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February 3, 2014

Japan Seeks Deeper Relationship With Africa

A Japanese prime minister paying a visit to Africa is a novelty in itself and that novelty was one of the main reasons behind the mass media attention Japanese premier Shinzo Abe’s recent tour of Africa received.

But Abe, who has already distinguished himself from previous Japanese leaders for a variety of reasons, also chose to tour Africa at a most opportune time for his country, and his government’s careful selection of three African countries—Cote D’Ivoire, Mozambique and Ethiopia—underscores the tactical and long-term approach that Japan is taking toward Africa, one with a view to forming deep ties that ultimately, will benefit all parties involved.

“Cote D’Ivoire is the gateway to Francophone West Africa, so the fact that it was included on Abe’s agenda has made it clear that Japan believes the consumer market there is worth exploring for Japanese companies to form business ties,” said Peter Thoms, founder and portfolio manager of investment management firm Africa Capital Group.  “It’s been estimated that there’s around 100 trillion cubic feet of natural gas off the coast of Mozambique and southern Tanzania, and because of the Fukushima disaster and Japanese nuclear plants coming off line, Japan is the largest importer of liquefied natural gas, for which they are very reliant on the Middle East. So Mozambique makes good sense for Japan.”

Finally, Abe’s visit to the Ethiopian capital Addis Ababa and the new African Union Building there is “more of a diplomatic entrée into Africa,” Thoms said, one that acknowledges Africa’s growing importance in the global economy.

It also goes without saying that for Sub-Saharan Africa, capturing Japan’s attention is a huge positive.

Recent news headlines from the African continent have been dominated by stories of strife in countries like South Sudan and Central African Republic, and they’ve tended to overshadow the progress made by several other African nations whose economies have been steadily growing and that have very positive stories to tell. So a visit from Japan’s prime minister will “raise their profile on the world economic stage,” Thoms said. “The countries in sub-Saharan Africa need more capital and they need business know-how. With Japan, you have the potential for both, so it’s great that Africa has gotten this attention.”

From a macro perspective, Japan has definitely understood that some of the African nations are among the fastest growing economies in the world, said Drew Edwards, portfolio manager at investment firm Advisory Research and a Japan specialist. Last summer, Japan pledged African leaders a $32 billion package of public and private funds to help support growth on the continent and encourage Japanese firms to invest in Africa.

Since that time, numerous Japanese businesses have keyed into the business potential that Africa offers, Edwards said, “and we’ve been seeing good M&A activity by Japanese companies in Africa. Toyota Motors, obviously, has invested in western Africa to produce cars for sale in the continent itself, and there are Japanese trading houses that have made infrastructure plays that target the development of the local economy.”

Because Japan does not have a great deal by way of natural resources, Africa’s wealth of natural resources—liquefied natural gas in particular—are definitely a high priority for Japan. But it’s also clear that many Japanese companies have seen the value in investing in local economies in Africa, given their growth potential. Edwards cited the example of Kansai Paints, one of the companies in his portfolio, which has “made a notable acquisition in Africa with the goal of selling there. Kansai wants to sell more paint and in some African countries, there’s a greater consumption of cars, for instance, so clearly their move is a hundred percent geared toward domestic economic growth.”

Of course, Japan is going to have to play catch-up to China, which already has a large and well establish presence in Africa. But Abe’s recent visit has also underscored the fact that today, many African nations are more than just natural resource plays, and the increasing role that Japanese business will play in Africa going forward will benefit from the growing consumer-driven dynamic that is likely to become a more important part of the Africa story.

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