Japan has come to Africa

TICAD 7 reflects Japan’s accelerated commitment to the continent. More Japanese countries are on the ground in Africa, but the challenge for them now is to capture market share, says Christopher Marks of MUFG Bank.

Japan has come to Africa. And Africa is coming to Japan. TICAD 7’s welcome to the continent’s senior politicians, public sector officials, development finance institutions, and private sector representatives will serve as a vital platform for formal, ritualised exchanges of MoUs as well as the closure of long negotiated transactions.

Anyone who has been working with any of Japan’s public agencies, megabanks or private corporations over the past six months will be well aware that Yokohama has usefully focused minds and sharpened pencils to get deals across the line by end-August.

Symbolically and substantively, TICAD 7 evidences Japan’s accelerated commitment towards the continent, marked by ever shortened intervals between the, now, tri-annual conference. Until TICAD V in 2013 the conference was held every five years since 1993 in Japan. And since TICAD VI in Nairobi in 2016 the event alternates between Japan and Africa every three years.

While TICAD remains an important occasion for high-level political liaison and engagement – the event is hosted by Prime Minister Shinzo Abe and organised by the Ministry of Foreign Affairs in cooperation with the African Union – Japan’s footprint in Africa is more rightly understood through the ineluctable commercial advance of the country’s corporations large and small.

Japanese companies expand across Africa

There are an increasing number of Japanese companies operating in Africa, with an ever-broadening geographical spread across the continent (see map, right). But more interesting perhaps is the remarkable diversity of companies carving out a space for themselves in Africa, far beyond Toyota’s ubiquitous vehicles and the familiar presence of Japan’s globe-straddling trading houses in engineering, design and contracting consortia bidding for most of the continent’s major infrastructure and hydrocarbon projects.

Take these wide-ranging examples. Nagoya-based Kagome has established a vertically integrated tomato processing operation in Senegal to enter the broader Ecowas market, a vision encompassing the full value-added chain from seed development to processing and distribution. Kansai Paint has made successive acquisitions to allow it to enter the EAC market and has even introduced the world’s first mosquito-repellent paint in Zambia. And, true to Japan’s global leadership in automotive technology, Panasonic automobile vision and connectivity subsidiary Ficosa has established a new production centre in Morocco and Rabat will become the Centre of Excellence in Automobile Cameras for the whole group.

Such anecdotal cases elide the subtle power of Japan’s largest group’s taking controlling stakes in some of Africa’s most dynamic and established entities. Through CFAO, Toyota Tsusho now is engaged on the continent in sectors running from healthcare to elevators as well as operating middle class-targeted shopping centres in Abidjan. On entirely different register, Mitsui now has authoritative exposure in the sesame and high value grains market through its partnership with soft-commodity trader ETG.

The trajectory of Japan’s overall financial flows into the continent, commercial and concessional, is unsurprisingly on the rise. ODA to Sub-Saharan Africa, comprising everything from social sector grants to regional infrastructure feasibility studies, is now some 15% of Japan’s global ODA, twice the percentage directed to the continent at the beginning of the new millennium.

Commercial flows have followed suit. Japanese FDI into Africa has increased more than tenfold in nominal terms since the beginning of the millennium, doubling as a percentage of Japan’s global FDI, and up some 20% over the past decade to reach around $9bn in 2018 (source all data: JETRO).

Pragmatic and sustainable commitments

It is important to highlight that Japan’s intensifying African embrace defines itself fundamentally as a public-private partnership with the continent, driven by the proactive engagement of Japan Inc. Concessional project development programmes and government export credit facilities have unquestionably facilitated this expansion, leveraging the balance sheet capacity of MUFG and its smaller banking peers. Japan has also understood the power of working through the continent’s development institutions, made manifest as the AfDB’s second-largest shareholder, as a two-step loan provider through TDB, DBSA, Afreximbank and others, and as a MoU partner of Africa Trade Insurance Agency. 

Such pragmatic and sustainable commitments define Japan’s approach in Africa, partnering to benefit from regional insight and access. Japan Inc. is pursuing a similar, iterative process of adaptation, balancing the delivery of long life-cycle high spec product with local requirements. Africa’s fast-growing diversified economies have selective but ever expanding capacity to absorb such higher-margin expertise. More companies are indeed on the ground in Africa, but now they need to capture market share by identifying such receptive segments and overcoming the hurdles to capture them. This is the real task Japan has set for itself at TICAD.

Christopher Marks is Managing Director and Head of Emerging Markets Corporate Banking EMEA at MUFG Bank