Lacking both resources and a youthful population, Japan is targeting African countries' nascent markets and plentiful commodities with generous development finance and infrastructure partnerships. Adrienne Klasa reports.

Olkari power plant

At the end of the Second World War, imperial Japan surrendered to the Allies and, within two years, the Allied occupying forces led by Douglas MacArthur imposed a new constitution on the country. Article 9 stripped Japan of right to an offensive military force, with “the Japanese people forever renouncing war as a sovereign right of the nation and the threat or use of force as means of settling international disputes”. That tenet has remained a foundational principle of Japanese foreign engagement to this day.

It sends a pointed signal, then, when Japan established its first international military base since the fall of imperial Japan in Djibouti, a small country in the horn of Africa that sits astride the shipping chokepoint of the Straits of Bab el-Mandeb.

When Japan established the base in 2009, it had a very specific mandate: namely, fighting piracy on the shipping route out of Somalia. By 2015, however, instances of piracy in the Gulf of Aden had fallen close to zero. Instead of packing up the base, however, Japanese forces remain in Djibouti to this day. As of the end of 2018, two Kawasaki patrol aircraft, a naval destroyer and about 180 ground troops remain there. Plans are now in place to expand the base.

At first glance it may seem odd that Japan has chosen this small, remote country for such activity. However a number of forces are pushing Japan to look for resources and commercial opportunities beyond its borders, with a noted push into African markets through development deals over the past few years.

Even with the recent increase in engagement, there is scope for much more. “Japan’s current economic commitment to Africa is extremely low compared with what it could be. We believe it should double in size in the coming years,” says Katsumi Hirano, executive vice-president at the Japan External Trade Organization (Jetro). “We would like to see Japanese companies with more progressive, well balanced commitments to Africa.”

Neighbours and rivals

Competition with China is one of the strongest motivators, and helps to explain Japan’s presence in Djibouti. The African country plays host to military installations for the US and France, among others, while China also chose to make Djibouti its first permanent extraterritorial installation. For regional rival Japan, this is a worrying manifestation of China’s increasingly expansionist military and foreign policies.

“The gravity of Japan’s base in Djibouti diversifying its operational capabilities is made all the more evident when considering that China, as one of Japan’s principal security rivals, has also established a new military base in the same country, linked to its [Belt and Road Initiative] through central Asia,” Ra Mason, a Japan expert at the University of East Anglia in the UK, wrote in a recent article. “In this context, the Djibouti base can also be expected to become a key site of strategic competition as the US-Japan alliance challenges Chinese interests seeking to invest further in African infrastructure and gain political leverage to exploit natural resources in volatile regions.”

Japan’s economic engagement in Africa has indeed gathered pace, albeit at a fraction of the volume of investment that China has pumped into the region over the past two decades.

In 2014, following a whirlwind trip across the region with stops in Mozambique, Côte d'Ivoire and Ethiopia, Japan’s prime minister, Shinzo Abe, pledged $32bn in new aid, investment and loans for the region over the period to 2017. This was a major increase on the $9bn in aid Japan directed towards the continent between 2008 and 2012.

This was followed rapidly by another trip in 2016 to host the 6th Tokyo Conference on Africa’s Development summit in Nairobi, Kenya, during which Mr Abe committed an additional $30bn in Japanese investment into the region. Some 67% of the 2014 package had already been deployed, he said, while $10bn of the new package would go towards urgently needed infrastructure financing, to be executed in partnership with the African Development Bank.

“This is an investment that has faith in Africa’s future, an investment for Japan and Africa to grow together,” he told gathered leaders. “Today’s new pledges will enhance and further expand upon those launched three years ago. The motive is quality and enhancement.”

Japan’s links with development in Africa are not new, but they have scaled up and become more commercial in recent years. Japan’s aid programmes in the region go back to the 1960s. During the oil crisis in the 1970s those relations took on a more commercial character, as Japan diversified its regional ties, with a focus on oil exporters such as Nigeria. It also played a sizeable role in debt cancellation for highly indebted developing countries – many of them concentrated in Africa – at the turn of the millennium. “Of total cancelled debt, some 70% came from Japan,” says Mr Hirano.

Aid is still an important piece of the financial flow between Japan and Africa. As of 2016, Africa accounted for 28% of Japan’s development grants, 15% of technical assistance, and 4% of concessional loans, largely coordinated through the Japan International Co-operation Agency (Jica).

Natural resources

However Japan’s more energetic approach to commercial ties across Africa in recent years reflect more mercantile interests. As a highly industrialised but resource-poor country, Japan has long been keen to secure the base materials it needs to fuel its economy.

Figures from Jetro show imports from Africa to Japan rose 13.8% year on year in 2017. Japan imports a huge percentage of key minerals and metals from a small number of markets in Africa, according to think tank Institut Français des Relations Internationales.

These include some 78% of its rhodium, 72% of its platinum (largely from South Africa) and 46% of its manganese (a key ingredient in both aluminium and alkaline batteries). Oil, metals, precious stones and seafood are also major Japanese imports from the region. 

In recent years, however, liquefied natural gas (LNG) has become one of Japan’s biggest interests as huge gas fields come on line in places such as Mozambique, Tanzania and Egypt. “LNG is certainly key for us, and the Indian Ocean route [from Mozambique] is very convenient to come to the Asian region,” says Mr Hirano.

China competition

In this area, competition with China is more direct. When Japan’s LNG demand dropped slightly at the end of 2018 as nuclear power stations picked up in activity (a sign of recovery following the Fukushima Daichii nuclear disaster of 2011), China overtook it to become the world’s biggest natural gas importer. Prior to the Fukushima Daichii disaster, which followed an earthquake and tsunami, nuclear power accounted for 27% of Japan’s domestic energy supply. The backlash against nuclear power meant that had to be replaced, largely by LNG supplies.

Competition for supplies is increasing, however, as major economies try to move towards cleaner energy options. Japan, China and South Korea together account for about 60% of global LNG demand. African markets remain a relatively small piece of Japan’s gas imports; however, this could change – especially with the size and scale of Mozambique’s Rovuma Basin Fields. Japan sourced 2% of its LNG from Nigeria in 2016, while heavy crude oil from Nigeria, Angola and Gabon are also important elements in its energy mix.

“It’s remarkable that even after Mozambique’s recent economic troubles, everyone’s still up for [investing in] it,” says Christopher Marks, managing director and head of emerging markets at Mitsubishi UFJ Financial Group (MUFG). Mozambique went from a development darling to donor pariah in 2016 after the country concealed about $2bn in off-book government-backed loans from the International Monetary Fund.

As a region, Africa is now the world’s third largest LNG exporter by volume, and major finds in Mozambique, Tanzania and Egypt look likely to boost that share. 

Industrial opportunities

While securing imports is key to Japan’s regional economic strategy, so is finding growth markets for its companies. With their young, growing and increasingly wealthy populations, African markets are prime targets.

The world’s youngest region is set to boom, and Lagos, Nigeria’s bustling commercial capital, is a case in point. In the 1950s, Lagos’ population was about 300,000 people. Today some 20 million live there, a number the UN predicts will reach 40 million by 2050.

This mirrors broader demographic trends: the population of the African continent is set to double over the next three decades. The opposite is true for Japan, meanwhile, as a rapidly ageing population and shrinking workforce puts negative pressure on gross domestic product growth. This explains why Africa’s fast-growing, rapidly urbanising young markets present a sizeable draw for Japanese companies.

As the region looks to fill its power and infrastructure gaps, Japan is keen to push for deals in renewable energy, with projects in places such as Kenya and Ethiopia of particular interest, Mr Hirano at Jetro notes. “In terms of this new technology, Japan is one of the frontrunners for innovation,” he says.

Jica, for example, has provided several billions dollars in loans to build a geothermal plant in Kenya at Olkaria. Japan’s Marubeni Corporation won the construction contract for the project, while Fuji Electric and Mitsubishi Hitachi Corporation will provide turbines and other equipment.

For Japan’s private financiers, however, the reality is somewhat more complicated, with banks being crowded out of clean energy transactions by multilaterals. “You can’t swing a cat in clean energy in east Africa without hitting a development bank,” says Mr Marks.

Infrastructure deals

Mr Marks notes that Japan’s approach to financing projects in the region differs from China’s, where the top-down state model enables Chinese state-linked contracts and financiers to go into deals as a package. In Japan, companies and financiers must make their own way, though government support often follows.

One example is Malawi and Mozambique’s Nacala Corridor infrastructure project, which will link Mozambique’s mining interior to coastal ports via a new rail network. The Japan Bank for International Co-operation (JBIC), a public entity, helped co-finance the project alongside a consortium of financial institutions that included MUFG, Nippon Life, Mizuho Bank and the African Development Bank.

The project is seen as key to securing strategic resources for Japan. As JBIC notes, Japan is “totally dependent on the import of coking coal from abroad which is used to produce steel”. JBIC will “provide financial support... while proactively encouraging Japanese companies to participate in the development of mineral resources abroad or acquire interests in those resources”, the company said in a statement.

Automotives is one potential key area of activity. Japanese companies such as Toyota have had operations in Africa for 60 years, with a major plant in South Africa. In September 2018, Suzuki announced it was exiting its factory operations in China in order to focus investment on growing markets in India and across Africa.

“The car industry depends on domestic market size. In Africa, this is growing though it is still a very small market,” says Mr Hirano. As of now, about one-third of all exports from Japan to the region are used cars but as wealth increases, this could change. “There is capacity to have more production in Africa,” adds Mr Hirano.

He also believes there are big opportunities for Japanese pharmaceutical companies, as greater wealth and better nutrition changes the disease profile in African countries. The drop in child mortality in Africa over the past 60 years is one of global health’s greatest achievements. However, non-communicable diseases such as cancer, heart disease and diabetes in older people are on the rise.

Mr Hirano believes that Japan and African countries ultimately have much to offer each other, and that all investment partners can bring different benefits to the table. “China doesn’t always understand what Africa is; it thinks more in an ‘Asia’ way. The large size of loans demonstrates this, but they yield quite different results outside east Asia. If China can provide big infrastructure, that’s okay for us – we can use it,” he says. “Japan is different compared with other development partners.”


All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker

For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Top 1000 2023

Request a demonstration to The Banker Database

Join our community

The Banker on Twitter