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Japan not competing hard enough to reap big rewards in Africa

by Jochen Legewie

These days the world’s eyes are on Africa. However, of the 32 soccer teams competing in the FIFA World Cup, one main stakeholder is missing: the Chinese team.

Many years ago and earlier than most other countries, the government in Beijing had identified Africa as an area of significant economic and strategic interest. By combining state intervention with private investment, China and its companies have become the main players on the huge continent.

Africa accounts for 20 percent of the world’s total land area, nearly 15 percent of its population and is famous for its abundant supply of natural resources. These resources have been one of the major reasons behind China’s strategic engagement.

Nowadays, the armies of Chinese workers involved in Africa’s huge infrastructure projects are visible to every tourist who travels through the hinterland. In some towns there are even more Chinese than Africans.

In some parts of the continent, however, China has been accused of making unscrupulous deals with local governments to gain access to oil and other natural resources. The most prominent case is Sudan, where Beijing was accused of tolerating the genocide in Darfur to complete its quest for Sudan’s natural resources. Steven Spielberg even quit his role as adviser to the Beijing Olympics over this matter.

Still, China’s assessment of Africa goes beyond viewing it as a source of raw materials for fueling industrial development at home. It also views Africa as a rapidly growing market not yet dominated by domestic, American, European or Japanese players.

Despite the tragedy of AIDS, Africa’s population continues to grow rapidly and is relatively young. Over the past decade, its economic growth rate has consistently exceeded the global average. Even during the global financial crisis, Africa proved to be not only a safe haven, but also a real money maker for various industries.

Japanese and European companies on the other hand are facing aging societies, shrinking populations, and an everlasting scarcity of natural resources at home. Thus, despite its persistent challenges and difficulties, Africa represents an business opportunity that Japanese and European companies cannot afford to turn a blind eye to.

For generations, however, Japanese businessmen have perceived Africa as a vast, wild land too distant from home. In fact, despite the huge geographical divide, it has primarily been this psychological distance that has prevented Japan and Africa from forming closer economic relations so far.

Nowadays, urged on by the globalization of the Japanese economy, an increasing number of Japanese firms are starting to strategically work the African markets. In addition to the general trading companies, heavily engaged in resource exploration and infrastructure building, manufacturers are finally developing a visible presence in Africa as well.

Ajinomoto, for example, has become the most recent African success story by systematically building up its presence through adjustments to local conditions and needs. Japanese automakers are starting to send substantial exports from China to Africa and are positively looking to increase local production. Despite these recent developments, however, Japanese companies are still behind their Chinese and European peers, overall.

In fact, foreign direct investment in Africa rose from $9 billion in 2000, to $62 billion in 2009, with Japan accounting for only a small portion of it.

German and French companies are generating substantial benefits from their strong historical ties with the continent, which date back to the old days when many African countries were European colonies.

The most recent example of this is the Desertec Industrial Initiative. The purpose of the giant infrastructure project is to supply Europe with 15 percent of its energy needs by 2050 by building a vast network of solar power plants and transmission grids across North Africa. The mission is supported mainly by German business leaders and politicians, but firms from all over Europe are involved.

Future success in Africa will depend not only on connections, but also the various economic policies applied to the continent. While the EU follows the approach of achieving strategic economic partnership or free-trade agreements (EPAs and FTAs) with influential African countries, Japan traditionally makes use of official development assistance to generate business opportunities for its companies.

In May 2010, Foreign Minister Katsuya Okada affirmed that Japan aims to raise its ODA for Africa to $1.8 billion a year by 2012. But given the difficult budget situation, this goal might turn out to be too optimistic. Moreover, ODA — even if granted in yen — doesn’t necessarily lead to more business for Japanese companies. On the other hand, EPAs and FTAs are known to directly support the development of trade.

While Japan’s bureaucrats figure out how to address this problem and how to optimize their efforts, Japanese companies will have no choice but to trust to their own marketing strengths. The important “volume zone” in Africa differs from the one in the BRICs countries, and the fledgling market definitely needs a fit-tailored approach.

Japanese firms have more than once proven that they are able to successfully adapt their strategies to foreign markets. And in many African countries they might be even more welcome than their Chinese peers.

Jochen Legewie is president of German communications consultancy CNC Japan K.K.