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Japan and China Race to Invest in Africa’s Natural Resources

By Economywatch | Mon, 24 June 2013 21:44 | 1

The competition between China and Japan, the two economic heavyweights of East Asia, has now intensified at a time when both countries are hungrier than ever for resources and energy to cope with its development challenges. Earlier this month, Japan pledged some $32 billion in aid for Africa, a move designed in part to counter China’s rising influence on the resource-rich continent. But will Japan succeed, given China’s historical and political ties to the continent?

Japan has pledged $32 billion in aid for Africa over the next five years.
Japan has pledged $32 billion in aid for Africa over the next five years.

Prime Minister Shinzo Abe stressed that Africa will become the new global engine of growth over next few decades and that Japan must therefore seek to redirect its investment.

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Yet China’s increasing presence in Africa remains a concern for the Japanese. During the Tokyo International Conference on African Development (TICAD) period of 1–3 June, Japanese television programs and newspaper articles frequently cited China as Japan’s most powerful competitor in African markets. China has overtaken the United States as Africa’s largest trading partner in recent years; the bilateral trade volume has soared from only US$11 billion in 2000 to nearly US$200 billion in 2012. And President Xi Jinping travelled to Africa during his first overseas trip after he took office. In March 2013, he visited Tanzania, South Africa and the Republic of the Congo, while reiterating Africa’s importance to China’s foreign relations.

This strong focus on the continent contrasts with the 1990s, when the end of the Cold War saw a declining interest in Africa, particularly from the United States and Europe. Japan saw the potential of African markets, however, and launched TICAD in 1993 as a way to boost economic and trade relations with the region. Under the TICAD framework, Japan successfully enlarged its trade and investment volumes in Africa through official development assistance, private sector involvement and technology transfer. But since the late 1990s, Japan has had to slash its official aid to Africa due to its growing domestic budget deficit. Japan’s foreign policy towards Africa has scrambled into confusion since then — a disorder it is now hoping to correct as China expands its presence on the continent.

Japan used to lead China in both trade with and outward foreign direct investment to Africa. When China established its version of TICAD in 2000 — the Forum on China–Africa Cooperation (FOCAC) — China’s trade with Africa only accounted for 2 per cent of Africa’s total trade, while Japan’s share was about 4 per cent. But in 2003, China’s trade share surpassed Japan and the gap has expanded greatly in the past decade, with China’s share climbing to over 10 per cent and Japan’s share decreasing to less than 3 per cent.

Both TICAD and FOCAC now attract leaders from more than 50 African countries and aim to create trade and investment opportunities through development cooperation with Africa.

The thriving partnership between Africa and China that is now so evident owes much to the legacy of Mao’s era. China started to engage Africa very early to break its isolation in the Cold War. It also gained support from African countries by identifying itself as a third world member, supporting African countries’ movements for independence and helping with their reconstruction. Even when China was struggling with its domestic agenda in the 1960s and 70s, it generously provided assistance to many African countries. China’s presence in Africa is therefore attributable to its growing economic scale and aggressive national strategy, but China’s historical and political connection with Africa cannot be ignored.

The competition between China and Japan has now intensified at a time when both countries are hungrier than ever for resources and energy to cope with new development challenges. With the slogan ‘get back Japan’ (nihon wo torimodosu), Prime Minister Shinzo Abe is working to recover Japan after the 2011 triple disaster. Prospering trade and investment relations with Africa will be an important factor behind Japan’s economic growth and the legitimacy of Abenomics. China’s booming economy and high rate of growth, on the other hand, require a massive amount of resources and energy, and both the public and private sector in China are keen to engage with Africa.

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State-owned PetroChina is on the lookout for any chance to secure crude oil and natural gas and has already developed a firm hold in Africa. To catch up with China, state-run Japan Oil, Gas and Metals National Corp vowed at TICAD to provide financial support worth US$2 billion over the next five years to help Japanese firms with natural resource development projects.

Meanwhile, African countries have raised concerns that some states simply take raw materials from Africa to enrich themselves. China’s aggressive engagement with Africa has aroused criticism in the West and across the African continent — and has been labelled a ‘new colonialism’. Yet many African countries have become so dependent on China that they can’t be without it. Japan, on the other hand, generally enjoys a more positive image for its largely development-oriented aid. At TICAD, Prime Minister Abe clearly formulated his country’s position: ‘We want to realise industrialisation in Africa that will generate employment and growth’.

The recent decline in Japan–China economic relations resulting from bilateral territorial disputes has also led both countries to strengthen alternative economic partnerships. In the first quarter of 2013, for example, bilateral trade shrank by 10 per cent compared to the same period in 2012. In particular, the sharp decline in Japanese exports to China has prompted Japan to look for substitute markets. But Japan will need to work harder if it is to regain its presence on the African continent.

By Xie Zhihai

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  • Louis H Arthur on June 25 2013 said:
    Africa is resource rich, but poor in modern and well trained human capital. Out of the dozens of African nations and hundreds of tribal power centers, no one should expect a unified African viewpoint or policy.

    If African nations could develop and run a modern infrastructure on their own, they would, and keep the profits that currently pour out of the country.

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