Japanese private companies have traditionally been cautious about 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 that Japanese investors lag far behind their Western and Asian counterparts when it comes to the African market.
Japanese investment in sub-Saharan Africa has been shrinking in recent years, falling from $12 billion in 2013 to less than $6 billion in 2021, with 70% in South Africa. The Japanese government hopes to change that.
Japan is shifting to a private investment approach in Africa
Tokyo has long-held ambitions to create a “free and open Indo-Pacific region” – including encompassing African coastal states such as Kenya, Mozambique, Somalia and Tanzania – in a bid to counter China’s Belt and Road Initiative (BRI).
At the last TICAD held in Yokohama in 2019, Tokyo sought to shift from a policy focused on Official Development Assistance (ODA) to an approach based on private investment.
“The Japanese government will do everything possible to support Japanese companies expanding into Africa,” former Prime Minister Shinzo Abe told the conference.
While Africa was once seen as merely a source of raw materials for Japanese industry, the government now sees Africa as an important market for the private sector.
Nowhere is this shift in focus more evident than in Japan’s vital automobile industry. Japan’s commercial relationship with South Africa, one of its main partners, has historically been based on its needs for rare earth minerals and metals such as palladium and rhodium, which are key materials in the car manufacturing process.
But Africa itself has now become a major importer and production location for Japanese car companies, especially after the sales arm of Japan’s Toyota Group, Toyota Tsusho, bought French distributor CFAO in 2012. This made Toyota Tsusho the largest Japanese private investor on the continent, with a network covering all countries in Africa and a total of 22,000 employees.
The latest results should inspire confidence among investors: in the fiscal year ending March 2022, revenue (sales) of Toyota Tshusho’s African business reached 1 trillion yen ($7.4 billion) for the first time.
Where Toyota goes, other Japanese automakers follow. Companies such as component maker Yazaki and wiring firm Sumitomo recently announced plans to build more than $100 million worth of wiring and parts in Morocco.
Energy connections are growing
The Japanese government hopes to replicate this diverse approach in the energy sector. The government’s Basic Energy Plan calls for 36-38% of electricity from renewable energy sources, 20-22% from nuclear energy, 22% from gas and 19% from coal by 2030. Africa is expected to be the main supplier.
On the gas side, Japanese utilities are expected to take about 30% of the LNG produced in Mozambique, home to Africa’s third-largest natural gas reserves. Japan, a staunch ally of the West, may increasingly turn to Africa in an effort to cut LNG imports from Russia by 10%.
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 about $14 billion in the development of the project, which should make Mozambique the largest recipient of foreign direct investment in Japan. the continent
In addition, two Japanese companies, Penta-Ocean Construction and Toa Corporation, are working on a $19 billion expansion of Nacala Port, located on the northern coast of Mozambique, to accommodate future LNG trade. The project is seen as a demonstration of Abe’s vision of a “free and open Indo-Pacific region”.
But rather than seeing Africa as a source of raw materials, the government believes that Japan’s savvy private sector can play a much bigger role in the continent’s energy infrastructure.
The infrastructure and energy of East Africa attracted special interest – in Kenya, Japanese companies played a decisive role in the construction of the Olkaria geothermal station, which allowed the country to enter the top 10 producers of geothermal energy in the world.
Focus on startups
All of this means moving away from traditional aid and development assistance to a much more productive relationship with the private sector. Japan’s development agency JICA has increased its role as an incubator for Japanese companies in Africa over the past few years, reflecting Japan’s call for greater 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 is also keen to expand its cooperation with third parties such as the EU, India, Australia and the US to take advantage of their extensive business networks on the continent.
Africa is one of the regions targeted by the EU-Japan Sustainable Connectivity and Quality Infrastructure Partnership, which aims to build infrastructure and improve connectivity in the same regions targeted by China’s Belt and Road Initiative (BRI). .
It’s not just big industries like energy and the automotive industry that could benefit. Using these new networks, Japanese investors have entered Africa’s diverse venture capital business, increasingly funding innovative start-up companies operating in sectors ranging from financial technology to retail and entertainment.
Founded in 2019 by Japanese entrepreneur Takahiro Kanzaki, Kepple African Ventures has invested in more than 100 companies in 11 markets in Africa, with the first checks ranging from $50,000 to $150,000. Kanzaki is one of the rare Japanese entrepreneurs who traveled to Africa to explore the potential for business investment.
In an interview with TechCabal in 2021, he said that Japanese investors do not have enough capital or desire to invest in Africa, but rather “it is a lack of capable and experienced talent who can manage funds in Africa. It is very difficult to find talent that understands the African market and can dedicate their life to Africa.”
Meanwhile, JICA has established Next Innovation with Japan (NINJA), a start-up support initiative designed to support African start-ups that create innovative business models and technologies to solve social problems.
This new emphasis on small and medium-sized enterprises and startups is just one part of a new, assertive approach that the government hopes will allow Japanese companies to shed the excessive caution of the past.