Japan eyes up African opportunities

At the seventh edition of the Tokyo International Conference on African Development (TICAD), Japanese lender JBIC relaunched its Africa facility, expected to provide US$4.5 billion (£3.7bn €4.7bn) to enhance the continent's trade infrastructure.

TICAD concluded on 30 August in Yokohama, Japan, with the Japanese prime minister Shinzo Abe announcing to a hall of African leaders, international investors and developers that US$20 billion (£16bn €18bn) will be channelled from the country's private sector to the African continent over the next three years.

Amongst the audience was the Japanese Bank of International Corporation (JBIC), a policy-based financial institution, which made its own commitments for quality infrastructure and sustainability by launching its third edition of the Facility for African Investment and Trade Enhancement (FAITH3).

Key Sectors

Previous iterations, FAITH1 launched in 2013 and FAITH2 in 2016, saw JBIC carry out loans, guarantees as well as co-financing investments alongside the Japanese private sector. Commitments from both facilities total US$7 billion (£5.7bn €6.3bn) over six years – from 2013 to 2018.

According to a statement released by JBIC, FAITH3 will enhance support to Japanese companies entering the continent based on three pillars.

One pillar pertains to social and environmental investments which outlines that JBIC will contribute to infrastructure developments that are sustainable. This includes water supply and waste treatment, social infrastructure ranging from healthcare to communications, and infrastructure projects that support natural resource development and trade.

 "Following the Japanese government's policy, we aim to promote quality infrastructure investment in Africa," shared a JBIC spokesperson.

In particular JBIC is looking to expand its energy portfolio.

 "We are particularly interested in financing the development of renewable energy including geothermal and promoting off-grid energy," said JBIC.

Exemplifying Japan's interest in scaling Africa's energy access, Japan's largest trading company, Mitsubishi Corporation, led a US$50 million (£41m €46m) series D funding round for BBOXX – a next generation utility in Sub-Saharan Africa specialising in off-grid and solar-home systems – in 28 August [2019]. According to BBOXX, the cash injection will support the utility's expansion across the region as well as internationally.

Mitsubishi Corporation was joined by ENGIE Rassembleurs d'Energies, Luxembourg's impact investor Bamboo Capital Partners, Dutch fund DOEN Participaties and Montreal-based equity firm MacKinnon, Bennett & Company.

Generally, the sentiments of TICAD and JBIC are largely driven by trade optimisation.

The most notable project JBIC has financed on the continent is the US$2.7 billion (£2.2bn €2.3bn) Nacala corridor connecting Mozambique's Moatize coking coal mine to the Nacala port in Malawi. The project is comprised of a 230km of railway, 36 new bridges and new port facilities.

In November 2017, JBIC signed a loan agreement worth US$1.03 billion (£824m €930m) for the project's special purpose vehicle which Brazilian mining company Vale and Japanese trading company Mitsui & Co. have an equity stake in. Sumitomo Mitsui Banking Corporation (SMBC), Mizuho Bank, Standard Chartered Bank, Nippon Life Insurance Company, MUFG and Sumitomo Mitsui Trust Bank also co-financed the project. The loan took two-years to finalise.

According to JBIC, Japan is heavily reliant on coking coal and sources approximately half its imports from Australia. The Nacala corridor project was an opportunity to diversify sourcing pools and investments to improve supporting trade and logistics infrastructure.

It is yet to be known whether another project of that scale with private participation is in JBIC's pipeline of financing opportunities, but the ratification of the African Continental Free Trade Area (AfCFTA) – a regional membership of 1.2 billion consumers and an accumulated GDP of US$2.5 trillion (£2tn €2.3tn) according to the United Nation's Industrial Development Organisation – in 7 July [2019] could provide incentive to support more cross border, trade-enabling, infrastructure.

However, there is a growing interest from other Japanese lenders and investors in Africa's markets. On 13 September, mandated lead arrangers MUFG Bank and SMBC closed on the Africa Finance Corporation's (AFC) debut dual currency samurai term loan facility, raising a final total of US$233 million (£190m €213m) – the largest debut samurai loan made by an African issuer.

The AFC is a pan-African finance institution that supports private sector-led infrastructure developments. According to the AFC, the facility has two tranches. The first, tranche A, is US dollar denominated whilst the second, tranche B, is Japanese-Yen denominated – each of a tenor of three-years described as a bullet repayment.

Since its general syndication launch in July 2019, with an initial opening of US$150 million (£122m €137m), the fundraise was reportedly oversubscribed with interest from Japan's loan market with eight Japanese lenders committing to the facility by 6 September.

Key markets

In terms of markets, JBIC pays attention to politically stable economies implementing encouraging reforms, such as Mozambique and Angola.

"At the moment, we are closely following LNG developments in Mozambique. We have also been in good dialogue with Angola since we agreed to provide an export credit line to the government earlier this year," said JBIC.

An export credit line totalling US$211 million (£172m €193m) was provided in January 2019 to assist the Angolan government with two projects implemented under the Namibe comprehensive development project. The programme includes the Namibe Port Expansion and Sacomar Iron Ore export terminal rehabilitation project. Contracts were finalised in March 2019.

The credit line is co-financed by private financial institutions including SMBC and the Hongkong and Shanghai Banking Corporation, which is covered by a US$51 million (£41.5m €46.6m) insurance from Nippon Export and Investment Insurance (NEXI).

However, this is by no means an exhaustive list for JBIC who shared that they are interested in other countries across the continent.

During the TICAD conference JBIC also signed memorandums of understanding with two regional institutions, the Development Bank of Southern Africa (DBSA) and the West African Development Bank (BOAD).

JBIC Africa project finance deal flow, 2015-2019

Source: JBIC, inspiratia | dataLive

Debt sustainability

Since its launch in 1993, TICAD has focused on supporting Africa in its economic transformation by encouraging private sector participation via PPPs. However, by the 2000s China's ambitious Belt and Road Initiative (BRI) had overshadowed Japan's footprint on the continent.

At the sixth TICAD held in 2016, Japan announced an investment target of US$30 billion (£24m €27m) from both the public and private sectors to be disbursed over three years. However, not only has the actual investment fallen short at just US$16 billion (£13m €14.6m), according to Nikkei Asian Review, but it also pales in comparison to China's Forum on China-Africa Cooperation's (FOCAC) – the Chinese equivalent of TICAD – commitments of US$60 million (£49m €55m) in 2015 and 2018.

China's BRI is often criticised for burdening member countries with debt traps due to the lax disbursement of a number of sizeable loans. The Japanese government on the other hand professes a more sustainable approach which, when coupled with the Africa's deficit in bankable projects, could explain the difference in size and delivery of commitments.

"At TICAD7, the Japanese government pledged to help promote debt sustainability of African countries. JBIC has always been mindful of bankability and debt sustainability, and will continue to do so, in line with the Japanese government's policy," said JBIC.