- African Development Bank tells Japanese investors putting their money in the continent is profitable.
- Japan’s Foreign Direct Investments in Africa declined from $10 billion in 2016 to just $4.7 billion in 2020 during Covid-19, before picking up to $6 billion in 2021.
- According to AfDB, Africa accounts for only 0.003 percent of Japan’s $2 trillion global Foreign Direct Investments.
- Japan’s Prime Minister Fumio Kishida announced during the TICAD 8 Summit in Tunis last year $30 billion for Africa, including support for startups.
Africa is keen to increase Japanese investment in the continent, the African Development Bank (AfDB) has indicated amid growing interest from other countries including China, Europe and the US.
The move comes after a slump in Japan’s Foreign Direct Investments (FDIs) in Africa, which declined from $10 billion in 2016 to just $4.7 billion in 2020 during Covid-19, before picking to $6 billion in 2021.
According to AfDB, Africa accounts for only 0.003 percent of Japan’s $2 trillion global Foreign Direct Investments.
In terms of trade, the volume of exports and imports between Africa and Japan remains lower than two percent, hence the reason to change the trend, AfDB president Akinwumi Adesina says.
He has called for a significant increase in Japanese investment in Africa, saying the continent is the world’s best investment destination now and in the future.
Dr. Adesina is leading a bank delegation on a five-day visit to Japan during which he will meet senior government officials, large Japanese companies, development partners and members of the African diplomatic corps in the country.
Delivering a lecture at the Japan-Africa Investment Ecosystem Co-Creation Forum in the capital, Tokyo, Dr Adesina said Africa offers enormous investment opportunities while giving examples of Japanese companies that have been running profitable businesses on the continent for many years.
The forum was organized by Keizai Doyukai, a private, non-profit and nonpartisan organization that brings together nearly 1,400 top executives of some 1,000 corporations.
He mentioned the state-owned Japan Bank for International Cooperation (JBIC), which, together with TOTAL and other investors, including the AfDB, co-financed the $24 billion Liquified Natural Gas project in Mozambique—which will make it the third largest in the world. Japan will buy 30 percent of its production.
JBIC and Mizuho Bank, along with the AfDB and nine other financial institutions, invested $2.7 billion to build the Nacala corridor railway and port in Mozambique.
Dr. Adesina cited Japanese multinationals such as Toyota Tsusho, Mitsubishi Corporation, Hitachi and Komatsu, whose businesses make billions of dollars in profit every year on African soil.
“These companies will tell you investing in Africa pays,” said Dr Adesina, “there is now a greater pulse and excitement for more Japanese investments in Africa.”
The lender’s chief said the successes of large Japanese companies operating in Africa are spurring a new generation of young Japanese to turn their eyes to venture capital and private equity funds to support small- and medium-sized enterprises.
He cited the success story of Kepple Africa Ventures, which has raised $43 million and is investing along with African private equity funds in 100 seed-stage enterprises in 11 African countries. The Uncovered Fund, founded only in 2019, is another Japanese venture capital fund that has invested in 26 African startups.
Speaking during the forum, the Vice Chairperson of the Africa Project Team at Keizai Doyukai, Ken Shibusawa, said a new company, Capital Inc, was formed early this year to promote Japanese investments in Africa.
The chairperson of the Japan-AU Parliamentary Friendship Association, Ichiro Aisawa, described Africa as a continent of hope with population power. The parliamentarian announced that with the Covid-19 pandemic under control, the association will embark on a grand tour of Africa to raise Japan’s presence.
While the number of Japanese companies in Africa increased from 520 in 2010 to 900 in 2020, Dr Adesina called for more venture capital and private equity funds to tap into the continent’s huge potential.
He thanked the Japanese government for recognizing Africa’s strategic importance and showing a strong political will to invest in Africa.
Japan in Africa
During the TICAD 8 Summit in Tunis last year, Japan’s Prime Minister Fumio Kishida announced $30 billion for Africa, including support for startups in Africa, green growth, and training of 300,000 professionals from Africa.
“Japan aspires to be a partner, growing together with Africa,” Kishida said during a news conference.
Japan has traditionally pushed for trade and investments in the continent through the Tokyo International Conference on African Development (TICAD), an international conference on the theme of development in Africa.
The African Development Bank chief spelled out areas in Africa with enormous investment opportunities for Japanese investors.
Africa has the world’s highest demographic asset. Its population will rise to 2.4 billion by 2050. The continent has the largest number of young people in the world, with over 75 percent of its population aged less than 35 years.
“With appropriate skills, they will form the labor force for global industries as many countries face a rapidly aging population,” said Dr Adesina.
The recent establishment of the African Continental Free Trade Area makes Africa the largest free-trade zone in the world in terms of participating countries. Manufacturing opportunities alone would reach $1 trillion in 2025 while consumer spending will reach $6.7 trillion by 2030.
In addition, Africa has the world’s largest renewable energy sources, including solar, wind, hydropower, and geothermal.
The continent also holds the key for the world as it transitions towards electric vehicles with its abundant deposits of minerals and metals such as platinum, lithium, cobalt, copper, and graphite.
“The manufacturing of lithium-ion batteries is most competitive in Africa. For example, setting up a lithium-ion battery precursor in the Democratic Republic of Congo would be three times less expensive than in China or the US.”
Africa holds 65 percent of the remaining uncultivated arable land in the world. What Africa does with its agriculture will determine the future of food in the world. And the size of Africa’s food and agriculture market will rise to $1 trillion by 2030.
Other areas of enormous potential include the financial technology (fintech) sector; internet economy; healthcare; tourism; real estate, and automobile markets. For that reason, Dr Adesina said the Japanese private sector and businesses should invest a lot more in the continent. “Your investment is safe in Africa.”
He referred to a survey conducted in 2020 by the African Private Equity and Venture Capital Association which indicated that about 45 percent of Limited Partners expected returns in Africa to outperform emerging and developed markets over the next 10 years.
Also, 60 percent of the Limited Partners plan to increase allocations to Africa in the next three years.
Further, in 2020, Moody Analytics looked at infrastructure debt default rates by region cumulatively over a ten-year period, comparing Africa with the rest of the world. It found that Africa had the second lowest cumulative default rate, after the Middle East, while default rates are much worse in Eastern Europe, Latin America, and Oceania.
Dr Adesina reassured investors, “Africa is also not as risky to investments as many perceive,” and added, “Let’s ramp up Japanese private sector investments in Africa. Let’s do more together in Africa, faster and at scale.”
The AfDB delegation included Vice President for Power, Energy, Climate Change and Green Growth Dr. Kevin Kariuki, Vice President for Private Sector, Infrastructure and Industrialization Solomon Quaynor and Vice President for Agriculture, Social and Human Development Dr. Beth Dunford and the Executive Director of Argentina, Austria, Brazil, Japan and Saudi Arabia Takaaki Nomoto.