Japan shifting investment focus in Africa from infrastructure to human capital

By Jonas Nyabor

Posted on Thursday, 17 November 2022 14:49
Fintech is one of the areas Japan plans to increase its investments in through cooperation with the African Development Bank. REUTERS

Japanese investments in Africa are being reshaped as Tokyo seeks to shift focus from infrastructure to core competence and human capital development, says Ken Shibusawa, the director of the Japan Association of Corporate Executives, or Keizai Doyukai.

The historical rivalry between Japan and China for investment and influence in Africa has favoured the latter over the past years. And generally, the Japanese’ infrastructure project proposals on the continent were mostly overshadowed by less expensive offers from other countries.

“Our investment into Africa in the last decade has gone down,” Shibusawa tells The Africa Report. “Japan was traditionally strong in infrastructure but now there are countries that can do it at a cheaper cost than us. We boast of high quality but they [other countries] are cheaper.”

China is the largest investor in African infrastructure, with about $23bn worth of projects scattered across the continent. In trade, since surpassing the US’ record in 2009, China has been stretching its lead, reaching about $150bn in exports to Africa in 2021.

Away from Chinese dominance

Unable to reverse China’s influence on the continent, Japan is re-adjusting its investment focus to human capital development and impact investing, which stands in sharp contrast to Beijing’s infrastructure-focused investments.

Investment in Africa’s human capital is still at a nascent stage and is not dominated by the Chinese as in infrastructure, and thus Tokyo is tempted to push in this direction.

“What we bring to the table as Japan is the focus on human capital, that is now our focus,” Shibusawa says. “[This is] not just because Africa is rich in resources, or because there are billions of people, there is potential for human resource [development] and with us being involved in impact investing.”

To begin cooperation in this area, the Keizai Doyukai is working with the African Development Bank Group to create an independently managed impact fund that will leverage the association’s network with Japanese corporations in the private and public sectors.

We are not looking for quick returns because in developing human capital, having societal and environmental impact takes a long time so we want a long-term investment. Our focus areas of the proposed Fund are fintech, healthcare, food security and sustainability,” Shibusawa says.

More human capital development

At the last Tokyo International Conference on African Development conference in Tunis, Prime Minister Kishida Fumio was emphatic in his opening address when he said Tokyo “will promote human resource development” on the continent, and pledged to invest $30bn in public and private financial contributions over the next three years.

What is known publicly is that $4bn of the amount will be pushed into green growth and decarbonisation, and an additional $5bn to the African Development Bank to support countries facing debt challenges in the region.

In 2025, Japan will host the ninth edition of the conference, which will lay bare an extensive human capital development plan for Africa.

Riki Yamauchi, an associate of the US-Japan Council and founder of The Impact Company, says Japanese venture capitalists are already aligning with the goals.

“There has been a pick-up in inquiries from other VCs who are scouting for opportunities on the continent,” he says in a review of Japan’s 2022 investments in Africa.

“Within what is recently publicly announced, Digital Garage Ventures and Sozo Ventures’ investment to pan-African crypto exchange platform Yellow Card’s $40m Series B is worth highlighting.”

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