China and Japan’s crucial role in Africa

The government of Japan strongly encourages trade with Africa. However, the World Bank warns that a slowdown in parts of the region could hamper investor confidence. Furthermore, with China firmly entrenched in many African countries, Japan faces stiff competition.

From Nairobi, Kenya, Duncan Bartlett reports.

Many busses which carry passengers around Nairobi resemble four-wheeled nightclubs. Lights flash, music blares, and passengers try to sing and dance, despite being squeezed tightly into their seats.
The buses are known as matatu in Swahili. They are often painted in bright colours—orange, purple, and red—and are decorated with pictures of icons from pop music, football, or religion; Bob Marley, Renaldo, and Jesus. The paint is supplied by Sadolin, a company which was bought by Japan’s Kansai Paints in February 2017.

Like other companies on the expansion trail, Kansai Paint has used the support of experienced Japanese government officials, who smooth the path for businesses abroad. “Japanese companies are often shy about entering new markets, so we show them how to do business here,” said Natsuhiko Naoe, who represents the Japan External Trade Organisation, Jetro, in Nairobi.

Government push

On a visit to Kenya in 2016, Japan’s Prime Minister Shinzo Abe said, “We have a feeling in our gut that, in Africa, where possibilities abound, Japan can grow vigorously.”

Mr. Abe pledged that Japan would invest US$30 billion. A key goal is to bring electricity to three million homes by 2022, through investments in hydro, solar, gas, and geothermal projects. Unfortunately, Mr. Abe’s announcement coincided with a major economic setback. In 2016, sub-Saharan Africa’s economic growth declined sharply. The region’s three largest economies—Angola, Nigeria, and South Africa—were all badly affected and the World Bank predicts only a modest rebound in 2017.
However, with 55 countries in total, Africa presents a mixed picture. In 2016, for example, Cote d’Ivoire was a stellar performer with a GDP growth of 8.2%.

Competition with China

Japan is not the only Asian country expanding its presence in Africa. China has hailed Africa as “golden ground” and has extensively invested in oil-producing countries such as Nigeria and Angola. China also owns most of the copper mines in Zambia. However, the recent sharp fall in commodity prices and a rise in wages have prompted it to scale back its investments.

Japan and China compete for some contracts relating to natural resources, such as oil, copper and liquefied natural gas. When they go head-to-head, the Chinese government throws its full weight behind the bidding process and provides concessional financing through the China Development Bank and other state-owned enterprises. Japan’s response can seem slow and timid, partly because it is decided through a complex bureaucracy.

China’s golden ground

Chinese regards Africa as a vital source of essential commodities, such as oil, gas, and copper. Chinese companies also see Africa as an important market for their goods. Chinese motorbikes, rice cookers, and flat-screen TVs are popular with Africa’s growing middle class.

Some of China’s projects are on a vast scale. In Kenya, it is funding a US$4-billion railway, and Nigeria’s President Muhammadu Buhari is seeking a loan of $6 billion from the Export-Import Bank of China for its railway projects.

China often brings its own construction workers to Africa to join local teams. The Africans welcome the investment but are sometimes wary of the Chinese workers who live in compounds separated from the local community. “Are they prisoners?”one Kenyan woman asked me.

Political rivalry

The political rivalry between China and Japan can also be felt in Africa. Japan aspires to become a permanent member of the UN Security Council and its diplomats encourage African nations to vote in favour of its bid. China opposes Japan’s plan and wants the Africans to vote against it. This can lead to tense situations in which politicians are pressed to decide which East Asian country they most favour, as though choosing between rival suitors.

In business terms, the Japanese government and commercial banks offer sophisticated deals to fund power, telecoms, and transportation projects.

Jonathan Bell, editor-in-chief at Trade & Export Finance (TXF Media) in London said: “Japanese corporations are increasingly active in Africa and they are backed by export credit support from government agencies such as JBIC and NEXI. Their advantage over some of the Chinese competitors is that they also have support from strong commercial banks such as MUFG and SMBC, which are looking to expand in Africa. Some African governments are pleased to work with the Japanese because they don’t want to be over-reliant on the Chinese.”
However, the two Asian countries are not always rivals. “China is a strong competitor but sometimes we can collaborate,” one Japanese official, who is based in Africa, told me. “They can construct the roads and we can make the cars.”

Duncan Bartlett is a former BBC Business Reporter and founder of Japan Story. The full version of this article is published on the website, Japan Forward.