GRIPS Development Forum:
Exploring Japan’s New Approachto African Development

Izumi Ohno & Kenichi Ohno
July 2008

Implementing
TICAD IV Growth Agenda
Yokohama Action Plan (May 2008) – Boosting Economic
Growth – Trade, Investment and Tourism – 3. Assist Private Sector
Development:“Support African countries to plan and implement
industrial development strategies and policies, drawing
on Asian experiences as appropriate.”

How do we concretize this?
- Selection of target countries & sectors- Tokyo must prepare mechanism, personnel & budget toimplement this initiative- Work closely with other donors, businesses, academics,NPOs, international organizations (Japan’s knowledge andresources in Africa are too small)1

Exploring
Japan’s New Entry Points
zIf valid national development vision and strategies
exist, support them with concrete industrial projects(HRD, technology, quality improvement, infrastructure)Continuous policy dialogue for joint drafting ofstrategies and mobilizing aid & private resourcesz Building core infrastructure and aligning various
development programs to itz Using ODA to facilitate large FDI projects
zÎ Debate: resource-based mega projects vs. local SME
development

What is theEast Asian Experience?
Not blindly copying policies adopted in East Asia in
the past to African countries (Îout of context andunlikely to work).
z Not discovering a standard “East Asian model”
applicable to all African countries.
z It should be a methodology (in a broad sense) to
design and implement policies unique to eachcountry.
Î What is the East Asian way of designing andimplementing policies?
z2

Policy Design:
Desirability vs. FeasibilityzDevelopment is both a political process and an economicprocess.
What should be done

What can be done

HRD & technology
InfrastructureIntegration & competition
Systemic transition, etc

Leadership
Political constraints
Popular sentiment
Administrative capacity(mainly economics)(mainly politics)

Each country is unique in what needs to be done as wellas what can actually be done.
z Any policy maker must work with economic and politicalspace simultaneously.
zPolicy Design (cont.)
Policy advice without feasibility consideration cannot be
implemented—regardless of whether proposed actions
are a few or many, common or tailor-made.
Eg. macro conditionality, liberalization, privatization,
external opening, governance, growth diagnostics, etc.
z We need to figure out a policy sequence which is bothdesirable and feasible in each country’s context.
z While the government is directly responsible for politics,
outsiders can indirectly & implicitly assist in overcoming
political problems.
z3

Good Governance?
Worldwide Governance Indicators (Kaufman Index)

Causality? (growth ↔ governance)z Feasibility of a long menu of institutional changes andcapacity-building initiatives?
z No guidance on what specifically needs to be done in
the real world context:
z- Merilee Grindle: “good enough” governance- Mushtaq Khan: “growth-enhancing” governance capability- Y. Shimomura: endogenous good governance elementszEast Asian high performers did not (do not) score highin Kaufman Index.

Growth Diagnostics (HRV Model)?
Hausmann, Rodrik and Velasco (2005)

Discover a small number of most binding
constraints to growth in each country.
z HRV Tree—private investment is key to growth;
inquiry starts with low return or high cost of finance,
and the causes of each.
z Harvard, WB, DFID, AsDB, etc. are conducting GDin many countries:zArmenia, Baltics, Bangladesh, Benin, Bolivia, Brazil, Cambodia,Egypt, Ethiopia, El Salvador, Guatemala, India, Jamaica, Liberia,Madagascar, Malawi, Mali, Mongolia, Morocco, Nicaragua, Peru,Philippines, Rwanda, S. Africa, Tanzania, Tazikistan, Thailand,
T.Tobago, Uganda, and others

4Problem: low levels of private investment and entrepreneurship

Low return to economic activity

Low social returns

Low appropriability

Government
failuresPoor
geography
Lowhumancapital

Bad infrastructure
Micro risks:property rights,
corruption, taxes

High cost of financeBadinternational
finance

Bad local
finance

Marketfailures

Information
Coordination
externalities
failures“self-discovery”
Macro risks:Lowfinancial,
domestic
monetary, fiscalsavinginstability

Poorintermediation

Problems with Growth Diagnostics
Search for desirable policies without considering
political/administrative feasibility (a few or many,common or unique – secondary issues).
z Discovery of general weaknesses relative to global
norm instead of enhancing the country’s uniquestrengths (do you need to be “average” in all
aspects before launching a development strategy?)z Diagnostics only—no clear mechanism forprescribing concrete actions (the task is left topolicy makers).
z5How to Cope withEconomics-Politics Nexusz

Joint research in economics & political science?
Î Fine for academics but not much use for policy makers (tooabstract for operational use)z

Policy-capability matching? (WDR97)
Improve institutions/governance before attempting difficult
policies (such as selective industrial policy)
Î Too broad and without focus; difficult to put into practice ormobilize political supportz

Dynamic capacity development
Improve ability through selective hands-on experience—clear goals, focused effort, trials and errors, cumulative senseof achievement

More onDynamic Capacity Development
Goal orientation: long-term vision Î phasedstrategies Î concrete action plans.
z Direct most effort to perfecting your strengths rather
than correcting your general weaknesses (don’t worry
too much about Kaufman index or investors’ ranking).
z Stop abstract thinking and start concrete action
zNo—Is industrial policy useful? What is the role of state?
Yes—Let’s build this port & industrial zone successfully, etc.

Achieve successes one by one, and be proud.
z Top leaders: take political risk and responsibility tomove things fast forward.
z6

A Comparison of East and West
East Asian

Traditional

PurposeEnhance strengths tocreate competitiveness

Find weaknesses relative
to norm, and correct them

Selectivity

Future vision, phased
strategies, concrete
actions to achieve goals

Improve governance,institutions etc. generally(let market do the rest)

Time frame

Patient; build trust through Short-term implementation
long-term engagement
and frequent reviews

ModalityHands-on experience, less Emphasize framework,
talk or writing
monitoring, dissemination

How Donors Can Help
If the country already has valid policy vision andstrategies, align assistance to realize and improvethem.
z If not, engage in long-term, open-ended policy
dialogue for self-discovery and strategy formulation(preferably followed by specific ODA and otherassistance).
z Build a core infrastructure and align aid andinvestments around it through donor coordinationand private-public partnership.
z7

Aligning Industrial Support toExisting Vision & Strategies
The case of Ethiopia:zzz

Very strong ownership and clear leadership vision
Policy already in place since the 1990s: ADLI – industrial
strategy – medium-term strategies – annual plans
UNIDO, Italy, Gtz already assisting leather & footwear, HRD

Japan can also offer concrete projects such as:- Shindanshi (enterprise evaluator) system- Quality control & productivity (5S, kaizen, just-in-time, etc)
- Specific technical support (dyeing, steaming, tanning, etc)
- Environmental control- Explain concrete E. Asian experiences (alternative methods &organizations for action plan design and monitoring, etc)

Japan’s Policy Dialogue withDeveloping Countries
Argentina – Okita Mission 1985-87; 1994-96 (follow up)z Vietnam – Ishikawa Project 1995-2001
z Thailand – Mizutani Report for upgrading SMEs andsupporting industries, 1999
z Indonesia – Continuous Government-Business Policy
Dialogue; Urata Report for SMEs, 2000; Prof. Shiraishi& Asanuma, 2002-04 (post-Asian crisis)z Laos – Prof. Hara for overall development strategy,
2000-05z Myanmar – Prof. Odaka,1999-2002 (but failed)z8Ishikawa Project in Vietnam
1995-2001
zzzzz

Communist Party General Secretary Do Muoi requested Prof.
Shigeru Ishikawa to study the Vietnamese economy. Thebilateral project was agreed between two prime ministers.
JICA mobilized a large number of scholars and consultants.
Prof. Ishikawa emphasized the spirit of mutual respect andjoint work (and a lot of patience).
Topics covered: macro, budget & finance, industry, agriculture,trade, SOE reform, Asian financial crisis.
Continued dialogue—New Miyazawa Plan (1999), VietnamJapan Joint Initiative for improving investment climate (2003-).
Now under preparation—Vietnam-Japan Partnership for
Supporting Industry Development.

Ishikawa Project in Vietnam
Vietnam = Transition economy+ Underdevelopment

Advise on the drafting
process of the 6th FiveYear Plan

Phase 1 (95.8-96.6)¾Macro-economy¾Fiscal and monetary
policy¾Industrial policy¾Agricultural and ruraldevelopment

Tasks:•Macroeconomic stabilization•Structural adjustment (systemic transitionto market economy)•Long-term development strategy

Advice on theimplementation issues ofthe 6th Five-Year Plan,
including participation in
AFTA/APEC/WTO andindustrial policy
Phase 2 (96.7-98.3)¾Fiscal and monetary
policy¾Participation in AFTA/
APEC/ WTO andindustrial policy¾Agricultural and ruraldevelopment¾SOE reform

Advice on the emerging
issues arising from theEast Asian crises and theeconomic integration
process

Advice on theformulation of the 7th
Five-Year Plan

Follow-up Phase(98.7-99.7)¾General commentary¾Fiscal and monetary
matters¾Industry and trade¾Agricultural and ruraldevelopment

Phase 3 (99.9-01.3)¾General commentary¾Fiscal and financial
reformFollow¾Trade and industryup¾Agricultural and ruraldevelopment¾SOE reform and private
sector development

Joint research (2001- )¾Agriculture and rural development (livestock, vegetable,fruits and industrial crops, etc.)
Source: MPI and JICA, Study on the Economic Development Policy inthe Transition toward a Market-Oriented Economy In the Socialist Republicof Viet Nam (Phase 3) Final Report Vol. General Commentary, 2001, pp.iii-vi.

¾Monetary policy under partial dollarization

JICA Vietnam Office, Executive Summary of Ishikawa Project Phase 3,
March 29, 2002.

¾Trade and industrial policies in the age of integration(NEU-JICA joint research program ÎGRIPS-VDF)¾Fiscal policy (introduction of personal income tax)

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Policy Dialogue in Africa?
The Case of Zambia
JICA is conducting “Triangle of Hope” Project
2006-09 (improving investment climate) mobilizing
a Malaysian consultant under new methodology.
z As a next step, Zambia wants Japan to help
formulate a long-term industrial strategy.
z Japanese Embassy, JICA and K Ohno submitted aconcept paper (Dec.2007).
z Our proposal:z(i) Create strong super-secretariat under President(ii) Learn E Asian way through studies, seminars etc (1 year)(iii) Draft Zambia Industrialization Strategy with JICA
support (2 years)

Japanese Assistance for CoreInfrastructure
Greater Mekong Subregion – East-West andNorth-South Corridors for development of Indochinaz Thailand – Eastern Seaboard: creation of industrialzones around a port infrastructurez Vietnam – Highway No.5 (Hanoi – Haiphong Port)
for FDI attraction (industrial clusters)z Cambodia – Sihanoukville Port, power and telecom
networks, special economic zone
z El Salvador – La Union Port + regional developmentz Mozambique (planned) – Nacala Port and Corridor
for regional developmentz10El Salvador: Growth Diagnostics
vs. Japan’s ODAzzzHausmann-Rodrik Growth Diagnostics 2003: The largest
constraint in El Salvador is the lack of self-discovery caused
by market failure (low appropriability). Infrastructure is not abinding constraint.
Local Report 2008 (FUSADES): Our infrastructure is best inCentral America and we are already a regional hub, but wecan do even better by handling trade more efficiently. This willraise our productivity and competitiveness. For this purpose,infrastructure, especially La Union Port, is essential.
Japanese ODA in El Salvador: Upgrade La Union Port as
key infrastructure. Additional support for social & HRD,
productive sectors, Eastern Region development, andregional integration.

The Vision: Strengthening El Salvador’sPosition as a Regional Transport Hubzzzz

Airport already aregional hub (built byJapan 28 years ago)
Central American
Highway link
Pacific-Atlantic link via
Panama Canal – ElSalvador as a regional
feederHowever, La Union Portis low capacity
Î Build a new port with
sufficient capacity andservices

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Road
(US aid)

Bridge(Japanese aid)

(Japanese aid)

Pacific OceanRegional development(Japanese aid)

Components of Japan’s ODA inEl Salvador (ongoing)
KEY INFRASTRUCTURE- Construction of La Union Port- Rebuilding an old bridge (Honduras border)- Digital map technology for efficient planning- Urban development planning for La Union CitySocial & Human RD- MEGATEC La Union(training center)- Primary schools & math- Clean water- Rural electrification- Solid waste control

Support for
Productive Sectors

Eastern RegionDevelopment- SME promotion- Aquaculture- Small-scale agriculture- Reservoirs & irrigation- Small-scale livestock- La Union Port
- Plan Puebla Panama- CAFTA & other FTAs
- Cent. Amer. integration- M/P for Eastern Region

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The Vision for
GMS inSoutheast Asia
(Source: JBIC)

The Vision for Nacala Corridor in
Mozambique(Source: JBIC)

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Conclusion:
East Asian Policy Engagement
Building new competitiveness from the country’s
strengths, not correcting general weaknesses.
z Goal-oriented approach—vision, phased strategies,
concrete action plans.
z Focus effort strategically—don’t waste time ingeneral improvement without clear goals.
z Donor-recipient policy dialogue for trust, knowledgetransfer, and strategy formulation.
z Long-term open-ended engagement rather thanshort-term outcome-based approach.
z14