Japan Eyes Africa Will this mean a Bright Future for Ethio-Japan Economic Ties?

At the sixth Tokyo International Conference on African Development (TICAD), which took place in Nairobi, Kenya in late August, Japanese Prime Minister Shinzo Abe pledged USD30 billion in investments throughout Africa. This will help the East Asian nation increase economic ties with the continent, which lags far behind its regional neighbours. For example, China and India, two of Ethiopia’s biggest investment partners, have operational investments worth ETB15.9 billion and ETB5.8 billion, respectively, while Japan had ETB50.2 million. Now that Japan has expressed interest to invest in Africa, how much could Ethiopia benefit? EBR’s Samson Hailu delved into the matter and offers this report.

Many laud Japan as a country with technological proficiency that enables it to produce high-tech products renowned for their ingenuity and sophistication. However, when it comes investment relations, the East Asian nation seems to have little interest – at least compared to its continental neighbours – in directing its private sector investment towards Africa, limiting its focus largely to development assistance.
Data obtained from the World Bank testifies to this fact. For instance, Japan’s regional neighbour, China, the continent’s largest investment and trading partner, stood at USD26 billion in Africa at the end of 2013 while another Asian economic powerhouse, India, invested more than USD18 billion in the resource-rich continent as of 2013.
Japan, the world’s third largest economy, on the other hand, invested USD1.24 billion in the form of foreign direct investment (FDI) in Africa, according to the Japan External Trade Organisation.
To reverse this situation, Prime Minister Shinzo Abe announced that his country will invest USD30 billion to boost Africa’s economic growth and infrastructure over the next three years, during the sixth Tokyo International Conference on African Development (TICAD) held in Kenya at the end of last month.
According to the Premier, the proposed amount includes private sector investment and will be spread over three years and include USD10 billion for infrastructure projects. “When combined with investment from the private sector, I expect that the total will amount to USD30 billion. “This is an investment that has faith in Africa’s future, an investment for Japan and Africa to grow together,” he told more than 30 heads of state from across the continent during the sixth TICAD, according to a Reuters report, which took place in Nairobi in late August.
In fact, Japan was first among Asian countries to engage directly with African countries by launching TICAD in 1993. Seven years later, the Chinese followed with the Forum on China-Africa Cooperation while India joined with the India-Africa Business Forum in 2010.
Despite being a pioneer, Japan lags behind its counterparts in terms of accelerating private investment in Africa. For instance, the number of Japanese private investment projects in Ethiopia, a country that has enjoyed diplomatic relations with Japan since the 1930s, stood at 11 between 1992 and 2016, according to the Ethiopian Investment Commission (EIC). Out of these, only eight projects with a combined capital of ETB50.2 million have been operational, while the rest are in the pre-implementation and implementation stages.
This figure is meagre compared to private investment flow from China and India, two of the top investing countries in Ethiopia. During the same period, Chinese private investment projects reached 946, of which 505 are operational, with a combined investment of ETB15.9 billion. Additionally, 348 private Indian investment projects have been registered. Of these, 164 projects, with a combined value of ETB5.8 billion, are already in operation.
In fact, the most Japanese investments in Africa are concentrated in South Africa, where there are 110 Japanese companies, which is close to one third of all Japanese companies operating in the continent, generating 150,000 jobs. Observing such trends, experts also suggest that Japanese direct investment in Africa has been increasing steadily in recent years. “Japanese investment is slowly but surely increasing,” Mina Arai-Ito, head of the Middle East and Africa group for Baker and McKenzie in Tokyo, told African Law and Business, a newsletter that covers continental business affairs. “Because Japanese investors tend to be risk-averse, you may not see the immediate result, but there is growing interest.”
Many African nations seem interested to receive Japanese private investment since they are viewed as sound, well-managed and sustainable investments. However, experts stress that Japanese private sector investors seek a return, unlike their Chinese counterparts who are looking to gain global ‘soft power’ rather than establishing profit-making businesses. This factor might hinder the flow of Japanese direct investment towards Africa given the many obstacles facing investors throughout the continent, according to Arai-Ito.
Kimiaki Jin, Chief Representative of Japan International Cooperation Agency’s Ethiopia Office agrees with this explanation. “Japanese businesspeople have an interest to invest in African countries like Ethiopia. But they require a lot of information about the business environment because they are keen on profit,” he told EBR. “Even those investors that gather enough information are not investing in Ethiopia because of the many obstacles.”
Government representatives also say reluctance from Japanese investors is due to the precarious business environment in Ethiopia: “The number of Japanese investors is limited not only in Ethiopia but throughout Africa as well,” says Getahun Negash, Public Relations Director of the EIC. “This is largely because they are not risk-takers. They want everything to be good, from political stability to economic infrastructure as well as social development.”
Jin, on the other hand, says the Ethiopian government should improve many factors to attract Japanese investors. “The first is improving the business environment of the country since it still lags behind even compared with other African countries,,” he says. “Especially in the areas of logistics and taxation, there are a lot of things to improve.”
Jin, however believes that Ethiopia is on the right track, as development has improved the business environment, although efforts should continue in the future. “One of the advantages of investing in Ethiopia is its cheap labour,” he argues. “Japanese investors should try to invest in Ethiopia at least by partnering with local companies.”
The recent partnership of Japan Tobacco International, a subsidiary of Japan Tobacco, with the Ethiopian National Tobacco Enterprise, validates Jin’s argument. Just two months ago, the tobacco giant acquired 40Pct of the National Tobacco Enterprise from the government at a cost of USD510 million.
Major Japanese companies expressed their interest in investing in Ethiopia during the aforementioned TICAD conference in Kenya. According to Fitsum Arega, Director General of the EIC, who attended the gathering, six major Japanese companies have requested to meet with Prime Minister Hailemariam Desalegn, including Toyota Tsusho Corporation.
In this regard, Getahun, says the reopening of the Japan External Trade Organisation (JETRO) in Addis Ababa will facilitate increased economic ties. “We hope the opening of the office will improve the situation by providing accurate and clear information to Japanese investors,” he says.
It was in January 2014, when Japanese Prime Minister Shinzo Abe visited Ethiopia, that Prime Minister Hailemariam requested his counterpart to reopen JETRO’s office in Addis Ababa to accelerate Japanese private sector investment in Ethiopia. Based on this request, the Japanese government announced its decision to reopen the office last year.
JETRO is a government-related organisation working to promote mutual trade and investment between Japan and the rest of the world.
Established in 1958 to promote Japanese exports abroad, JETRO’s core focus in the 21st century has shifted toward promoting foreign direct investment into Japan and helping small and medium-sized Japanese firms maximise their global export potential.
Additionally, the Japanese government announced that it plans to double the number of offices in Africa during the TICAD gathering held in June 2013. JETRO, which has extensive experience in attracting Japanese companies to industrial zones in India, Bangladesh and Myanmar, has seven offices in Africa, including Ethiopia. EBR