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Japan to focus on public-private partnerships

by Mizuho Aoki

Staff Writer

Since the first Tokyo International Conference on African Development, known as TICAD, took place in 1993, Africa has developed dramatically.

What was once known as the continent of starvation and poverty, Africa is now an area for business opportunities, luring investments from foreign countries with its rich natural resources and high population growth.

Between 2002 and 2011, sub-Saharan Africa logged real gross domestic product growth rates of 5.8 percent on average, according to the International Monetary Fund. The balance of direct investment to Africa nearly quadrupled in the past decade, and its total population is estimated to reach 2 billion in 2050 from about 1 billion in 2010, according to the United Nations Department of Economic and Social Affairs.

With such changes in Africa’s situation, the fifth TICAD, which will be held from June 1 to 3 in Yokohama, will shift its focus from providing aid to channeling investment, with an emphasis on cooperation between the public and private sectors to boost private capital flows into Africa.

“We must look at Africa not only as a continent to extend assistance to, but also as a business partner and an area for investment,” said Mitsugu Endo, a professor at the University of Tokyo who specializes in African studies.

From the early 2000s, China has increased its presence in the continent as the key player in Africa’s economy. Meanwhile, Japan is lagging behind in making inroads into the continent, which is often referred to as “the last frontier” market in the world.

“Japan is facing challenges regarding what it will do at TICAD V,” Endo said. “Doubling the amount of ODA (official development assistance) won’t attract Africa’s interest anymore.”

Japan launched the first TICAD in 1993, together with global development institutions such as the World Bank and the U.N. Development Program, when foreign aid to Africa was decreasing as regional conflicts outside the continent after the Cold War ended were drawing more attention from donor nations.

Pundits say TICAD, a meeting held every five years, was effective for shedding light on poverty-stricken Africa and discussing ways to support human, social and economic development in the region.

The circumstances surrounding the conference had changed, however, by the time Japan held TICAD IV in 2008, experts say.

Africa started to record steady economic growth from around 2003, backed by the surging price of resources and increasing demand from emerging economies.

In 2007, the total amount of foreign direct investment to Africa reached about $40 billion, surpassing the overall ODA of $32 billion, according to the United Nations Conference on Trade and Development (UNCTAD).

Resource-starved countries began embarking on resource development projects in Africa, seeking to gain access to crude oil, natural gas and rare materials. Also, with the expansion of Africa’s consumer market due to an increase in its middle class, foreign countries increased their exports to Africa.

China stood out in the amount of its investment and trade with Africa. It also extended vast assistance to Africa.

According to the Ministry of Economy, Trade and Industry, the amount of imports and exports between China and Africa rose by more than tenfold in the past decade, while that of Japan and Africa tripled.

Japan also falls behind South Korea when it comes to the total value of exports to Africa, according to METI.

“China especially towers above the others in infrastructure-related projects, such as a road extension in Nairobi, Kenya,” Endo said.

Also, the African Union’s headquarters in Addis Ababa, Ethiopia, was fully funded by the Chinese government at a cost of $200 million.

At the 2012 Forum on China-Africa Cooperation, similar to TICAD but held in China every three years since 2000, China pledged to make a $20 billion loan to Africa and invest $10 billion in the continent over the next three years.

The previous TICAD in 2008 was held amid China’s growing presence in Africa. Although Japan had then pledged to double the amount of ODA to Africa over the next five years and to double investment from the private sector at TICAD IV, the country already has achieved those goals and the impact Japan had on African countries was not that big, experts say.

“More time may be needed to evaluate the TICAD IV process, but China’s presence has increased (during the five years since 2008), and that of Japan has been unable to compete,” Endo said.

As African countries also seek more investment from Japan’s private sector for its economic development rather than ODA, Japan plans to focus on investment from the private sector with the support of the public sector at TICAD V.

A 2012 survey of 168 Japanese companies in Africa conducted by the Japan External Trade Organization (JETRO) showed that nearly 70 percent of respondents said the importance of business in Africa will increase in the future.

About 74 percent of the respondents said that the Japanese government needed to strengthen its support of the private sector to expand business in Africa.

“The government needs to think of a way to back up Japan’s private sector to operate in Africa,” Endo said, warning that if the Japanese government doesn’t do anything, “it may lose (its share of the African market) by default. Even opportunities to take niche markets could be seized by others.”

According to the Foreign Ministry, some 410 Japanese firms are operating in Africa as of Feb. 1, and a total of 8,102 Japanese are living in the continent as of Oct. 1, 2011. Meanwhile, experts estimate that the Chinese population in Africa has reached a million.

“China pours in investments intensively in a short period of time, and the results can be seen quickly,” Endo said.

“But Japan does not need to do the same thing,” he added. “Japan needs to provide support in its own way, which may be more calm and moderate. We have to think of a way to meet the locals’ needs and to extend support.”

Although Africa has made strides in economic growth, it still faces challenges such as political instability, income disparity and over-reliance on natural resources.

Though many disputes that plagued the continent in the 1990s have ended, there are still areas where conflicts or political instability remains, such as the Sahel region and Somalia.

Subsequently, the chances of some African nations achieving by 2015 all of the U.N.’s Millennium Development Goals (MDGs), including halting the spread of HIV/AIDS, providing universal education and halving extreme poverty, look very slim, especially in the sub-Saharan regions, according to the Foreign Ministry.

These agendas will also be discussed at TICAD V, the Foreign Ministry said.

Katsuya Mochizuki, a professor of international cooperation at Toyo Eiwa University, said the social environment in Africa has certainly made progress, yet it is far from reaching the MDGs.

“I think Japan needs to continue to invest in social development, such as efforts to improve the quality of life,” Mochizuki said.

Endo agreed, saying that certain support from Japan, such as aid to agricultural sectors, is important when looking at the development of the continent over the long term.

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