The promised explosion of Japanese investment in Africa remains more wish than reality, according to a Japanese government survey shared with delegates at the eighth instalment of the Tokyo International Conference on African Development (TICAD 8) in Tunis last weekend.
First held in 1993, TICAD is the premier diplomatic and economic forum for Japanese engagement with the African continent, aiming to promote high-level policy dialogue and mobilise support for African self-help development initiatives. It is jointly organised by Japan, the African Union Commission (AUC), the United Nations, the United Nations Development Programme (UNDP) and the World Bank.
At the last TICAD, held in Yokohoma in 2019, Tokyo sought to move from a policy focused on official development assistance (ODA), to a private investment-based approach, but Japanese companies have traditionally been cautious when it comes to investing in Africa.
The survey, published by the Japanese External Trade Organisation (JETRO), was completed in February and takes in data for the financial year 2021, with some five-year and longer-term comparisons.
Japanese companies optimistic but investment remains low
The number of Japanese companies in Africa with plans to expand in the continent was up more than 6% on the year before, to 49%.
This contrasts with 45% of companies that expect to remain stagnant, and a 4% fall in the number of companies that expect to shrink their African operations, to just 5%. Moreover, almost 50% of surveyed companies report that the importance of Africa to their business has increased over the preceding five years, with 60% expecting that Africa will become even more important over the next five years.
Yet while prospects are increasing, the total value of Japanese investment in Africa remains miniscule. Compared to the UK and France, which lead the way with 2021 FDI totalling $65bn and $60bn respectively, the US with $44bn and regional rival China with $43bn, Japanese FDI into Africa has fallen from a high point of $12bn in 2013 to just $5.8bn last year.
Perhaps even more worrying for Africa is the nature of Japanese firms’ planned expansion.
While there has been much talk about the potential for Japan to contribute to Africa’s dream of a robust, high-value industrialisation pathway, the vast majority of companies – over 69% – plan to expand their sales function to take advantage of the continent’s growing domestic market.
Just 21%, by contrast, have plans to expand their Africa-based production, with less than 20% expecting to increase the high value-added production that sets governments and development professionals salivating, the very feature for which the Japanese economy is so renowned.
Governance and volatility holding back Japanese investment
Some 82% of surveyed Japanese companies maintain a presence in Africa because of its future market potential, increasing from 71% in 2007. Just 18% do so because of Africa’s profitability, despite the continent offering some of the highest returns on investment anywhere in the world. This indicates a certain wariness, a holding pattern; a firm belief that Africa will one day pay off – just not yet.
Nobuhiko Sasaki, the composed, deeply-experienced chairman and CEO of JETRO, hopes that this happens soon. He is enthusiastic when discussing the African opportunity, and seems genuinely committed to helping Japanese companies step up to the plate.
“There is a big hope that Japanese companies have for Africa, its future prosperity, and a number of possibilities” he told African Business during TICAD 8 in Tunis. “Even though there are problems, Japanese companies are now viewing Africa as a great proposition.”
But these problems, he admits, are not easy to solve. He gave the example of governance: “Some Japanese companies… they have not been issued visas, and they are receiving excessive tax investigations by tax authorities.”
JETRO’s research bears out this reality. The largest number – more than 60% – of surveyed companies saw the development and implementation of regulation or legislation as a risk to their business. Of these, complicated administrative procedures were the primary issue.
Political and social instability was cited as a risk by 56% of companies, stemming equally from concerns about public safety and political risk.
Companies also named finance (47%), poor infrastructure (44%), hiring and workforce problems (40%) and trade regulations (34%), casting doubt on overly economistic or financialised accounts of Africa’s investment woes.
The last five years of JETRO’s survey shows companies’ concerns over risks decreasing overall, but a slight uptick between 2020 and 2021 is worrying. If the compounding crises of pandemic, war and climate change – with all the economic, political and social deterioration that accompanies them – cause an enduring decline in the stability and governing capacity that Japanese companies crave, they may be shocked even further back into their shell. Sasaki, for one, hopes that this doesn’t happen.
“Those are the issues which Japanese companies are now suffering from, and I understand each government and investment authority in each African country is trying to solve these issues. JETRO, as a partner of them…is trying to solve these issues one by one.”
Hear more about Japanese investment in Africa from Angus Chapman on the BBC’s Newsday programme. (Angus speaks from minute 36:50. Sign-in required.)
Ghana gains popularity as investment destination
There has been little change at the top of JETRO's survey of Japanese companies' intended investment destinations over the last five years, with Kenya remaning in first place and South Africa and Nigeria swapping second and third places in 2020.
Of particular note is Ghana – the West African country has steadily climbed from eighth in 2017 to fourth in 2021.
Reasons given by companies for their intention to invest there include ease of doing business due to population growth, stable security, language, expansion of economic scale, expansion of the automobile industry, development of mineral resources, and entry into the electric power and agricultural sectors.