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International relations

Japan urges African startup tie-ups in Belt and Road countermove

Tokyo seeks corporate help at conference as China pours billions into continent

Japan's Prime Minister Shinzo Abe attends the sixth Tokyo Conference on African Development, held in the Kenyan capital of Nairobi in August 2016.   © Reuters

TOKYO -- Japan is encouraging its companies to work with African startups, hoping to raise its profile on a continent often called the global economy's "last frontier" and offer a counterweight to Chinese influence there.

The Tokyo International Conference on African Development, a triennial event led by the Japanese government, opens on Wednesday amid two big trends: a shift toward private-sector investment from official development assistance, and advances in digital and financial technology that are bringing consumers without bank accounts and formal addresses within reach of companies.

"By forming relationships with African startups, we want to create more business opportunities for Japan," Katsumi Hirano, executive vice president of the Japan External Trade Organization, or JETRO, told reporters just ahead of TICAD. That is likely to be a common refrain at this year's conference.

Japan's trade promotion body set up a support system this year to provide information for Japanese companies hoping to partner with African ventures. It also compiled a list of 100 promising startups, such as Kenyan remittance service BitPesa and Ethiopian food delivery company Deliver Addis.

In May, Trade Minister Hiroshige Seko said his ministry would support venture capitals in Africa, explaining, "It is important to get involved from the early stages to effectively work with startups."

According to a foreign ministry official, Japanese Prime Minister Shinzo Abe has been calling this year's event a "business TICAD."

Other key points on the TICAD agenda include promoting third-country cooperation, making it easier to do business and nudging more small and midsize Japanese enterprises to enter the African market, according to JETRO. While China is investing heavily in Africa under its Belt and Road Initiative, Japan is attempting to build its presence there with relatively limited funds.

China pledged $60 billion worth of financing for Africa over three years at its Forum on China-Africa Cooperation, held in Beijing last September.   © Reuters

At the previous TICAD in 2016, Japan set a goal of investing $30 billion over three years, from both the public and private sectors. Actual investment has fallen well short of that, reaching $16 billion as of last September, though the final value has yet to be disclosed.

Meanwhile, China pledged $60 billion worth of financing for Africa over three years at its own Forum on China-Africa Cooperation last year. China is also the biggest exporter to the continent, shipping six times more than Japan by value. In terms of imports, China buys nearly five times more from Africa than Japan does.

Other countries like South Korea and India also hold their own TICAD-equivalent conferences, aiming to benefit from a growth market expected to account for a quarter of the world's population by 2050.

On its own, Japan's budget for official development assistance cannot compete with the likes of China. Institutions are also reluctant to lend money to Africa due to the repayment risks, according to Motoki Takahashi, a professor of African area studies at Kyoto University. The government "intended to cover for the insufficient amount of loans [to meet the $30 billion target] with the private sector," he said, but companies did not participate as much as the government anticipated.

One trade ministry official suggested the investment picture is misleading, as when companies acquire shares of African businesses and generate profits from those businesses, "they are not reflected" in foreign direct investment statistics.

Nevertheless, Japan is shifting its focus from the absolute value of foreign direct investment to partnerships with local and third-country players.

Trade Minister Seko revealed in May that insurers from Japan, Africa and Saudi Arabia will sign an agreement during the conference to establish a system that covers all exports of Japanese products and project financing for Japanese companies. And Seko also spoke about collaborating more with countries like India to train workers and send experts to Africa.

The idea of third-country cooperation is in line with Abe's vision of a Free and Open Indo-Pacific region. The ambition is for Japan to help foster a prosperous area stretching from Asia to Africa, creating a "place that values freedom, the rule of law and the market economy, free from force or coercion," as Abe said in a speech at the previous TICAD.

While the Indo-Pacific vision does not directly challenge China's Belt and Road, it "does offer a platform for coordination with key countries including Japan, India, and the U.S.," said Shihoko Goto, deputy director for geoeconomics at the Wilson Center, a Washington think tank.

Japan's strategy for countering China is also apparent in the way it emphasizes its ability to provide "quality infrastructure." And at a TICAD ministerial meeting in last October, Foreign Minister Taro Kono indirectly criticized China, saying, "I would like to reiterate the importance of sound debt management in order to enable sustainable development for Africa with African ownership."

China is often accused of making generous loans for infrastructure that bind countries in "debt traps."

"One should not overlook the foreign policy objectives that might lie behind bringing this issue [of debt sustainability] to the TICAD table," said Scarlett Cornelissen, a politics professor at South Africa's Stellenbosch University. She noted that with China's economic slowdown making Africa's commodity-driven economies more vulnerable, they "will seek to navigate the geopolitical stormwaters, and this means engaging with many different major powers."

Heather Munyao, investment promotion officer at the Kenya Investment Authority, said, "We give all countries the same platform ... and we get the best there is in terms of FDI."

From Africa's perspective, when it comes to attracting investors, it is a case of the more, the merrier. As government officials and corporate executives gather in Yokohama for TICAD, Arun Velusami, a partner at international law firm Hogan Lovells International, said Africa's "high-level government delegations will appreciate that they have an option besides China, or besides Europe or America."

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