Dr Christopher Marks has worked in the financial markets and financial sector advisory, across the public and private sector, for more than 25 years.
He is the Managing Director and Head of Emerging Markets, EMEA, at the Japanese bank MUFG (Tokyo-Mitsubishi UFJ) one of the largest lenders in the world. In this interview with African Banker, he explains why the group has become so interested in the continent of late.
Japan recently made the decision to invest $30bn in Africa. Why is Africa such an important emerging market and of such interest to Japan?
In a fundamental sense, you have to think of the direction and the scope of Japanese investment. Globally it’s apparent that the majority of FDI for Japanese corporations, and frankly, the lending of Japanese institutions like ourselves, has been primarily in South East Asia for obvious reasons, and similarly, in Latin America.
It has not been true to the same extent that Japan has had a natural vocation, or a political imperative in Africa. That’s changed dramatically and the number you’re referencing – $30bn – came from Prime Minister Shinzo Abe’s commitments made in 2016.
More than anything else, even though there are 700-plus Japanese companies operating in Africa today, I think the politico-economic call to arms that the Prime Minister’s statements represented, galvanised if you will, the focus, the imagination and frankly, the willingness of Japanese corporations and banks to be much more proactive on the continent.
As a last comment, you will know well that the Chinese have been extremely effective, active and very well established in Africa. Their push out of Asia is one the Japanese have watched with interest and that they are keen to advance in their own fashion.
Indeed, many see the Asia-Africa Growth Corridor as a direct counter to China’s influence in Africa. Would you agree?
It’s not a challenge per se but it’s fair to say that a lot of the world’s major trading entities, of which Japan is one, have recognised improved growth and fundamentals on the continent – and the reality of slow growth in OECD markets as well.
So the appeal of Africa now, with the capability for increased manufacturing and diversification on the continent, has increased its ability to take advantage of higher quality products – such as Japanese products.
A number of economies, like Egypt’s, have much more sophisticated economic constructions than they had maybe 10 years ago, when most of the continent was looking to import technology in exchange for natural resource exports. It’s very different today.
There is a lot of manufacturing, a lot of high-tech, a lot of value chain, supply chain activity which the Japanese are very good at and which they have been doing in Vietnam, Thailand and Indonesia. Now you can do it in Kenya, you can do it in Morocco, you can do it in Egypt.
So Japan’s competitive edge is high-tech goods and services. Is this what differentiates the Japanese from the Chinese brand in Africa?
That’s really the heart of it. To their credit, the Japanese have been very strategic in their approach, so they come in a very well-coordinated fashion, both on the political and economic level.
The Japanese have been much more mercantile. Japanese corporations have had to sell their goods more or less on their own, but then once the waters have been tested, Japanese public support comes in – so it’s a sort of reverse structure as compared to how most other countries do business.
Now, in addition to the
trading and tech companies which have been active as you’ve said, there will be more higher added value manufacturing products in the future.
Because of the growing levels of automobile manufacturing taking place on the continent, you will now see several dozen Japanese companies building factories in Morocco. It’s very exciting.
More than half of Mitsubishi’s revenue now comes from outside Japan. What are the reasons behind this?
The growth trajectory of Japan has not been that strong, despite Prime Minister Abe’s somewhat more dynamic environment. Let’s remember that MUFG, after some of the Chinese banks, is one of the largest banks in the world, so you need a lot of growth to take good advantage of all of that potential saving power.
As Japan heads onto a trajectory that will not produce very exciting growth opportunities, big institutions need to increasingly move outside and beyond territories where they’ve invested historically, such as South East Asia and part of Latin America.
What is Mitsubishi’s Africa strategy? What projects have you been financing so far and who are you partnering with?
The bank has been in parts of the continent for a very long time – for example, in South Africa the bank has been present since the early 1960s. We are a very large lender to most of the blue-chip corporates in South Africa and we are already in most of their largest banks.
Now, it has been exciting to push north of Limpopo to probably some of the more mature markets on the continent. I suspect a lot of what we will do will be in the structured finance space, not just big project finance activity.
But we will also look at things that relate to commodity financing; there are a lot of oil and gas energy projects which are very exciting, for example. It’s a natural place for the bank because of our strong structured finance skills; so I think that’s probably where you will see us: in infrastructure, energy and commodity financing.
What are the risks associated with lending in Africa? How does Mitsubishi balance these risks?
It’s an incremental process for all big banks like ourselves. We only work in sectors that we know well. So if you’ve done energy in South East Asia and Latin America, then adapting to the environment on the continent is not that much of an intellectual leap. It just takes time to understand different countries.
We work very closely with DFIs and other risk mitigation partners to ensure that the risk we take is discreet and manageable over time.
Afreximbank has just raised its first ‘samurai’ loan with MUFG. Why are samurai loans attractive and are you expecting to see more in the future?
It’s the power of Japan’s saving rate. Japan is a remarkable phenomenon in this regard – across a greater diversity of smaller finance institutions all the way up into the northern islands, there’s a lot of money in Japan but it’s also very conservatively orientated.
The ‘samurai market’ has been exciting for many years but mostly for developed markets sovereigns and corporates. The ability of Afreximbank to procure liquidity is incredible. They hit the big markets with regularity and their ability to tap into the Japanese markets, as the first African institution to do so, is very interesting.
The DFIs use the market a lot so it’s exciting that Afrexim should put itself into that same environment. It’s good diversification and frankly, fantastic banking.
What are some of the nuances of Japanese lenders that African banks should understand in order to create the best partnerships?
As people well know, Japanese institutions are relatively formal. It’s not that they’re cautious but they’re extremely price-oriented and therefore they structure their approach to new activities in a very methodical fashion, which translates naturally into longer decision-making times.
But what is invariably true is that once Japanese corporates and their banks make the decision to move, they move with great authority. But it’s part of a process; it reflects a little bit of the high-quality nature of the delivery that Japan provides. It has some of the strongest financial institutions and the best technical products in the world.