Japan-Africa Business Forum 2014
Plenary 4: Risk Management

June 10, 2014
Tomiyasu Nakamura
Executive Vice President
Japan External Trade Organization

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Themes of this session
1. How should we understand the risks in business withAfrica?
2. To reduce and appropriately manage the risks:-What approaches and knowledge are needed?
-What can be expected from business partners andthe public sector?
3. How should we respond to unpredictable situations?

1
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Systematic classification of risks and examples
Country risks

Politics

SocietyEconomy

Security risks-Instable political and social systems-Unpredictable policy management by
the government-Foreign affairs (territorial disputes)

Operation risks-Natural disasters (earthquakes, flood ）-Unemployment, income disparities-Corruption and bribery-Declining birth rate and aging population-Inadequate infrastructure (roads, harbors,power generation facilities)-Management of macro-economy-Inflation-Real estate bubbles-Financial system-Undeveloped economic legislation andaccounting systems (non-performing loans)-Foreign exchange risk

Japan-relateddemonstrations

Japan-related demonstrations, boycotts

Security deterioration

Terrorism, organized crime, abduction,
theftEmerging infections

AIDS, SARS, bird flu

Safety management ofemployees

Health problems, occupational injuries

Information security

Information leaks including personal
information, unauthorized accesses

Production/sales-Difficult quality management-Difficult local procurement ofparts/materials-Collection of receivables-Flood of counterfeit products

Employment/
labor-Rising wages-Labor shortage/attrition-Quality of workers-Labor disputes, labor unions-Dismissal

Finance/tax-Implementation of taxsystems(transfer price inspections,tax inspections,customs clearance)

Source:Created by JETRO based on related materials and interviews

2Copyright © 2014 JETRO. All rights reserved.

Challenges of Japanese companies operating in Africa (1)(Multiple answers allowed)

Increase/
FY2012 FY2007 decreaserate(N=148) (N=111) (points)

Challenges (%)
Political and social instability
Legislation and implementation of
2nd regulations/laws
1st87.8

72.1

15.7

77.7

85.6

-7.9

3rd

Employment and labor

72.3

79.3

-7.0

4th

Infrastructure environment

60.864.9

-4.1

5th

Local procurement

46.6

62.2

-15.6

6thFund raising

25.0

23.4

1.6

Other

51.4

32.4

- The rate of companies that cited “political and socialinstability” as a challenge significantly increased from thatin the FY2007 survey, to 87.8% out of 148 companies.
 Approx. 70% of respondent manufacturers consider“local procurement” as a challenge. Some pointed outthat “local supporting industries have not yet beendeveloped enough, which represents an issue for
manufacturers in expanding business in Africa.”
 In addition to comments such as “No considerable
improvement can be seen in the African businessenvironment,” there were also constructive views such as“Through long-term business commitments, we can findsolutions to our challenges” and “We adapt our businessplans by anticipating issues likely to occur locally.”

Industry-specific challenges
Politicaland social instability
政治・社会的安定性

Politicaland social instability
政治・社会的安定性<Manufacturers (%)>
N=43

88.4

Legislation andimplementation of
規制・法令の整備、
regulations/laws

Fund 資金調達
raising<Non-manufacturers (%)>
N=105

Fund資金調達
raising

運用25.6現地調達 67.4Local procurement

雇用・労働の問題
Problems with58.1

インフラ環境Infrastructure
environment

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employment andlabor

Local procurement
現地調達

Legislation andimplementation ofregulations/laws
規制・法令の整備、運
78.1

24.8

76.7

74.4

87.6

用

71.4

38.1

Problems with
雇用・労働の問題
61.9

employment andlabor

Infrastructure
environment
インフラ環境3

Challenges of Japanese companies operating in Africa (2)(Multiple answers allowed)

Political
and social instability
政治的・社会的安定性

020

4060

80
79.8

治安
Social instability
Politicalrisks
政治リスク

72.9

Corruption and
汚職・賄賂bribery
その他
Other(%)
100

204060

Securing
humanresources
High/risinglaborcosts
Issueswith strikes
andHigh/risinglabor costs
labor unions
Issuesrate
withofstrike
and…
Retention
workers
Retention
rate of workers
Employeeabsenteeism
rate

(%)
100

80
79.2

Securing human resources

42.5
28.3
22.6
13.2

N=106
Employeeabsenteeism rate
8.5
Other
Other
 About 80% of firms consider “securing human resources” as a challenge. Some
respondents said that even when local employees have higher education, sometimes
their business ability is lower than the Japanese of equal educational background.
 The proportion of respondents that consider “high/rising labor costs” as a issue was
42.5%, which increased from 24.4% in the FY2007 survey (N=86).

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4060
67.0

煩雑な諸手続きComplexprocedures

66.1
42.9

Non-institutionalizedbusiness customs
制度化していない商習慣的規制

 Many cited “social instability” and “political risks” as issues in business.
 In the interviews with Japanese companies, some said it adds cost to prepare safetymeasures, and others said they cannot make long-term investment plans due to theeffects of political changes.

020(%)
80

Inconsistentenforcement by different
窓口による制度施行レベルのばらつき
governmental organizations

N=129

4.7

0

頻繁な制度改定Frequent
revision

56.6

Problems
with
雇用・労働の問題
employment and labor

Legislationand implementation
規制・法令の整備、運用
of regulations/ laws

Other
その他

39.3

N=112

9.8

 In interviews with companies, some pointed that there are sudden changes insettlement procedures and foreign capitalization ratios without prior notice of act
amendment. Also, others said that related ministries do not understand their ownsystems.
 Other issues cited include “arbitrariness of legal interpretation” and “legalcomplication of customs-house business and VAT refund procedures.”

Infrastructure
インフラ環境environment

02040(%)
8060

Energy電力等エネルギー
such as electricity

68.2

Telecommunication
通信

60.2

Transportation
運輸

54.5
25.0

水
Water

11.4

土地/事務所スペースの不足
Insufficient
land/office space
Other
その他

1.1

N=88

 “Energy such as electricity” was cited the most with approx. 70% of the total,and by approx. 80% of the 24 respondent manufacturers.
 While “telecommunication,” which was cited the most in the FY2007 survey(N=71, 76.1%), decreased this time, “energy such as electricity” increased fromthe previous survey (N=71, 59.2%).

4

Challenges of Japanese companies operating in Africa (3)(Multiple answers allowed)

Difficult local procurement

0(%)
20

40

60

080

Low quality

32.8

高価格
Finding suppliers

31.3

納入企業の発掘
Other

40.5

Frequent
procedures
頻繁な手続き

N=67

その他
Other

その他

Telecommunication
“Low quality” ranks first with over 70% of companies citing,followed by“delayed delivery” with nearly 60% of respondents. Among 39 nonmanufacturers, nearly 70% face the “delayed delivery” issue.
In FY2007 survey, both “low quality” (N=69, 60.9%) and “finding suppliers”(60.9%) ranked first. However, the percentage of companies considering thelatter as an issue decline to approx. 30%.

Other(%)
80

60
59.5

37.8
21.6

高い手数料
High commission
fees

9.0

40

Strict厳しい借入条件
loan conditions

59.7

納期の遅れ
High prices20

金利高High interestrates

71.6

低品質
Delayed delivery

Fund raising

8.1

N=37

“High interest rates” ranks first with approx. 60% of companies citing,followed by “strict loan conditions” with 40.5% of respondents.
Comments regarding “high interest rates” include “High interest rates
impede the growth of SMEs and manufacturers” and “In response tothis issue, our company uses a bank in a third country as our mainbank.”

(%)
02040

Exchange rate
為替の変動
fluctuations

100

24.7

Increased
land
地価の上昇
prices

Other
その他

80

84.9

Volatile resource
資源価格の変動
pricesNatural 自然災害
disasters

60

13.7
6.8
11.0

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N=73

Other managerial issues include “exchange rate fluctuations” with over
80% of companies citing. In South Africa, the large fluctuations in theexchange rate of the South African rand (ZAR) to US dollar and euro washighlighted.
Comments from resource-rich countries include “The economy of ourcounty relies on resources, in which volatile resource prices havesignificant impact on exchange rates.”
Some companies cited cultural difference issues such as “coexistencewith Islamic culture” as challenges.

5Thank you for your attention.

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