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Can Japan Jump-Start Growth By Re-Engaging In Africa?

Dr. Harry G. Broadman

(Forbes) – Virtually everywhere you turn across the African continent, there is a significant Japanese presence. Might these be investments by Hitachi for electronics production facilities? By Sumitomo for banking networks? By Asahi for breweries? Or by Komatsu for equipment assembly plants? No; they are the legions of Japanese automobiles driven by Africans in their rapidly growing megacities as the continent’s urbanization accelerates. As China and India increasingly shape the Asian footprint of business investment in Africa—exploiting precious ‘first mover’ advantages along the way—Japan remains in the backseat. It wasn’t always this way.

With the 1993 launch of the Tokyo International Conference on African Development (TICAD), Japan was the first large Asian country out of the gate to recognize the importance of African-Asian economic relations. Held every five years since then (until 2013, when it changed frequency to every three years), it was only in 2000, when China commenced its triennial Forum on China-Africa Cooperation (FOCAC), that others in the region began to catch on to TICAD’s early recognition of the promise African economic development held for Asia’s own growth prospects. India soon followed China’s footsteps with its first India-Africa Business Forum Summit in 2010, the third of which was held last month in Delhi. Today, both the China and India summits are “must-attend” events by African political and business leaders, and participation is extensive. Little did I know when my book,Africa’s Silk Road, was published in 2007 that commerce between these Asian giants and the continent of Africa would take on such proportions!

While Japan’s TICAD process continues—the next meeting will take place in Kenya in 2016, which actually will be the first TICAD Summit ever held in Africa—Japanese business leaders, eager to get in on the African game, have started to persuade Tokyo to pick up the pace. Thus it was little surprise that just this August an African-Japan Business Summit, the second of its kind, took place in Addis Ababa, Ethiopia. While a reasonable number of African officials attended, because it was not organized by the Japanese authorities themselves—rather the conference was contracted out to, and led by, an independent African-based magazine publisher and event organizer—it did not convey to Africans the genuine “buy-in” on the Japanese side that the Chinese and Indians have been so effective in doing.

Of course the real story about the nature of the pace and position of each player in the African-Asian economic race lies less in how many such gatherings take place or who attends them, and more in what is the level of real cross-border commerce and resource flows taking place. Here, Japan has significantly fallen behind the pack. Whereas previously Japan was the largest Asian economic partner in Africa, by 2000 China had taken over the lead.

To this end, Japan began to pick up the pace in 2013, when Tokyo made significant headlines with Prime Minister Abe’s announcement that Japan was pledging U.S. $32 billion to be spent on development projects in Africa over the subsequent five-year period. Should this be realized by 2018, it would be a significant achievement for Tokyo inasmuch as Japan’s cumulative foreign direct investment in Africa was U.S. $10.5 billion in 2014, up from U.S. $758 million in 2000. While accurate data to assess the level of how much spending has actually taken place since then are virtually impossible to obtain, observations on the ground in Africa suggest there has been only a very modest amounts of resources deployed. Even so it is still much less than China, which is believed to have invested about U.S. $75 billion in Africa between 2000 and 2011.

Then in 2014, Abe visited Cote d’Ivoire, Ethiopia, and Mozambique—the first trip to Africa since 2005 by a Japanese leader (and the first such visit to a francophone West African country). In contrast, China’s leaders have been travelling regularly to many African states for much of the last decade. Abe proclaimed that Japan views Africa “no longer as an aid recipient but rather a partner for growth” and billed his 2014 trip as “business diplomacy”.

To date, however, the majority of Japan’s resource flows to Africa continue to be focused on development assistance rather than on commercial investment by Japan’s private sector. For example, during his visit to Mozambique, Abe announced a plan to provide about U.S. $570 million in official development assistance until 2017 for the development of the Nacala corridor region that lies in the country’s northern coastal area. The project is indeed an important one for Mozambique’s development and should not be downplayed at all. But it is illustrative of Japan maintaining a traditional aid-for-Africa approach rather than a modern one.

China and India, on the other hand, have shifted significantly away from development assistance as the focus of their involvement in Africa; it had been the mainstay of their approach going back for many decades—indeed far longer than most observers realize—and up to the early 2000s. Beyond their sizeable investments in Africa’s natural resource development, they have increasingly concentrated on commercially-related activities in the construction of roads, railways, harbors and other facets of infrastructure, as well as in finance, retailing, education and medicine.

So what explains Japan’s tepid involvement in Africa?

Over much of the past decade and a half one reason can be found in Japan’s unduly inward focus as a result of the stagnation of its domestic economy. Why “unduly”? Because when economic policymakers keen on renewing or jump-starting growth do not find the conditions at home ripe for such an outcome, the best policy stance is to not retrench but rather to expand abroad and tap into fast growing markets.

It is particularly poignant in this particular case because it was precisely over the last decade and a half when much of Africa’s growth rates accelerated to new highs: average annual GDP growth in sub-Saharan Africa was greater than 5 percent over this period. Even during the depths of the global financial crisis in recent years, average growth on the continent revealed that in the face of those shocks Africa was perhaps the most resilient region of the entire world. Such has been the pull of Africa that cumulative foreign direct investment inflows into sub-Saharan Africa from everywhere else in the world quadrupled since 2000 and stood at U.S. $470 billion in 2014.

Today, Japan has found a new reason to largely stand on Africa’s sidelines. With the dramatic softness in the prices of oil and natural gas as well as in the prices of non-oil minerals and other commodities, investment in these sectors does not look terribly appealing—anywhere in the world, let alone in Africa, where declining resource prices have begun to slow economic growth.

But Tokyo may well be taking too myopic a stance here. While lower prices are driven in part by several supply-side factors, such as new North American oil and gas coming on stream and Saudi Arabia’s strategy of maintaining its large scale production flows, there is little question that a key element to the story is decreasing demand in China, owing to the fact that its own economy is decelerating. As a consequence, there are increasing reports from the field that Chinese investment in Africa has begun to stall (although systematic data assessing this phenomenon are lacking).

If true, does this not actually present a potential opportunity for the Japanese to now ‘raise their game’ on the continent, taking advantage of China’s misfortunes? Japan would certainly benefit from increased access to African oil. And in the case of non-oil minerals, investing in Africa would enhance the diversification of Japan’s supply; for example, about three-fourths of Japan’s copper supplies currently are imported from Latin America.

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