Japanese government urges private sector to abandon caution in Africa
Japanese private companies have traditionally taken a cautious approach to investing in Africa, balancing the continent’s strategic importance with a cautious approach to risk. But the wary attitude of the Japanese private sector means Japanese investors are lagging far behind their Western and Asian counterparts when it comes to the African market.
In recent years, the stock of Japanese investment in sub-Saharan Africa has declined from $12 billion in 2013 to less than $6 billion in 2021, with South Africa accounting for 70%. The Japanese government hopes to change that.
Japan moving towards a private investment approach in Africa
Tokyo has long-held ambitions to create a “free and open Indo-Pacific” – including encompassing African coastal states such as Kenya, Mozambique, Somalia and Tanzania – in a bid to counter the Chinese initiative Belt and Road (BRI).
At the last TICAD, held in Yokohoma in 2019, Tokyo sought to shift from a policy centered on official development assistance (ODA) to an approach based on private investment.
“The Japanese government will do everything possible to support Japanese companies that are expanding in Africa,” late Prime Minister Shinzo Abe said at the conference.
While Africa was once seen as a mere source of raw materials for Japanese industry, the government now sees Africa as an important target market for the private sector.
Nowhere is this shift in focus more evident than in Japan’s vital auto industry. Japan’s trade relationship with South Africa, one of its main trading partners, has historically been based on its need for rare earth minerals and metals – such as palladium and rhodium – which are key inputs in the process of automotive manufacturing.
But Africa itself has now become a major importer and manufacturing destination for Japanese automakers, particularly since Japanese Toyota Group’s trading arm, Toyota Tsusho, bought out French retailer CFAO in 2012. This made Toyota Tsusho the largest Japanese private investor in the market. continent, with a network covering all African countries and a total of 22,000 employees.
The latest results should give investors confidence: in the fiscal year ending March 2022, Toyota Tshusho’s African business revenue (sales) reached 1 trillion yen for the first time (7. $4 billion).
Where Toyoto goes, other Japanese automakers follow. Companies such as component maker Yazaki and cabling systems company Sumitomo recently announced plans to build cabling and auto parts facilities worth more than $100 million in Morocco.
Growth of energy links
The Japanese government hopes to replicate this diversified approach in the energy sector. The government’s basic energy plan includes a 2030 electric energy mix target of 36-38% renewables, 20-22% nuclear, 22% gas and 19% coal. Africa should be a major supplier.
On the gas side, Japanese utility companies are expected to take about 30% of the LNG produced in Mozambique, which is home to Africa’s third largest natural gas reserves. Japan, a strong ally of the West, could increasingly look to Africa as it seeks to cut the 10% of LNG it imports from Russia.
Four major Japanese private banks – MUFG Bank, Mizuho Bank, Sumitomo Mitsui Banking and Sumitomo Mitsui Trust Bank – and the Japan Bank for International Cooperation have invested around $14 billion to develop the project, which is expected to make Mozambique the biggest beneficiary. Japanese FDI in the market. continent.
In addition, two Japanese companies, Penta-Ocean Construction and Toa Corporation, are undertaking a $19 billion expansion of the port of Nacala, located on the northern coast of Mozambique, to secure future LNG trade. The project is seen as a demonstration of Abe’s vision for a “free and open Indo-Pacific”.
But instead of just viewing Africa as a source of raw materials, the government believes Japan’s experienced private sector can play a much bigger role in the continent’s energy infrastructure.
East Africa’s infrastructure and energy sectors have received particular attention – in Kenya, the role of Japanese companies was decisive in the construction of the Olkaria geothermal power plant, which enabled the country to be among the world’s top 10 producers of geothermal energy.
Focus on startups
All of this represents a shift from traditional aid and development assistance to a much more productive relationship with the private sector. Japan Development Agency, JICAhas seen its role as an incubator for Japanese companies in Africa grow in recent years, reflecting Japan’s call for more public-private partnerships.
JICA has connected African and Japanese entrepreneurs through networking events, such as the last TICAD, where for the first time private companies were recognized as official conference partners.
Japan also wants to expand its cooperation with third parties such as the EU, India, Australia and the United States, to take advantage of their extensive trade networks on the continent.
Africa is one of the regions targeted by the Partnership on Sustainable Connectivity and Quality Infrastructure between the European Union and Japan, which aims to build infrastructure and improve connectivity in the same regions targeted by the Chinese Belt and Road Initiative (BRI).
Big industries like energy and automotive aren’t the only ones to benefit. Using these emerging networks, Japanese investors have entered Africa’s diverse venture capital industry, funding more and more innovative start-ups that operate in various sectors, from fintech to retail and entertainment.
Kepple African Ventures, established in 2019 by Japanese entrepreneur Takahiro Kanzaki, has invested in more than 100 companies in 11 markets in Africa, with initial checks ranging from $50,000 to $150,000. Kanzaki is one of the few Japanese entrepreneurs to have traveled to Africa. to explore the investment potential of companies.
In a 2021 interview with TechCabal, he said Japanese investors are not lacking in capital or the will to invest in Africa, but rather “it’s about the shortage of capable and experienced talent who can manage the funds. in Africa. It is very difficult to find talents who understand the African market and who can dedicate their life to Africa.
Meanwhile, JICA has established Next Innovation with Japan (NINJA), a startup support initiative designed to support African startups that create innovative business models and technologies to solve social problems.
This new focus on SMEs and start-ups is just one part of an assertive new approach that the government hopes will enable Japanese businesses to emerge from the overcautiousness of the past.