The Rise of Asia’s Southern Providers in East Asia

February 12, 2014

By Anthea Mulakala

Today, there’s no doubt that the global aid landscape is changing. Aid from traditional donors to Asia is declining, with total global aid falling by 6 percent since its high point in 2010. Meanwhile, the volume of development cooperation from non-OECD Development Assistance Committee (DAC) members is increasing. Non-DAC contributions could account for at least $50 billion in aid by 2025. Asian providers like India, China, Indonesia, and Thailand are the most visible in East Asia. These rising development actors are changing the nature of international cooperation relationships. Typically referring to themselves as South-South cooperation partners or providers, rather than as “donors,” most eschew traditional, vertical donor-recipient relationships in favour of horizontal partnerships.

Infrastructure projects predominate among Asian-Southern-supported initiatives in East Asia. Photo/Karl Grobl

In 2013, The Asia Foundation conducted research on the changing aid landscape in eight countries (Cambodia, Indonesia, Laos, Mongolia, Myanmar, Philippines, Timor-Leste, Vietnam) in East Asia to determine the major trends of non-DAC providers. Following are some of the main findings, which I will be presenting on February 13-14 at the 2014 Australasian Aid and International Development Policy Workshop, hosted by the Development Policy Centre at Australian National University and The Asia Foundation.

China is the main player

In the eight East Asian countries studied, China is by far the dominant Southern provider. China’s footprint in the region is primarily related to infrastructure development projects largely financed through concessional loans, including: transport (Cambodia, Mongolia, Philippines, Vietnam), telecommunications (Laos, Myanmar), and power (Myanmar). Chinese grant assistance or technical cooperation in East Asia has gone toward agriculture, education, culture, and disaster relief projects. Apart from China, India and Thailand also have a consistent presence as development partners in the region.

Principles trump sectoral priorities

Asian Southern providers operate on the basis of certain principles – notably, to assess and respond to demand, and to deliver with speed. As a result, non-DAC providers often do not define sectoral or country priorities, but instead allocate resources in an ad hoc manner, in response to bilateral relationships and requests.

Nevertheless, infrastructure projects still predominate among Asian-Southern-supported initiatives in the countries studied. These are generally financed with lines of credit or concessional loans. For example, India has expanded its lines-of-credit modality to support power and water infrastructure projects. In 2012, Cambodian Prime Minister Hun Sen requested a $57 million concessional loan from India for two infrastructural development projects.

MDGs are less relevant

The Millennium Development Goals (MDGs) and an explicit focus on poverty and social justice do not dominate development cooperation objectives and outcomes among bilateral Asian Southern providers. While providers certainly target poor countries, their demand-driven, primarily economic development programs may not always deliver pro-poor outcomes.

However, there are some notable exceptions. China in particular has taken a stronger interest in livelihood initiatives. This arises in part from the recognition that while large-scale prestige projects may please partner governments, meeting the needs of people at the local level is also important. To name just a few examples, in Mongolia, China has set up Chinese language schools as well as a Confucian Centre. In Cambodia, Thailand has granted several million dollars for health and educational programs.

Context matters

In the East Asia region, geostrategic interests play out in a number of countries as dominant powers (DAC or non-DAC) compete for influence, using a variety of soft and hard power approaches. Myanmar’s geostrategic importance – whether in its natural resources, proximity to large regional powers, or assumption of the ASEAN chair this year – has attracted political and economic investments from a wide range of partners. India considers Myanmar as an important “land-bridge” on its path to the consolidating ties with Southeast and East Asia, and countering the influence of China.

Regional forums provide opportunities

Research showed little evidence that Asian Southern providers actively engage in traditional aid coordination and dialogue. Instead, they are more likely to participate in government-led meetings, and prefer to coordinate their assistance directly with partner governments. As a result, data flows about development cooperation – which currently rely on the reporting from DAC donors – paint a partial or inaccurate picture, and may impact the quality of global commitments and negotiations about development cooperation.

While Asian Southern providers may be less engaged in traditional donor coordination mechanisms, they are active in other types of coordination efforts that speak more to their economic, political, and security needs and priorities. These include: ASEAN Plus 3, Greater Mekong Sub Region, Greater Tumen Initiative, BRICS, OPEC Fund for International Development (OFID), and the Bangladesh-China-India-Myanmar (BCIM) group.

More actors, more choices

In East Asia, the changing aid landscape provides recipient countries with more choices in funding sources and instruments, particularly in the area of lending. Partner countries are increasingly active in choosing projects and partners. Asian providers are popular with partner governments because they deliver with speed, impose few conditions, do not interfere in government policy, and focus on infrastructure and growth sectors.

Within this environment, multilateral (and bilateral) lending institutions, such as the World Bank and the Asian Development Bank, may face increasing competition from non-DAC financial institutions with fewer loan requirements, lower interest rates, and quicker financing. An increase in available funding sources may diminish traditional donors’ ability to effectively leverage aid as an incentive for good behavior, or to tie the provision of aid to certain conditions.

Transparency and data challenges: more confusing than opaque

Transparency and availability of aid data on Southern providers in East Asia are inconsistent, and in some cases, this is because the partner country does not release details on all forms of its assistance. In other cases, the provider country may not provide figures. While most Asian Southern providers do not appear to have readily accessible information about their development cooperation, this practice does not appear to stem from secrecy or a willed lack of transparency.

Domestic public perceptions are a concern for Southern providers. China is mindful of critical domestic public opinion in a Chinese population still struggling with its own development challenges. The 2011 (and forthcoming 2014) “White Papers on Foreign Aid” (Government of China 2011) demonstrate China’s effort to articulate its positions and activities to both external and domestic audiences. India faces similar challenges.

How can traditional donors work within this changing environment?

Our report also offers a few practical recommendations for DAC donors on potential modalities for more effective collaboration with Asian Southern providers. One of the main findings of the report has been the complexity and interconnectedness of the instruments that Asian Southern providers use to support recipient countries. Public and private instruments are often blended. There may be opportunities for DAC donors to identify their own blended instruments in providing more responsive and creative financing tools. In an era of more choice, traditional donors can provide technical assistance and capacity-building to partner national government institutions to make more informed decisions about their development investing and infrastructure. Traditional donors should also stay the course in middle-income countries in East Asia. Regional prosperity and inclusive growth depends on the development trajectory of East Asia’s middle-income countries. Asian Southern providers recognize this and continue to be active in the arena – influencing, investing, and shaping with soft power.

Anthea Mulakala is The Asia Foundation’s director for International Development Cooperation, based in Malaysia. She can be reached at [email protected]. The views and opinions expressed here are those of the individual author and not those of The Asia Foundation.

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