the dynamics have changed since the 2005 summit. Other actors and entities have stepped in, and opinions on the future of the internet have started diverging. In Vanuatu, Samoa’s deputy communications minister warned of the need to protect local culture, religion and social cohesion in the Pacific islands. He concluded by pleading for vigilant control of the internet and online content by the government, a view shared by a number of countries in Australia’s neighbourhood.

In many countries, the internet was introduced by telecommunications companies—often state-owned. Regional cooperation, infrastructure investment and standard-setting among telcos and postal services matured under the auspices of the International Telecommunications Union (ITU), the UN’s agency for information and communication technologies.

The ITU will hold its four-yearly plenipotentiary meeting in November, at which member states will again discuss proposals for the ITU’s role in governing the internet. These include suggestions that the ITU set benchmarks for cybersecurity, consider introducing a treaty guiding cybersecurity behaviour, and take the lead on international public policy issues relating to the internet.

While part of the debate is ideological and based on the belief that the internet shouldn’t be controlled by any one group (including a group of states), another factor is that the network, infrastructure and applications have matured through private initiatives, entrepreneurship, revolutionary research and community-driven collaborative work. For these reasons, many believe the ITU is fundamentally ill-suited to playing a central role in internet governance.

Australia is standing for re-election to the ITU Council. If the bid is successful, there will be a special role for Australia’s cyber diplomats. Australia’s international cyber engagement strategy is ambitious on internet governance and the use of ICT enablers for development. It aims to:

• ‘advocate for a multi-stakeholder approach … that is inclusive, consensus-based, transparent and accountable’, while ‘[opposing] efforts to bring the management of the Internet under government control’
• ‘[i]mprove connectivity and access to the Internet across the Indo-Pacific … [encouraging] the use of resilient development-enabling technologies for e‑governance and the digital delivery of services’.

While these are lofty goals, voting numbers at the ITU seem be tending towards a state-centric approach favoured by developing and industrialising states, and—as the World Bank report shows—resolving development issues requires more than ICT investment.

Deliberations in Vanuatu showed the obvious—and widening—divide between connected and non-connected communities. It will be difficult to bridge that divide when the economic benefits of digitalisation are not evident and when local constituents are hesitant to embrace the digital era.

And there’s the geopolitical divide that is reaching a tipping point, between those who believe in a multi-stakeholder, community-driven governance model and those who are pushing for a treaty-based regime driven by a ‘state-first’ approach.

Australia and its partners must either brace for a new era of state-centric internet governance where principles of an open, free and secure internet will be frequently dismissed, and where the digital divide will widen, or be prepared to invest more in the human, financial and political capital that will further our international cyber agenda.

To serve Australia’s interests, influence and values in the Asia–Pacific, we need a new entity, an Australian International Broadcasting Corporation.

The review of Australia’s media reach in the Asia–Pacific (submissions close at 5 pm AEST on 3 August) should recommend the creation of the AIBC, to resolve the domestic–international tensions in the charter of the Australian Broadcasting Corporation.

The charter is at the heart of the 1983 Act that remade the Australian Broadcasting Commission as the Australian Broadcasting Corporation. In the charter’s foundational clause, the law gives equal weight to the ABC’s domestic and international responsibilities:

(1)  The functions of the Corporation are:

(a) to provide within Australia innovative and comprehensive broadcasting services of a high standard as part of the Australian broadcasting system consisting of national, commercial and community sectors and, without limiting the generality of the foregoing, to provide:

(i) broadcasting programs that contribute to a sense of national identity and inform and entertain, and reflect the cultural diversity of, the Australian community; and

(ii) broadcasting programs of an educational nature;

(b) to transmit to countries outside Australia broadcasting programs of news, current affairs, entertainment and cultural enrichment that will:

(i) encourage awareness of Australia and an international understanding of Australian attitudes on world affairs; and

(ii) enable Australian citizens living or travelling outside Australia to obtain information about Australian affairs and Australian attitudes on world affairs …

In recent decades, the responsibility to transmit outside Australia has been a fading function.

As spending on international audiences waned, the overseas service became mostly a rebroadcast of domestic fare. The only bit of its international charter Aunty is gesturing towards is the demand to serve Australians beyond our shores.

The rebroadcast habit is maintained in this month’s relaunch of the Asia–Pacific TV service, rebranded as ABC Australia. Here’s how the ABC described the service:

ABC Australia will deliver distinctive content to culturally and linguistically diverse international audiences and to Australian expatriates, encouraging international awareness and understanding of Australia and Australian attitudes.

Fine words, but the ABC’s reach falls well short of its grasp. The programming will offer lots of Oz attitudes, with rebroadcasts of ABC news programs, ‘slice of home’ shows and Australian rules football.

For an expat, an excellent menu. But for 40 countries of the Asia–Pacific—those ‘culturally and linguistically diverse international audiences’—this is about Oz for Oz.

Australian content is necessary but not sufficient for an Asia–Pacific service. Oz content needs to be the start. At the moment it’s the finish.

To do more will need cash and commitment from Canberra—and the AIBC to deliver the focus.

The aim is to talk with neighbours, not merely broadcast to neighbours; that supposes media conversation of many types, not just an oration from Oz.

Atop the excellent foundation of good ABC shows, the AIBC must offer reporting that matters in the lives of Lombok or Lae or Lautoka.

The AIBC should be born of the ABC, reflect ABC traditions and standards and draw on ABC resources—but the AIBC must have its own corporate identity as an expression of its distinct, international purpose.

The AIBC would have its own chair and board and its own separate budget.

The deputy chair of the ABC and the ABC managing director should be on the board of the AIBC, but so should the head of the Special Broadcasting Service.

Replicate the successful ABC model with a staff-elected board member, and then gather board members with international experience from business, diplomacy, aid and one of the major generators of Oz soft power in the years ahead, the universities.

Under its Act, the ABC can establish subsidiary companies, so in theory no new legislation is required.

But in line with my argument that Canberra must pay for what Canberra wants, the AIBC must have its own budget allocation. Don’t leave it to the ABC. Aunty can’t pay for what Australian foreign policy demands.

The AIBC must have a separate identity so the international effort doesn’t get drawn into the usual domestic fights that are a natural part of the ABC’s existence. Yet like the ABC, the AIBC must be a fully funded, independent public broadcaster—not a state broadcaster.

Give the AIBC the right to seek partners where it sees a natural fit in such realms as development aid, philanthropy and universities—its core, though, is as a public broadcaster. Don’t fall into the trap of thinking Australia can have an important foreign policy instrument on the cheap.

If the AIBC is going to have heft, it must be richly funded by Canberra; at least rich in the way we mere media types think (the hack version of cornucopia is Defence’s coffee money or a few days of the aid budget).

The ABC doesn’t have a lazy $30–50 million to redirect to foreign policy. Canberra has to see the need and fund the instrument. The ABC is the model, but a specific instrument must be created: the Australian International Broadcasting Corporation.