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African economy Japan renews Africa investment push as rivals surge ahead

African economy Japan renews Africa investment push as rivals surge ahead

Financial Times
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African economy
Japan renews Africa investment push as rivals surge ahead
China’s overwhelming presence in the continent prompts Tokyo to encourage corporate engagement

© James Ferguson

August 28, 2019 4:00 am by Leo Lewis and John Aglionby
When Kansai Paint bought three east African companies in 2017 in what was the largest corporate takeover in the region for two years, many analysts predicted it would be a precursor to greater Japanese investment on the continent.

In the previous year, the Japanese government held its Africa-focused investment conference, known as Ticad, in Africa for the first time, in the Kenyan capital, Nairobi. The move lifted the veil on a region hitherto unknown to many Japanese corporates.

“For many of the top Japanese CEOs it was the first time they had set foot in Africa,” says Moses Ikiara, managing director of the Kenya Investment Authority. “They were surprised that Africa had made so much progress and so we’re now seeing an increasing awareness and interest.”

Kansai Paint, which first invested in the continent in 2011 — in South Africa — is convinced of what it described as Africa’s “extremely high potential”.

“Currently the GDP of all of Africa is about the same of India and the market is becoming more attractive year after year from the business perspective,” Kansai Paint says, adding that it is planning a push into west Africa and across the continent “at the earliest time”.

For Kenya, the Ticad meeting appears to have had the desired result. Mr Ikiara says the number of Japanese companies investing in Kenya has jumped 45 per cent since the 2016 Ticad meeting. Japanese government data show that, in 2018, exports of goods to Kenya, led by industrial giants such as Toyota Tsusho, grew 17.8 per cent on the previous year while imports from the east African country rose 13.1 per cent. “If you look at the number of consulting firms that are operating on behalf of companies, you can see growing interest from Japanese companies,” Mr Ikiara says. The figures for countries such as Egypt and Ivory Coast are equally robust.

But across the continent the picture is mixed. For all of Africa in 2018, Japanese exports grew 8.8 per cent compared with the previous year, while imports rose 8.1 per cent. Foreign direct investment fell 2.8 per cent in 2018 compared with 2017, to $1.6bn — 4.3 per cent higher than invested in 2014.

While the slowdown in major commodity-dependent economies such as South Africa, Nigeria and Angola played a role in crimping this growth, some of Japan’s main rivals, notably China, have not been so restrained.

This was highlighted in May this year in a speech by Hiroshige Seko, Japan’s minister for economy, trade and industry, in which he noted that African imports from Japan had grown only modestly since 2001, while those from China had jumped more than 18 times.

But it is not only China that has surged ahead of Japan. In 2004, Japan was the fourth largest trade partner with all the countries of sub-Saharan Africa, with two-way trade of $11.7bn, according to IMF figures. Now it is the sixth largest trader with sub-Saharan Africa, having been overtaken by India and the United Arab Emirates.

Japanese companies are showing you can do good business in Africa and they are taking that story home

In his blunt speech, Mr Seko said that Japan’s difficulty in gaining greater foothold in Africa arose in part from the country’s success at penetrating developing markets in Asia. The development model Japan followed in Asia — where Japanese manufacturers entered and established local supply chains — was being leapfrogged by African start-ups and through digital reforms. Japan, said Mr Seko, needed to create a new development model.

Kansai has learnt this for itself, placing much more trust than elsewhere in local management. “Introducing Japan’s best-selling products or excellent products overseas is not always a success,” Kansai Paint says. “In that sense, local staff are most knowledgeable about the local business especially in terms of the operations.”

In an attempt to catalyse such change, the next Ticad meeting — starting today in Yokohama — will coincide with the establishment of a permanent joint council between the Japanese government and corporations on promoting investment in the continent.

But while the data show Japanese engagement with Africa might be standing still at best, economists say investment could accelerate soon.

“While China’s engagement has largely been state-to-state, Japanese corporates have been seeking out private sector opportunities and that’s why there’s been a slower pace of growth,” says Razia Khan, chief Africa economist for Standard Chartered bank. “It’s a much more gradual story, they pick and choose and find the right projects and carefully assess the risks involved.”

Ms Khan expects Japanese investment in sub-Saharan Africa to accelerate — due to the lead taken by the Japanese government and because opportunities at home are stagnating in many sectors, but also because the region’s main economies are starting to pick up. “We’ve just started to see a turning point in [sub-Saharan Africa’s] key economies, it’s hard to see the growth remaining as weak as it has been,” she says.

Mr Ikiara is also confident he will see more Japanese investors. “There are so many problems that need solutions here and that’s an opportunity for business,” he says. “More and more Japanese companies are showing that you can do good business in Africa and they’re taking that story back home.”

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