Japan considerably trails China in trade with Africa.
China-Africa trade in 2015 amounted to about $180 billion, which was nearly 7.5 times more than Japan-Africa trade. If these numbers grow because of the “race to Africa,” Africa will benefit.
The Sixth Tokyo International Conference on African Development (TICAD) was hosted in Nairobi, Kenya in August. There is some strong symbolism in its presence in Kenya, as it was that first time TICAD has been held in Africa since its beginning in 1993. At the conference, Japanese Prime Minister Shinzo Abe pledged $30 billion in public and private support for Africa over the next three years—including $10 billion for African infrastructure projects carried out in cooperation with the African Development Bank and $20 billion of investment from the Japanese private sector.
And for critics (or doubters) of the $30 billion pledge, Prime Minister Abe also stated that, of the $32 billion pledged by Japan over a five-year period at the last TICAD meeting, Japan had already put 67 percent of that money to work in Africa. Closing out his promise, Abe added that the motive for this new pledge is “quality and enhancement.” Some attendees labeled that statement as a challenge to China—a country often criticized for the quality of work and material provided on the continent.
And the Chinese response…
The Chinese Foreign Ministry Spokesperson Hua Chunying responded with these words “Regrettably, during the Sixth TICAD held last week in Kenya, Japan attempted to impose its wills on African countries to gain selfish interests and drive a wedge between China and African countries.”
She elaborated this claim by highlighting Japan’s attempt to incorporate political issues, including maritime security issues and U.N. Security Council reform, into the conference agenda. The attempted inclusion of such issues was definitely a change of course from previous years.
Is this the beginning of a battle?
History shows Japan may be trailing both economically and socially in the “race to Africa”
Japan directly invested $1.24 billion in Africa in 2015, down from around $1.5 billion in 2014, according to the Japan External Trade Organization. Although the site does not provide a breakdown of sectors, it is clear from news and other reports that the investment covered projects in transport (roads, ports and airports) and power plants.
By comparison, China made a single investment of $2 billion in oil-rich Equatorial Guinea in April 2015 alone.
China is running away in the numbers. Their money touches a vast amount of infrastructure projects all across the continent from Mozambique to Nigeria. Even more compelling, China has investment in various natural resources projects across the continent.
China’s head start on investing in African natural resources must be a concern for Japan. Japan’s interest in this space in Africa is clear as the country is heavily dependent on importing natural resources. The shutdown of Japan’s nuclear reactors boosted its dependency on oil and natural gas in the past couple years. The country wants to deploy capital in natural resources at a time when most western investors have run away from the continent.
According to attendees at TICAD VI, the gap for investment in African natural resources has grown nearly threefold, particularly beyond 2016 where capital expenditures (CAPEX) were drastically cut internally unless prices dramatically rose in 2016, which has not been the case.
The challenge nevertheless for Japan is China can easily see the same problem and is deploying more cash in the same time frame at a rate the Japanese government and private sector cannot match.
What are the politics?
Japan first raised concerns in Beijing in 2011 when it opened a military base in Djibouti. The Japanese government consistently maintains that the expansion onto the continent was to help combat piracy. The Chinese government unsurprisingly views this as Japan’s initial steps in military expansion. Finding allies in African nations (and dressing the allegiance in piracy concerns), Japan can grow its presence on the continent with commerce and commerce protection at the forefront of its efforts. But as maritime issues cross into the larger commerce discussion, Japan can expect China to push back.
Observers are very aware that the East and South China Seas are a glaring source of anger between China and Japan. African leaders are part of that observing group and appear willing to benefit from the sociopolitical competition. As one observer noted, Ethiopia has done well playing the United States against China for dollars as the two major powers compete for influence.
Africa wins either way
It can be dressed in anti-piracy, a need for natural resources, or pure competition. Those African leaders who can control the conversation and the larger investment can make great strides.
Japan has a favorable view in many countries, particularly after the Chinese have been criticized for executing half-effort projects or using poor quality materials on roads. This only means the most strategic leader will, at least, make the Chinese pay more for better inputs used on the ground.
Let the race begin.
Kurt Davis Jr. is an investment banker with private equity experience in emerging economies focusing on the natural resources and energy sectors. He earned a law degree in tax and commercial law at the University of Virginia’s School of Law and a master’s of business administration in finance, entrepreneurship and operations from the University of Chicago. He can be reached at email@example.com.