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Retying the knot – A fine balancing act

Retying the knot – A fine balancing act

From the archive: first published in the Jun 2014 issue of African Business.

From the archive: first published in the June 2014 issue of African Business.Japan’s relations with the African continent were very limited until after the wave of independence in the 1960s and even today just 1% of Japan’s trade is with Africa. Economic ties are therefor still limited, but the last Tokyo International Conference on African Development (TICAD V) has highlighted a new Japanese interest in Africa. At the same time, the state overseas development arm, the Japan International Cooperation Agency (JICA), is becoming more involved in major infrastructural projects, in Eastern Africa
in particular.

Between 1973 and 2013, Japan gave $18bn in aid to Africa, split roughly equally between North and sub-Saharan Africa, but it is now following the increasingly common pattern of focusing more money on a smaller number of countries. Kenya is by far the biggest aid recipient but another eight countries have been targeted: Tanzania, Uganda, Mozambique, Zambia, Botswana, Mauritius, Cameroon and Cape Verde.

Like China, much of Japan’s investment in Africa revolves around infrastructural projects. In May, JICA, the government of Mozambique and Mozambique’s state-owned transport utility Portos e Caminhos de Ferro de Moçambique signed final agreements on the massive expansion of the Port of Nacala in Mozambique’s Nampula Province. JICA is to provide a $32m grant and $200m loan to fund the redevelopment of the port. Nacala is reputed to be the deepest natural harbour on the entire east coast of Africa but has been underused since the outbreak of the Mozambican civil war.

Now, however, the port has been thrust centre stage thanks to emergence of Mozambique’s new coal industry in Tete Province in the northwest of the country. Nacala is one of three ports scheduled to handle coal exports that could exceed 100m tonnes a year by 2025 and its deepwater harbour should allow access for the giant vessels that are beginning to dominate international coal transport.

At the same time, Nacala has been earmarked as the main container and general cargo port for the northern half of Mozambique, as Maputo seeks to spread the benefits of coal and gas exports across the region.

Japanese firm Penta-Ocean Construction Company has been awarded the contract to develop the port, including the upgrade of the north pier and the construction of a new rail terminal, which began in March. In common with many other governments, Japanese aid and development loans are often used to fund projects that are being undertaken by Japanese companies.

JICA will finance the construction of the new container terminal and purchase of cargo handling equipment. Indeed, JICA and Tokyo are providing a total of $670m to Mozambique over five years, much of it to the north of the country.

Japan International Cooperation Agency

Further north, the agency has agreed to provide a $100m loan to help fund the construction of the $140m Second Nile Bridge in Uganda, which will connect the towns of Njeru and Jinja. The loan will be virtually interest free, with the first payment not due until 2024, although even then there is an option to extend it.

Japan’s own Zenitaka Corporation has won the contract to construct the 525-metre bridge in partnership with South Korea’s Hyundai Engineering and Construction Company.

The existing Nalubaale Bridge was built in the 1950s and is unable to cope with the volume of east-west traffic in the area. The new bridge, which will be located 80km east of Kampala, will improve links between the Port of Mombasa and the Ugandan capital, Rwanda, Burundi, and Democratic Republic of Congo as far as the Atlantic port of Matadi. As in Mozambique, JICA is trying to focus its development along specific transport arteries.

It is also funding the construction of the second container terminal at the Port of Mombasa. Demand at the existing terminal is rapidly approaching 1m standard-size containers – or TEU – a year, way beyond its design capacity and it suffers from periodic congestion problems.

Work on constructing the new terminal at Kilindini Port began in March 2014 following the conclusion of a Y26.711bn ($261m) loan from JICA. The facility will have handling
capacity of 1.2m TEU a year. A spokesperson for the Japanese Embassy in Kenya commented: “The Mombasa Port Development Project is one of the biggest single ODA projects in Japan’s history of economic cooperation to Kenya.” The project is due for completion in 2016.

JICA is spending almost as much money on the construction of the Dongo Kundu
bypass to connect the Mombasa-Nairobi road with the Mombasa-Lunga Lunga road. The new road will ease the movement of freight to and from the port, reduce demand for the Likoni Ferry and improve access to Moi
International Airport.

In June, JICA signed a Memorandum of Understanding (MOU) with the New Partnership for Africa’s Development (NEPAD) regarding cooperation on infrastructural projects and agricultural development. 

They issued a joint statement that revealed: “Priority areas of cooperation will focus on the implementation and monitoring of the Programme for Infrastructure Development in Africa (PIDA), in particular project preparation and evaluation.”

In agriculture, JICA will support the Coalition for African Rice Development, which is part of the Comprehensive Africa Agriculture Development Programme, in an effort to double rice production on the continent as a whole to 28m tonnes a year between 2012 and 2018.

JICA is also supported by a number of other state bodies, including the Japan Bank for International Cooperation (JBIC), which funded the construction of a 120 MW tranche of the Zafarana wind farm in Egypt in 2007 at a cost of $125m. JBIC signed a $150m loan agreement with South Africa’s Standard Bank in 2009 to improve trade finance on the continent and indeed has provided more than $1.2bn to South Africa over the past six years, including $470m to Eskom.

At the same time, Japan’s Ministry of Economy, Trade and Industry (METI) has been tasked by the government with promoting public-private partnerships with the continent.

Japanese private sector involvement is currently rather piecemeal. Anglophone markets are particularly attractive for Japanese car exporters because they prefer the right-hand-drive models that are produced in Japan. They also import construction equipment from Japan, including forklifts and bulldozers.

About one third of all Japanese investment in Africa goes to just one country: South Africa. Most recently, Nippon Telegraph and Telephone bought Dimension Data for $3.2bn. East Africa accounts for about another 20%, with investment in Tanzanian textiles, paper and furniture manufacturing. Nigeria is not as popular a destination for foreign direct investment as might be assumed, although several acquisitions in food processing and electronics have been made in recent years.

 

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Written by Neil Ford

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