Japanese countries still cautious on Africa: Survey

According to a Japanese government poll presented to attendees at the eighth Tokyo International Conference on African Development (TICAD 8) in Tunis last weekend, the anticipated explosion of Japanese investment in Africa remained more of a pipe dream than a reality.

TICAD is the main economic and diplomatic forum for Japanese involvement with Africa. It was established in 1993 with the goals of fostering high-level policy dialogue and mobilizing support for African self-help development efforts. Japan, the African Union Commission (AUC), the United Nations, the United Nations Development Programme (UNDP), and the World Bank are all involved in organizing it.

Tokyo attempted to shift its policy from one centered on official development assistance (ODA) to one based on private investment during the most recent TICAD, which was held in Yokohoma in 2019. However, Japanese businesses have historically been wary of investing in Africa.

The survey, which is published by the Japanese External Trade Organisation (JETRO), was completed in February and includes data for the fiscal year 2021 as well as certain comparisons across longer time periods (five years and beyond).

More than 6% more Japanese businesses have plans to grow in Africa than the previous year, bringing the total to 49%.

In contrast, 45% of businesses anticipate stagnation, while the percentage of businesses planning to reduce their presence in Africa has decreased by 4% to just 5%. Furthermore, nearly 50% of the organizations that responded to the poll say that the relevance of Africa to their business has grown during the previous five years, and 60% predict that Africa will gain even more importance over the next five years.

However, despite improving prospects, Japanese investment in Africa as a whole is still extremely small. Japanese FDI into Africa has decreased from a peak of $12 billion in 2013 to just $5.8 billion last year, falling behind the leading nations of the UK and France, which will receive $65 billion and $60 billion in FDI in 2021, the US, which will invest $44 billion, and China, a rival in the region.

The nature of the proposed development by Japanese companies may be even more concerning for Africa.

Although there has been much discussion about how Japan may help Africa achieve its goal of having a strong, high-value industrialization route, the vast majority of businesses—more than 69%—plan to increase their sales function in order to tap into the continent’s expanding local market.

Less than 20% of respondents intend to boost the high value-added production that excites governments and development specialists and for which the Japanese economy is so well known, while only 21% want to increase their output located in Africa.

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Due to the possible future market in Africa, some 82% of the Japanese companies polled still have a presence there, up from 71% in 2007. Despite the continent has some of the highest returns on investment anywhere in the world, just 18% do so because of its profitability. This shows a certain level of caution, a holding pattern, and a strong conviction that investing in Africa will eventually pay off—just not yet.

The calm, seasoned chairman and CEO of JETRO, Nobuhiko Sasaki, anticipates that this will occur soon. He seems sincere in his desire to assist Japanese companies in stepping up to the plate and is animated when highlighting the opportunities in Africa.

At TICAD 8 in Tunis, he said, “There is a great hope that Japanese enterprises have for Africa, its future success, and a number of opportunities.” Japanese businesses now see Africa as a fantastic possibility, notwithstanding its issues.

But he acknowledges that these issues are difficult to resolve. “Some Japanese corporations… have not been awarded visas and they are receiving excessive tax inspections by tax officials,” he said as an illustration of governance.

Research by JETRO supports this reality. More than 60% of the companies who responded to the study believed that the creation and application of regulations or legislation posed a risk to their industry. Complex administrative processes were the main problem with these.

56% of businesses saw political and social unrest as a problem, with worries about both political risk and public safety as contributing factors. Companies also cited trade rules (34%), inadequate infrastructure (44%), recruiting and labour issues (40%) and finance (47%), calling into question overly economic or financialized explanations for Africa’s investment difficulties.