To solve the development challenges in Africa, capital investments need to be significantly improved. Approximately $454 billion will be needed to ensure universal energy access by 2030, according to the African Development Bank (AFDB). The bank believes it will take $4 trillion to reach all the UN Sustainable Development Goals. And the continent faces a $277 billion annual bill to adapt to climate change.
The continent's continued hunt for the funds needed to tackle this set of challenges has become even more difficult due to our departure from the continent. Africa is looking for alternative sources of capital, so while it certainly can better utilize its own sources of funding, they also need to find new overseas partners. And one of the more important countries for financial institutions in Africa is Japan.
The Japan-Africa match is a potentially promising match. Africa needs billions of dollars in capital investment. Japanese financial institutions have some of the world's largest balance sheets and are looking for a better way to invest their cash reserves to strengthen their revenues.
Of course, completing a partnership is not easy, given the differences in geography, language and culture. However, there is no doubt that African institutions are intensifying their efforts to seduce Japan's capital. For example, AFDB has maintained its offices in Tokyo since 2012, but hosts of other multilateral development banks and private investment companies have increased their involvement with Japanese investors. TICAD 9 offers another opportunity to strengthen relationships and move them forward.
Building relationships
One of the leading players moving forward in the Japanese market is the African Finance Corporation. In recent years, AFC has secured two “Samurai loan” facilities. This is a syndicated loan from the Yen religion that allows Japanese institutions to borrow from Japanese financial institutions. Most recently, in 2022, he raised $382 million and Â¥100 million ($6 million) through dual currency lending facilities.
Modupe Famakinwa, head of corporate funding and investor relations at AFC, said Japanese investors have become “important sources of funding” for Africa's development. She says the AFC has well-developed relationships with the Bank of Japan, including Mitsubishi UFJ Financial Group (MUFG), MiTomo Mitsui Banking Corporation (SMBC) and Mizuho Bank.
Famakinwa acknowledges that building relationships with Japanese banks is not quick or easy for African institutions. “It took me years to develop that relationship, but once I made that connection, the opportunity was greater,” she says. “The good thing we found at Japanese institutions is that when you build a relationship, it's pretty sticky.”
“If you can convince them that you deserve that trust, you have a loyal investor for a very long time.”
AFC won its efforts in June to solidify its reputation in the Japanese market when the institution received an A+ credit rating from a Japanese credit rating agency. “Having a credit rating that validates how strong AFC credits are, in a language that Japanese investors understand, take it a step further to look at our names and open the door to even more investors.”
Bridge to Africa
Famakinwa says the AFC intends to use relations in Japan to benefit African partners as part of its obligation to strengthen infrastructure development and economic growth on the continent. “AFC has access. The next step for us is to make this strong economy accessible to other African institutions.” The AFC is partly owned by the African government, but 45 African countries are members of the AFC. This means that you are eligible for sovereign financing support and have access to the AFC's funding pool for infrastructure development.
The AFC has already used its position in Japan to benefit some of its member states. In November 2023, it served as a regroup of 75 billion yen ($508 million) of Samurai bonds issued by Egypt. Famakinwa says that at this time, the international bond market, a more typical source of funding for African sovereigns, has “has increased yields very much.” With the support of AFC as a regroup of Egyptian samurai bonds, Egypt was able to borrow from Japanese investors with much lower yields, saving about 800 basis points on Cairo.
One of the next steps, according to Famakinwa, is to persuade a wider range of Japanese financial institutions and Japanese companies to consider the opportunities available in Africa. AFC has invested time talking to manufacturers and potential contractors.
“We have discovered that these meetings will be held one-on-one.
Meanwhile, while AFC itself has not yet issued samurai bonds, Famakinwa says it is considering a variety of financial structures that will help it work with more Japanese investors.
“We are likely to continue to explore and see when and how we can access the Samurai Bond market,” she says. Famakinwa adds that AFC is partnering with the Bank of Japan's International Cooperation (JBIC), export credit agency Nippon Export and Investment Insurance, and the Japan International Cooperation Agency, to provide a “winning” structure for Africa and Japan.
Famakinwa says that the key to advances in relations between Japan and Africa is “dialogue, dialogue, dialogue.” Ground involvement is essential to helping Japanese investors better understand investment opportunities in Africa compared to what they can convene through desktop research, she says.
“We strongly believe that this relationship is worth it and are constantly looking for ways to grow, develop this relationship and expand it on both sides.”
Turn to TICAD
Prior to TICAD 9, there are growing signs of momentum in efforts to build a financial link between Japan and Africa. In July, Ivory Coast issued 500 billion yen ($339 million) samurai bonds, becoming the first sub-Saharan Africa to enter the Japanese bond market. JBIC acted as a bond guarantor. The Ivory Coast government will use revenue from bonds to fund programs under the National Development Plan, which aims to promote comprehensive growth and address the impacts of climate change.
Famakinwa believes that Ticad itself will provide an opportunity to open even more doors for Japanese investment.
“How can we build into relationships that have been established so far? What new relationships can we connect? What industries can we connect to the continent?” she asks. “We want to open the door in dialogue and see what we're missing and what we still need to do.”
She reports that the AFC is likely to release many memorandums on their understanding with Japanese institutions, and that it is likely to host several side events with Japanese partners.
“For Tikad, my hope is that more Japanese institutions know the enormous opportunities in Africa.”
And in the long run, she is “very, very confident” that Japan-African relations continue to grow, as she is increasingly aware of the growth opportunities that Japanese investors can access through Africa's development.
“It's true, even the government and even all government engines have a willingness to invest in Africa. You can see that. It's visible.”
