Japan eyes its last largest market.

Author:Kedem, Shoshana
Position:Special Report: Japan: Africa

TICAD 7 provides an opportunity to boost Japanese investment in Africa, but many Japanese investors still find the continent a risky bet. Shoshana Kedem talks to figures from the world of finance to find out what can be done to attract more international capital

Japan can be a wary lender when it comes to Africa. The upcoming TICAD 7 summit, geared towards boosting Japanese investment in Africa, will provide a stage for countries, investors and policy-makers to expand their horizons on the continent.

In relation to the size of its economy, Japanese investment in Africa is low. Japan is home to some of the world's largest banks and deep pools of capital, much of which is invested locally and across Asia. Yet Japanese investors say a tightening of frameworks and regulations on the continent could improve the investment climate and drive up Japanese investment.

In 2016 direct investment by the world's third largest economy in Africa stood at $10bn, while UK investment was at $53.3bn, the US at $55.3bn, France $47bn and China $38.7bn.

Land of opportunity

Ahead of TICAD 7, Japanese investors told African Business that while Africa offers a wealth of opportunity to investors in infrastructure, they still find the continent a risky bet based on political and economic uncertainty, and patchy regulatory frameworks.

Sumitomo Mitsui Banking Corporation (SMBC), a commercial bank currently engaged in structured finance of infrastructure, aviation and energy projects across the continent, said it has capital and liquidity ripe for African investment when the business and regulatory conditions are right.

The Japanese funding model differs from Beijing's in the respect that Tokyo-based banks such as SMBC have preferred working with export credit agencies such as the Japan Bank for International Cooperation, and the World Bank Group's Multilateral Investment Guarantee Agency (MIGA) to fund projects on the continent. SMBC is also working with development finance institutions (DFIs) and multilateral institutions like the African Development Bank (AfDB).

Past projects have involved SMBC and the AfDB sharing the risk of local African banks on a 50/50 basis under a 2016 trade-finance programme.

Tightening regulation

Africa's investment climate would benefit greatly from clearer PPP laws, regulations, and frameworks that are in line with global standards, says Katsufumi Uchida, the executive officer and general manager, International and Structured Finance...

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