Africa’s stealth investor steps up a gear

Japan’s investment in Africa has taken leaps and bounds over recent years as it sees the continent as a more viable market to tap into. Marcus Courage profiles the impact of contributions from the Asian nation. 

Typically conservative and discreet, Japan’s pursuit of strategic investment opportunities in Africa has largely passed under the radar, overshadowed by feverish speculation from Washington to Ouagadougou on the motives and style of its regional neighbour China. All that may be due to change however, with clear signals Japan is entering a new phase in its engagement with Africa, one characterised by much bolder commercial and geopolitical moves. Japanese Tobacco Inc (JTI) recently bid a reported $510 million for a 40% stake in Ethiopia’s monopoly tobacco company, reportedly double British American Tobacco’s $230m bid, demonstrating a new-found confidence, commitment and resolve by the Japanese private sector to out-compete established rivals and penetrate Africa’s consumer markets.

In contrast to other countries which have pursued high profile public diplomacy campaigns with big commitments on power and energy to secure access to African markets and compete for strategic investment opportunities, Japan has historically adopted a quieter stance, leveraging close ties between the Japanese State and the powerful Japanese trading companies which often pave the way commercially when entering new markets. The medium to long term objective has been to secure Japan’s energy and metals requirements. The world’s leader in project finance investments according to Linklaters LLP, Japanese investors in the last five years have ramped up their finance commitments by 576%, and of the $4.16bn invested by Asian funds last year in Africa, $3.54bn was put forward by Japanese public and private investors, more than three times that of China. One such project is a joint venture, Safi Energy plant in Morocco, which will provide 25% of the country’s power.

The disciplined, understated and risk-averse culture of Japan’s trading houses, like Toyota-Tsusho, Mitsui, Mitsubishi, Sumitomo, Sojitz and others, may have kept them out of the headlines but they have used the past few years wisely. The traditional Kaizen business practices of Japanese firms, a philosophy which seeks to generate significant results from continuous process improvements over time, means they have gradually honed their business models to suit the markets. They understand the operating environment and political landscape in depth and are now poised to take a more prominent role as the initial emphasis on natural resources gives way to a new focus on Africa’s compelling demographics. With an ageing population and an anaemic economy at home, Africa’s billion-strong young population represents an emerging generation of dynamic, entrepreneurial, globally exposed and tech-hungry customers and workers who can help reignite the Japanese economy.

Research by the McKinsey Global Institute predicts a significant rise in African consumer spending from $860bn in 2008 to $1.4 trillion by 2020, appealing to Japanese conglomerates who had previously discounted the continent as a viable market for its cars, electronics, white goods and other luxury items. No less than 80 presidents and CEOs of Japanese companies will be present in Nairobi for TICAD VI at the end of August, each accompanied by delegations of between 20 and 80 senior executives. Not since the South African World Cup has an African nation played host to such a heavyweight Japanese presence. What can Africa expect from TICAD and how should its leaders – for the first time all the AU Heads of State are participating – engage?

Notwithstanding the opportunities, the agenda still remains skewed towards risk, exploring the impact of radicalisation and terrorism, access to primary healthcare and the urgent need for further industrialisation. Japan will be seeking reassurances from African governments on their plans to tackle these challenges and will be offering assistance from a developmental perspective, channelled through the Japan International Cooperation Agency (JICA) as its highly effective overseas development arm, as well as to de-risk corporate investments.

In the face of a withdrawal of much of the hot money that had poured into Africa since the global financial crisis as Western markets stagnated and investors sought growth and returns in emerging and frontier markets, Japan’s deliberate and conservative approach may well stand it in good stead. Where others piled in too quickly and were frustrated that stellar returns were either unsustainable or too slow to materialise, Japan’s long-term approach and its rigorous focus on methodically de-risking investments, not just seizing opportunities, is enabling it to build an enviable market position and a reputation as a serious investment and strategic partner. Combined now with a more ambitious stance and a more agile, customer-oriented focus, TICAD VI in August may herald a major turning point for Japan in Africa.

Marcus Courage is CEO and Founder of Africa Practice, an African strategy and communications consultancy.