The president of the African Development Bank (AfDB) recently encouraged the private sector of Japan to invest more in the various opportunities presented by Africa by stressing the importance of basing investment decisions on data and facts rather than stereotypes.
Akinwumi Adesina, who was the keynote speaker at the 8th Tokyo International Conference on African Development (TICAD8) held in Tunisia from August 26-28, spoke with The Japan Times about his hopes for greater economic cooperation between Japan and Africa, specifically in the areas of bilateral trade and investment.
Trade between Japan and Africa in 2021 totaled only $23.5 billion, or 1.5% of Japan’s total global trade of $1.5 trillion.
“The Africa Continental Free Trade Area now offers much wider opportunities to change this,” Adesina said.
Moreover, while Japan’s global foreign direct investment is valued at $2 trillion, Africa accounts for just 0.003% of that figure.
“Japan’s investment stocks in sub-Saharan Africa reached a peak of $12 billion in 2013. However, this declined to $6 billion in 2021,” said the AfDB chief, who listed several investment priority areas for Japanese partners and investors, including telecommunications, health care and agriculture.
Africa, for instance, faces major deficits in financing health care infrastructure, Adesina said. He noted that the $4.5 billion currently spent each year by African governments in total is far below the estimated $26 billion in annual investment needed over the next decade to meet the region’s evolving health care needs.
Africa, large parts of which have been grappling with food insecurity, also welcomes investments in boosting nutrition and increasing food production, Adesina said. There are huge opportunities in agriculture, with the continent possessing 65% of the remaining uncultivated arable land left in the world.
“So, what Africa does with agriculture will determine the future of food in the world. We expect the size of the food and agriculture market in Africa to reach $1 trillion by 2030,” he said.
During the TICAD8 conference, Prime Minister Fumio Kishida pledged $30 billion over the next three years for African development, with a focus on investing in human capital and fostering quality growth in a continent where China and Russia are exerting their influence.
Tokyo and the AfDB also announced $5 billion in financial cooperation from 2023 to 2025 to promote further co-financing and private sector participation from Japan. The initiative is set to help tackle development challenges across the continent in the areas of electricity, connectivity, health, agriculture, and nutrition.
Besides infrastructure and agriculture, Adesina sees other key sectors offering chances for Japanese businesses, including in fintech and renewable energy.
“Renewable energy investment opportunities are immense. The investment by Japanese companies in the Olkaria geothermal energy plant in Kenya is a good example of what Japan can do on renewable energy in Africa,” Adesina said.
“From the Democratic Republic of Congo to Morocco, Namibia, and Botswana, huge opportunities exist for green hydrogen, the fuel of the future.”
In terms of natural gas, the AfDB chief said Africa is primed to be an alternative source of supply for Europe, Japan, and other parts of the world, noting that the continent boasts some of the world’s largest reserves.
It also holds some of the largest lithium deposits in the world, with Adesina saying that Africa “has enough to make itself competitive with China and Chile in the race for supplying global value chains for electric cars. Japan can play a huge role in investments in this area.”
However, several foreign companies, including Japanese firms, have pointed to investment risks in many African countries related to macroeconomic and political instability and unclear regulatory frameworks. Nonetheless, the AfDB chief dismissed these risk perceptions as “often exaggerated” and “not matching the data on risks and return on investments.”
Adesina pointed to a 10-year cumulative assessment performed by Moody’s Analytics on global infrastructure debt default rates. It found that Africa was the region with the second-lowest cumulative default rate, after the Middle East.
“Investments are tilted to the regions with the much higher default rates. So, it is not about real risks. It is all about perceived risks,” he said.
“Accordingly, we must develop more bankable projects, wider pools of risk mitigation instruments, and standardize our product offerings as multilateral development banks and financial institutions.”