Why this time Japan means business

From the archive: first published in the July 2013 issue of African Business.

TICAD V was always going to be different. It coincided with two vitally important and still unfolding developments – an increasingly confident Africa riding the crest of an unprecedented period of growth; and Japan’s muscular new thrust to restore its economic vibrancy and regain its position as one of the two most powerful economies in the world.

Japan’s Prime Minister Shinzo Abe, whose policies to revive the Japanese economy have added a new word in the economics lexicon – Abenomics – said as much during his final press conference at the end of the event: “Africa is bursting with confidence while we are finding ours. Together we can achieve great things.”

The Japanese government, as well as Prime Minister Abe personally, have staked a great deal on this new approach to Africa. The conference took place at a time when Abe was in the throes of his ‘three arrows’ to revive the Japanese economy by relieving deflationary pressures, stimulating consumer confidence and calming a highly jittery stock market. Yet he found the time to attend all three days of the conference and meet all leaders and heads of delegations on a one-to-one basis.

The scale of this conference underlines the importance that Japan now accords Africa. This was the largest international conference ever hosted by Japan. There were at least 4,500 participants. This included representatives from 51 African countries, 39 heads of state and government, 35 development partners and Asian countries, representatives of 74 international and regional organisations and private sector, civil society and NGO representatives

Also in attendance were Ban Ki-moon, the secretary-general of the UN, Dr Jim Yong Kim, president of the World Bank, Helen Clark, the administrator of UNDP and Dr Nkosazana Dlamini-Zuma, chairperson of the AU Commission.

While Japan’s involvement in Africa, especially its ODA, has always been exemplary, the scale of its investment and diplomatic connections have been far behind most advanced countries. Even when Japan’s Asian rivals, including China, were ranging relentlessly across the continent, Japan kept its distance. The only trip to the African continent, so far, by an incumbent Japanese Prime Minister was in 2001 when Yoshiro Mori visited three African countries – less in order to strengthen trade or diplomatic ties than as a gesture of solidarity.

Nevertheless, Japan has remained steadfast in its support of the African cause – establishing the first TICAD back in 1993 when virtually everybody else had turned their backs on the continent, and deploying a small army of dedicated young people through its development agency JICA to work in the field on a staggering number of projects. All other TICAD conferences until this one focused on African development aspects.

This point was brought out by Ethiopia’s President and current AU chairperson, Hailemariam Desalegn, who said that it was ironic that despite Japan’s long-term involvement with continent and its good work, “Japanese investment is a far cry from the kind of huge presence it should by now have achieved compared to relative newcomers.”

But this time, there has been a sea change. This time Japan means business. It means that it will no longer sit back and allow the
‘relative newcomers’ a free run in the world’s most promising region. It wants to roll up its sleeves and join battle as Africa’s most-trusted partner as the continent builds on its growth to achieve the next level of development.

The title of the conference title was ‘Hand in hand with a more dynamic Africa’. The Japanese are not given to hyperbole or pretty, if meaningless, slogans. As the conference unfolded, it became clear that, from the Japanese side at least, the theme literally meant what it said – a partnership for mutual benefit. The title of one of the Japanese Prime Minister Shinzo Abe’s later speeches was ‘Together with Africa, Japan will prosper; together with Japan, Africa will thrive’.

The Japanese have come to terms with the fact that Africa’s priorities have undergone a dramatic change. While a number of the weaker African economies still need aid to keep afloat, many more are demanding a bigger share of the global trade, more value addition to their natural resources and partners who will share their technical and managerial skills with them to enable them to move to the next logical step in their development – full-scale industrialisation.

It was with this in mind that a good deal of time, thought and energy was invested in the preparation of the event. For the first time, the African Union Commission was fully involved in drawing up the agenda. Other co-organisers were the World Bank and UNDP, but essentially TICAD V is a joint-venture between the AU Commission and Japan’s Ministry of Foreign Affairs. During the pre-planning, African countries were consulted on what they considered their most urgent requirements. Infrastructure development, enhanced human capacity – particularly in business and industry – health and agriculture topped the list

In the run-up to the event, the Japanese government and the business community formed the Council on Public-Private Partnerships to discuss the needs and requirements of Japanese companies to encourage them to invest in the continent.

The net result of all these considerations was one of the biggest, if not the biggest, single assistance package ever made by an individual country to Africa – a colossal $32bn over five years. The segmentation of the package clearly indicates the priorities of both parties: $14bn will be ODA; $16bn will consist of public and private resources and the government will underwrite $2bn of trade insurance to encourage the more diffident companies to dip their toes in the rising African waters.

The package is designed to deliver three major outcomes: robust and sustainable economies, inclusive and resilient societies and peace and stability. These, in a nutshell, encapsulate all the conditions required for sustainable growth – ‘inclusive growth’ refers to a much wider distribution of national wealth to avoid marginalisation of large pockets of the population which almost always leads to social strife; ‘resilient societies’ are societies that can adapt to changing conditions and have the wherewithal, such as education, and social cohesion to overcome crisis and peace and stability are essential for any kind of growth and investment, foreign or domestic.

The killing of a number of Japanese professionals at an oil and gas plant in Algeria has had wide ramifications in the country and has severely dampened enthusiasm for investing in Africa. In fact, a survey of Japanese companies carried out by the Japanese External Trade Organisation (JETRO) has revealed that political insecurity and conflicts are the biggest disincentives for most Japanese companies. (See survey page 20.) Japan has allocated an extra billion dollars to peace and security efforts in the Sahel region.

Business end of the package

While the ODA segment will lay the groundwork for growth and human capacity development – something that Africa needs desperately – it is the business end of the package, worth $16bn, that has created the most excitement both in Africa as well as the private sector in Japan. This is more than a gentle push to get the Japanese private sector to engage more robustly in Africa – it is a shove in that direction. “What Africa needs now,” Abe said, “is private sector investment. If we recognise this as a new reality, then it will be necessary to revolutionise the way of providing assistance to Africa.”

It is clear that Japan will abandon its policy of largely untied assistance and provide its companies with the financial muscle to compete against rivals from Europe, China and other Asian countries. Japanese companies in Africa have been clamouring for more support from their government and now it seems that their wishes will come true.

The wish list from Africa includes support to develop its infrastructure, technology and skills transfer and human capacity training to Japanese standards.

The package promises to deliver on all this. Abe pledged $6.5bn to “developing the infrastructure that Africa itself deems necessary and plans itself”. He endorsed the African wish by laying emphasis on developing international corridors that link inland areas with the coasts.

This would provide Africa’s many landlocked countries access to markets around the world, cut the extremely high cost of moving goods around the continent and thereby reduce prices across the board, stimulating more production and trade between African countries as well as the rest of the world.

A better-connected Africa would invariably mean a wealthier Africa and considerably cheaper logistics would not only provide bigger markets but could well be the deciding factor encouraging companies set up shop in various African geographies. Pre-conference discussions with Japanese companies had identified Africa’s inadequate infrastructure and the high cost of doing business on the continent as some of the major stumbling blocks. This package, together with Africa’s own initiatives on infrastructure will go a long way to finally solving one of the continent’s biggest headaches.

Introducing the concept of kaizen

Addressing another of Africa’s pressing needs, human resource development, Abe said that the haphazard enhancing of vocational training did not lead to jobs. “It is necessary to cultivate human resources that truly match labour market demand. I would like to advocate for ‘education with an exit’.” The aim was to foster human resources that would be needed by companies, including Japanese companies investing in Africa.

“In the light of this,” he said, “I would like to announce the ABE Initiative: The African Business Initiative for the youth.” Japan will offer undergraduate and graduate education to 1,000 African students over five years to study in Japan and at the same time become interns at Japanese companies. In addition, Japanese agencies JICA and the Overseas Human Resources and Industry Development Association will help cultivate ‘business and industry savvy human capabilities’ that will lead to the employment of 30,000 individuals. Japan, he said, will create hubs for human resource development in 10 locations in Africa, including in Ethiopia and Senegal.

He pointed out that the Toyota Motor Corporation had built an academy in Kenya where local technicians are trained not only in automobile mechanics but also in maintaining construction and farm machinery.

In another speech, he introduced the concept of kaizen, which means continuous improvement – a key factor in Japan’s rise as an industrial power. As an example, he said that among the concepts that improved the efficiency of Japanese factories was the stipulation that workers should always keep their tools close at hand. “Even three steps away was too far,” he recounted. “This is because a round trip to get a tool would be six steps in all, and if that were repeated 50 times an hour, it would come to 300 steps altogether. Continuing that for eight hours a day would bring it to 2,400 steps, which would mean walking close to two kilometres, all for nothing.”

By making small improvements continuously, it was possible for Japanese manufacturers to make high-quality items more cheaply and thus corner the global market. “My friends,” Abe said, “this is the revolution that Japanese companies brought to the world.”

Japanese companies took their models abroad to other Asian countries when they expanded and by a system of incubation, transformed the output and competitiveness of many Asian economies. Today, of course, Japanese production models are state-of-the-art all around the world.

“Japanese people would like to repeat that in Africa as well,” he added. “They would like to share with Africans the kind of culture that can be handed down only on factory shop floors. And it was that workplace culture that triggered the miraculous growth in Asia.”

Sweet music for African ears

This was sweet music to most African delegations for a number of reasons. The first is that Africa is now determined to wean itself away from aid and has been calling for more trade and investment from its development partners. Secondly, the continent, with its vast resources, its growth, its attraction as a market and its above-average proportion of working-age labour force, is beginning to see itself as an equal among equals and is seeking partners, not donors, to drive its development forward. Japan is offering that partnership on a mutually beneficial basis and is prepared to use its experience in similar situations in Asia, its technical excellence and its wealth to help Africa move to the next level.

But what does Japan want from Africa? Perhaps Zimbabwe’s President Robert Mugabe summed up the African attitude most admirably. He said that while “strides have been made, most of us are still primary producers”, whose resources are extracted for the benefit of others. His message to investors was, “I want to impart to them the idea that when they invest with us, they come as partners so that it is not just a question of us being producers of raw materials.” He said that Japanese companies had to be prepared to “impart technology to us so that we can beneficiate our products and sell at a better price. We want to industrialise.”

There is no doubt that in the short term, Japan’s primary interest in Africa will be in the energy sector. Premier Abe acknowledged as much. “While it is true that Africa’s abundant natural resources constitute an important business opportunity for resource-poor Japan, we will not simply extract resources and take them back to Japan. Japan will assist Africa to ensure that the blessings of Africa’s natural resources are conducive to Africa’s economic growth.”

Over the last few years, Japan’s economy has taken a buffeting from falling exports and rising production costs. The 2011 earthquake and tsunami has left deep scars on the Japanese psyche and the nuclear disaster at the Fukushima plant, which came about as a result of the earthquake, has not only shaken public confidence in nuclear power generation but has led to the closure or suspension of all but two of the country’s nuclear reactors. This wiped out 30% of the country’s electricity capacity necessitating a steep increase in imported fuels which in turn led to a trade deficit for the first time in decades.

Increasing energy through joint ventures

Japan is the world’s largest importer of liquefied natural gas (LNG), the second-largest importer of coal and the third-largest importer of oil. Japanese energy companies are very active in upstream oil and gas fields abroad and are engaged in engineering, construction and management services. Japan is a major exporter of energy sector capital equipment.

In Africa, Japanese companies have energy related joint ventures in Egypt, Algeria, Congo and Mozambique. With its nuclear future in severe doubt, it seems certain that Japan is planning on increasing and widening its fuel sources abroad particularly from concessions that it controls. The aim is to source 40% of its imported fuel from its concessions by 2030 and increased activity in Africa is a logical step.

It was significant that although Premier Abe met all the visiting African leaders on a personal basis, he signed a bilateral investment agreement only with Mozambique which has huge coal and natural gas reserves. The deal will increase the flow of Japanese investment to Mozambique in agriculture, agri-processing and technology transfer. In return, it will expect protection for its current investments in the country and increased opportunities in the energy sector.

Seven large Japanese groups currently invest in Mozambique, including Mitsui, which has a stake in a block of the offshore Rovuma basin, which may be home to the world’s largest natural gas deposits, Japan’s largest steel company, Nippon Steel and Sumitomo Metal Corp is developing the Revuboè coal project in Mozambique’s Tete province. Japan is also key stakeholder in Mozambique’s Prosavana project, which aims to transform swathes of underused savanna in the Nacala Corridor, in northern Mozambique, into productive agricultural land through a series of infrastructure and agriculture investments, while JICA is also involved in the rehabilitation of Nacala port, and the upgrade of transport systems stretching west to landlocked Malawi.

No doubt the model will be replicated elsewhere in Africa. However, Abe added “Africa’s markets, now undergoing a tremendous expansion, appeal enormously to Japanese companies beyond resources.” Although he did not say so directly, there is an implication that Japanese companies might be considering moving some of their manufacturing to Africa, as they have done in Asia and other parts of the world. “If we think about it, Africa is the continent that sits solidly at the very centre of global distribution. It touches the Mediterranean Sea, the Red Sea, the Indian Ocean and the Atlantic Ocean. These seas were already developed centuries ago as routes for the material flow of goods.” If the aim is to expand production and even shift production to Africa, then the investment in African manpower to the exacting Japanese standard and the introduction of the kaizen continuous improvement principle make total sense.

Japan’s new business-oriented approach to Africa has been long overdue. If nothing else, it will come as a welcome counterweight to the influence of China. While China in many ways freed Africa from its Western-centred umbilical cord, and its investments in infrastructure in particular have given African nations the catalysts for growth, the quality of China’s products and its workmanship leave a lot to be desired. There is also a nagging suspicion about China’s motives in the continent and the Chinese business culture has been a constant source of friction, and even outright hostility, in the
African setting. Chinese investments have been welcomed in Africa because they come unencumbered with ideological constraints, are quickly implemented and often arrive complete with their own government-backed finance thus short-cutting processes that used to take years even to reach the decision level.

But there has been little or no technology transfer, no attempt to build modern industrial capacity in their host countries, little cultural interaction and the lingering suspicion that somehow Africa is being short-changed in its often opaque dealings with China.

Japan is not China

Japan’s relations with Africa on the other hand, have been the opposite. Over the last 20 years at least, Japanese aid to Africa has been both generous as well as noble in that it has taken great pains neither to ‘tie’ it to contracts for its companies – as is the norm for many other donors – nor to dictate the direction of development Africa should pursue as many other donors do on a regular basis. Japanese aid has also been different in that it has not gone into budgetary support for governments – where it has more often than not been squandered – but into grassroots projects with clear and identifiable objectives.

The Japanese development agency, JICA, has clocked up a mountain of successful projects ranging from providing clean water, to improving agricultural output and marketing, to health interventions, to constructing jetties, to education and human resource development, to providing training for peace and stability where this is needed, and on and on. It has done this without the usual fanfare and has usually kept a low profile – too low a profile in the opinion of many.

Another striking feature of Japanese aid is that it has always aimed at giving ownership of projects to Africans. The core belief is that the recipients of aid know better than anyone else what they need; the agency makes its technical know-how and experience available but otherwise lets the recipients take charge of projects and hopefully run with them without further intervention from the agency.

If there has been criticism of Japan’s approach to Africa, it has been that despite its good work, it has never before fully engaged with the continent in terms of investments. Where Japanese companies have set up shop, for example, in motor vehicle assembly, they have usually acted with admirable consideration for the local work force in terms of salaries and, perhaps more importantly, skills transfers.

The combination of Japan’s approach to Africa and its new desire to engage at an advanced level with Africa’s business aspirations is probably just the pivot Africa needs to tip it towards realising the long-cherished dream of joining the ranks of the world’s
industrialised regions.