One day in 1979, in the Finance Ministry's Budget Bureau, a deputy budget examiner responsible for budgetary allocations for overseas economic development cooperation was talking with a deputy division director of the then International Finance Bureau. The deputy director said, "I want Japan to join the African Development Bank [AfDB]. I recommend that Japan subscribe as much as the United States, the largest capital provider to the AfDB Group."
Since its establishment in 1964, the AfDB had been capitalized and managed by regional member countries alone. However, in 1979, due to a scarcity of financial resources, the bank decided to admit non-regional members, including Japan, the United States and European countries. The deputy director, who had been attracted by Africa's growth potential, thought the decision was the best opportunity for Japan to make itself relevant to the continent.
But the budget examiner, whose approval was necessary for such contributions, reacted without enthusiasm. After saying he had no objection to Japan's becoming a non-regional member country of the AfDB, he harshly added, "There is no reason at all for Japan to extend more financial cooperation than Britain and France, which had centuries of colonial exploitation of Africa." According to the way of thinking prevailing in those days, the budget examiner was absolutely right.
Nevertheless, the deputy director persisted in his own standpoint by citing, among other factors, the high population growth rate in Africa. He said, "If we look at the next century, Japan needs to keep its relations with Africa as close as possible." The two Finance Ministry officials held more than 10 rounds of arguments and finally, the budget official showed his understanding and agreed to earmark an allocation in the government's budget.
To tell the truth, the deputy director was me. Afterward, Japan began actively supporting the AfDB's activities in various ways including the establishment of a financial framework to provide it with long-term funds at low interest rates.
In 2005, when I visited London to attend the Group of Seven Finance Ministers and Central Bank Governors Meeting, then as vice minister of finance for international affairs, I had an opportunity to talk with former South African President Nelson Mandela. When I told him of the Finance Ministry episode going back to 1979, he said he had been highly appreciative of Japan's attitude toward supporting Africa, which differed from those of European countries and the United States.
As illustrated by the abovementioned episode, the early stage of Japan's activities in Africa was spurred by the public sector to a considerable extent. Until then, Japan-Africa relations had been "tenuous" and Japanese companies had not become active yet.
Later on, Japan accelerated its active approach to Africa with an aim to solicit as much support as possible from countries on the continent for Japan's bid to become a permanent member of the U.N. Security Council. This move, which prompted Japan and African countries to begin active exchanges, was also led by the government.
The seventh Tokyo International Conference on African Development (TICAD 7) took place in Yokohama in late August. TICAD was first held in 1993 with the focus on official development assistance loans and grants, including technical cooperation, raised as the key theme with the government taking the initiative.
Since TICAD 5, which was held in 2013, African countries' emphasis has shifted "from aid to investment," slightly increasing the weight of the private sector in Africa's development endeavors. Moreover, TICAD 6 was held in Nairobi, Kenya, as the first edition of its kind to take place in Africa. Also, Japanese companies' motivation to reach Africa as a new market has gradually risen.
Outlook isn't bright
However, the actual circumstances surrounding Africa are not bright as there are some problems that are not easily surmountable.
Human resource development and social and industrial systems have been repeatedly taken up in the TICAD process as "priority areas" -- including at the recent TICAD 7 -- but there has been little progress in implementing practical solutions.
For development assistance or investment committed by a foreign country to "bloom" in an African country, it is imperative for the "recipient" country to be capable of carrying out its promises to the donor or investor country. However, there has not been as much progress as expected in this aspect.
There is a variety of research explaining the reasons behind the lack of progress. A primary factor, it is pointed out, is that the relatively advanced industrial sectors that have become the driving force of growth in some African countries are limited to mining ore or precious metals or drilling for oil. Their production system is simple -- they carry out subterranean operations to tap underground natural resources and sell their "harvests" on the market. This system, therefore, is not scalable.
Countries blessed with such underground resources often have to waste considerable energy, such as fighting over ownership in conflicts that sometimes turn into civil wars. In this connection, Britain has exhaustively analyzed reasons behind Africa's structural problems, but it has yet to come up with specific remedies for them.
Political governance is also weak. Political governance has improved in some small and medium-sized countries, but many countries remain plagued with corruption of and bribery by politicians, government employees and military personnel.
Some countries in Africa are nominally democratic republics, but their mechanisms for the transfer of power often fail. Further, those countries whose leaderships borrow massive amounts of external funds without following due administrative process end up obscuring the actual scale of their economies and their future outlooks.
Leaders attending TICAD 4 in 2008 warned that "the issue of the sharp rise in food prices" needed to be urgently addressed. But population estimates for Africa have since been revised upward. As a result, considering that Africa's population may reach 2.5 billion to 3 billion as of 2050, it will emerge as an urgent challenge for the continent to come up with a viable solution to secure a sufficient food supply to meet the needs of such a vastly increased population.
It is true that Asia's high-growth economies, including Japan, have relied on South America and other regions for their food supplies. But it seems almost impossible that South America can afford to become a sustainable food supplier for Africa, where population growth continues unabated. Therefore, Africa needs to realize food self-sufficiency as a region.
Currently, inbound agricultural investment in Africa is scarce. When farm product prices are relatively low, investors in developed countries can hardly be motivated to increase outbound investment. Yet, should the world's overall population exceed the 10 billion mark, farm product (food) prices would climb to the extent that there would be an increase in the number of "investment-grade" agricultural projects in Africa as well.
If that is the case, African countries should prioritize producing staples, such as wheat, rice, corn, potatoes and beans, instead of luxury crops, such as cocoa and coffee. Securing water supplies is a prerequisite for such efforts. However, political instability in countries along rivers -- water sources -- casts a shadow on Africa's efforts in this regard.
Given the historically tenuous relationship between Japan and Africa, as mentioned earlier, Japanese companies that want to penetrate the African market can be expected to join hands with either their peers from former colonial powers Britain and France, or with Indian businesses that have actively dealt with East Africa. Japanese companies may opt to acquire non-regional businesses that already have a foothold in Africa. In either case, they should be aware that there has been a sharp decline in Africa-bound fund flows from European banks, which are now in trouble after being relatively big net lenders in the past 15 years.
It also has to be pointed out that African countries have no definite guidelines for selecting strategic industrial sectors they should nurture to catch up with Asia's emerging countries. In fact, what they may have envisioned as a way to increase jobs may instead reduce them. This is because energy prices have been on the decline and the importance of assembly-based manufacturing has been eroded, with the information-technology-driven services sector gaining gravity.
Despite undoubtedly having tremendous potential as the next frontier for growth, Africa currently faces a mountain of problems that must be resolved.
As such, what people in Africa and we Japanese now need is a set of investment plans backed by concrete policy prescriptions instead of mere expectations.
Watanabe is president of the Tokyo-based Institute for International Monetary Affairs, a post he has held since 2016. From 2013 to 2016, he was governor and chief executive officer of the Japan Bank for International Cooperation. He was also vice minister of finance for international affairs from 2004 to 2007.
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