Private sector is the new approach to foreign aid

THE private sector, innovation and the Asia-Pacific region will be the main focus of Foreign Minister Julie Bishop's "new approach" to foreign aid.

Ms Bishop announced the policy on Wednesday during a speech at the National Press Club, with the focus on economic partnerships, rather than a "donor-recipient" top-down approach to aid.

The changes will come in the form of a new innovation hub at the Department of Foreign Affairs and Trade in Canberra.

But coming after a cut of $7.6 billion down to $5 billion - more than a 50% reduction - to growth in Australia's foreign aid budget in May, the new approach has already been undermined, critics say.

Mr Bishop said the new policy would look at ways to "engage the private sector and promote private sector growth", rather than simply handing out grants to foreign nations.

"We must direct our aid to where we can make the biggest difference and align it with our national interest," she said.

"We will harness the private sector in those countries, so that Australia's aid program promotes the major driver of poverty reduction - economic growth."

Part of the new "paradigm" Ms Bishop announced will be an "aid for trade" concept where aid will be given to potential corporate partners.

However, these changes would be matched by "performance objectives" to ensure aid is actually delivering the results demanded.

The Greens Senator Lee Rhiannon said the change in direction of Australia's foreign aid was a "corporatisation" and opens the door to corruption of the system.

"Aid for trade and massive spending on large scale infrastructure projects represents a far reaching realignment of our aid program towards Australia's interests over that of aid recipient countries and communities," she said.

"Most of the nations that receive our aid do not have a strong private sector. It will be foreign multinationals or Australian companies that will pick up the infrastructure contracts."

Of the foreign aid budget, 90% will go mainly towards foreign aid in the Indo-Pacific region, where Ms Bishop said "we can make the most difference".

There will also be a renewed focus on women's empowerment and $140 million over four years to "trial and test innovation in development assistance".

Oxfam tentatively welcomed Ms Bishop's policy change, but chief executive Dr Helen Szoke said more privatisation of aid must still be focused on "real change".

"It is disappointing that due to the $7.6 billion cut to Australian aid announced in the May budget there will however be significantly less aid to deliver," she said.

"The new aid paradigm can be positive if implemented with poor people at its heart but if we are to reverse trends like just one per cent of the global population owning almost half the world's wealth; and one in eight people experiencing hunger every day, then we must stop cutting aid," Dr Szoke said.

Topics:  foreign aid julie bishop

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