In Search of New Approaches toJapanese Development AssistanceThe Foundation for Advanced Studies on International Development(FASID) was established in April 1990. FASID and its affiliate,
International Development Research Institute (IDRI), conduct research,facilitate interaction among researchers and practitioners, and offer training programs to development specialists. These activities are aimed for
improvement in the quality of development programs and policies.

Copyright © 2006 by FASID
Published in 2006 in Japan by the Foundation for Advanced Studies on
International Development, 1-6-17 Kudan-minami, Chiyoda-ku, Tokyo
102-0074, Japane-mail : pub@fasid.or.jp
URL : http://www,fasid.or.jp

Foreword
Naonobu Minato
Acting Director, International Development Research Institute,Foundation for Advanced Studies on International Development
International development has entered a dynamic phase, as indicated byincreases in funding at the onset of the 21st century following declines in the
1990’s. An important contributing factor to this has been accelerating economic, political and social globalization. Assistance to the most fragile
states has also been prompted by terrorism concerns in major donor countries. If development had ever been an issue to be treated in isolation, clearly that time is past. It has now become a process with a global context, global consequences and global ramifications.
Some donors have restructured their organizations to adjust to the changing trends. Noticeable examples include the UK, which established theDepartment for International Development (DFID), the US, which established the Millennium Challenge Corporation (MCC), and France, which
established Agence Français de Development (AFD). The UN aid agency,
UNDP, shifted its attention away from technical cooperation to the provision of upstream political analysis and policy recommendations, andchanges are also under consideration at the two Bretton Woods Institutions― the World Bank and the International Monetary Fund.
In Japan, two important international conferences are scheduled for 2008
― the G8 summit to be held in Hokkaido and the 4th Tokyo International
Conference on African Development (TICAD IV) to be held in Tokyo. And
in the fall of 2008 a significant new ODA organizational structure is set to
be introduced. This is an opportune time, therefore, to review and examine
the Japanese system as part of a search for a new Japanese approach to
ODA.
That is the purpose of this fourth volume in the Trends in Development
Assistance series: to analyze international trends, development assistanceinstitutions and important development issues. This book describes and analyzes key modalities ― loans, grants and technical assistance ― and presents key issues facing the Japanese development community.
Takamasa Akiyama, senior advisor of IDRI, FASID and Yuichi Sasaoka,
Professor, Graduate Institute for Policy Studies (GRIPS), are the co-editors.
I want to express my gratitude to external contributors to this volume:Yasutami Shimomura, Professor, Hosei University; Yasuhisa Ojima, Senior
Advisor, Planning Division, Department of Development Operations, JBIC;
Izumi Ohno, Professor, GRIPS; Koichi Miyoshi, Professor, Ritsumeikan
Asia Pacific University; Koji Makino, Director, Human Security Team,
Planning and Coordination Department; Yukio Sugano, Professor, GRIPS;
and, Mikiko Nishimura, Associate Professor, Kobe University. Each contributor brings valuable insights from the academic as well as the practicalperspective. I would also like to convey my appreciation to Hajime Sato,
Junko Takeuchi and Nagashige Chou for their translation.
I hope this book will be useful to the on-going reform of ODA system inJapan.
Each chapter reflects the opinion of its author, not of their organizations.
Titles are the ones used in the original version.
March, 2006

In Search of New Approaches toJapanese Development Assistance
Foreword
List of Tables, Figures and Boxes
Abbreviations and Acronyms
Chapters
1 Recent Trends in International Aid and Their Impact on Japan …001
2 Rediscovering the Role for Japan‘Counter’ force against the ‘Negative Side’ of the Trends inInternational Aid ………………………………………………035
3 Structures of Donor Partnerships
For more effective partnerships …………………………………054
4 Infrastructure Finance: A New Direction for Yen Loans …………086
5 Improving Grant Aid Cooperation Strategy and EffectivenessFormation of a comprehensive economic cooperation policy …119
6 JICA and Future Technical Cooperation …………………………160
7 Human Security and Aid from the Perspective of an Aid Practitioner…………………………………………………………………188
8 The Private Sector and Development
A Review of the Development Role of Developed Country
Private Enterprise ………………………………………………210
9 Africa’s Poverty Reduction Strategy ………………………………239
Perspectives on African Development Steategies andtheir Policy Implications ………………………………………264
Final Chapter
Transition to Strategic Aid…………………………………………290

List of Tables, Figures and Boxes
TablesTable 2-1 Percentage of poor population and human development
indicator in lowest ranking countries* in governanceindicator ……………………………………………………41
Table 2-2 Matrix of Tanzania,s PRSP ………………………………47
Table 3-1 5 organizational structure models in the Development
Assistance Agencies ………………………………………61
Table 3-2 Donors’ size and attitude toward partnership………………64
Table 3-3 Factors defining the degree of commitment toward
partnership …………………………………………………65
Table 3-4 Parameter of further cost to the partnership ………………67
Table 3-5 Measures to structure the partnership ………………………79
Table 4-1 Infrastracture stock in developing countries ………………92
Table 4-2 Uhcompetitive and components of infrastracture
network ……………………………………………………100
Table 5-1 Overview of grant aid schemes and 2005 budet …………123
Table 5-2 Remarks about ODA’s evaluation system ………………134
Table 5-3 Recent actions for the improvement of ODA evaluation …134
Table 5-4 Situation of school canstructions in Cambodia by eachorganization (Made by citizen Forum in Cambodia,
Japan) ……………………………………………………136
Table 5-5 Examples of school building projects on cost reduction …136
Table 5-6 Grant aid adapted to the recipient country’s situation ……136
Table 6-1 Institutional change of JICA before and after thetransformation into independent administrative
institutions ………………………………………………180
Table 8-1 Involvements of private enterprises into thedevelopments ……………………………………………214
Table 8-2 Breakdown of development finance in the U.S. …………221
Table 8-3 The World Bank group aid scheme for private sectors …226
Table 8-4 Breakdown of GAVI funds (as of March, 2005) …………228
Table 8-5 Japan’s PPP cases(designed public & managed by private) …………………230
Table 8-6 Involvements of private enterprises into development and
PPP ………………………………………………………234

FiguresFig. 1-1
Fig. 1-2
Fig. 1-3
Fig. 1-4
Fig. 1-5
Fig. 3-1
Fig. 4-1
Fig. 4-2
Fig. 4-3
Fig. 4-4
Fig. 4-5
Fig. 4-6
Fig. 4-7
Fig. 4-8
Fig. 4-9
Fig. 4-10
Fig. 4-11
Fig. 4-12
Fig. 4-13
Fig. 4-14
Fig. 4-15
Fig. 5-1
Fig. 5-2
Fig. 5-3
Fig. 5-4

Gross Disbursement ………………………………………21
net disbursement ……………………………………………21
Gross Disbursement (million dollars) ……………………21
net disbursement (million dollars) …………………………21
Transitio of ODA disbursements among DAC majorcountries ……………………………………………………24
Concepual framework ……………………………………60
Relationship between development of infrastractures andpoverty reduction …………………………………………88
Road construction and medical service ……………………90
Infrastracture effect : case of northern Vietnamtransportation infrastructure ………………………………91
percentage of bilateral ODA (into infrastracture fieldcommitment) ………………………………………………93
regional trend of private sector involved infrastracture(1990-2003) ………………………………………………94
sector trend of private sector involved infrastracture(1990-2003) ………………………………………………94
characteristic of infrastracture : network …………………97
Function of yen loan : case of Vietnam Phu My thermal
power plants ………………………………………………101
Development stage of development funds ………………105
Concept of Output-based Aid ……………………………107
Concept of temporary subsidy ……………………………107
Orerview of Republic of Tajikistan Pamir Power
Project ……………………………………………………108
Transition of Paris Club agreement ………………………110
Philippines municipal finance ……………………………112
Philippines Revolving Fund Framework …………………112
Japanese ODA and grant aid ……………………………123
Transition of uncompensated financial assistancebusiness budget……………………………………………126
Transition of regional distribution of grant aid(comoarison between 2000 and 2004)……………………127
Breakdown of bilateral ODA patterns of Japan to Africa(comparsion between 1999 and 2003) ……………………127

Fig. 5-5

Workflow of grant aid: Role of MOFA and JICA (in the casesof grant aids for general projects and fishery) ……………129
Fig. 5-6 Transition of International ODA Loans and ODA
Grants ……………………………………………………140
Fig. 5-7 Transition of Japan ODA Loans and Grants ……………141
Fig. 5-8 Transiticn of trade relationships between Japan and otherregions (increase of East Asian) importance ……………149
Fig. 5-9 Definition of PPP …………………………………………150
Fig. 5-10 Regional allocation of Japan’s bilateral ODA patterns(On average of 2002 to 2003, net disbursement basis) …153
Fig. 5-11 Percentage of regional disbursement DAC leading
countries …………………………………………………154
Fig. 6-1 Cooperation to A country and measvres to indivisual
schemes …………………………………………………169
Fig. 6-2 Development issues of A country and measures by thescheme formation …………………………………………172
Fig. 6-3……………………………………………………………182
Fig. 6-4 The policy system and Intervention to the policy, program,and project in developing countries ………………………182
Fig. 7-1 Concept of human security ………………………………191
Fig. 7-2 Human securitys perspeitive incorporated development(assistance) ………………………………………………194
Fig. 7-3 Human resources development and human security ……198
Fig. 8-1 Net flow into developing countries ………………………212
Fig. 8-2 Net flow into developing countries ………………………212
Fig. 8-3 Fund inflow breakdown from JAPAN into developing
countries …………………………………………………213
Fig. 8-4 Private funds to developing countries and internationalorganizations ……………………………………………213
Fig. 8-5 Regional breakdown of foreign direct Investment recipient
countries …………………………………………………223
Fig. 8-6 Image of PPP ……………………………………………223
Fig. 9-1 Capacity development goals, outcomes and processes …279

Developing States’ development and Private Sectors

Abbreviations and Acronyms
ADB
AFD
AHSI
APEC
ASEAN
AU
BHN
BOP
BPD
BRICs
CDF
CDM
CfA
CIDA
CSR
DAC
DFID
EC
EFA
EFA-FTI
EIF
E/N
EPA
EU
FAO
FDI
FTA
EU
GAVI
GDP
GNI
GNP
GTZ
HIPCs
HLF

Asian Development Bank
Agence Francais de Development
Africa Human Security Initiative
Asia-Pacific Economic Cooperation
Association for South-East Asian Nations
African Union AusAID: Australian Agency for International
Development
Basic Human Needs
Bottom of Pyramid
Business Partnership for Development
Brazil, Russia, India, China: CAS: Country Assistance Strategy
Comprehensive Development Framework
Clean Development Mechanism
Commission for Africa
Canadian International Development Agency
Corporate Social Responsibility
Development Assistance Committee
Department for International Development
European Commission
Education for All
Education for All Fast Track Initiative
European Investment Fund
Exchange of Note
Economic Partnership Agreement
European Union
Food and Agriculture Organization
Foreign Direct Investment
Free Trade Agreement
European Union
Global Alliance for Vaccines and Immunization
Gross Domestic Product
Gross National Income
Gross National ProductDeutsche Gesellshaft fur Technische Zusammenarbeit
Heavily Indebted Poor Countries
High Level Forum DAC

Developing States’ development and Private Sectors

IBRD
IDA
IDTs
IFAD
IFC
IFF
IMF
JBIC
JICA
KfW
LDC
LICs
LICUS
LMCs
MCA
MCC
MGDs
MIGA
MTEF
NAFTA
NEPAD
NGO
NORAD
NPM
NPO
ODA
OECD
OECF
OLS
O&M
OOF
OPIC
PF
PFI
PFM
PPA
PPP
PRBS

International Bank for Reconstruction and Development
International Development Association
International Development Targets
International Fund for Agriculture Development
International Finance Corporation
International Finance Facility
International Monetary FundJapan Bank for International Cooperation
Japan International Cooperation Agency
Kreditanstalt fur Wiederaufbau
Least Developed Countries
Low Income Countries
Low Income Countries under Stress
Lower Middle Income Countries
Millennium Challenge AccountMillennium Challenge Corporation
Millennium Development Goals
Multilateral Investment Guarantee Association
Middle Term Expenditure Framework
North American Free Trade Agreement
New Partnership for Africa's Development
Non-Governmental Organaztion
Norwegian Agency for Development Cooperation
New Public Management
Non-Profit Organization
Official Development Assistance
Organization for Economic Cooperation and Development
Oversea Economic Cooperation Fund
Ordinary Least Squares
Operation and Maintenance
Other Official Fund
Overseas Private Investment Corporation
Private FundPrivate Financial Initiative
Public Finance Management
Participatory Poverty Assessment
Public-Private Partnership
Poverty Reduction Budget SupportPRGF
PRS(P)
PSA
PSD
PVO
RDS
SAP
SIDA
SSA
SWAp
TF
TICAD
UMCs
UNDP
UNCEF
UNESCO
USAID
UXO
WFP
WHO
WTO
ZSP

Poverty Reduction and Growth Fund
Poverty Reduction Strategy (Paper)
Public Service Agreement
Private Sector Development Strategy
Private and Voluntary Organization
Rural Development Strategy
Structural Adjustment Program
Swedish International Development Agency
Sub-Saharan Africa
Sector Wide Approach
Task ForceTokyo International Conference on African Development
Upper Middle Income Countries
United Nations Development Program
United Nations Children’s Fund
United Nations Educational, Scientific and Cultural Organization
United States Agency for International Development
Unexploded OrdinanceWorld Food Program
World Health Organization
World Trade Organization
Priority Solidarity Zones

1
Recent Trends in International Aid andTheir Impact on Japan

Takamasa Akiyama1
In recent years, major political and economic events have had impact on the
global strategies, policies and implementation of international development
aid. This chapter reviews and analyzes these events and overviews the current situation. On the basis of that review and analysis, it examines moreclosely the implications for Japanese aid. As discussed in Akiyama et al.
(2003), global trends in foreign assistance are greatly affected by discrete
events, the economic climate, development theories and evaluations of aid
activities on-the-ground. Furthermore, those factors mutually affect eachother, rendering broader aid trends even more complex. Recognizing thecomplexity, this chapter ventures a first step toward a cinemascopic pictureof trends. Section 1 outlines recent international aid trends as understood by
the author. Section 2 analyzes political and economic events that have hadsignificant impact on development assistance. Section 3 looks into aid trends
related to international conferences and aid literature. Section 4 analyzes
recent moves by major donors. Finally, Section 5 examines the implicationsof these for Japan.

1-1. Outline and background of recent trends ininternational aid
Perhaps the most important international event in the 1990s was the collapseof the Soviet Union. This had a significant effect on development aid strategies and an immeasurable impact on both political and military fronts.
Development aid was distortionary during the Cold War in two ways. Firstly,
1. Senior Advisor, FASID International Development Research Institute.

1

CHAPTER 1

many developing countries adopted the Soviet-style economic model. They
did so not only to receive aid from the Soviet Union, but also because theSoviet style centralized political system was convenient for their ruling classes. Secondly, Western donors and the World Bank continued to assist developing countries during this period no matter how undemocratic their governance, so long as they remained in the anti-Soviet camp. Although not theintention, this assistance inequitably supported elites and ultimately delayednecessary institution building and reform. When the political and economic
system of the Soviet Union crumbled in the 1990s, the objectives and strategies of United States and other donor foreign assistance lost their mooring.
At the same time, the consensus Western aid strategy seemed to come toa dead end as it became apparent that structural adjustment loans ― which
had been a main pillar of international aid policy ― were not producing goodresults. The United Nations had until then conceded leadership in aid to theWorld Bank, but now it urged the aid community to adopt more human-oriented development indices as the drivers of their development assistancestrategies. During this period, many important international conferenceswere convened in such areas as education and health2 and there was a movement to elevate social infrastructure building to a main development assistance theme. The OECD adopted these ideas and prepared International
Development Targets (IDTs), which would later become the basis for theMillennium Development Goals (MDGs), and advocated that their achievement be the aim of development aid. The World Bank had at this time been
advocating a strategy based on economic development and was initially reluctant to adopt the social infrastructure-based approach. Ultimately, however,the Bank gave its support, partly due to strong backing from the UK administration of Prime Minister Tony Blair. An important role in this was played byClare Short, who became the first Secretary of State for the Department forInternational Development (DFID). She was an influential advocate of thestrategy of IDT achievement through poverty reduction. In this way, poverty
reduction strategy emerged as the main driver of global foreign assistance.
To increase international awareness, a goal for the contributions of developed countries was added to the IDTs, which were then adopted by the UN
2. Examples include the International Conference on Population and Development (1994, Cairo), World
Conference on Women (1995, Beijing), Social Development Summit (1995, Copenhagen) and World
Education Forum (2000, Dakar).

2

Recent Trends in International Aid and Their Impact on Japanin September 2000 as the MDGs. Recognizing that ODA would have to be
increased substantially to achieve the MDGs, the United Nations
International Conference on Financing for Development (FfD) was held inMonterrey, Mexico, in March 20023. At this conference the Western donor
countries announced plans for substantial increases in their ODA. Poverty
reduction with an emphasis on achieving the MDGs then became the main
theme of the aid community. Parallel with this, the fundamental responsibility of developing countries themselves, not their donors, for their development was endorsed. As a result, institutional issues such as governance andfiscal management came to the fore as major challenges.
In the US, which was now the sole economic and military superpower,
neither the Clinton nor Bush administrations initially paid much attention to
the problems of developing countries. The terrorist attacks of September 11,
2001 changed this. President George W. Bush, who had narrowly won the2000 election, adopted the persona of “terrorist fighter” and his approval ratings rose dramatically. Recognizing that to fight international terrorism evena superpower needs international support, the US government at this time
adopted development as a diplomatic priority to win over the UN and the UK,
which regarded it as extremely important. This foreign policy shift may also
have been influenced by Prime Minster Blair’s argument that poverty indeveloping countries breeds terrorism4 and by a judgment that help fromother developed countries would be needed to rebuild Afghanistan and Iraq.
In addition, President Bush may have wanted to display a softer diplomaticside, not only terrorist fighter, but also development advocate.
The 9.11 attacks shocked the US to the core, and the threat of terrorism
and violence bore down also on Europe in 2005. Terrorists attacked London
during the G8 Summit Meeting in Gleneagles, Scotland. In France, the children of immigrants from its former colonies rioted throughout the country,
expressing their discontent over unemployment and other problems andrevealing a huge social problem for the French. As a consequence of these
events, not only did poverty reduction with a focus on social infrastructure
became the dominant international aid trend, but also ― for the first time3.
4.

For details, see Report on Latest Trends in Development Assistance No. 2 (in Japanese) found on the FASIDDAKIS website.
See Prime Minister Blair’s speech at the Labor Party’s annual conference held in Brighton on October 2,
2001.

3

CHAPTER 1since the first oil shock in 1973 ― the issue of development came under the
spotlight as a major international problem. It is regrettable that development
seems to get little attention unless Western society and industrialized
economies are threatened by oil shocks and terrorist attacks.
International political and economic events in recent years reflect the progression of globalization, economically, politically and socially. Terrorism ispart of that globalization. The problem of development is no longer a problem of faraway, troubled countries. It has now become a domestic problem ofdonor countries as well. It is safe to say that the links between international
issues ― including those of developing countries ― and domestic issues
have strengthened since the new millennium began. The main politicalissues in the US since the Iraq invasion, for example, have included the pros
and cons of the invasion itself, the situation in Afghanistan, the ability of the
CIA and other agencies to analyze information accurately, counter-terrorism
measures, nuclear proliferation in Iran and North Korea, the federal budget,
debt and taxation (significantly related to the invasion of Iraq), soaring energy prices (due to political and social instability in the Middle East and toincreased demand from India and other countries), and the trade deficit(largely due to imports from China). Many of these are related directly or
indirectly to developing countries. As will be discussed later, the UK recognized the strategic importance of development several years ago and has
worked to increase its ODA and enhance related research. The US also has
implemented organizational reforms to address issues more efficiently andeffectively. The establishment of the Millennium Challenge Account (MCA)5
is one tangible example of this.
Since taking the reins of the British government in the late 1990s, theBlair administration has accorded the issue of development a high priority,
leading the international aid community in this area. The UK established apoverty reduction strategy focused on the overarching objective of achieving
the MDGs, and has been aggressively promoting new ideas such as resultsorientation, aid coordination and budget support, which have now become
mainstays of the international aid community. The UK also urged all donors
at the 2005 Gleneagles Summit to increase their ODA substantially.

5. The MCA refers to the new aid program of the US. The MCC (Millennium Challenge Corporation) is a
new government agency which administers the MCA.

4

Recent Trends in International Aid and Their Impact on JapanThe centrality of development in the politics and economy of industrialized countries benefits poor countries because it means that rich countries
are taking the problem seriously. However, if donor countries insist on
putting their own interests first when assisting poor countries, necessary
institutional reforms might be delayed and in the long term the developmentof many countries might be hampered. Such an outcome would lay waste to
the lessons learned from the Cold War era. When the Cold War ended in theearly 1990s, there was hope that development aid would now be implemented with a clear focus on the developing countries themselves. It seems, however, that the mistakes of the Cold War may still be repeated.
It is also alarming, as Ishikawa (2006) notes, that poverty reduction
strategies have not yet produced a definitive development model. The reason
why economists have not proposed definitive models may be because poverty reduction strategies, unlike previous strategies, were not formulated bystructuralists, that is, by economists who believe in structural adjustments.
Without rigorous examination based on sound economic theory, however,this approach might whither. Ishikawa (2006) observes that DFID seems torely on hope that the “patrimonial political system” will simply collapse as thegovernments of developing countries adopt poverty reduction strategies. But
political systems are deeply rooted in history and culture (North 2005), making it doubtful that political system reform through poverty reduction efforts
will be sufficient to put developing countries on a secure path to prosperity.

1-2. Recent factors in international politics and economy
that have had impact on development aid
This section lists and attempts to analyze the main political and economic factors of recent years that have had significant impact on international aid
trends. These include terrorism, increases in oil and other natural resources
prices and the rapid economic development of China and India. In addition tohaving a direct impact on developing countries, these events also have hadsignificant influence on developed countries. This trend will gain momentum
as political and economic globalization continues.
Terrorism
The terrorist attacks of September 2001 in the US not only gave the world ajolt but also caused a fundamental shift in the Bush administration’s foreign
5CHAPTER 1

policy. After the attacks, the US took military action in Afghanistan and Iraq.
The justification for these interventions and the “war on terror” became theparamount issue for the US, both domestically and diplomatically. Although
the war on terror exacerbated the US government’s debt problem, these
attacks prompted the government to pay more attention to developing countries and to increase aid that would promote poverty reduction and democratization. Historically, the US has sometimes shown a tendency to draw awayfrom diplomacy and that tendency did resurface after the end of the Cold
War. But the globalization of terrorism swallowed the US like a tidal wave
and diplomacy became an important part of the country’s political agenda.
The link between terrorism and development aid was dramatically highlighted by the London attacks during the G8 Summit meeting, which was
being held in Gleneagles, Scotland. The links are very complicated, however.
Many terrorists are Muslim, and as can be judged from the policies of the
Taliban in Afghanistan, Al-Qaeda and other terrorist groups, they want todestroy the American cultural system and to be isolated from its influences.
The conflict between Israel and Muslim countries and the fact that theworld’s largest oil producers are Muslim countries in the Middle East are relevant here, but the connections are vague and subject to interpretation. With
these complications, there is a risk that the fight against terror may escalate
into a war on natural resources, civilization and religion6. During the Cold
War, the US tended to categorize other countries by a single criterion:
whether they supported the Soviet Union or not. The US seems now to be
doing the same thing with a different criterion: whether they support terrorism or not. This is symbolized by its massive economic assistance toPakistan7 and friction with Germany and France, among other things.
The categorization of aid recipient countries by their stance on terrorism
is not the only outcome of the emphasis on terrorism. The content of aid has
also been influenced. Assistance for building democratic institutions in developing countries is becoming important in policies and programs8, a trend
which has the potential to undermine the policy of respect for the ownershipof developing countries.
6. This impression is reinforced by the uproar in early 2006 caused by a publication in Denmark of a satirical cartoon of Mohammed.
7. In addition to direct instructions from the US, there were instructions through the World Bank and IMF.
8. See US Department of State and USAID (2003).

6

Recent Trends in International Aid and Their Impact on Japan

EnergyThe significant increase in international energy prices in 2005 has not only
had a direct impact on developing economies but has also affected donor aid
policies. Since economic growth requires energy, the rapid increase in oil
and other energy prices which began circa 2005 is a serious problem fordeveloping countries. On average, net oil importer countries spend about two
percent of their GDP on imported oil, and the total amount in 2003 was about$80 billion. As the international oil price rose at least by 50% between 2003
and the latter half of 2005, many oil-importing developing countries will haveto spend much of the additional ODA they receive to pay for the increased
cost of oil9. Since the US and China are both major oil importers, securing
the oil supply has been a strategic pillar of their foreign policies, and they
make a point of providing aid to oil producing countries including those in
sub-Saharan Africa (SSA). In light of donor country interests, the oil pricetrend will continue to have significant effects on ODA as long as the trend
remains upward.
One of the best illustrations the difficulties of large-scale projects in thenatural resources sector is the Chad Oil Pipeline Project10. The World Bank
was initially reluctant to underwrite this project because of corruption in the
Chadian government. It finally agreed to provide financing and guarantees
only after the government signed an agreement to spend most of the proceeds from oil exports on poverty reduction measures. Almost immediately,
however, the government moved to modify the deal, insisting that it needed
the money to suppress antigovernment forces. The Bank suspended at least
temporarily its involvement in the project.
It should be noted that price increases of natural resources do not necessarily bring long-term economic benefits even to producer developing countries. In fact, resource revenues tend to contribute to corruption and environmental problems as well as to the so-called “Dutch disease” whereby currency appreciation makes other exports less competitive. The negative correlation between the occurrence of natural resources and economic develop-

9. As the energy efficiency of many developing countries is significantly lower than that of industrializedcountries, thought should be given to improving it through aid. This kind of aid will benefit donor
countries as well by improving global energy efficiency and reducing global demand for energy, energy
prices and pollution.
10. GRIPS/CSIDS (2006a)

7

CHAPTER 1

ment, termed the “resource curse,” has been proven statistically11.
Rapid growth of China and India
In 2005 China became the third largest economy in terms of GDP. This is thesort of milestone that has attracted attention over the past few years to theeconomic performances of the large emerging economies referred to as
BRICs (Brazil, Russia, India, China). The international political and economicorder built by organizations such as the UN, the World Bank and the WTO
can no longer be maintained without the two largest BRICs, China and India.
These countries have acquired influence with other developing countries aswell as with donor countries for a number of reasons. First, the BRICs have asignificant impact in the global political and economic arena, affecting trade,investment and international commodity prices. They also provide fresh
development and business models based on their comparative advantages inhuman resources and sometimes their policies of protecting industrial
growth. India and China, in particular, have become important export markets for other developing countries. But the picture is not all rosy. While theybuy goods from developing countries, they also compete with their producers in the global marketplace. Furthermore, the trade regime strongly advocated by Brazil and other emerging economies in WTO meetings may not bebeneficial for the least developed countries (Abe 2005). Additionally, the economic development of the BRICs may contribute to increases in the prices ofoil, copper and other primary commodities essential for industrialization;
this, in turn, may hinder the industrialization of other developing countries.
China, meanwhile, has begun to provide development assistance to countries in Africa and other regions. However, since China is not a member ofthe Development Assistance Committee (DAC) of the Organization for
Economic Cooperation and Development (OECD), lack of coordination withother donors may become a serious problem. The Financial Times12 points
out the importance of understanding that China’s intentions are focused on
securing natural resources for itself and that its standards for governanceand other issues are quite different from those of Western donors.

11. Sala- i- Martin and Subramanian (2003), Sachs and Warner (2001)
12. Financial Times (2006d)

8

Recent Trends in International Aid and Their Impact on Japan

1-3. Trends of international aid found in majorinternational conferences and literature
In 2005 several important development aid-related international conferenceswere held. These included the OECD/DAC High Level Forum (HLF), theGleneagles G8 Summit and the United Nations MDG mid-term review meeting. Based on discussions at these meetings, actions by major donors andresearch papers, this section examines the trends and issues that have drawn
attention. Important issues include an emphasis on sub-Saharan Africa, substantially increased ODA, debate on social and economic infrastructure,
results orientation, aid coordination, trade and investment and institution
building/reform.
Development in sub-Saharan Africa (SSA)
Development in sub-Saharan Africa has been a major issue for the aid
community for at least 20 years. More recently there has been a recognition
that as India has gotten on track for economic development and as Latin
America has made a comeback, SSA is the only region with almost noprospect of development13. It is generally understood that the fundamental
problem is the lack of institutions that promote development, but how tobuild such institutions in SSA is not understood (This topic will be discussed
in more detail in Chapter 9).
This very problem was a subject of discussion at the 2005 G8 Summit. UK
Prime Minister Blair and Chancellor of the Exchequer Gordon Brown
addressed the issue of SSA as if they were competing against each other tourge that other donors support Africa more aggressively. Mr. Blair had
established the Commission for Africa 18 months earlier partly for the purpose of preparing a paper that would serve as a basis for discussion at theSummit. With broad support from the international community, the 17-member Commission published a 400-page report entitled Our Common Interest:
Report for the Commission for Africa (Commission for Africa 2005). The
United Nations MDG mid-term review meeting of September 2005 also
focused on SSA which it evaluated as having the most difficulties in reaching
the MDGs. A report prepared by Jeffrey Sachs of Columbia University for the
mid-term review meeting (Millennium Project 2005) devoted many pages to
13. Even scholars who have long studied the issue of development in Africa have difficulty identifying the
problems. For example, see Collier and Gunnings (1999).

9

CHAPTER 1

SSA. According to this report, one of the most significant problems in SSA is
declining capital accumulation. This means that capital depreciation isgreater than investment and the productivity of cropland is declining. The
report warns that significant investments are required to reverse this trend.
The World Bank also began to emphasize SSA after Paul Wolfowitz took
office as President in May 2005 and it is now more deeply involved with theissues of SSA than before14.The Bank is set to enhance assistance to SSA as
it increases the share of its grant aid. There was also a significant increase in
the International Development Association 14th Replenishment (IDA 14).
This will be discussed later in more detail. Western European donor countries have been assisting SSA through fiscal support in a major way. In thepast few years, they provided fiscal assistance to Uganda and Ethiopia. Now,
however, they face severe difficulties coping with the undemocratic behaviorof both governments. The examples of these two countries illustrate a problem with fiscal assistance which is directly linked to political agenda16.
Japan has announced an intention to significantly increase its aid to
SSA17; however, it still lacks a long-term and consistent aid policy towards
the region. Presently Japan does not have the institutional capability to provide effective aid to SSA because there are too few Japanese SSA experts.
Japan also finds it difficult to provide ODA loans to SSA because of the
HIPCs (heavily indebted poor countries) Initiative. Japan will host the fourth
TICAD (Tokyo International Conference on African Development) in 2008.
Significantly increased ODA
It is widely accepted that ODA must be significantly increased if the MDGs
are to be achieved. The World Bank and UN agencies have estimated thefunding requirement. Based on those estimates, developing countries have
14. At the G8 meeting, the World Bank strongly resisted the idea of forgiving debts owed it by the least
developed countries. The problem was that if this were implemented, the amount of funds returned to
the Bank as reflow and used to provide new loans would be significantly reduced. It was finallyresolved by an agreement that essentially makes developed countries responsible for bearing that cost.
15. At the G8 meeting, the World Bank strongly resisted the idea of forgiving its debts owed by the least
developed countries. What became an issue was that, if this is implemented, the amount of funds that
returned to the Bank and then used to provide new loans will be significantly reduced. However, it was
resolved by an agreement that essentially makes developed countries responsible to bear that cost.
16. GRIPS/CSIDS (2006b)
17. According to a summary of Prime Minister Koizumi’s press conference at the Gleneagles Summit(found on the MOFA’s website), he “announced a plan to increase the total amount of ODA by $10 billion over the next five years and to double the amount of aid to Africa in three years.”10

Recent Trends in International Aid and Their Impact on Japan

insisted that global ODA should be doubled from US$50 billion (at the timeof the FfD Conference) to US$100 billion. During the 2002 Conference, themajority of the participants agreed that each donor country should set a target of spending 0.7% of GNI for ODA. The US, which before the 9.11 terrorist
attacks had been somewhat reluctant to increase its ODA, began to focus on
the link between terrorism and poverty in developing countries. Immediately
before the FfD Conference, the Bush administration created the MCA andannounced a plan to significantly increase aid. The UK and France, partly
because many countries in SSA are former colonies, not only declared theirintentions to increase ODA but also urged other EU nations, including
Germany, to do the same. Germany was hesitant due to fiscal problems, but
eventually gave in to the pressure and pledged an increase18.
This wave of significant ODA increases had a big effect on the WorldBank’s IDA 14 replenishment as well as on the main agenda of the 2005 G8
Summit19. Typically the challenge in IDA replenishment negotiations is topersuade reluctant donors to pledge, but in the case of IDA 14, the negotiation took on a quite different tone as the UK and France proposed significant
capital increases. In IDA 14 also, the share of the IDA grant facility, established in the IDA 13 negotiations with US backing, was increased from about
20% to 30%, making it more beneficial for the least developed countries.
The Gleneagles G8 Summit emphasis on SSA and the wave of significant
ODA increase are connected. The UK, the Gleneagles host, in particular
stepped up pressure on other industrialized countries to provide more assistance to Africa, pushing for the 0.7% of GNI goal for ODA and for debt forgiveness by donors, including the international financial institutions. As aresult of all this, the amount of global ODA, stagnant until the latter half ofthe 1990s, has increased since. Countering this international trend, the net
amount of Japanese ODA has declined continuously in recent years. While
the Japanese government’s fiscal problems are a factor, the most significant
cause of this decline is increased ODA loan repayments from recipient countries. In FY2004, JBIC’s operational budget was ¥700 billion but the net transfer was only ¥288.6 billion20. This elevated level of loan repayment will contin18. In early 2006, Germany stated that it could not increase its ODA significantly because of fiscal problems (Financial Times 2006a).
19. For details of the IDA 14, see FASID (2005).
20. Nakao (2005)11

CHAPTER 1

ue for at least a few more years, so that a significant increase in gross ODA isrequired to stop the decline on a net basis. With the UK, France andGermany increasing their ODA significantly, Japan may soon end up in fifth
place in world ODA rankings.
There was an earlier period, in the 1960s and 1970s, when the amount of
ODA was increased significantly. At that time, developing countries in UNCTAD and other fora insisted on the increase based on the concept of the New
International Economic Order (NIEO). What is different about the current
movement is that Western countries, such as the UK, also are calling forincreases. The aid community learned throughout the 1980s and 1990s that―as the institutional school insists ― policies and institutions of developing
countries must be changed and made development-friendly. The UK seems
to believe that to do this what is needed is funds to implement accumulated
research findings on the mechanism of development; this view, however,may be too optimistic. Some scholars, in fact, are critical of the recent
increase in the amount of ODA21.
Social and economic infrastructure
As explained above, the poverty reduction strategy approach ― oriented
toward achieving the MDGs and building social infrastructure in line with
Poverty Reduction Strategy Papers (PRSPs) ― became a dominant trend
because the UK and other countries strongly promoted it and convinced UN
agencies, including the UNDP, and the World Bank of its merit. The UK andother Western European countries seek to build social infrastructure andemphasize achievement of poverty reduction based on the following rationale:(1) The medical, educational and gender conditions in the least developed countries are very bad, a situation which needs to be addressedfrom a humanitarian perspective.
(2) Development will remain difficult until these conditions have
improved.
(3) Changes in social infrastructure are relatively easy for the citizens ofdonor countries to see, making it easier to solicit their support (i.e.,
public relations through the mass media becomes easier).
(4) Western European countries are situated much closer to SSA than is
21. For example, Rajan and Subramanian (2005a), (2005b), Birdsall, Rodrik and Subramanian (2005) mentioned in the DAKIS Literature Introduction No. 55, which can be found on the FASID website.

12

Recent Trends in International Aid and Their Impact on Japan

Japan or the US so that their social problems are more readily linked
to problems in Africa, such as illegal immigration, drugs and terrorism.
(5) The past experience of most donors indicates that governments ofdeveloping countries are not trustworthy, thus ODA should be provided in such a way that it most directly benefits the poor.
(6) If governments are encouraged to implement policies and spending
measures that benefit the poor, they become accountable to themajority, not just to the few elite, effectively making them more democratic.
From a different perspective, India and China have pointed out that
donors overemphasize social infrastructure to the neglect of economic infrastructure. As a response to this view, the World Bank shifted somewhat backto an emphasis on economic infrastructure (Fay and Yepes 2003). However,none of the MDGs are directly related to economic development, and PRSPs,
as the name suggests, are plans for reducing poverty in a particularcountry22. When this strategy is applied to the least developed countries ― in
SSA and elsewhere ― the HIPC Initiative in particular makes it difficult tobuild economic infrastructure because they often require loans.
Potential non-loan funding sources include the International Finance
Facility (IFF), the MCA (infrastructure building is possible because the aid
amount for one project is large), and IDA grants and fiscal assistance contributions. Useful loan resources include the IDA and the European Investment
Fund (EIF)23. The Japanese government appears also to be considering offering ODA loans to several SSA countries in conjunction with the African
Development Bank and other donors.
Results orientation
Reflection on past experiences has given rise to a new aid methodology:
deadlines and concrete goals are clearly defined and the effects of aid aremonitored and evaluated against them. This marks an application to aid of
the New Public Management (NPM) methodology used by the UK and othercountries to evaluate the activities of government agencies. This methodolo22. Second generation PRSPs are beginning to emphasize growth as well. For details, see Chapter 9 of thisvolume.
23. The EIF announced that it would begin to provide loans to developing countries in the summer of 2006
(GRIPS/CSIDD (2006b)).

13

CHAPTER 1

gy was incorporated into the PRSP approach of the late 1990s as well as into
the MDGs adopted in 2000. NPM establishes concrete goals for the government and other public institutions whose objectives and activities are often
ambiguous and difficult to evaluate. It then seeks to clarify to the extent possible how these goals affect achievement and to measure cost effectiveness.
This approach also addresses criticism that the achievements of past foreign
aid are unclear and the feeling among donors that their efforts may havebeen in vain (“aid fatigue”).
This methodology ― establishing measurable goals and achieving themwithin a pre-determined time frame ― presents its own problems. Many
development issues ― for example, building and reforming institutions ―are complex, not readily reduced to simple indicators. There is a concern,
also, that assistance may be unduly directed toward areas where indicators
are more easily established. The UK and others argue that all assistanceshould contribute to the achievement of the MDGs and that all aid activities
should be evaluated in terms of their contribution to this overarching objective. Their basic aid philosophy reflects the following two positions: First, thepurpose of aid should be to help developing countries rather than for thepolitical or economic gain of donors. Second, evaluation of individual projects
should not be conducted in isolation, their macro-level impacts should also
be considered.
The first position relates to the quality of aid. ActionAid, an influential
British NGO, discussed this in its June 2005 publication Real Aid (ActionAid2005). Real Aid points out that currently more than half of all assistance goes
directly to the political or economic gain of donor countries and their citizens. This is largely because consultants from developed countries implement many projects. Unfortunately, their contributions to the economic
development and poverty reduction of developing countries are small. Thissituation is also mentioned in the Millennium Project Report by Jeffrey Sachs(Millennium Project 2005). DFID and OECD/DAC have disputed this claim,
but it highlights various problems with foreign assistance and cannot beignored.
The second position is an argument that ODA should be evaluated bywhether the developing country has achieved economic growth and poverty
reduction, not by the success or failure of individual projects. Western
14

Recent Trends in International Aid and Their Impact on Japan

European countries, the UN and the World Bank have come to accept British
ODA strategy. The US, however, has not entirely agreed because the main
objectives of its foreign assistance are different from those of other donors.
Aid coordination
Aid coordination was first advocated by James Wolfensohn, the former
President of the World Bank. He was surprised when he took office at thelack of collaboration among the World Bank and the regional developmentbanks: the Asian Development Bank (ADB), the Inter American
Development Bank (IADB) and the African Development Bank (AfDB). To
correct this, the World Bank introduced the Comprehensive Development
Framework (CDF) ― reportedly created by Mr. Wolfensohn, himself ― as amechanism to facilitate coordination among donors. The PRSP approach wasestablished along a similar line of thinking and donor coordination gradually
improved. With regard to harmonization of procedures, High Level Forums
were held in Rome in 2002 and in Paris in 2005. The Paris HLF adopted 12
measurable goals for harmonization and participating donors approved a target of achieving five of them by 2010. This is another example of donors
agreeing to reach numerical targets within a specified timeframe; i.e., theNPM methodology.
Few were opposed to the concept of aid coordination. However, when aid
organizations try to actually coordinate their work, more meetings are
required among donors and between donors and recipient governments,
leading to increased transaction costs instead of reduced ones. This is a particular problem for Japan, which has relatively few aid professionals stationed
in recipient countries24.
Trade and investment
After the adoption of the MDGs in 2000, the idea of promoting development
through social infrastructure building became dominant in the aid community. Nonetheless, it remained true that without concomitant economic development, cash-strapped developing countries would not be able to operate andmaintain (O&M) the medical and educational facilities built with the help of
ODA. The Japanese government’s position is that social infrastructure builtwith ODA cannot be maintained if government revenue is not generated
24. This point is also discussed in Chapter 2.

15

CHAPTER 1

through economic growth25.
In East and Southeast Asian countries, poverty reduction and economic
development were achieved simultaneously. These countries followed a pattern whereby exports and foreign direct investment (FDI) increased as theprivate sector was developed. Japanese ODA has been aimed at promoting
such exports and FDI. In the last few years the World Bank also has begun
to emphasize the promotion of the private sector and it has created indicators
environment for private sector development that it publishes annually. These
indicators allow objective evaluation of investment climates in developing
countries and help those countries understand what they must do to nurtureand promote their private sectors. This is a positive step for development
assistance.
With regard to trade, the still uncompleted Doha Round of negotiations is
not going well. Unlike the situation a few decades ago, many developing
countries are now members of the WTO and it has become much more difficult to build a trade regime on which all members can agree. One major
problem in the Doha Round is liberalization of agricultural products by industrialized countries. Even if the liberalization occurs, however, most of thebenefit would flow to countries whose large scale farms are managed efficiently such as the US, Australia and Brazil. Many least developed countries
including those in SSA would actually be expected to lose market shares(Abe 2005). In addition, global trade liberalization would strip the least developed countries of the preferential treatment they now receive. Furthermore,
it would become more difficult to adopt such industrial protection policies as
East Asian countries were able to use under current WTO provisions.
If the Doha Round fails, there will be more proliferation of bilateral trade
agreements, such as free trade agreements (FTAs) and economic partnership agreements (EPAs), favored by the developed and semi-developed countries. The concern is that as this happens the export markets of many developing countries, including least developed countries, will shrink because
they are seldom involved in these agreements (Abe 2005).

25. UNCTAD (2004) suggests that it also has a similar stance.

16

Recent Trends in International Aid and Their Impact on Japan

Institution building and institutional reform
The main theme of development has changed over time. It was economic
infrastructure until the 1970s and then structural reform from the early 1980s
to the early 1990s. Thereafter, poverty reduction took over. Recently the roleof institutions, as explained by North and Stiglitz, is attracting considerable
attention. (This may be due partially to these academics’ status as Nobel laureates.) Categories of institutions are many and very diverse, covering politics, the economy, commerce, justice and civil society. The scope and policy
measures related to institution building and institutional reform are quite different from donor to donor. The World Bank focuses on anticorruption andimproving laws related to the economy, such as foreign trade laws, financial
laws and commercial laws. The US concentrates its efforts on building institutions that contribute to the democratization of developing countries rather
than on economic institutions. The core of the British strategy is achieving
the MDGs and the British government is significantly increasing its investment in fiscal assistance. The UK is pressuring developing country governments to allocate their budgetary maximums to activities that benefit thepoor, such as health care and education, and is trying to establish pro-poor
political systems. The World Bank and the UK’s DFID also seem to be trying
to reform public finance management systems through fiscal assistance26.
Poverty reduction ― the current focus of the aid community ― is closely
related to the issue of political systems. As Bates (1981) and others point out,
the governments of many developing countries give preferential treatment totheir elite including the military, for political purposes, paying little attention
to the general public including the poor. Since 1980, the World Bank and others have tried to change this attitude through structural adjustment loans,but the impact of their efforts has been limited due partly to conflict with“ownership.” As now conceived, it is essential that a poverty reduction strategy be “owned” by its government; that is, the government itself must generate and implement policies and allocate budgetary resources to activities that
reduce poverty. Since the majority of citizens in least developed countries arepoor, a government that adopts policies targeting poverty is defined as democratic regardless of other policy attitudes. The UK is one donor providing fiscal assistance to induce governments to adopt pro-poor policies. While theconcept of ownership is accepted, the definition of the term and how it
26. Ishikawa (2003)17

CHAPTER 1

should be used is unclear27. Is ownership at play when donors decide thatODA will be provided only when the government of a developing country
proposes an agreeable set of policies? Is it ownership when, as now, donors
seem to undertake quite rigorous monitoring and evaluation28? While theinferred intent of a recipient country government is currently an acceptedindication of ownership, how does this work in the case of a blatantly undemocratic government? With such unanswered questions, ownership by recipient countries is rife with ambiguity.
PRSPs have been prepared by many least developed countries. One of
the important factors in the PRSP preparation process is the participation ofas many stakeholders as possible. So far, the participants in PRSP consultations have come mainly from civil society groups. Driscoll and Evans (2004)
say that a future challenge is to promote wider participation by the poor
themselves.
IDA and MCA allocate their aid resources based mainly on governanceindicators established with regard to institutions, policies and corruption.
Again, this is a methodology that works smoothly only if it is compatible with
the national interests of the donor. Debate on aid to Kenya, which was featured in the pages of the Financial Times (FT) in February 2006, clearlyshows the difficulty of this problem. The debate started when Michael
Holman, former FT Africa Editor, asked why the World Bank and DFID continue to provide aid to Kenya in the face of the government’s rampant corruption. Answering his own question, Holman suggested that the US government pressured the Bank and other donors because the Kenyan government
was cooperating in the war on terror (Financial Times 2006b). Jeffrey Sachs
of Columbia University and Hilary Benn, the current British Secretary ofState for International Development, countered this suggestion on the same
pages by arguing that even corruption is no justification for ignoring the poorand furthermore that their aid reaches the poor directly (Financial Times
2006c).
Many donors argue that a democratic political system is essential for adeveloping country to succeed29, but an interesting analysis of aid and institu27. Buiter (2005)
28. The NPM is becoming popular in donor countries as well, requiring stronger accountability from aid
agencies.

18

Recent Trends in International Aid and Their Impact on Japan

tions published by Moss, Pettersson, and Walle (2006) questions this.
According to their analysis, as the share of received aid in GDP increases
and the share of tax revenue decreases, a government may become lessaccountable to its citizens and more accountable to its donors. In such cases,
the government will blame failure of development efforts on insufficient aid
quantity to avoid the politically difficult act of increasing taxes. This places
the government in a systemic fiscal dependency on aid and suggests, in
effect, that massive amounts of aid may actually work against the establishment of sound and democratic political and fiscal systems. At a time when aid
to SSA is about to be increased substantially, attention should be paid to this
scenario.
The International Monetary Fund (IMF) has found interesting results
through statistical analyses of the factors of institutional changes in aid recipient countries30. IMF analysts selected for their sample developing countries
that had experienced significant changes in institutional indicators and conducted regression analyses on them using various explanatory variables.
Their results show that institutional indicators improved in those countries
where market-oriented economic reform had taken place, political accountability had been established, citizens were better educated, and neighboring
countries had better institutions. However, they could find no correlation
between aid itself and institutional improvements.
While the importance of institutions in development is recognized, it is
not well understood and exactly what should be done to build them or how
remains unclear.

1-4. Recent moves by major donors
This section provides an overview of recent moves by major donors: namely
the World Bank, the US and the UK. The World Bank focus is on the possibility of a strategic shift due to the change in top management. For the US,
the focus is on the development of aid strategies after 9.11. With regard to
the UK, at the focus is on its achievements during the 2005 G8 Summit andits moves thereafter.

29. A summary can be found on the website of the GRIPS/CSIDS (www.grips.ac.jp/CSIDS/Index.html).
30. IMF (2005)19

CHAPTER 1

The World BankIn May 2005, former US Deputy Secretary of Defense Paul Wolfowitz took
over the post of President of the World Bank. When his predecessor
President James Wolfensohn took office a decade earlier in 1995, he immediately declared that the Bank was in a crisis, advocated an organizational
reform, introduced the CDF and strongly urged developing countries to prepare PRSPs. Mr. Wolfowitz has not displayed any dramatic initiatives or theatrics of this kind. One suggested explanation is the aid community’s uneaseover his involvement in the invasion of Iraq and his strong ties with the Bushadministration. It seems also that Mr. Wolfowitz decided to give himself time
to study the lay of the land, since he had never been directly involved withissues of development and international finance. His arrival did prompt significant personnel change, however. Many managerial staff left the Bank andothers who were trusted by Mr. Wolfowitz ― mainly from his former US government staff ― began to take their positions. This created friction between
the existing staff and the newcomers31.
Considering that with the exception of Messrs. McNamara and
Wolfensohn past Bank Presidents kept rather low profiles, it may be reasonable to expect that Mr. Wolfowitz will not pursue drastic changes in the organization or in aid modalities. On the other hand, the very high profile James
Wolfensohn brought change to critical areas of the Bank. While his tirelessefforts to make the Bank relevant were boosted by the 9.11 terrorist attacks
and the hard work of the UK, it is important to remain mindful that development assistance tends to shrink when it is out of the spotlight because it has
few direct beneficiaries in donor countries.
After taking office, President Wolfowitz delivered speeches in several
countries including Japan. The contents of those speeches did not disclose
whether or not he held strong beliefs with regard to development or Bank
strategies. His topics generally covered such issues as SSA, enhanced infrastructure building, private sector development and the importance of tradeand rural development; but these were nothing new. As discussed above, theproblem of SSA is the subject of much advocacy by the UK and by UN agencies in conjunction with the MDGs. Other challenges are probably based on
a reflection that the aid community including the Bank placed too much
31. GRIPS/CSIDS (2006c)

20

Recent Trends in International Aid and Their Impact on Japan

Figure 1-1. Gross Disbursement

Figure 1-2. net disbursement

14,0004000

12,0002000

10,000

0

8,000

-2000

6,000

-4000

4,000

-6000

2,000

-8000

0

-100002000 2001 2002 2003 2004 2005
fiscal year

fiscal year

Figure 1-3. Gross Disbursement(million dollars)
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0

2001 2002 2003 2004 2005
fiscal year

2000 2001 2002 2003 2004 2005

Figure 1-4. net disbursement(million dollars)
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0

2001

2002

2003 2004
fiscal year

2005

Source: World Bank (2005c)

emphasis on social infrastructure. This reactionary move may represent thewill of senior officers of the Bank who did not agree with the policies of Mr.
Wolfensohn but could not openly criticize him. They might be hoping to use
the change in top management to shift the Bank’s focus back to economic
development and economic infrastructure building. One of the factors that
contribute to this sort of policy shifts is perhaps the recent trend in the net
amount of the World Bank’s loans.
As is evident in Figures 1-1 through 1-4, the gross disbursement of the
IBRD (International Bank for Reconstruction and Development), at one timethe most important branch of the World Bank Group, has been declining inrecent years. The net disbursement has been negative since FY2002, and the
net negative flow in FY2003 and FY2004 was a massive US$8 billion. Both thegross and net disbursements of the IDA, by contrast, have been increasing.
At the beginning of FY2000, IDA’s gross disbursement was about half that of
IBRD; for FY2005 it was about the same; for FY2006 IDA gross disbursement
21

CHAPTER 1

was expected to surpass that of IBRD.
The IDA disbursement amount is increasing in the context of increased
aid to SSA. Since many of the SSA countries are in the least developed country category and most of the least development countries are in sub-SaharanAfrica, the vast majority of the World Bank’s loans to that region are provided
by IDA32. This means that if IDA resources are increased, loans and grants to
SSA will automatically be increased. For these reasons, the IDA 14 replenishment was expected to be 30% larger than the IDA 13. Sources of IDA funds
include contributions from donor countries, loan repayments and net profit
transfers from IBRD. Donor contributions will be increased by 25%.
European donors in particular have increased their contributions substantially. For IDA 14, Sweden is contributing about 220% of what it did for IDA 13.
France and Spain are increasing contributions by 70%, while the UK isincreasing its contribution by 83%. This has raised the British ranking in both
total amount and share from fourth place to second place, surpassing both
Germany and Japan. The US was the only country whose contribution to IDA
decreased, by 14%. The US is still the number one donor in terms of share in
total amount, but its share has declined significantly from just over 20% in
IDA 13 to slightly under 14%. Japan barely managed to increase its contribution, by 8%.
In the negotiations for the IDA 13 replenishment, the US and Western
European countries were at odds over whether or not IDA should provide
grant assistance. The UK was particularly concerned that grants requiring no
repayment would lead to a reduction in IDA resources and maintained that
the World Bank should always remain a provider of loans. For IDA 14, however, Western European donors did not object to increasing the share of
grants in IDA financing because they had to frontload ODA to achieve the
MDGs.
Another feature of IDA 14 was the adoption of a grant allocation method
based on recipient debt risk. In other words, to provide aid more efficiently,
grants were given in consideration of recipient countries’ ability or potential
to meet debt obligations. In order to provide needs-based grants, the Bankand IMF jointly proposed a framework for measuring the debt distress levels
32. In the past few years, more than 95% of the Bank’s financing for SSA has come from the IDA. In
FY2005, 45% of the total IDA financing went to SSA. (World Bank 2005)

22

Recent Trends in International Aid and Their Impact on Japanof IDA beneficiaries. In this framework, debt distress levels are categorized
as low, moderate and high. Assistance to countries in the “low” category
would be 100% loans, for the “moderate” category it would be half loans andhalf grants, and for the “high” category it would be 100% grants. This system
is designed to prevent the debt of IDA recipients from accumulating tounsustainable levels. With the adoption of this allocation method, about 50
countries became eligible to receive IDA 14 grants.
The World Bank has a large body of publications and databases which
are widely used by the aid community. A few of them are commented below.
The Bank has always emphasized private sector development. Since 2004,
the Bank and its private sector arm, the International Finance Corporation(IFC), have been publishing global business environment data on the Web
under the rubric “Investment Climate Indicators” and in print through the”Doing Business” surveys. Indicators of policy, corruption, the judiciary,crime, regulations and tax systems, finance, electricity and labor are derived
from raw data obtained from more than 26,000 companies in more than 50
developing countries. The World Development Report 2005 (World Bank
2005a) also emphasized the importance of investments for growth and poverty reduction in developing countries and analyzed the relationship between
the indicators and development. A lot of financial, human, tangible and intangible resources are required to create these databases, so that they reflect
the importance the Bank places on this information.
As aid to SSA was attracting attention, the World Bank also declared afocus on Africa in September 2005 by publishing the Africa Action Plan
(World Bank 2005b) which set forth the Bank’s comprehensive aid policy forthe region. The Action Plan assumed substantially increased aid to SSA overthe next few years and stated that the Bank would take the lead in supporting
Africa33. The Plan also emphasized the importance of achieving the MDGs,
the PRSPs, infrastructure, results orientation and the evaluation methods forit.
The aid trends of major bilateral donors are examind below. Figure 1-5
shows the net amount of bilateral ODA by major donors since 1990.
According to Figure 1-5, the US, UK and France have increased their ODA
33. On the other hand, the EU insists that it will provide aid to SSA without going through the World Bank.
(GRIPS/CSIDS 2006b)

23

CHAPTER 1

Figure 1-5. Transitio of ODA disbursements among DAC major countries
100million dollars
18,00016,000FranceGermany
Italy
U.K.
U.S.
CanadaJapan

14,00012,00010,000
8,000
6,000
4,000
2,000
0

1990 19911992 1993 19941995 199619971998 19992000200120022003

Source: MOFA (2004)

substantially over the last few years. Japan’s reduction of ODA since 2000
stands out by contrast. This trend is expected to continue for some years, sothat by FY2008 Japan may descend to fifth place in the ranking of bilateral
donors after the US, UK, France and Germany.
The United States
After the 9.11 terrorist attacks, the Bush administration made eradication ofterrorism its highest policy priority. The Millennium Challenge Corporation(MCC) was established as a major development aid agency ― separate from
USAID and the Department of State ― to manage the newly createdMillennium Challenge Account (MCA). It was charged with providing aid in
the order of US$50 billion34. This would have increased American ODA by
50%, but the Congress has been reluctant to approve such an increase in viewof the federal deficit problem. The establishment of the MCA was said tohave been proposed by Secretary of State Condoleezza Rice in her previous
role as National Security Advisor.
Learning from the bitter experience of USAID, the MCC has adopted an
entirely new aid method. The MCA seems to have been built as a mechanism
for selecting countries with high potential for growth and supporting theirdevelopment. While its features are many and varied, the most importantones are as follows.
(1) The basic stance of MCA assistance is characterized as poverty reduc34. See DAKIS Report on Latest Trends in Development Assistance No.18, which can be found on the
FASID website.

24

Recent Trends in International Aid and Their Impact on Japantion through economic growth. The focus areas include agriculture,
education, private sector development and capacity building.
(2) Using indicators for governance, market-oriented economic policies
and other factors, countries are selected to receive focused grantassistance based on their performance.
(3) Recipient countries plan how to use MCA aid and submit their proposals to the MCC.
(4) The MCA supports activities whose results can be clearly evaluated.
Underlying the establishment of the MCA were the following factors andjudgments: Firstly, it is difficult for USAID to implement the policies andgoals of the executive branch due to extensive Congressional interference;
Secondly, ODA will be more efficient divided into two categories: one in linewith the US foreign policy or national interests, the other aiming for thedevelopment of poorer countries ; Thirdly, there is a need to establish a new
method that maximizes the efficiency and achievements of aid. These threepoints are explained in brief.
USAID was understandably opposed to the creation of a major new aid
agency. When USAID was first established by President Kennedy in 1961,
Congress did not interfere with it excessively. But over the course of morethan 4 decades, various regulations came to be imposed on it. In the words offormer USAID Administrator Andrew Natsios who resigned at the end of
2005, most of USAID’s budgets are regulated or earmarked by Congress,
staff moral is low, and the budget is not used effectively35. These facts are
well-known in the US aid community, and many lawmakers admitted asmuch when they approved the establishment of the MCA.
The administration of George Bush came to see development aid as animportant part of its fight against terror. This prompted a decision tostrengthen coordination between USAID ― which had problems as
described by Mr. Natsios ― and the State Department, and to provide assistance aligned to US national interests. In January 2006, on the departure from
USAID of Mr. Natsios, Randall L. Tobias36 assumed a newly created post of
Director of United States Foreign Assistance with the rank of Ambassador
35. GRIPS/CSIDS (2005)
36. Before joining the US government, he worked for AT&T (a US telecommunication company) and Eli
Lilly (a pharmaceutical company).

25

CHAPTER 1

reporting directly to the Secretary of State. He was also appointed to serve
concurrently as USAID Administrator. He is expected to be in charge of foreign aid policies throughout the entire US government. Mr. Tobias formerly
served as US Global AIDS Coordinator.
The system of development assistance in the US was also enhanced byPresident Bush’s announced intention, in December 2005, to strengthen thepolitical management of ODA37 and the unveiling by Secretary of State Riceof a new concept, “Transformational Diplomacy 38 .” Transformational
Diplomacy means that US diplomats will work together with foreign citizens,
assist in the democratization of developing countries such as China, India
and Nigeria and promote antiterrorism activities. This is also an acknowledgement that the previous allocation of human resources to US diplomacy
and defense, designed during the Cold War, was not suited to the realities ofthe modern world where the importance of developing countries is growing.
USAID is displaying some confusion about the division of roles between
it and the MCC but one of its important tasks is to fight terrorism by promoting the democratization of developing countries ― especially the so-calledfragile or failed states39. It seems that USAID will provide assistance to countries with many serious problems that prevent them from meeting MCA standards. In other words, the USAID will handle the major challenge of dealing
with problematic countries that the MCC cannot handle. Congressional interference is unlikely to be reduced.
The United Kingdom
In recent years, the UK has played a leading role in the aid community, notonly by increasing its ODA rapidly, but also by advocating the importance ofaid designed to achieve concrete results, such as the MDGs. At the 2005 G8
Summit, which it hosted, the UK indicated that it considered the issue of SSA
and other developing countries to be the greatest challenge of its foreign policy. Prime Minister Blair himself took initiative in organizing theCommission for Africa and publishing its hefty report. Chancellor Brown ―the number two in the Blair administration ― established the IFF and advocated the front-loading of ODA. The 2005 G8 Summit itself suffered a loss of
37. GRIPS/CSIDS (2005)
38. GRIPS/CSIDS (2006b)
39. USAID (2005)

26

Recent Trends in International Aid and Their Impact on Japan

global attention due to the concurrent terrorist attacks in London, but thepressure that the British government put on other donors to increase ODA
was considerable.
Following are reasons why the UK has such a strong interest in developing countries.
(1) The Labor Party took power in 1997 and has been working since tostrengthen the UK social security system as a policy priority. This
strategy has affected the government’s stance toward developing
countries40.
(2) Politically influential Ms. Clare Short became the first Secretary ofState in charge of DFID and advocated both at home and abroad theimportance of reducing poverty in developing countries. Her policy
had an effect on both Prime Minister Blair and Chancellor Brown.
(3) The UK places special importance on reducing poverty in South Asia
and SSA. Many countries in these regions are former British colonies
and the UK has a sense of guilt toward them. Also, these countries
kept close ties with the UK after independence and their poverty-associated problems are recognized by many British politicians andbureaucrats.
(4) The British government recognizes that poverty in SSA, which is geographically close, might breed terrorism and illegal immigrants.
(5) Many celebrities, including rock stars, support and cooperate with thegovernment in publicizing development policies. The general publicalso supports the government’s policies.
(6) With cooperation from universities and research institutes41, the government is promoting research on development aid theories andstressing to both domestic and foreign agencies and to media organizations the importance of the development issue.
In addition to these factors connected with the Blair government, theNPM method and merit system adopted by the Thatcher administration for
all government agencies caused DFID officials to work very hard ― tooaggressively to some ― to persuade international organizations and other
donors. The DFID operational plan is clearly stated in its Public Service
Agreement (PSA)42, which each department signs with the Treasury on a
40. Ishikawa (2006)
41. The Overseas Development Institute (ODI) is especially influential.

27

CHAPTER 1

three year cycle. Six objectives are stated in the 2005-08 PSA: (1) Reducepoverty in Sub-Saharan Africa; (2) Reduce poverty in Asia; (3) Reduce poverty in Europe, Central Asia, Latin America, the Caribbean, the Middle Eastand North Africa; (4) Increase the impact of the international system on
reducing poverty, preventing conflict and responding effectively to conflictand humanitarian crises; (5) Develop, support and promote policy thatassists poverty reduction and the achievement of the MDGs; and (6) Improve
the impact and effectiveness of DFID’s bilateral programs. Each objective
contains several concrete targets and indicators. These objectives, targets
and indicators are evaluated semiannually and more detailed evaluations are
conducted triennially.
One of the features of the UK aid system is that there are concrete actionplans, an organizational structure to implement them and a system to evaluate them. Another feature is a results orientation: For countries on which the
British aid has an impact, development indicators are included in DFID’s
objectives and targets and the department must show improvements in these
indicators. As can be seen in the PSA, DFID is likely to become the leaddonor in the developing countries that it focuses on, promoting the achievement of development targets such as the MDGs and acting as the linchpin ofaid coordination. It is vigorously requesting the World Bank, the UN agencies and the EU to cooperate with its aid strategy. In other words, DFID’s
development goals for these countries do not mean simply that the British
aid will be implemented effectively; it means that all donors and the recipient
country will work together to achieve the same development goals.

1-5. Implications for Japan of recent trends
As explained above, international economy and politics have seen dramaticchanges over recent years. Reflecting these changes, the development assistance programs of major donors are changing, not only in terms of strategies,
policies and methods but also their positioning vis-á-vis donors’ diplomacy
and national interests. In Japan, serious ODA discussions began at the end of
2005, partly in the context of reform of government-affiliated financial institutions including JBIC. The discussions are proceeding under the slogans “aidwith a human face” and “spread the experience of Japan and Asia to the
42. DFID (2005)28

Recent Trends in International Aid and Their Impact on Japanworld.” At several venues, including the G8 Summit, UN conferences and
WTO meetings, the government has announced various initiatives and plans
to increase ODA. Despite this, it does not seem to have attracted much attention, even that of developing countries. The best explanation for this is probably that internally Japan is finding it difficult to formulate and launch coherent strategies and policies that satisfy the diverse interests of all the ministries involved in ODA.
As of early 2006, a plan was under consideration to create a new councilof ministers within the cabinet to prepare a comprehensive aid strategy
under political leadership. With regard to implementing agencies, too, theformer OECF portion from JBIC world be integrate with JICA and add the
grant assistance function which is currently administered by the Ministry ofForeign Affairs (MOFA). These moves were welcomed as motivated by adesire to improve the Japanese ODA structure, but the details are criticallyimportant. Construction of a new system must be considered both cautiously
and boldly.
The theme of this chapter is the reality that development assistance hasceased to be a problem of far-away, low-income countries. It has become avery complex matter, entangled with issues of security, terrorism, natural
resources, environment and trade. It is now linked with almost all the external and domestic issues of donor countries. When this reality is understood,
the need for drastic alternation in the way aid is handled becomes clear. Until
now, Japan has been rather passive in this regard. As the request-basis principle illustrates, Japan has reacted to challenges posed by other donors anddeveloping countries. That approach is no longer suitable for a Japan thatpromises “aid with a human face” and “dissemination of information fromJapan.”
It is still unclear how Japan’s aid system will change as a result of theorganizational reforms under consideration. It is important to recognize thatwhat has been lacking is an apparatus that systematically analyzes international affairs, conducts studies and research on development and formulates
aid strategies and policies. Although it would be difficult to create such an
apparatus within an existing ministry, it is urgently needed. Flaws in the current system compromise continuity and scale, resulting in inefficiencies.
MOFA, JICA and JBIC have all preferred to outsource studies and research
29

CHAPTER 1

activities and to minimize internal contributions. This has meant that knowledge, information, and analytical capacities do not accumulate as institutional
memory. A related problem is that officials in ODA-related ministries andagencies change posts every few years. Improvement in scale can be expected following organizational reform, but a critical mass of human resources isnecessary to conduct studies and research that are worthy of international
dissemination. It has been impossible for the few experienced Japanese ODA
researchers to accumulate such research findings. Japan’s fiscal deficit problem also impinges on this issue43. But it will be a bad bargain if fiscal deficit
considerations result in the simplification or abandonment of in-depth
research on development and aid. The complexity of development is now
widely acknowledged. To use aid wisely, it is essential to investigate thiscomplexity, including the impact of its institutional and organizational
aspects.
Concluding this chapter, points of consideration are enumerated for
improving the efficiency and effectiveness of development research and ofstudies on aid strategies and policies:(1) Create groups to conduct comprehensive analyses of strategies, policies and information regarding development aid. As the links between
development and other diplomatic issues and domestic issues havestrengthened, the need to analyze these links consistently and regularly has increased also. Relevant study topics would include: (a)Moves by major donors and recipient countries; (b) Reviews ofdomestic and foreign research and studies; (c) Examination of Japan’s
comparative advantages in implementing ODA; (d) Status of theworld’s natural resources including oil; (e) Issues related to trade and
FDI including FTAs and the WTO; (f) Issues of security including terrorism.
(2) Focus strategic research on important recipient countries and sectors.
Because of the importance to development of institutions in the broad
sense, an interdisciplinary approach to development is needed. The
major work Development Study on Assisting Vietnam in a Transition toMarket Economy45, conducted in the late 1990s, may have taken a longtime and cost a lot of money to complete, but its benefits are signifi43. For example, see MOFA (2005).
44. For example, see MOFA (2005).
45. See Ishikawa (2006) Chapter 5.

30

Recent Trends in International Aid and Their Impact on Japan

cant and it is an important asset for both Japan and recipient countries. For smaller-scale studies, research similar to the World Bank’s
economic and sector work (ESW) on development in individual countries is certainly feasible. Focused strategic research on important
recipient countries and sectors would contribute much to the international community.
(3) Establish ODA Task Force Support Units. The role and importance of
local ODA task forces are likely to grow. Support systems such as
remote seminars are being developed but Tokyo needs to provide
more support to strengthen local capabilities. The World Bank
already is strengthening its local systems. Sector and theme specialists work at headquarters and support local staff as the need arises. It
would be beneficial also for Japan to create mobile units constituted
by specialists in important sectors to respond to requests from local
task forces. The capabilities of sector specialists in JICA and theEconomic Cooperation Bureau of MOFA should be up-graded so they
can serve as the foundation of a more permanent, all-Japan support
system.
(4) Attend to long-term human resource development. In recent years thetraining and education of aid specialists and students in Japan has
deepened, but many of these people remain unsure what specificskills are required of them, making it very difficult for them to getjobs in the field of development and international assistance. Those
who leave international organizations or consulting firms in their 30s
or 40s find limited opportunities to use their skills. At the same time,
many of the areas of specialized knowledge related to development
are constantly evolving so there is a constant demand for competentspecialists. There is, in effect, a mismatch between the demand andsupply of human resources. To eliminate this mismatch, better communication is needed among ODA ministries, implementing agencies,
universities and private consulting firms so that training and education will be more aligned with the needs of employers.
(5) Enhance collaboration with the private sector. Chapter 8 will discuss
the involvement of the Japanese private sector in assisting developing
countries, an involvement that has been quite limited. In view of thefact that a flourishing private sector was a vital factor in Japan’s own
economic development, the importance of constructing a system
which deepens and encourages the involvement of the private sector
31

CHAPTER 1

in other countries’ development is clear.
One last important note: To be serious about disseminating informationfrom Japan to the world, studies and research papers by government-affiliated agencies must be written in English.

References
Japanese
Ishikawa, S. (2006) Kokusai Kaihatu Seisaku Kenkyu, [International
Development Policy Studies], Toyokeizai.
Ministry of Foreign Affairs of Japan (2004) White Paper on Official
Development Assistance (ODA) 2004.
＿＿＿＿ (2005) ODA no Tenken to Kaizen: Yori Shitsuno Takai ODA wo
Mezashite, [Inspection and Improvement of ODA: In Pursuit of ODA with
Substance].
Nakao, T. (2005) “Wagakuni no ODA to Kokusaitekina Enjochouryu,”[Japanese ODA and International Development Trends], Finance, Vol.40,
No.10, p.12.

EnglishAbe, K. (2005) “Trade/Investment Policies and Development Assistance
Policies of Japan: A Note on Policy Coherence,” FASID Discussion Paper
on Development Assistance, No.6.
Akiyama, T., S. Akiyama and N. Minato (2003) International Development
Assistance: Evolution and Prospects with specific reference to the WorldBank and Japan, Trends in Development Assistance, series 1, FASID.
ActionAid (2005) Real Aid.
ActionAid International (2005) Real Aid -An Agenda for Making Aid Work.
Bates, R. H. (1981) Markets and States in Tropical Africa: The Political Basisof Agricultural Policies, University of California Press.
Birdsall, N., D. Rodrik and A. Subramanian (2005) “How to Help Poor
Countries,” Foreign Affairs, Volume 84, Number 4.
Buiter, W. H. (2005) “Country Ownership: A Term Whose Time Has Gone,”in Koeberle, S., H. Bedoya, P. Silarszky and G. Verheyen eds.,
Conditionality Revisited, World Bank.
Collier, P. and J. W. Gunning (1999) “Why Has Africa Grown Slowly?”
Jourmnal of Economic Perspectives 13.
Commission for Africa (2005) Our Common Interest: Report for the32

Recent Trends in International Aid and Their Impact on Japan

Commission for Africa.
DFID (2005) Public Service Agreements.
Driscoll, R. with A. Evans (2004) Second Generation Poverty Reduction
Strategies, Overseas Development Institute (ODI) PRSP Monitoring &Synthesis Project.
Fay, M. and T. Yepes (2003) “Investing In Infrastructure: What Is Needed
From 2000 to 2010?” World Bank Policy Research Working Paper 3102.
Financial Times (2006a) “Germany doubts ability to achieve aid target,”January 20.
＿＿＿＿ (2006b) “The donors who turn a blind eye to Kenyan sleaze” byMichael Holman, February 16.
＿＿＿＿ (2006c) Leaders and Letter, February 20.
＿＿＿＿ (2006d) “China: a new force in Africa’s development,” February 23.
GRIPS/CSIDS (2005) http://www.grips.ac.jp/csids/, “Development Briefs
No. 80“＿＿＿＿ (2006a) “Development Briefs No. 82”＿＿＿＿ (2006b) “Development Briefs No. 83”＿＿＿＿ (2006c) “Development Briefs No. 84”
IMF (2005) “Building Institutions,” World Economic Outlook.
Ishikawa, S. (2006) “The ‘Poverty Trap’ and ‘Public ExpenditureManagement’ - In Pursuit of a New Development Model,” FASID
Discussion Paper on Development Assistance, No.2.
Millennium Project (2005) Millennium Project Report.
Moss, T., G. Pettersson and N. van de Walle (2006) “An Aid-Institutiion
Papradox?” Center for Global Development.
North, D. (1990) Institutions, Institutional Change and Economic
Performance, Cambridge University Press.
＿＿＿＿ (2005) Understanding the Process of Economic Change, Princeton
University Press.
Rajan, R. G. and A. Subramanian (2005a) “What Undermines Aid’s Impact on
Growth?” IMF Working Paper (WP/05/126).
＿＿＿＿ (2005b) “Aid and Growth: What Does the Cross-Country Evidence
Really Show?” IMF Working Paper (WP/05/127).
Sachs, J. D. and A. Warner (2001) “The Curse of Natural Resources,”
European Economic Review, 45.
Sala-i-Martin, X. X. and A. Subramanian (2003) “Addressing the natural
Resource Curse: An Illustration for Nigeria,” National Bureau of
Economic Research Working Paper No.9804.
33

CHAPTER 1

UNCTAD (2004) The Least Developing Country Report 2004.
USAID (2005) Fragile States Strategy.
US Department of State and USAID (2003) Strategic Plan, Fiscal Year 20042009.
World Bank (2005a) World Development Report: A Better Investment Climate
for Everyone.
＿＿＿＿ (2005b) Meeting the Challenge of Africa’s Development: A World Bank
Group Action Plan (The Africa Action Plan).
＿＿＿＿ (2005c) World bank Annual Report 2005.

34

2
Rediscovering the Role for Japan‘Counterforce’ against the ‘Negative Side’of the Trends in International Aid
Yasutami Shimomura1

2-1. Objective of this chapter 2
2-1-1 Japan’s role in the international aid community
The objective of this chapter is to redefine a role for Japan in the international aid community. This community includes international organizations, governments of industrialized countries, researchers, opinion leaders, and international NGOs that play central roles in helping developing countries andleading international discussion about how aid should be designed andimplemented. While recognizing the value of new ideas, strategies, andapproaches that have been proposed by the international aid community andare now dominant trends, a negative side tends to be overlooked. I recommend that Japan not only promote these new trends but also discuss problems of this negative side and propose countermeasures. Japan should
become a counterforce against the negative side. No country is currently
playing this role, but it is an important one that will help prevent negative
effects for developing countries.
2-1-2 New aid trends
As discussed in Chapter 1, the challenges facing the international aid community have become more diverse, complex, and difficult amidst criticism
that aid for developing countries has not produced satisfactory results. This
frustration, along with financial difficulties experienced by major donor coun1. Professor, Faculty of Humanity and Environment, Hosei University.
2. I would like to thank Professor Izumi Ohno of the National Graduate Institute for Policy Studies forproviding valuable advice and information for this chapter.

35

CHAPTER 2

tries, led to the global phenomenon of aid fatigue. Under this condition, governments of many developed countries and international organizations find it
difficult to convince taxpayers or shareholders of the value of continuing tosupport developing countries.
Under such circumstances, the international aid community has new proposals in an attempt to cope with new challenges and global issues and thus
improve aid effectiveness.
In the White Paper on Official Development Assistance 2003, the Japanese
Ministry of Foreign Affairs (MOFA) summarized recent aid trends andshowed a willingness to go along with them. At the same time, MOFA kept
its distance and advocated ideas that are uniquely Japanese. Examples
include:・Highlighting the role of infrastructure in poverty alleviation and economic development;
・Questioning Poverty Reduction Strategy Papers (PRSPs);3・Reservations about new aid modalities such as harmonizing procedures; and・Criticism of the Commitment to Development Index.
On the whole, the White Paper is a balanced response to international aid
trends. While I commend the Japanese government for taking such an appropriate stance, the negative side of new aid trends that hides behind the positive side should be examined more extensively than afforded in the White
Paper, especially in light of its significant influence over developing countries. This is the main theme of this chapter.
2-1-3 Positive side and negative side — Two thematic areas
Only by examining the negative side and the positive side of recent international aid trends can we grasp the entire picture of these new trends andhave a debate based on an accurate overview. In this chapter I would like toexamine the negative side by focusing on two thematic areas ― dominance ofdonor perspectives and disengagement from the reality of developing countries
as seen in proposed aid approaches. Specific problems include selective aid,
ownership (of recipient countries), Poverty Reduction Strategy Papers(PRSPs), and new aid modalities represented by a sector-wide approach andbudget support.

3. A new term, Poverty Reduction Strategy, has also been used recently. In this chapter the document will
be consistently referred to as the PRSP.

36

Rediscovering the Role for Japan(1) Dominance of donor perspectives — selective aid and ownership
Key terms in the examination of dominance of donor perspectives include
selective aid and ownership (of recipient countries). Selective aid is a typicalsymptom of the dominance of donor perspectives. Another area where thedominance of donor perspectives manifests itself is the concept of ownership.
When we carefully examine past debates about ownership, such a concept
advocated by the international aid community may be nothing but a convenience. From this recognition emerges a desire to pursue true ownership.
(2) Aid approaches — detachment from the field and disengagementfrom reality
Detachment of new aid approaches from the reality of developing countries
can be examined by considering PRSPs. In addition, I would like to look at
the new aid modalities represented by a sector-wide approach and budget
support. While many researchers and aid practitioners have made valuable
observations on these matters, this chapter will focus on issues that have yet
to be discussed explicitly.
The first issue is time in the field. From the perspective of developing
countries governments, one of the characteristics of PRSPs and new aid
modalities is the burden of paperwork and complex tasks of donor coordination. As weak government institutions are overwhelmed by paperwork anddonor coordination work, inevitably the time and energy that technocrats canspend in the field are reduced significantly.
This also means that donors must spend more time dealing with central
government institutions. When donors spend more time at the capital orinternational conferences coordinating with technocrats and other donors,
they have less time to visit the field where poverty reduction and economic
development actually take place, thus donors become detached from thefrontline of aid.
There are other, similar tendencies in the new aid modalities. In coordination processes such as a sector-wide approach and budget support, developing countries are supposed to play a leading role or direct the processes(Harrold, 2003). If this is true, those who mainly speak for a developing country must be technocrats due to the required expertise and statistical data to
be processed. A system in which technocrats based in a capital play a central
role naturally detaches them from the field. Thus, I am concerned that both
donors and developing country technocrats do not spend enough time in thefield.
37

CHAPTER 2

The second issue is the tendency to pay more attention to formal institutions than to the reality of developing countries. Observation of various
PRSPs reveals a common characteristic ― attention is not focused on how
economic and social structures are functioning in reality, but rather what
institutions are lacking or weak. As a result, the focus of reform is placed on
introducing new institutions and fixing existing ones, and many countries are
required to introduce new legislation, organizations, and rules as a condition
for receiving a loan. This is apparent by looking at various PRSPs.4
What is important, however, to reduce poverty and spur economic development is how the economy and society function, not institutions themselves. A tendency to pay too much attention to formal institutions leads todetachment from the economic and social realities of developing countries.
2-1-4 Nurture strengths rather than point out weaknesses
At the core of the standard approach by the international aid community is aprescription for eliminating weaknesses based on a diagnosis that things
don’t go well because of bad institutions and policies. An alternative approachthat Japan should advocate would be an endogenous prescription that identifies and exploits the strengths inherent in the economic and social systemsof a developing country ― nurture strengths rather than point out weaknesses ― is our basic message.

2-2. Dominance of donor perspectives is the negativeside
2-2-1 Significance and problems of selective aid(1) G8 Africa Action Plan and Millennium Challenge Account
One of the pinnacles of the donor-centric trend was the G8 Africa Action
Plan, which was announced at the Kananaskis Summit in June 2002. It is adonor action plan that supports the New Partnership for Africa’s
Development (NEPAD) adopted by African nations. In the Action Plan, theG8 countries announced their intention “to focus our efforts on countries that
demonstrate a political and financial commitment to good governance andthe rule of law, investing in their people, and pursuing policies that spur economic growth and alleviate poverty.” Thus, the policy of selection and con4. A comparative table of policy matrices for 13 countries in JICA (2004) is useful.

38

Rediscovering the Role for Japan

centration was launched and three selection criteria were defined: (1) good
governance and rule of law, (2) emphasis on education and training, and (3)appropriate policies (meaning those that promote market principles).
In March 2002 before the Kananaskis Summit, the Bush administration of
the United States announced the Millennium Challenge Account (MCA). It isa mechanism to ‘reward’ developing countries with good performance. Three
performance evaluation criteria were established to select eligible countries(Applegarth, 2003):
・Good governance ― democratic political system, rule of law, humanrights, transparency, accountability;
・Economic freedom; and・Investing in people ― budget allocations for primary education andhealth care.
A comparison of the G8 Africa Action Plan adopted at the Kananaskis
Summit and the MCA of the U.S. reveals a common basic philosophy and astriking similarity in selection criteria. Even before these developments, theNetherlands New Aid Policy, which adopted the selection and concentration
principle, and the World Bank report Assessing Aid (1998) pointed to being
selective about aid recipient countries. Selective aid has become a dominant
force in international aid.
(2) Two background factors — New Public Management and aid
fatigue
Two factors have contributed to the emergence of selective aid as a popularconcept. One is New Public Management (NPM), which was adopted by
OECD countries in the 1980s as a basic theory for public sector reform, andthe other is aid fatigue that major donors have been experiencing since the1990s. The philosophy of selective aid became influential as a result of interactions between these two factors.
Major donor countries struggling with budget deficits and public debt
sought to revitalize the public sector and looked for a better functioning andless costly system. As a precondition for reducing the scale and scope of the
public sector and building a system that functions efficiently and effectively, aresults orientation was emphasized along with decentralization, devolution,and privatization. To adopt results orientation, a series of frameworks were
proposed to clearly define objectives, establish goals, assign responsibilities
and incentives to achieve them, and monitor progress (Miyagawa andYamamoto, 2002, Chap. 1).
39

CHAPTER 2

Meanwhile, fiscal difficulties of major donor countries created a situation
where more of the public became skeptical about development aid and beganasking why it was still being offered. As some research showed that aid was
not producing desired effects, it became more difficult for donor countries
governments to convince their taxpayers, and for international organizations
to convince their shareholders, to maintain aid programs. As these changes
took place, results became a much more important factor for the international
aid community.
One effective way to ensure aid effectiveness is to identify projects that do
not or cannot be expected to produce results. In some countries it is moredifficult to produce results or projects have lower chance of succeeding,which leads to a view that in order to make aid more effective, donors must
be selective about aid recipients and concentrate resources on countries with
better prospects. Accountability to taxpayers and shareholders led to such an
approach.
(3) Selective aid and humanitarian crises
The trend of emphasizing aid results has important virtues, but at the sametime it has serious negative effects.
One of the more important criteria for selecting recipient countries is governance. If we assume that aid to developing countries with poor governanceis less effective than aid to other countries,5 what kind of developing countries will see their aid reduced or suspended based on this assumption?
Countries deemed by the international aid community to have very poor governance. Table 2-1 shows that these countries also have the lowest humandevelopment indices and the highest poverty rates. In many of the poorest or
least-developed countries, the threat to human security and poor governancego hand-in-hand. What will happen if aid to these countries is reduced or suspended on the grounds of poor governance? We should expect that the living
conditions of the poorest part of the population will deteriorate and humanitarian crises would likely follow. Selective aid is an approach that ranks aid
effectiveness over the condition of the poorest people, an approach that isrepresentative of the dominance of donor perspectives.

5. The concept of governance as defined by the international aid community has limited ability to explain
the differences in performance of developing countries. See Shimomura (2005b) and Shimomura(2006) (to be published).

40

Rediscovering the Role for Japan

Table 2-1. Percentage of poor population and human development indicator inlowest ranking countries* in governance indicator*12 countries evaluated as the worst five in either 1) rule of law, 2) government's effectiveness, or 3)
corruption in Human Development Report, 2002.

related governace
indicator
Tajikistan

1

MyanmerPapua

population below income Human Development
poverty line less than $1 Indicator rank amongdday(%)
177 countries
n.a.

122

3
3

n.a.
n.a.

129
137

3

n.a.
n.a.

141
142

n.a.
n.a.

153
160

3

n.a.

167

3

58.4
n.a.
72.8
57.0

169
172
174
176

New Guinea
Sudan
Republic of Congo

2

Haiti
Angola1
1

Democratic Republic

1

2

1

2
2
2

of Congo
BurundiGuinea-Bissau
Mali
Republic of Sierra
Leone

Source: UNDP, Human Development Report, 2002
UNDP, Human Development Report, 2004

(4) Humanitarian crises as enormous social costs
The pursuit of selective aid is an alternative that might trigger a collapse offragile states and incur enormous social costs in the form of humanitariancrises. Selection of aid recipient countries by the governments of industrialized countries and international organizations allows them to ensure aid
effectiveness and fulfill responsibilities to their taxpayers and shareholders.
At the same time, it also has a potential to cause famine, epidemics, andrefugee problems by reducing assistance to countries where it is more difficult to produce or expect results, destroying the human security of the poorest populations. Furthermore, we cannot ignore the possibility that it mightlead to armed conflicts such as civil wars, ethnic hostilities, or environmental
degradation, including desertification.
Once famine, epidemics, refugees, or conflicts arise, donor countries can
expect their people to support emergency assistance, peace building, andreconstruction efforts as humanitarian and heroic acts. However, they cannot
expect good results from fragile states or public support for assisting them
before these states actually collapse. This is the dilemma that donors are facing. While it is very difficult to resolve, I would like to propose these actions:41CHAPTER 2・Compare the monetary costs to donors (aid does not produce desired
effects) and the social costs (destruction of human security of the poorest people in fragile countries);
・Confirm that the social costs are far greater than the donor monetary
costs; and・Consider improving aid modalities so that aid to fragile states contributes as much as possible to prevent them from collapsing.
We should re-examine our assistance to fragile states in view of the enormous costs that humanitarian crises bring to the global society. By doing so,
we will be able to find a way to cast off the donors’ one-sided logic represented by the concept of selective aid.
2-2-2 New trends surrounding ownership
The international aid community emphasizes partnership and ownership.
The statement of the High Level Meeting in 2000 of OECD’s Development
Assistance Committee (DAC) emphasizes that “partnership with developing
countries who have a sense of ownership is the basis of our cooperation”(OECD, 2001, p. 24). Japan’s revised Official Development Assistance
Charter also clearly states in the Basic Policies section that Japan respects“the ownership by developing countries.” Needless to say, the emphasis on
ownership is appropriate and warranted, however, there is a need to re-examine the debates on ownership within the context of new aid trends.
(1) Improving ownership by aid coordination
In the international aid community, donors are actively trying to coordinate
with one another in order to use their limited aid resources effectively. An
argument that aid coordination strengthens the ownership of developing
countries is gaining influence (Kihara, 2003, pp. 42-46). Based on Ghana’s
experience, P. Harrold of the World Bank states that the objective of the sector-wide approach is to prevent chaotic emergence of too many donor-led
projects and overcome the lack of ownership by developing countries(Harrold, 2003).
This idea ― strengthening ownership by aid coordination ― is based ona premise that the government of a developing country will direct donors in
the framework of aid coordination. It is assumed that the government will
prepare development and poverty reduction strategies with the help of donor
experts, bring their plans to donor meetings, and play a leading role in coordinating donor debates. This is often described as “the government of a42

Rediscovering the Role for Japandeveloping country, not donors, is in the driver’s seat and holding the handle.”6(2) Testing the ownership
Considering the reality of relationships between developing countries andthe international aid community, how often do we find a situation where thegovernment of a developing country is in the driver’s seat? To find out, thefollowing question would be effective:“When an alternative preferred by the government of a developing country is not aligned with the advice of the international aid community andinternational best practice, would the wish of the government be honored?”If the answer to that question is yes, then we can say that the government
in the driver’s seat and has the true ownership. If the answer is no, it meansthat even if the government is holding the handle, the driving path is dictatedby someone else.
Unfortunately, we should expect that the international aid community isvery unlikely to accept policies that do not conform to its preferences. As discussed earlier, we must consider the reality in which selective aid has
become a dominant trend. Also, the World Bank (1998) defines the conceptof ownership as “strong domestic support for reforms (that the international
aid community requires as a condition for assistance)” and states that “ownership is essential for adjustment loans to succeed” (World Bank, 1998, p.
52). The ownership defined in that publication is nothing but requiring developing countries to strongly commit, of their own will, to policies preferred by
the international aid community and faithfully implement them.
(3) Looking for true ownership
For a developing country to have true ownership, it needs to secure a freedom to choose policies that it considers best after considering advice fromthe international aid community and international best practice.
It is possible to find examples where a developing country made its own
decision on an important development issue and a certain level of success
was confirmed in an ex-post evaluation. One such example in recent years isthe management policy adopted by the Malaysian government during theEast Asian financial crisis at the end of the 1990s. It is interesting to note that
the IMF, which ferociously criticized the Malaysian government for this well6. Former World Bank President Wolfensohn said that “[developing] countries must sit in the driver’s seatand determine the course” (Wolfensohn, 1999, p. 9).

43CHAPTER 2

known unorthodox choice, later conducted a comprehensive review(Meesook et al., 2001) and concluded matter-of-factly that the choice by
Malaysia did not lead to serious problems. Another, older example is theEastern Seaboard Development Project in Thailand, which was the flagshipproject of the country’s Fifth Five-Year Plan during the 1980s. This megaproject was designed to enhance export competitiveness and alleviate the problems of over-concentration in Bangkok by constructing two industrial parks
with deep seaports on the coast southwest of Bangkok. The Japanese government provided more than ¥130 billion in loans for the project. The initial plan
included construction of a urea fertilizer plant for the National Fertilizer
Corporation (NFC). Despite the fact that the World Bank and Japan ― thetwo largest donors for Thailand at that time ― recommended building theplant, the Thai government decided against it. An ex-post calculation showedthat the plant would have lost money, suggesting that the Thai government
made a good decision (Shimomura, 2003, Chap. 6).
One could argue that, even if true ownership is desirable, some developing countries cannot be trusted with the handle in light of their governanceconditions. This concern over the level of governance in developing countries is understandable, but it is somewhat inconsistent to have that concern
and emphasize their ownership at the same time. We should reexamine ourinclination to advocate respect for ownership.
As Takahashi correctly points out, policy choices faced by a developing
country are “a product of extremely complex political and economic mechanisms, just as complex as they are in an industrialized country,” and “thosemechanisms are defined to a large extent by domestic conditions of thedeveloping country. If aid donors are going to influence its preferences, theymust understand these political and economic mechanisms and think hardabout how to deal with them” (Takahashi, 2005, p. 78).
We should return and re-evaluate the dominance of donor logic.

2-3. Removal from the field as the negative side
2-3-1 Poverty Reduction Strategy Papers (PRSPs)(1) Identifying problems
As a brief survey of several PRSPs reveals, lists of policy measures deemednecessary to reduce poverty are comprehensive and extremely long. It is thedeveloping country’s bureaucracy that must handle the bulk of work associ44

Rediscovering the Role for Japan

ated with this huge number of policy measures to be implemented ― coordinating with the donor community, gathering statistical data, and preparing
documents. This work, however, far exceeds the capacity of weak government machinery of the poorest or least-developed countries. When weak governments are forced to concentrate on paperwork and coordination, we cannot expect them to have time and energy to spend in the field where poverty
alleviation and economic development actually occur. Under this pressure,developing country governments become increasingly detached from thefield.
Let us consider the PRSP for example. A PRSP specifies goals, which
ministries should implement them, and deadlines for their achievementaligned with a diverse set of policy tasks. These elements are central todonor coordination. Therefore, those who toil on the ground for individual
projects designed to alleviate poverty and promote economic development
have limited opportunities to participate in donor coordination meetings,
except, perhaps, for influential local NGOs. Inevitably, the voice of technocrats is more likely to be reflected in policy measures than the voice of
those working on the field.
Also, negotiations about policy mostly take place in the capital of thedeveloping country or at international conferences, far away from the field
where poverty reduction and development efforts actually occur, a situation I
consider as donor detachment from the field.
(2) PRSPs problems found in real examples
Let us look at actual examples of PRSPs to illustrate this point: Laos (IMF,
2004), Tanzania (The United Republic of Tanzania, 2005), and Sri Lanka(World Bank, 2003).
・Laos. The list of policy measures required under a PRSP is long. The listfor Laos is in two parts, the first of which deals with the macroeconomic
and governance environment and is divided into these five categories:①National development framework (includes 37 targets and 47 performance indicators),②Policy matrix for revenue collection,③Policy/program matrix for public expenditure management,④Policy/program matrix for the financial sector, and⑤Governance initiatives.
The second part is called Sector/Cross-sector and National Programmes
Matrices, which specifies a large number of detailed targets, policy mea45

CHAPTER 2sures, and monitoring indicators for each of the following 10 categories:①Agriculture and forestry,②Education,③Health,④Transportation,⑤Gender,⑥Environmental protection,⑦Drug control,⑧Unexploded explosive ordnance (UXO) contamination,⑨HIV/AIDS prevention, and⑩Trade.
Many people would be overwhelmed by the sheer scale and the enormous workload this list implies, but at the same time they would feel disturbed by the gap between the capacity of the public sector of a developing
country and the enormous scale of the tasks that it faces. Those who havebeen in the building of a Laotian government agency would surely see thegap between this list and the reality of Laos.
・Tanzania. The matrix of Tanzania’s PRSP is divided into three clusters:
growth and reduction of income poverty, improvement of quality of life andsocial well-being, and governance and accountability. Each cluster includes
goals, targets, and strategies (Table 2-2).
・Sri Lanka. While Sri Lanka’s PRSP includes six categories, it is much morecompact than those of Laos and Tanzania, which suggests that the content ofa PRSP is not necessarily aligned with the operational capacity of a country.
Looking at the content of actual PRSPs begs this fundamental question:
Who prepared this document, and how? Considering the amount of work
involved, the PRSPs of Laos and Tanzania could not have been preparedwithout inputs from many outside experts, which reveals not only a detachment from the field but also the lack of ownership. As of June 2005, 49 countries had prepared PRSPs (World Bank, 2005, p.1), which suggests that
PRSPs have a significant job creation effect for experts who work in the international aid community.
2-3-2 New aid modalities — detached from the field
Key terms for the so-called new aid modalities represented by a sector-wide
approach and budget support include fungibility, traceability, public expenditure reviews, common funds, and harmonized procedures. What kinds of information and expertise are required to uphold these key words?
46

Rediscovering the Role for Japan,
Table 2-2. Matrix of Tanzania s PRSP
Cluster 1: Growth and reduction of income poverty
Goals

Targets
economic

2 items: Macroeconomic stability maintained;
reducedunemployment
andaddress
underemployment in rural area

2: Promoting sustainable and broadbased growth

11 items: Accelerated GDP growth rate; scaled
up participation of the informal sector and SMEs;
increased technological innovation, upgrading
and use of technologies; etc.

3: Improved food availability andaccessibility at household level inurban and rural areas

2 items: Increased food crops production;
maintained strategic grain reserve

4: Reducing poverty of both men andwomen in rural areas

7 items: Reduced proportion of rural population
below the basic needs poverty line; reduced
proportion of rural food poor; increased off farmincome generating activities; etc.

5: Reducing poverty of both men andwomen in urban areas

2 items: Reduced proportion of urban population
below the basic needs poverty line; reduced
proportion of urban food poor

6: Provision of reliable and affordable
energy to consumers

2 items: Liberalization of the power sub-sector; atleast 3 production-sharing agreements

1: Ensuring
management

sound

Cluster 2 Improvement of quality of life and social well-being
Goals

Targets

1: Ensuring equitable access to quality
primary and secondary education for boys
and girls, universal literacy among men andwomen and expansion of higher, technical,
and vocational education

8 items: Early childhood; primaryenrolment; secondary enrolment; etc.

2: Improved survival, health, and well-being of
all children and women and of especiallyvulnerable groups

5 items: Infant & child health; childnutrition; HIV/AIDS; etc.

3: Increased access to clean, affordable, andsafe water, sanitation, decent shelter, and asafe and sustainable environment andthereby,reducedvulnerability
fromenvironmental risk

5 items: Water; sanitation & waste
management; pollution; etc.

4: Adequate social protection and rights of thevulnerable and needy groups with basic
needs and services

4 items: Social protection; support tovulnerable groups; child protection &5: Systems in place to ensure effective
universal access to quality public services
that are affordable and available

5 items: Roads; schools & healthfacilities; social service sectors; etc.

Cluster 3 Governance and accountability
Goals
1: Structures and systems of governanceTargets
1 item & 7 sub-categories: institutional47

CHAPTER 2

Cluster 3 Governance and accountability
Goals

Targets

1: Structures and systems of governanceas well as the rule of law are democratic,
par ticipator y,
representative,
accountable, and inclusive

1 item & 7 sub-categories: institutional
reforms; parliament and other governanceinstitutions; participation and representation
at local level; etc.

2: Equitable allocation of publicresources with corruption effectively

2 items & 16 sub-categories: Equity;
participation and access to information; anti-

3: Effective public service framework inplace to provide foundation for service
delivery improvements and poverty
reduction

2 items & 10 sub-categories: public service
intervention; commercial courts; surveys; etc.

4: Rights of the poor and vulnerable
groups are protected and promoted in
the justice system

1 item & 10 sub-categories: District courts;
legal reforms; laws and gender; etc.

5: Reduction of political and social
exclusion and intolerance

1 item & 6 sub-categories: Local authorities
and CSOs, CBOs; political parties; civic
education; etc.

6: Improved personal and material
security, reduced crime, eliminate sexual
abuse and domestic violence

1 item & 8 sub-categories: Prisons andcommunity; police force and community;
women’s rights; etc.

7: National cultural identities enhanced
and promoted

1 item & 4 sub-categories: Moral education;
Swahili language; etc.

Reviewing public expenditures with donor economists ― especially thosein international organizations ― while keeping an eye on the concepts of fungibility and traceability requires knowledge of macroeconomic indicators ―especially fiscal statistics and budgetary systems. Those who design harmonized procedures and manage common funds must be well versed, at theleast, in the trends of international finance and procurement rules of domestic government agencies. Those in developing countries who have this kindof knowledge and experience ― and access to necessary statistics ― are limited to technocrats who typically work for economic ministries in the central
government.
Discussions that drive the new aid modalities would typically take placein an office in the capital. An air-conditioned room would feature computer
monitors showing statistics and thick volumes of procurement regulations
and manuals. That place belongs in a different world, far away from the sweatof primary health care workers who visit rural villages, mud in the foundation
work for a bridge construction, the stench of slums in big cities, and thescorching sun shining over saplings planted in a desert. As developing country technocrats and the staff of aid agencies are consumed by the work in
48

Rediscovering the Role for Japan

capital cities, their attention, time, and energy for the field are inevitably
crowded out.
2-3-3 Disproportionate emphasis on formal institutions anddisengagement from reality(1) Identifying problems — A case study of the power sector in Sri
Lanka
One common characteristic found in PRSPs is that attention tends to befocused on what kinds of institutions are lacking or inadequate in developing
countries. As a result, the focus of reform is placed on introducing new institutions and fixing existing institutions and many countries are required to
introduce new bills, organizations, and rules as a condition to receive a loan.
One item in the second category of Sri Lanka’s PRSP (improve investment environment for private sector activity) is power sector reform, whichlists three pillars as policy measures:①Increase the electricity tariff to a level where cost recovery is possible;②Unbundle the Ceylon Electricity Board (CEB) so that generation,transmission, and distribution of electricity are separated; and③Encourage independent power producers (IPPs).
For the second target of unbundling the CEB, the Parliament passed theElectricity Reform Act and Public Utility Commission Act in October 2002,
and the PRSP moved on to selection of the chairman of the Public Utility
Commission and drastic changes in power sector organizations and regulations. Sri Lanka at that time had a power structure where the President andPrime Minister belonged to different political parties. The President fired thePrime Minister and the resulting political instability continues to this day. As
a result, the “notice through official gazettes” (the final confirmation procedure by the government) has not taken place for the two bills, leaving the
PRSP’s power sector reform at a standstill. As a ‘stick’ to promote thereforms agreed to in the PRSP, the international aid community has essentially suspended its assistance to the power sector.
Meanwhile, the CEB’s finances have deteriorated. It fell into the red in
FY2000 and its losses have rapidly increased since then. If the CEB continues to lose money under this gridlock, there is a concern that its ability toprovide a stable electricity supply may be affected. When profitability
declines, budgets for functions such as maintenance, training of technicians,
and environmental activities tend to be reduced.
49

CHAPTER 2When I met the resident representative and his staff economist at a majorinternational organization Colombo office, they explained, “When the twobills are enacted the unbundling will become a reality. When the CEB is
unbundled the management will become more efficient due to competitive
forces, and things will get better.”If the deficit becomes a serious problem, I asked, and the CEB is unable
to allocate sufficient funds for maintenance and other essential functions, theability of the CEB to do its job may have been eroded when organizational
reform finally takes place. They responded to my concern by saying, “Ifunbundling takes place, the new management will quickly take actions andthe problems will be solved.”
I pointed out the problems of training facilities for technicians. The facilities are deteriorating because of a long period of insufficient funding. They
only have antiquated equipment and the morale of both instructors and technicians is low. It is those technicians who are the backbone of an uninterrupted power supply, especially in the areas of transmission and distribution.
Deficiency in their training can lead to serious problems.
In response, they insisted, “Although we share your concern, whenunbundling takes place the new management will implement an effective prescription and things will get better.” This conversation confirmed that, while
local representatives of the international aid community were well-informed
about the political situation in Sri Lanka and the institutional aspects of thepower sector, they did not seem to have visited the frontline of the CEB inmaintenance and training. They were not familiar with reality and theirunderstanding was very abstract.
This is only one small example, but it highlights the fact that the attentionof the international aid community is fixated upon formal institutionalchanges such as introduction of reform bills, organizational and regulatorychanges, and personnel changes. The reality of rank-and-file employees who
support a stable power supply is not understood properly. This is a typicalsymptom of donor detachment.
(2) An alternative perspective
How can we overcome the reality described above? The international aid
community emphasizes institutional and policy improvements, but even if
some institutions are missing, well-performing developing countries havemechanisms in their social systems that carry out the same functions tosome extent. There are quite a few examples where, even if institutions seem50

Rediscovering the Role for Japan

inadequate on the surface, there are quite a few examples where the functions required of them are in fact carried out.7
It is never easy to design new institutions that fit well with the indigenous
economic and social systems in a country. There are many examples wherealien systems were grafted without sufficient consideration of characteristics
of indigenous economic and social systems and the newly introduced systems do not function properly or produce expected results. Simply pursuing
institutional changes is not enough. It would be more effective to find structures functioning under the existing institutions and take advantage of theirunderlying mechanisms to achieve the desired goals, and at the same time
consider the alternative approach of taking time to examine indigenous characteristics of the recipient country and design institutions that match thesecharacteristics.

2-4. Conclusion and recommendation
New ideas, strategies, and approaches have been proposed by the international aid community and they have become a dominant force. While they
have many virtues that should be appreciated, in this chapter I have pointed
out their often overlooked negative side.
The objective of this chapter is to think about a unique role for Japan
within the international aid community. I would like to propose that Japan
become the ‘counterforce’ against the negative side which tends to be overlooked by the international aid community. Specifically, Japan should raiseissues about the negative side and recommend countermeasures in addition
to actively contributing to promote the new trends.
This chapter focused on the dominance of donor perspectives and disengagement from the reality of developing countries. One way to overcome
these symptoms is to advocate identifying and exploiting the underlying
strengths inherent in the developing country economic and social systems.
Then nurture strengths rather than pointing out weaknesses as an alternative
to the international aid community’s standard approach ― diagnose problems caused by institutions and policies and prescribe to overcome the weaknesses. I hope that Japan’s role will be reconstructed based on this perspective.

7. Shimomura (2006) (to be published) discusses specific East Asian examples in detail.

51

CHAPTER 2

References
Japanese
JICA (2004) Hinkonkoku no Minkan Sector Kaihatsu ni okeru Boueki Toushi
ga Keizaiseichou ni Oyobosu Kouka, [Impacts of Trade and Investment in
Private Sector Development to Economic Development in Poor
Countries], Report by S. Shirai JICA Visiting Researcher.
Kihara, T. (2003) “Enjokyochou no Riron to Genjitsu ‘Enjokyocho Model’ toVietnam,” [International Aid Coordination: Theory and practice, ‘Aid
Coordination Model’ and Vietnam], Journal of JBIC Institute, September
2003 Vol.17.
Miyagawa, K. and K. Yamamoto (eds.) (2002) Public Governance: Kaikaku to
Senryaku, [Public Governance: Reform and Strategy], Nihon Keizai
Shinbunsha.
Shimomura, Y. (ed.) (2006) Asia no Governance [Governance in Asia]
Yuhikaku, forth coming.
Takahashi, M. (2005) “Fungibility to Kaihatsu Enjo: Hinokon Kokka ni
Taisuru Ippan Zaisei Shien no Kadai,” [Fungibility and Development
Assistance: Development Issues in General Budget Support to poor countries], Kokumin Keizai Zasshi, [Journal of National Accounts], Vol.191,
No.6.

EnglishApplegarth, P. (2003) “A Commentary on the Millennium Challenge
Account,” Africa Notes, No.17.
Harrold, P. (2003) Sector Wide Approaches and Poverty Reduction, for JICA
Training Institute, February 4, 2003.
IMF (2004) Lao People’s Democratic Republic: Poverty Reduction Strategy
Paper, IMF Country Report No.04/393.
Meesook, K. et al. (2001) Malaysia: From Crisis to Recovery, IMF.
OECD (2001) Development Co-operation 2000.
Shimomura, Y. (2005a) The Role of Governance in Asia, Institute of Southeast
Asian Studies (ed.)＿＿＿＿ (2005b) “The Role of Governance in Development Revisited: A
Proposal of an Alternative View,” FASID Discussion Paper on
Development Assistance, No.5.
United Republic of Tanzania (2005) National Strategy for Growth andReduction of Poverty (NSGRP).
Wolfenshohn, J. (1999) “A Proposal for a Comprehensive Development
52

Rediscovering the Role for Japan

Framework,” (discussion draft).
World Bank (1998) Assessing Aid What Works, What Doesn’t, And Why,
Oxford University Press.
＿＿＿＿ (2003) Sri Lanka Proposed Poverty Reduction Support Credit I.
＿＿＿＿ (2005) 2005 Review of the PRS Approach: Balancing Accountabilities
and Scaling Up Results.

53

3
Structures of Donor Partnerships
For more effective partnerships
Yuichi Sasaoka1 andMikiko Nishimura2

Introduction
In an effort to make aid more effective in developing countries, donor coordination began to increase in 2000. This trend produced the Paris Declarationon Aid Effectiveness in March 2005. The declaration suggested how donor
countries could build partnerships to improve aid effectiveness. Suggestions
included aligning aid to the policies and institutions of recipient countries
and harmonizing aid procedures. In response to this trend, the Japanese aid
system and organizations have praised the general ideas of aid coordinationand partnership, but have not necessarily followed through with specificactions.
Why has Japan embraced the general idea of partnerships and yet been
cautious when it comes to specifics? This chapter will systematically examine
the factors that have led to this position and formulate a hypothesis. We will
use Organization Theory and Exchange Theory to clarify the characteristicsof the Japanese aid system and organizations as well as the merits and drawbacks of participating in partnerships to understand the underlying factors.
We will also draw on the experience of other countries. Through this examination we will identify the essential elements required if Japan is to contribute more to Poverty Reduction Strategies (PRS) with an emphasis on
partnerships, which will become an important goal for Japanese foreign policy.
Our analysis uses the proposals and analyses by the Development
Assistance Committee/Organization for Economic Cooperation andDevelopment (DAC/OECD) of Japanese aid, as found in its peer reviews and1. Professor, National Graduate Institute for Policy Studies.
2. Associate Professor, Graduate School of International Cooperation Studies, Kobe University.

54Structures of Donor Partnerships

other documents, including guidelines that the DAC has proposed to donors
as non-binding targets. These recommendations calling on donors to implement drastic reforms are typically made by the DAC to improve aid effectiveness. While the merits of individual recommendations can be debated, thischapter discusses issues that will arise when we accept the recommendations as the basis of our aid activities. We can at least clarify what improvements and efforts will be required of the Japanese aid system and organizations if they are to follow the DAC recommendations and build partnerships.
There are many types of partnerships, but our primary focus in this chapter is on those among donors. Partnerships are being developed between
donors and recipient governments, and between donors and civil society. In
some cases, characteristics of donor partnerships are defined by other partnerships. We have limited the scope of our analysis to partnerships among
donors. This limit restricts our arguments from the perspective of illuminating the overall structure of partnerships, however, we believe that the challenges for the Japanese aid system and organizations will be clarified byexamining partnerships at the donor level by comparing aid systems. The
second chapter of the DAC/OECD Guidelines on Poverty Reduction (2001)
still remains the best comprehensive guide on partnerships.
The first section of this chapter summarizes the main debates in the DAC
about the Japanese aid system and organizations. Next we review existing
definitions of partnerships and describe the Organization Theory andExchange Theory used in our analysis. The third section uses these theoretical concepts in an attempt to understand the Japanese aid system from theperspective of Organization Theory. The fourth section provides a tentative
analysis of factors that contribute to the lack of active pursuit of partnerships
or lack of abilities from the perspective of Organizational Theory andExchange Theory. The fifth section examines potential actions that Japan cantake to develop partnerships, and the concluding section discusses the outlook for the future.

3-1. Debates on the Japanese aid system andorganizations in the DAC
International aid in the 1990s faced a new paradigm - partnerships. As aid
agencies understood and shared a concept of equal partnerships with recipient governments and respect for coordination among aid agencies to avoid
redundancy and inefficiency, partnerships among donor agencies, govern55

CHAPTER 3

ments, NGOs, and civil society became a norm. In the 1990s aid agencies
began to refer to the necessity to pursue partnerships in various policy documents (WCEFA Secretariat, 1990; DAC/OECD, 1996; World Bank, 2000;
Eriksson, 2001; DFID, 2003). In recent years the concepts of ownership andpartnership have become very important in development assistance. Whilethese two concepts have been frequently quoted since the publication of
DAC’s New Development Strategy in 1996, few documents offer clear definitions of them.3 In the international aid community, the actual functions ofpartnerships have not been analyzed carefully, questioning their significanceand effectiveness in the context of comprehensive policies and their implementation. Currently the only available evaluation of donor implementation
systems is the DAC’s Peer Review.
The DAC conducts peer reviews of two member countries every year. In
2003 the Committee evaluated Japan and offered harsh criticism of the country’s aid system (OECD, 2003c). The reviewing members noted that Japan’s
ODA reform, including revision of the ODA Charter, had progressed since
the last Peer Review, but they noted that the aid system remained centralized
and that the ministries and headquarters were compartmentalized. They alsocommented that the Japanese government “should develop a governmentwide approach to mainstream cross-cutting issues, rather than treating themas separate sectors, centering on the concerns of poverty reduction as part ofachieving the Millennium Development Goals.” These comments are pertinent to Organization Theory and point out problems related to aid implementation systems, not individual development programs or projects.
One recommendation about aid allocations stated that “development of aclearer policy on how Japan intends to focus on poor countries or poor populations within countries should be considered.” In other words, Japan wasurged to develop a concrete pro-poor policy. For aid implementation, theCommittee proposed that “Japan should consider moving away from an
instrument based co-operation system to a more country based approach, aswell as establishing country budget envelopes.” These recommendations
mean that if the Japanese government is to promote and accelerate the PRS,
it needs clearer policies and methodologies. They also emphasized theimportance of preparing Country Assistance Strategies (CASs).4 In the strate3.
4.

56

Killick (1998) and others have analyzed the relationship between ownership and structural adjustment policies, but they have not offered a clear definition of ownership itself.
The CAS used to be prepared by the World Bank, but bilateral donors began to use that name to refer totheir own strategies as well. Incidentally, the DAC stated that the MOFA “should leave the implementationof grant assistance to JICA and focus their manpower on developing strategies and policies.”

Structures of Donor Partnerships

gy arena, the Ministry of Foreign Affairs (MOFA) has made special efforts inrecent years; it abolished an existing division in the Economic Cooperation
Bureau and created two divisions that deal with country assistance.
In the case studies of the peer review, Japan’s efforts in Tanzania, i.e.
active participation in aid coordination in Tanzania and Vietnam, (i. e. coordination with JBIC-World Bank-ADB and Japan-U.K. cooperation, and the ODA
Task Force in Vietnam) received high marks. Some DAC members opinedthat these efforts should be emulated by other countries, but almost two
years after these discussions took place in January 2004, we do not see any
efforts to do so by other countries. This may help to explain the gap between
Japan’s general stance and specific donor partnerships. Despite the efforts ofvarious parties, there may be internal and organizational factors that arestrong enough to suppress external influences, including the call for and thenecessity of partnerships.
To summarize the analyses of DAC reviewing countries: Japan’s current
ODA administration system is compartmentalized. To ensure a comprehensive perspective and consistent policies, it has been proposed that the aid
system based on multiple ministries and implementing organizations shouldbe abandoned and that policies should be designed by an organization withmore streamlined authority. That organization should concentrate on strategies, policies, and coordinating the aid system, and leave implementation toappropriate agencies as much as possible. Program implementation undertaken by a policy ministry could risk blunting any evaluations related toaccountability.5 We need to show a theoretical framework and systematicallyexamine why Japan’s aid system has had difficulty in dealing with these problems.

3-2. Conceptual framework for understanding
partnerships
We now turn to existing definitions of partnerships and propose Organization
Theory and Exchange Theory as conceptual frameworks for understanding
the meaning of partnership.

5. The World Bank’s 2004 report contrasts policy ministries and implementing agencies by stating that indeveloping countries “policy ministries set and enforce the rules of the game played by service delivery
agencies while the latter prepare internal ‘policies’ that are unique to each organization.” This argument
applies to the Japanese aid system as well (World Bank, 2004, p. 50).

57

CHAPTER 3(1) Defining partnerships
Partnerships are now a new phase beyond cooperation and collaboration(Mullinix, 2001; Annex 1). Partnerships share more political pain and gain
and require strong commitments and investments (Balloch and Taylor,2001).
The interdisciplinary literature has only a limited number of definitions in
the context of international development/cooperation. Bray (1999) defined
partnership simply as “persons (or organizations) who share (similaractions)” and pointed out that while the term generally implies equal appropriations, in reality there is often a dominant partner and its characteristics
change significantly under different settings and over time. Similarly,
Brinkerhoff (2002) defined an ideal partnership as an active relationshipbetween different actors based on mutually agreed-upon objectives, which ispursued with a shared understanding of reasonable appropriation of tasks
based on each partner’s comparative advantages. On the other hand, she also
said organizational and political constraints make ideal partnerships clearly
unrealistic.
Attempts to define partnership have been made in an interdisciplinary
context and through the analyses of real situations. If we summarize common factors found in various definitions, we can define partnership as astrong implementation system that becomes viable when two or more organizations or individuals share not only objectives or goals but also mutual trust,risks, and responsibilities. Partnership faces various organizational and political constraints and takes different shapes at different times and under different circumstances. This definition implies that, especially in the field of international cooperation, we need to analyze organizational and political constraints in greater detail, which can take various forms. Organization Theory
and Exchange Theory are two such analytical tools.
(2) Organization Theory
Organization Theory tries to identify goals of an organization as a whole andits individual members, and aims to analyze the functions of different organizations. Classically, an organization is defined as “a system of activities andforces consciously coordinated by two or more persons” (Barnard, 1938),
including internal activities such as plans, organizational structures, and communications. We need to analyze how organizational goals are defined and bywhom.
To achieve conscious coordination, it is important that organizational cul58

Structures of Donor Partnerships

ture - shared and internalized beliefs and norms - controls and gives meaningand guidance to individual members who are involved in collective actions, inaddition to integrating the organization (Scott, 1987). Organizational culture
provides shared and internalized beliefs and norms, meaning, and codes ofconduct to its members. In other words, an organization creates organizational culture and its individual members share similar behavior andresponse patterns.
One of the theses of Organization Theory is that various individuals join
an organization to achieve a goal but their motives and the goal of the organization are not necessarily the same. As in Rousseau’s general will and individual will, aggregating the objectives of individual participants may not add
up to the goal of the organization (Scott, 1987). This is also true when morethan one or more small organizations form a larger organization. An organization is also influenced by the broader social and cultural environment, forexample, popular opinion. Thus an organization is sensitive not only to internal functions but also to external influences of the broader, social and cultural environment (Meyer and Scott, 1992; Scott and Christensen, 1995).
If we apply this Organization Theory to partnerships in international aid,
sharing a target of aid impacts is not enough. It is also important to examine
the ideal forms of partnership while considering organizational decisionmaking mechanisms, organizational culture, norms and beliefs, and the sociocultural, political, and economic background of aid agencies.
(3) Exchange Theory
Exchange Theory was developed by scholars of political economy who
focused on monetary markets and was later expanded to explain social andpolitical behavior (Baldwin, 1990). The basic premise of Exchange Theory isthe ‘reciprocal relationship’ which functions as long as people believe in andactually find reciprocal interests in an ‘exchange’ (Chadwick-Jones, 1976;
Huston and Burgess, 1979). In this sense an exchange relationship is a product of mutually dependent actors; the actions of one actor are realized in a
relationship with the actions of other actors.
The Social Exchange Theory classifies mutual dependence into three levels based on the nature of exchanges - factual, normative, and structural(Ceri, 1990; Annex 2). Blau (1964) said that establishing a friendly relationship (either between individuals or organizations) is establishing a functionof social exchanges and explained that a social exchange is not a norm forreciprocal actions; instead, it starts from ontological conditions of an59

CHAPTER 3

exchange, and a norm is formed from there. A political exchange requires
negotiators to become political actors in an institutional sense. Politics areinteractive actions and can be analyzed from various perspectives of individuals involved in the exchange. It is an analysis of what policies and compensation individuals expect to obtain with a certain cost and what they offer inexchange (Curry and Wade, 1968). For example, Honman (1961) and Blau
(1964) described the origin of a political structure as a product of an asymmetric exchange relationship that emerges as one group becomes dependent
on the services provided by another group.
Thus today’s theory on social or political exchange depends much on
mutual dependencies at the factual level when it studies the reasons why certain forms of exchange have come to exist. The level of interaction changes
depending on the individuals involved and their social and political roles andstatus, but we also need to consider the conditions of equal and unequalinteractions. We can analyze the observed passive stance of Japan toward
partnerships by considering these conditions of interactions.
Figure 3-1 shows a conceptual framework we created based on
Organization Theory and Exchange Theory. By conceptualizing partnershipas an ‘exchange relationship’ we have established exchange relationships atfour levels: (1) between a donor and a recipient government, (2) between
donors, (3) within a recipient government, and (4) between an organizationand individuals. This chapter focuses on (2). Exchange relationships at multiple levels that form a partnership are, as Organization Theory shows, influenced by socio-cultural, economic, and political context, as well as organizational culture and decisionmaking mechanisms.
Figure 3-1. Concepual framework

Exchange Theory
relationship

Partnership in development assistanceInterdependenay, even or uneven
・Donor, recipient ・Witin the recipient・Among Donors ・Organization vs. Individval

Organization Theory factors
Organizational decision
making mechanism

60

Organizational culture,norm, belief

Sociocultural, economic,
and political context

Structures of Donor Partnerships

3-3. Understanding Japan’s aid system with Organization
TheoryWe now turn to Japan’s aid system from the perspective of Organization
Theory. Related organizations in the Japanese aid system include development assistance agencies, both policymaking ministries and implementing
agencies.
(1) Japanese Overseas Development AssistanceIn the late 1990s when the trend toward poverty reduction began to accelerate, the DAC (2001) began to prepare Guidelines on Poverty Reduction. In
Chapter 5, entitled “Institutional Changes and Development for
Mainstreaming Poverty Reduction, Partnership and Policy Coherence,” theDAC examined changes within aid agencies and staff training that would benecessary for donors to mainstream the poverty reduction strategy as
described in the Guideline. Changes within aid agencies are explained as“changes in their organizational structures, incentives, practices, systems
and cultures.” This is an extremely comprehensive prescription from theviewpoint of Organization Theory. The DAC showed options for self-examination and changes within aid agencies based on the recognition that donors
cannot implement a Poverty Reduction Strategy (PRS) effectively with their
existing organizational structures.
The Guidelines illustrated five models that as of 2001 represented thediverse organizational setups of ODA donor agencies (Table 3-1). Japan corresponds to Model (4), “Multiple Ministries with Separate Implementing
Agencies” along with Austria and France. DAC’s 1999 analytical paper comTable 3-1. 5 organizational structure models in the Development Assistance Agencies
Organization type
①
②
③
④
⑤

Organization at the regional bureau in Ministryof Foreign Affairs
A bureau or a division in Ministry of Foreign
Affairs
Organization consisfs of (foreign ministry ordevelopment aqency) and implementing agency
Organization consists of several govemment
offices and several implementing aqencies
Independent development aqency

Fall within the organization type
Denmark, Finland, Netherlands
Ireland, Italy, New Zealand,
Switzerland
Belgium, Germany, Luxembourg,
Norway, Sweden
Austria, EU, France, Japan, Spain,
Portugal
Australia, Canada, U.K., U.S.

Source: Chang, H, Fell, A. M., Laird M.他（1999）より筆者作成．
*U.S. is now categorized as ④ because, apart from USAID, the derelopment assistance by Millennium
Challenge Account started in 2002.

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CHAPTER 3

mented that in general this setup “requires additional efforts to coordinate
agencies and ensure policy coherence.”
From the viewpoint of Organization Theory, targets of an organizationand sub-organizations are not necessarily identical even under normal circumstances. Compared to Models (1), (2), and (5) where decisionmaking
processes are controlled by a single organization and Model (3) where coordination is required only between two closely-related organizations, Model(4) is the most difficult setup in terms of coordination and communication
because it involves many parallel organizations and a complex decisionmaking network. Indeed, while aid agencies increasingly accepted the 1990s
notion that poverty reduction is their overarching objective, organizations
categorized in Model (4) tended to reluctantly accept it except for the multilateral European Commission (EC).6 One possible explanation for this reluctance is that it is difficult for a donor country with this type of structure tocoordinate different organizations and narrow their objectives, resulting invague and broad organizational objectives.7 In an aid system that includes
multiple ministries and separate implementing agencies, key objectives tend
to multiply and it is difficult to prioritize them. Even if objectives are shared,
different organizations have different aid schemes, methods, and geographical focus areas so they tend to provide aid based on their own interpretations.
This is a weakness of this system.
(2) External demands for the Japanese aid system and its
organizational constraints
Japan accepted the argument of aid effectiveness at the Paris High Level
Forum (2005 Paris Declaration) and the targets established by the previous
2001 Rome Declaration on Harmonization and DAC Guidelines, but has still
been unable to build active partnerships with other donors and recipient
countries for program implementation and development aid management.
This problem manifests itself not only in weak participation with fiscal assistance and sector programs (although their individual merits are debatable),but also in various organizations’ procedural issues such as untying ODA,
respecting procurement procedures of recipient governments, and improving
the predictability of aid over multiple fiscal years.8
6. DAC/OECD, 1999, p. 2, Table 1.1.
7. In 1999 when the author asked several officers of the DAC department in charge of peer reviews which
donors are the most divergent between general aid objectives and specifics, their unanimous answer
was France and Japan.

62Structures of Donor Partnerships

The reasons for weak partnerships can also be explained from the perspective of Organization Theory. For example, too many ministries are
involved in decisionmaking; the compartmentalized administrative systems
divided by sectors and aid schemes make it harder to build relationships
with partners (governments and donors); centralized decisionmaking systems that rely on central ministries and headquarters are often unsuitable forpartnerships based in recipient countries; and local staff lack expertise andcoordination abilities.
It is also important to note that Japan went through fewer social, economic, and political reforms that could have affected partnerships than othercountries. For example, when the British Overseas Development
Administration was upgraded to the Department for International
Development (DFID), Clare Short was appointed as secretary of state forinternational development following the change in government. She quickly
held up poverty reduction as an overriding objective and showed a willingness to accept the failures of past assistance. Under such a strong leader who
had political momentum, the DFID reviewed and published the shortcomings of the conventional project-type assistance and began to reorganize itself
along sector lines, and introduced sector programs and fiscal assistance andother scheme changes. In the context of broader trends in the international
political economy, the move toward political and economic integration in
Europe - symbolized by the EU - had a significant impact on aid agencies.
European agencies are given incentives to harmonize their procedures andpolitical support for aid coordination. These external factors are essential
irrespective of their effectiveness when we examine aid trends because they
are sometimes powerful enough to cause organizational changes in aid agencies. In Japan, it is safe to say that there had been few external factors thatwere strong enough to cause reorganization that promoted partnerships until
discussions about consolidating government-affiliated financial institutions
and related decisionmaking began to take place at the end of 2005.
Finally, in relation to social, economic, and political influences, comparing
attitudes toward partnerships with donor aid contributions is interesting. The
DAC categorizes major donor countries into four groups based on theamount of their aid. If we categorize the same donors based on their attitudes
toward partnerships, there is a correlation between their attitudes and their
8. In Tanzania, Japan used to be the only donor that did not regularly disclose aid commitments andexpenditures by country and sector, but recently Japan began to report estimate amounts to the MidTerm Expenditure Framework (DFID, 2005, pp. 6-26).

63

CHAPTER 3

aid contributions (Table 3-2). Donors in the ‘medium’ and ‘relatively large’
categories tend to be more positive about partnerships while fewer donors
are positive in the ‘small’ and ‘large’ categories. Large donors may have fewer
incentives to cooperate with other donors, while it is probably difficult forsmall donors to implement aid projects that are large enough to have identifiable impacts because their aid amounts are so small. They also have lower
expectations for their influence. It is plausible that medium-sized donors tend
to have stronger motivations to improve aid effectiveness and increase theirinfluence. For example, Scandinavian countries are trying to increase theirinfluence by joining the aid coordination framework under the leadership of
the U.K. and by building close relationships with selected ministries andagencies of recipient governments (DAC/OECD, 1999, p. 83). Of course wecannot explain donor tendencies toward partnerships solely by their aid contributions, however, we believe that some donors have intrinsic motives todevelop partnerships and achieve poverty reduction while medium-sized
donors, like the Scandinavian countries, want to use partnerships as a means
to increase their influence.9
Table 3-2. Donors’ size and attitude toward partnership
Aiding donor’s attitude toward partnership and country
positive

negative

proportion of positive
countries to negative
countries

7 small sized donors(less than 300 million
dollars in bilateral aid
total)

Finland, Ireland (2)Austria, Greece,
Luxembourg,
New Zealand,
Portugal (5)2/7(28.6%)

2

9 middle sized donors(500-1,500million dollars
in bilateral aid total)

Belgium, Canada, Austria, Italy,
Denmark, Norway, Spain,
Sweden (5)Switzerland (4)5/9(55.6%)

3

4 relatively large sized
Netherland, U.K. (2) France,
donors (2-4 billion dollars
Germany (2)in bilateral aid total)

2/4(50.0%)

4

2 large sized donors(more than 9 billion
dollars)

0/2(0%)

Size of donors

1(0)

Japan, U.S. (2)Can we explain Japan’s reluctant or cautious stance toward partnerships
solely by these organizational constraints? There are organizations such as
9. Africa is the main target for aid from the Scandinavian countries and the U.K. The latter also has many
immigrants from its former colonies. These factors have probably provided momentum to strengthen
partnerships.

64Structures of Donor Partnerships

the EU that have the same constraints and yet are trying to reform their procedures in order to strengthen partnerships. If that is the case, we need toconsider a larger framework of political constraints in addition to organizational constraints. In other words, we need to understand partnerships fromthe perspective of Exchange Theory. In the following section, we use
Exchange Theory to deepen our examination of partnerships and propose
hypotheses about the factors that contribute to the ambivalent stance ofJapan.

3-4. Partnership elements from the perspective of
Exchange Theory
Why does Japan support the general idea of poverty reduction and aid coordination while it shows reluctance when it comes to specific measures? In thissection we will discuss two of the three factors shown in Table 3-3 - otherthan Factor 1 based on Organization Theory mentioned in the previous section - in order to understand Japan’s reluctance toward partnerships. Factor 2
is based on Exchange Theory. Factor 3 indicates that there may be some
aspects that cannot be explained by these theories, i.e., a factor that isbeyond the organization and political relationships of aid agencies and has
more cultural aspects. In the following sections we explain these hypotheses
individually and examine Japan in detail while referring to other donor countries.
Table 3-3. Factors defining the degree of commitment toward partnership
Problems
Factor1 Restriction from organisational
reasonFactor2 Failure of exchange relation
Factor3 Belief in the different philosophy andpolicy indevelopment assistanceDisintegration of the development system →restriction in localization of development system→ Unable to engage in the partnershipLess gain from the exchange relation, or lose
more than gain domesticallyHave much of its own philosophy or experienceenough to be negative toward the partnership(1) Factors that determine a commitment to partnership
What gives rise to Factor 2, a situation where an exchange relationship cannot be formed? When it can be formed, the probability of an entity committing to a partnership can be described by the following formula, where α isthe benefit that can be gained from an exchange relationship and β is the65CHAPTER 3

benefit that is lost because of the relationship:
Prob（P）＝α−β………………………………………………
（1）
For this exchange relationship to work, the condition ‘α＞β’ must be
met. This is the logic that Scandinavian countries and the U.K. insist upon the benefit of maximizing aid effectiveness is larger than the losses experienced by individual donors. If this is true, an exchange relationship works
because aid agencies believe there are reciprocal interests in the ‘exchange’
and they indeed see their value.
On the other hand, from the perspective of donors who are more reluctant toward partnerships, such as Japan and France, ‘α’ and ‘β’ in a partnership are not necessarily fixed - their value depends on ‘terms and conditions.’
Therefore, ‘p = terms and conditions’ is a factor that compounds the lost benefit. In this definition, the exchange relationship becomes less viable when p＞1.
Prob（P）＝α−pβ ……………………………………………
（2）
When Japan agrees with a general idea but objects to specifics, we canconsider this ‘p’ as a parameter that does not appear when discussing thegeneral idea but appears when dealing with specifics. This ‘p’ encompasses
organizational characteristics and various conditions. Therefore we need to
examine the phenomenon in which Japan’s ‘p’ becomes effective when
specifics are being discussed.
Next, if we incorporate Factor 3 which considers that the extent of participation in a partnership is affected not only by the exchange relationship but
also by different aid philosophies and methods (γ), the formula is:
Prob（P）＝α−pβ−qγ ……………………………………
（3）
Here, ‘γ’ is a commitment to a different aid philosophy and ‘q’ is a parameter that changes depending on the subject of aid and the maturity of thepartnership. If α−pβ＞ qγ, then it is possible to commit to the partnership. In the case of the United States, which is known to have a reluctance forpartnerships, the balance tends to be qγ＞α−pβ due to its unique aid philosophy that attaches great importance to political considerations. The
demands by U.S. Ambassador John Bolton for 700 changes to a 50-page UN
draft declaration in the fall of 2005 is a perfect example of this political difference.
While ‘q’ can be positive or negative, we assume for the time being that q
66

Structures of Donor Partnerships＝ 1 in the case of Japan because the government now applies aid methods
based on an ‘Asia-born philosophy’ to other regions as well.
(2) Underlying elements of factors that determine partnership
What is involved in ‘p’, the parameter representing additional costs of partnerships described in the previous section? In this case, we can assume that‘p’ is closely related to organizational constraints as well. Elements that canconstitute such costs are summarized in Table 3-4.
Table 3-4. Parameter of further cost to the partnership
Parameter
p1
p2

p3

Explanation
Communication costs
Cost arising from not being able to entrust things to others (system with thecharacteristic features of running its own business alone, pursuing selfcomplete value or reilability)
Cost arising because of different nature of development schemes (project,technical cooperation in kind, leading role of headguarters and fiscal year
system)First, the ‘p1’ or communication cost becomes especially high if local
human resource development is inadequate. This refers to personnel who
can actively take part in partnerships at the local level. It requires not only
linguistic competence but also expertise about sectors, challenges, andknowledge of the recipient country. An aid agency that recruits more personnel with these abilities and expertise would have a lower ‘p1’ cost and therefore fewer impediments to partnerships. Also, from the perspective ofOrganization Theory, when decisionmaking authority within an organization
is not delegated to the field or decisionmaking is time consuming because
coordinating mechanisms or procedures are complicated, the system may
not be able to take advantage of qualified personnel no matter how many aretrained. Therefore, the decisionmaking mechanisms may increase the communication cost.
Second, ‘p2’ or the cost of not being able to rely on others arises when an
aid agency has a system that expects to receive explicit reports about the aid
it provides. For example, the U.K. and Canada entrusted their aid to the
Ugandan education sector to the daily administration of the EC and theNetherlands and participated in biannual sector meetings. They reduced thecost of having dedicated staff in the field and built close partnerships withother donor agencies. They can do this, presumably, because they are anorganization that is willing to delegate its work to others. In contrast, if a67

CHAPTER 3

donor such as Japan needs its own personnel to manage aid projects or
requires a procedure for evidence, the ‘p2’ cost is higher and the benefits
from a partnership are reduced.
Another important issue about ‘p2’ is the significance of being able to delegate work to others. If a donor is interested in a technically sophisticatedbut limited area and tries to implement and evaluate its aid program, its fieldof view tends to be narrowly focused and it is difficult to precisely position its
program within the recipient society. In such a case the intention to coordinate with other actors will be discouraged. If a donor can become part of alarger picture, it is more efficient to delegate some work to others while staying with an overall framework and consequently see the value of a partnership. In this sense Japanese assistance has a strong tendency to be complicated, thus there is less interest in delegating work to others.
Third, one type of aid that is considered to be incompatible with partnerships in recent years is in-kind contributions. In-kind contributions are amainstream aid modality in Japan, and it is not easy under the current system
to provide money to a recipient government. On the other hand, monetarycontributions are more mainstream in the U.S. and European countries. One
advantage of monetary contributions is that they are easy for a recipient government to receive. Also, if all donors provide monetary contributions, procurement procedures and staff assignments can be carried out simultaneously, allowing the government to simplify its internal procedures. For example,
when a development study on alternatives to the Panama Canal was conducted by Japan, the U.S., and Panama in the mid-1980s, the largest obstacle toaid coordination was the difference in aid schemes. The three countries
agreed in principle that each would contribute one-third of the overall cost,
but the Japanese government and the Japan International Cooperation
Agency (JICA) had a very difficult time coordinating the cost sharing
because they were only allowed to make in-kind contributions, in contrast to
the U.S. and Panama.10
There is a difference between ‘γ’ (belief in different aid philosophies andmethods) and ‘p3’ (heterogeneity of aid schemes). The ‘p3’ refers to the possibility that different aid schemes may get in the way of aid coordination evenif partners have similar aid philosophies, whereas ‘γ’ refers to a fundamental
difference in aid philosophies.
All of these elements affecting exchange terms and partnership condi10. Ultimately, the third-party repayment system was combined with the three-country agreement to establish Japan’s debt burden before implementation and disbursements.

68

Structures of Donor Partnerships

tions are closely related to Organization Theory in that decisionmaking
mechanisms, culture, norms, and beliefs in an organization are behind them.
How have the countries that commit to partnerships coordinated such elements as ‘p1’, ‘p2’, and ‘p3’ in order to make partnerships work? In the next section we will look at the efforts of several countries based on OECD documents.
(3) Aid agency efforts
Donor countries that are now committed to partnerships did not start out
with perfect conditions. In this section, we will look at several countries to
see what kinds of organizational reforms have been implemented in order tobuild partnerships (OECD, 2003a, 2003b, 2005a, and 2005b).
P1 - EFFORTS TO REDUCE COMMUNICATION COSTS
Sweden. The Swedish International Development Agency (SIDA) encourages its staff to acquire five skills in order to enhance aid effectiveness in thefield and build effective partnerships - strategic, professional, learning, relational, and functional (OECD, 2005a). SIDA aims to achieve effective management of its overall assistance by assigning staff with these skills to thefield. SIDA also believes that having resident representatives with theseskills in recipient countries will enhance aid coordination and partnerships(Wiklund and Palm, 2004 : 21).
SIDA has adopted specific measures for internal and external communications. To ensure productive internal communications, it was considered to
be important for all employees to recognize their significance and to haveclose communications among embassies, SIDA headquarters, and theMinistry of Foreign Affairs so that they can speak with one voice. For external communications, there is a tentative plan to have close communication
with other donors at all times. SIDA plans to implement pilot projects thatincorporate dialogue with other donors in its sector programs.
Denmark. To enhance aid effectiveness, Denmark is actively delegating
responsibilities to its aid professionals in recipient countries. Based on anannual contract between the ambassador to each recipient country and headquarters, tasks of identifying, implementing, administering, and monitoring
country programs are all delegated to the local office and headquarters functions are limited to appraisals and evaluations. The personnel and responsibilities of regional departments in the headquarters have been reduced andtheir functions are now limited to finalizing country assistance strategies andattending high-level meetings with recipient governments. Instead, a quality
69

CHAPTER 3

assurance department was created at headquarters to handle the annual contracts between ambassadors and headquarters, support the development oflocal staff, and conduct aid evaluations. Local offices are also encouraged tohire more local employees in the recipient country and assign them greater
responsibilities. On average, four out of 12 professional staff members ineach office are hired locally. Thanks to these organizational reforms, theentire international cooperation system at the local level became more efficient, and local communications command more respect now.
UNDP. In Tanzania, the UNDP, along with the government and theEconomic and Social Research Foundation, has created an online databasecalled Tanzania Online. Using this database, donor countries, recipient governments, NGOs, civil society, and academic organizations can review studies and reports on Tanzania’s development, priority issues, status of poverty
reduction, and sector reforms. This initiative helps promote communication
through affordable information sharing.
P2 - EFFORTS TO DELEGATE WORK TO OTHERS
Norway and Sweden. To reduce administrative and labor costs borne by
the governments of Malawi and Ethiopia, Norway and Sweden are trying todelegate some of their aid operations to each other. In Malawi, the twodonors split the cost of $14 million and identified spending projects with theMalawi government, but the funds are administered by Norway. Based on
Norway’s requests, Sweden transfers funds every six months to an account of
the Norwegian Agency for Development (NORAD) for projects and programs identified at annual meetings. Norway is in charge of conducting project identification studies, making decisions to implement projects, and monitoring and evaluating them. Sweden sometimes takes part in studies or evaluations upon Norway’s requests (OECD, 2003a : 93).
In Ethiopia, the relationship between the two countries is more interactive. Both countries support sector programs in the health and education sectors, so they are trying to reduce costs by delegating their own operations toSweden for the health sector and Norway for the education sector, sharing
collected information and reports, and implementing fiscal management andaudits together.
Canada and the U.K. In 2002 in Madhya Pradesh, India, the CanadianInternational Development Agency (CIDA) decided to delegate the preparation of its medium-term health sector strategy to the British Department forInternational Development (DFID). Through this arrangement, DFID’s India
70

Structures of Donor Partnerships

Office hired a consultant using the pound-denominated CIDA-DFID common
fund to prepare the strategy. The funds were transferred from CIDA to
DFID. Also, financial management of consultant employment was based on
British rules and modalities. OECD praised this effective cooperation thatallows one country to reduce its manpower and financial burden without
excessively increasing the burden of another country.
Australia and New Zealand. In 2000/01, the Australian Agency forInternational Development (AusAID) and New Zealand’s International Aidand Development Agency (NZAID) conducted a study to implement joint
programs in the Pacific region. The study confirmed that mutual delegation
reduces administrative costs and reporting requirements on the part of recipient countries and makes programs more focused. On the other hand, in subsequent discussions questions were raised about ensuring each donor’s visibility and accountability. Recipient countries also expressed their concern
over possible reduction in the ownership of aid programs and the overall
amount of aid. Discussion continued, however, and cooperation was realized
in a middle school development program in Kiribati in which NZAID deposited funds to AusAID, which administered and managed the program. Thiscase is drawing attention as an example of cooperation by sorting out thebenefits and disadvantages of all the countries involved.
France and Germany. In the Republic of Mali, the French Development
Agency (AFD), German Development Bank (KfW), and German Agency forTechnical Cooperation (GTZ) agreed to entrust the administration of infrastructure development of their joint investment program to AFD and provide
technical assistance. AFD would use its own administrative rules and regulations and exclusively handle all communications with the Malian Ministry of
Education. Aid agencies consulted with each other to decide how to procure
goods. To avoid multiple reporting formats, AFD prepared reports based on
the rules of the German Ministry for Economic Cooperation andDevelopment while GTZ prepared all reports on technical cooperation andsubmitted them to both governments. These simplified and unified procedures reduced time and resources for both donors and Mali.
Multilateral cooperation. In Tanzania, cooperation in the form of delegation is being pursued within a framework of multilateral cooperation.
According to a report prepared by DFID (Balogun, 2005), three out of 16
donor countries - Germany, Finland, and the Netherlands - are performing
operations that are delegated to them by other donors. Four donors - theU.K., Ireland, the U.S., and the World Bank -have been asked to carry out
71CHAPTER 3

some tasks for other donors. For example, Ireland and the Netherlands cochair the Local Governments Reform Program. The British DFID, together
with USAID, plays a leading role in the area of reinforcing parliamentary systems. Also, the World Bank participates in thematic debates under the leadership of donors for the Poverty Reduction Budget Support (PRBS). In addition, differentiated roles among donors participating in fiscal assistance andthe Sector Wide Approach (SWAp) function as a mechanism to delegate certain operations to others. For example, in Tanzania, donors participating in
the PRBS and SWAp take turns as the lead donor and represent all donors incommunicating with the Tanzanian government.
Denmark, Finland, Ireland, and Switzerland are planning to implement
mutual delegation of joint programs in various countries beginning in
FY2005/06 (Killick et al., 2005).
P3 - DEALING WITH THE COST OF HETEROGENEOUS AID SCHEMES
Canada. In 2002 CIDA established an internal working group on programassistance to study the reasons why the current aid system could not participate in program assistance from contractual, legal, and financial perspectives.
The working group looked at other bilateral and multilateral donors andextracted the necessary conditions for financial assistance. The study foundthat changes in internal rules were required to allow payments based on theachievements of performance targets instead of reimbursements of expenditures or advance payments. As a result, they considered creating a new organization within the Canadian government’s Finance Committee Secretariat toraise the maximum amount of advance remittances and reduce the frequencyof accounting reports by recipient governments.
New Zealand. New Zealand’s accounting system underwent a drastic
reform in 1994 based on the idea of New Public Management (NPM). First, a
three-year projection was required for each budget item. This ensured continuity in aid planning and administration and made it easier to predict budget
allocations. Second, NZAID was allowed to exceed the budget by up to 10
percent or carry up to 20 percent of its annual budget over to the next fiscal
year. Through these measures NZAID was released from the pressure ofbeing tied to the donor country’s fiscal year and acquired flexibility torespond to every possible situation including unexpected problems in developing countries. Such flexibility is necessary for partnerships.
Germany. Germany was known for its technical assistance in specific areas
such as vocational training, but during the past 10 years it has successfully
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Structures of Donor Partnerships

expanded this narrow strength to capacity development and has broadened
the scope of its cooperation. For example, in order to have more flexibility todeal with local situations, Germany has decentralized its organizational structure and increased the number of local staff hired in recipient countries. It
also gave the function of coordinating multiple aid implementing agencies tolocal organizations. It is also trying out program and fiscal assistance. While
Germany has shifted its narrowly-defined technical assistance to broader
capacity development, DAC has pointed out insufficient coordination among
local agencies and insufficient policy harmonization with recipient governments (OECD, 2005b). These issues may have emerged because Germany
did not recognize the necessity for dialogue as acutely as did Sweden, including organizational culture. At any rate, Germany has been fairly successful in
reducing the cost of heterogeneous aid schemes through organizational andinstitutional reforms.
If we look at donor country efforts to develop partnerships from the perspective of Organization Theory and Exchange Theory, these efforts aredefined by various factors. If there are organizational constraints or an
exchange relationship cannot be established, donors may not see any value
in partnership, however, more than a few countries have found ways toimprove aid efficiency and effectiveness by reducing various costs associatedwith partnerships. Cost adjustments require a commitment to partnerships
and confidence in other donors and recipient governments as partners. In
general, however, if a donor follows the policies suggested by the Paris
Declaration and the DAC New Development Strategy, it is not difficult to findorganizational reforms and exchange opportunities. The following section
discusses the conditions necessary for Japan to develop partnerships andmeasures that could move the country in that direction.

3-5. Measures that Japan can take
This section examines how Japan could enhance its partnerships based on
the three defining factors: (1) organizational constraints, (2) failure of
exchange relationships, and (3) different aid philosophies and methods.
(1) Measures to overcome organizational constraints
Four possible measures deal with factors that can be explained by
Organization Theory. First, multiple policy agencies and implementing agencies will function more efficiently and effectively if they are merged at appro73

CHAPTER 3

priate levels. Clarification and efficiency of decisionmaking processes within
an organization are essential for effective partnerships. The adverse effects ofa compartmentalized organizational structure that hinder the formation ofpartnerships should be eliminated.
Second, even if the first measure is impossible to implement, it is important to share information and knowledge within multiple policy ministries
and implementing agencies, or among local embassies and resident offices
and central ministries and headquarters. To ensure policy coherence, they
will need to share an overriding objective and priorities, and systematicallyalign the activities of each organization in each sector to that objective. It isclear from Germany’s example that this issue cannot be solved by simply promoting decentralization and giving leadership to local offices from an organizational perspective. Internal coordination is a prerequisite for, and therefore
in a sense more important than, partnerships with other organizations.
Japanese aid agencies have created ODA task forces at the local level and are
now enhancing cooperation. If delegation of authority is added to thesemechanisms, it may open a door for greater local leadership.
The third alternative is to conduct experiments in regions and countries
where incentives to promote partnerships exist. From a perspective of using
partnership as a tool, Japan is the lead donor in many Asian countries but
often remains a medium-sized donor in Africa. It is indeed possible to shareinternal and exterior motives to use partnerships to enhance one’s own influence. In any aid scheme area, it is possible to build a system where the current aid schemes and organizations strengthen partnerships for the common
goal of poverty reduction.
Finally, in an organizational culture repeated actions and learning to
implement aid projects will produce better impacts. Aid specialists are necessary not only in implementing agencies but also in policy ministries, especially in human resource management. They need to be developed from withinover a long period. In the same context, promotion of personnel exchanges
between policy ministries and implementing agencies should also be continued.
It takes time to build partnerships and the necessary skills are always
evolving. Many donors trying to deal with these issues are consolidating aid
agencies in low-income countries while their representatives actively develop
partnerships locally. In the aid systems of Japan, Germany, and France
where policy ministries and implementing agencies were separate and multilayered, ingenuity was needed to build a system where field experience is74

Structures of Donor Partnerships

directly reflected in new policies. In a sense, the lack of this ingenuity has
been hindering the decisionmaking mechanism that promotes change andimprovements in aid organizations. We need to create new channels of communication that reduce the distance between the field and policymaking. For
example, when JICA experts return to Japan they should be able to directly
report to the executive officers of MOFA’s Economic Cooperation Bureau if
necessary, in addition to regular debriefing sessions at JICA’s operational
departments. This cannot be realized if organizations concentrate on performing routine tasks under established lines of authority. An organizationneeds to be more open and dynamic so that policymakers can interact andshare knowledge with local staff, experts, and consultants who are often
more creative and work closer to the field.
(2) Measures to overcome the failure of exchange relationships
For exchange relationships, we considered the following equation in the previous section:
Prob（P）＝α−pβ−qγ and q＝1 ………………………
（3）
If an exchange relationship can be expressed by this equation, measures
we can take to promote partnerships are those that increase α (benefits
gained by an exchange relationship) and/or decrease p β (lost benefits dueto the relationship) and γ (commitment to different aid philosophies).
When one believes that there will be unseen benefits in the future and/or
there are moral values, ‘α’ becomes larger. In terms of future benefits, canJapan expect any from Africa, for example? The answer is probably not
much, at least in a materialistic sense. Japan is unlikely to import oil fromAfrica, and Japanese business investments are not expected to increasemuch in the region except in South Africa. This makes it clear that it isimportant to find moral values and form a national consensus around them sothat the government can commit to partnerships. To do so, sufficient budgets
should be allocated for serious but easy-to-understand public relations campaigns and educate the public on the importance of development.
Next, in order to reduce ‘pβ’ one needs to adjust the three parametersdescribed in the previous section: ‘p1’ (communication cost), ‘p2’ (cost of not
being able to rely on others), and ‘p3’ (cost of heterogeneous aid schemes).
First, in order to reduce communication costs, we need a focused skill development effort as SIDA has done. To promote partnerships and implement
effective program assistance, a donor must have regular dialogue with vari75

CHAPTER 3

ous stakeholders in the recipient country, conduct baseline studies, and monitor progress to detect changes at various levels. If a donor can’t carry outthat kind of multi-layered communication, it would not be able to provide program assistance. To provide program assistance, Japan should study the pastefforts of SIDA. Also, Japanese aid professionals need to acquire the ability todevelop logic based on clear policies, presentation skills, and foreign languages.
We can begin to address the cost of not being able to rely on others by
overcoming the polarization between Japanese bilateral aid and multilateralaid. For multilateral aid projects, Japan participates in appraisals as a Board
member but does not demand any further involvement. For bilateral aid,
however, the Japanese aid system tries to confirm its impacts and accounting
evidence unilaterally. The demarcation between bilateral and multilateral aid,
however, does not reflect the needs of developing countries accurately. Japan
should recognize that there is a gray area between them, and that area is
indeed the fertile ground for partnerships.
Partnerships in individual low-income countries involve both bilateral andmultilateral donors. The ‘p2’ (cost of not being able to rely on others) will notchange unless there is a fundamental change in this recognition. Morespecifically, it is necessary to follow the example of New Zealand and makethe General Accounting Office, the Foreign Relations Committee, and theBudget Committee of the Diet understand how harmful it is to force
Japanese budget systems on developing countries. Once a fundamental
understanding and agreements are shared within the government, this problem may cease to be the huge obstacle as it is now.
The ‘p3’ (cost of heterogeneous aid schemes) is perhaps the most difficult to deal with. Japan’s aid projects take unique forms in comparison toother donors. Japanese institutions are not designed to target rural societiesof low-income countries. For example, it is difficult for them to make contributions to current budgets of recipient governments and use local experts
and resources. The rigid ‘blueprint’ approach that tries to carry out initialplans faithfully is also a problem. Sector programs do not exclude projects,
but other countries have pointed out the problems of projects and either
shifted to programs or incorporated program approaches. Projects can takevarious forms, however. Japanese projects need to be more flexible andexpansive so that they can adapt to the situations of low-income countries.

76

Structures of Donor Partnerships(3) Measures to deal with different aid philosophies and methods
For ‘γ’ (commitment to a different aid philosophy), Japan’s development philosophy in Asia has rejected the idea of directly transferring resources andincome to the poor. Instead, Japan has sought to increase the productivity
and efficiency of the economy and the society, and to achieve the objectivesof a development agenda through subsequent income redistribution. Thisphilosophy is based on Asian experience where economic and social infrastructure that were most suitable to each development stage were built andorganically linked to markets, either by design or coincidence. Ownershipand self-help of recipient countries were also emphasized. Are donors who
have focused on economic development and infrastructure, such as Japan,
unsuitable for partnerships? The answer is no. For instance, there are coordination examples in Indochina where the Asian Development Bank built highways and Japan built bridges.
Since the 1990s, Japan has shifted its focus partly to the social sector andis expanding aid in maternal and child health and basic education. The samecan be said for human security and an emphasis on Africa. If Japan’s aid philosophy and areas of strength shift or expand, the force with which Japan
clings stubbornly to ‘γ’ may be reduced. Development philosophy depends
on historical context. In the East Asian experience of the 1970s and 1980s,
the partnership principle did not function very strongly. However, it isunclear just how effectively this East Asian experience translates to Africa inthis decade. If we think positively, Japan’s identity as a donor is to digest thepast Asian experience and at the same time formulate a broader philosophy
for new subjects in a new age.
The demarcation between bilateral and multilateral aid is strictly artificial.
Bilateral and multilateral donors work together in some areas. As reductionof absolute poverty and basic support in social sectors take the center stageof aid to low-income countries under the Millennium Development Goals(MDGs), we can expect that Japan will be increasingly required to actively
participate in partnerships. Therefore, the aid philosophy that Japan has
maintained in relatively wealthy developing countries and production sectors
in the East and Southeast Asia will not be completely rejected. At this point,
Japan needs to keep this philosophy functioning in Asia and at the same time
be flexible enough to have additional perspectives around the MDGs. Also,
there are occasions when the general philosophy of Japanese individuals andorganizations to support self-help and self-reliance becomes important in theareas of partnership to pursue the MDGs. Even if they want to make com77

CHAPTER 3

ments based on that philosophy, the Japanese can’t do so effectively if they
are not inside the partnership system. As such, the effective way to reduce‘γ’ is not to deny Japan’s traditional philosophy. It is a multi-faceted stancethat allows Japan to decide whether to explicitly advocate its aid philosophy
or to gradually advocate it as a framework of reference in the forum of partnerships.
If, however, Japan is a minority in the partnership forum, there is a concern that Japan may not be able to advocate its own aid philosophy and methods at all.
In relation to Exchange Theory, partnership has political implications.
Foster (2002) explains, rather optimistically, that donor aid coordination has
permeated from the global dimension to the project dimension under partnership policies. On the other hand, Klees (2001) warns that forcing a consensus on sector programs in the name of partnership may make donor positions stronger and more monolithic, but the donor community will be affected by the unequal distribution of power within itself. As Bray (1999) andBrinkerhoff (2002) have pointed out, the assumption that a partnership isformed by an equal relationship between partners does not necessarily holdin a context where asymmetric power dictates the character and form of apartnership that is already constrained by organizational and political limitations.
If we accept this asymmetric power, it is possible to imagine a scenario
where dominant donors that lead in the area of partnerships - for example,
the U.K. and the World Bank - oppress the organizational identities and priorities of other donors so that they can explain their goals and intentions with alouder voice.11 Under current conditions, it is probable that a partnershipamong donors may formulate an unequal exchange relationship. Very small
donors may face organizational and political struggles every day in such anenvironment, but with its aid volume, Japan has a good chance of being able
to exert an influence from within. Therefore, to believe that participating in apartnership itself will hinder the efforts to explain and develop Japan’s unique
aid philosophy and ideas vastly underestimates the presence of Japan as adonor.
In low-income country social sectors such as primary health care, primary education, and food security, and especially sub-sectors that deal with lifeand death of people and basic human rights, it is always difficult for a donor
11. An organizational identity is, according to Brinkerhoff, an element that comprises partnership together
with mutuality, and signifies a rationale to select certain partners.

78

Structures of Donor Partnerships

to achieve a sizable impact by itself. Germany, from the perspective of partnerships, has emphasized the environment and governance in which other
donors were not deeply involved (OECD, 2005b). This is one way of continuing project assistance, but it may be difficult for Japan to stick to a code of
conduct that is completely different from mainstream aid because it has provided relatively little aid in the area of governance, and is rather very interested in social sectors. However, depending on the sub-sector issue, Japan’s aid
philosophy to respect the local situation sometimes can be effective, as it wasfor the Strengthening of Mathematics and Science in Secondary Education
Project (SMASSE) in Kenya. The judgment and selection as to which subsector is suitable for project assistance, should be carefully examined whenCountry Assistance Plans are prepared.
There are many points to note in making a commitment to partnerships
based on the OECD/DAC guidelines. We have also identified many points tobe improved in Japan’s aid traditional-type systems and organizations. Table
3-5 summarizes proposed measures in light of above discussions.
Table 3-5. Measures to structure the partnership
Factors
Restriction
from organisational
reasonProblems
Disintegration of thederelopment system→ restriction localization in of deveiopment system→Unable to engage in thepartnership

Measures

Failure of
exchange
relation

Less gain from theexchange relation, or
lose more than gain
domestically● Popularize

Belief in the
different
philosophy
and policy
in development assistance

Have much of its own
philosophy or experience enough to be
negative toward thepartnership● Review● Integration of several ministries and implenting agencies.
● Information and knowledge sharing with in the organi-zation or between the local embassy / office and the ministry/headquarters.
● Establish priorly the experimental organization in particular regions or countries (i.e., low income countries,
Africa)● Establish more speedy communication means between
experiences in the field and policy making process.
the moral value of development aid-thecommon goal of the partnership● Intensive human resource development involved indevelopment assistance.
● Reconsider the extreme concept in bilateral and multinational aid.
● Develop the flexible did scheme for low income countries.
● Develop the special aid scheme for the social sector
where the local human resources and institution building
play an important role.
or reform the aid philosophy which enable torespond flexibly to the situation in each country or
region.
● Build the confidence in exercising influence inside, even
if the partneeship is supported by the unven exchange
relationship.

79CHAPTER 3

3-6. Conclusion
Against the backdrop of poverty reduction and MDGs, there is a prominent
trend in which donors build partnerships with the governments of developing countries, civil society, and other donors to turn policies and strategies
into preparation, implementation, and evaluation of effective programs.
Reforming the public sector and decentralizing institutions calls for programsupport and donor coordination. Under these circumstances, Japan took aleading stance with Scandinavian countries in the preparation of the DAC
New Development Strategy in 1996 but is not necessarily at the center of thereform trend at present.
We assume that Japan cannot build a result-oriented and accountable system in line with current aid trends unless the system of Japanese aid for lowincome countries is drastically reformed. Therefore, we probably need to use
partnerships as a spring board to reform Japanese aid. Partnerships improve
the overall effectiveness of development aid and at the same time contributeto the accountability of Japanese aid. Many factors are needed for poverty
reduction efforts to produce results, and most are beyond the scope of bilateral donors and general development aid (DAC/OECD, 2001 : 58).
In this chapter we have considered how Japanese aid can move forwardwith partnerships. It would be ideal if Japanese aid could be expressed bythis equation:
Prob（P）＝α−pβ−qγ and p＝1 ………………………
（4）
In this ideal situation, the additional cost of a partnership (p) is infinitely
close to one and aid system constraints are almost totally eliminated. Whatremains is the net gain/loss by entering a partnership (α−β) and the aid
philosophy or methods that change depending on the target region, country,
and sector (qγ). Parameter ‘q’ is flexible depending on the target of aid andmaturity of the partnership, and in fact can be positive or negative. Aid policies for individual countries need flexible capacities to discern the timing andsituation of the country and sector in question.
From the perspective of Organization Theory, bringing ‘p’ closer to 1 signifies that an aid agency promotes learning by its members and acquires anability to change continuously to maintain competitiveness. In a sense, thismeans that the Japanese aid system and organizations become a ‘learningorganization’ (Senge, 1990). This concept refers to an evolving organization
whose members continuously expand their abilities, constantly incorporate
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Structures of Donor Partnerships

new and more universal ideas, and openly learn from each other.
Finally, it is important to establish ‘q’ as a mind-set. In the previous section, we assumed that ‘q1’ because the Japanese aid philosophy is uniform
based on its experience in Asia. However, we need to change the ‘q’ in orderto pursue more effective partnerships. Referring to differences between aid
coordination in Africa and Asia, Takahashi (2001) said, “Beginning with how
the governments are formulated, there is a marked diversity in the aid receiving environment in developing countries . . . We should not think that there
is one universal answer that works both inside and outside of Africa.”
Japanese aid should determine ‘q’ as a principle that allows free and rational
actions based purely on ideas and strategies and not on organizational constraints. Therefore, what determines the structure of a partnership is a general solution that includes three elements: oharacte of the target (country, sector), actions of partners (recipient societies, donors), and experience and philosophy. The future direction requires aid policies and institutions thatenable these elements to achieve the best combination.
Annex 1
The interdisciplinary concept of partnership is defined as a collective mode of
behavior in an organization where various sectors interact with each other toachieve a common goal. Its origin is the ‘social partnership’ in the frameworkof Organization Theory (Waddock, 1991). In the world of business, partnership is defined as “an alliance of individuals who agree to act as joint ownersof a for-profit business” (Winicur, 1993 : 1). Typically, partners agree on theterms of a partnership in writing and all income is returned to partners as
earnings from the business. Larkin (1994) recognized several types of publicprivate partnerships. In some cases a partnership is led by the private sector,
in others it is dominated by the public sector, and in others the governmentand businesses are equal partners. He also argued that a successful publicprivate partnership means something more than superficial goodwill andrequires cooperative efforts based on mutual respect that do not arise automatically (Larkin, 1994 : 9).
In the area of health and social services, Poole (1995) defined partnershipas “an alliance of two or more persons, groups or organizations that aims toachieve a common objective which cannot be achieved individually” and said
it can be characterized by “common membership, democratic participationand shared responsibilities” (Poole, 1995 : 1). According to Poole, partnership is distinguished from cooptation, cooperation and coordination: it is81

CHAPTER 3

similar to collaboration, and demands peaceful alliances even with ‘enemies’
if they are in the interest of the beneficiary population. Focusing on this political nature of partnership, Balloch and Taylor (2001) said that it means bothpain and gain at the same time and requires commitments and investments.
Partnership has “the potential to make the delivery of services more coherent and hence more effective” but it “has a lot of tensions and needs to find abalance between the flexibility to begin a new business and accountability for
public spending, a balance between leadership, expertise and participation,
and a balance between consensus and diversity” (Balloch and Taylor, 2001 :7).
In the area of education, there is a tendency to focus on the necessary factors of effective partnerships rather than on a rigid definition. For example,
Patterson et al. (1999) list six factors for effective partnerships: mutual trust,honest communication, common objectives, flexible governance, and a culture of positive tension and inquiry. Mullinix (2001) built on these concepts
and elaborated the partnership process which follows three phases: pre-partnership, emergent partnership, to full partnership. According to Mullinix, thematurity of a partnership can be measured in terms of focus of interaction,
activities/projects/programs, period and origin, benefit, trust and respect,organizational structures, organizational strategies and information access,locus of influence, and written agreements or contracts.
Annex 2At the factual level, an exchange affects the dynamics of interaction, is reconstructed based on the consequences, and is recognized as a concept of equal
or unequal exchange. At the normative level, it is examined from the perspective of social norms which institutionalize and regulate the acts of
exchange themselves, and it displays the cultural characteristics of the acts
themselves. At the structural level, the act of exchange is examined with afocus on social relationships that support it.

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Structures of Donor Partnerships

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EnglishBaldwin, D. A.. (1990) Politics, Exchange, and Cooperation. In Martin, B. ed.,Generalized Political Exchange: Antagonistic Cooperation and Integrated
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Chang, H., Fell, A. M., Laird, M. with the assistance of Seif, J. (1999) A
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Killick, T., Castel-Branco, C. N., Gerster, R. (2005) Perfect Partners?: The
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85

4
Infrastructure Finance: A New
Direction for Yen Loans1

Yasuhisa Ojima2
Nowadays, as long as we are in an industrial country, we have perfect roads
and railroads, so we can live without being aware of the importance of infrastructure. But when we go to other countries we cannot expect so much, andthat is when we are reminded how important it is.
― Nanami Shiono (2001) Roma-jin no Monogatari, Shinchosha

4-1. Aid effectiveness and yen loans
Increasing aid to help achieve the Millennium Development goals is one aimof the international development community. From a macroeconomic perspective, however, how much more aid can be absorbed?
A series of empirical analyses have examined that question. The question of whether or not aid contributes to economic growth and poverty reduction is both old and new, but a typical empirical analysis posits economic
growth as the explained (dependent) variable and estimates the coefficientsof a set of explanatory (independent) variables including aid (typically with
the OLS or GLS method). Many recent empirical analyses seem to follow a
popular pattern ― they assume the relationship between growth and aid tobe nonlinear and find a saturation point that represents the limit of absorptive
capacity by a recipient country. When a nonlinear relationship is assumed, a
1. In preparing this manuscript, I presented the draft as “Infrastructure Finance in East Asia” at a seminar
held by Kyoto University Graduate School of Economics. At that time I received valuable commentsfrom Mr. Naohiro Kitano (Kyoto University) and the participants. I would like to thank them for theircontributions, however, I am responsible for any and all errors. Also, much of Sections 2 through 5 ofthis chapter is based on Ojima (2006a).
2. Deputy Director, Development Assistance Strategy Department, Japan Bank for International
Cooperation (at the time of writing). Currently Representative at Representative Office in Hanoi, JBIC.

86

Infrastructure Finance: A New Direction for Yen Loanssquare of ‘aid’ is included as an explanatory variable that makes the estimated equation a quadric function (and the coefficient for the aid squared variable negative). The point where the marginal effect of aid on growth
becomes zero is considered the saturation point.
In an efficient survey of the literature by Clemens and Radelet (2003),
the saturation point expressed as an aid/GDP ratio was measured at 33.7 percent by Collier and Dollar (2002) and 22.8 percent or 26.8 percent by Hansen
and Tarp (2000). They concluded that the aid/GDP ratio generally falls
between 15 and 45 percent. These empirical analyses that look for a saturation point do not distinguish the issues of donors who provide aid and thoseof developing countries that receive aid, but those who analyze donor
motives include Alesina and Dollar (2000) and Sawada and Yamada (2003).
On the other hand, studies that analyze aid effectiveness in developing countries include Assessing Aid by the World Bank and Burnside and Dollar(2000), which is particularly influential.
There have been two attempts to analyze the effectiveness of yen loans:・Study on the Economic Development of Developing Countries and theRole of Yen Loans (Economic Planning Agency of Japan, 2000), and・The Effects of Japan’s Economic Cooperation on the Development of
Asian Economies (Kenichi Kawasaki, 2002).
The first paper empirically analyzes whether yen loans promote economic growth and whether fungibility exists. It concludes that “Estimation(regression analysis) of a hundred countries confirmed that continuous provision of aid amounting to 1 percent of the GDP of the recipient country has
an effect of increasing the growth rate by 0.23 percent. After examining theaid coefficient based on this, we can expect that the increment of GDP will becomparable to the amount of aid in eight years, and the increment will be
about twice the amount of aid provided in 16 years.” The second paper uses
the CGE (Computable General Equilibrium) model and reports that between
FY1996 and FY2000 yen loans increased GDP by 1.65 percent in Vietnam,0.71 percent in the Philippines, 0.5 percent in Indonesia, 0.49 percent inThailand, 0.2 percent in Malaysia, and 0.12 percent in China, with the annual
average ranging from about 0.1 percent to 1.6 percent. In these empiricalanalyses the transmission mechanism through which yen loans contributed
to economic development is treated as a black box.
However, looking at Japanese assistance to the ASEAN countries as a
typical example that shows the characteristics and contributions of yen loans,
there have been two main transmission mechanisms:87

CHAPTER 4

improving the capacity to export and attract investment by supporting the
economic infrastructure; andensuring the social stability through rural development.
This chapter discusses how we can make the traditional pillar of ‘yen
loans – infrastructure’ more effective while focusing on the role of infrastructure in alleviating poverty and growing an economy.

4-2. Renewed recognition of infrastructure
Infrastructure3 is the foundation for a country’s economic and social activities
and supports the economic and social development of developing countries
through various channels. Poverty reduction was recognized as the overarching goal4 in the United Nations Millennium Declaration of 2000 and theMillennium Development Goals (MDGs) that were adopted in 2001 as its
roadmap. While poverty itself has multiple aspects, the first goal of the
MDGs emphasizes income poverty. Infrastructure is thought to contribute topoverty reduction mainly through three channels (Fig. 4-1).

Figure 4-1. Relationship between development of infrastractures and poverty reduction• Improvement of productivity• Expansion of Investment andtrade• Creation of Employment

Economic growth

Development of
infrastractures

Spillover effect on the countryside

Poverty reduction

Distribution• Access to education and medical
service• Provision of safe water
Source: Yamada, Ojima, et al. (2005)

3. For the purposes of this chapter, infrastructure primarily means economic infrastructure such as transportation, energy, telecommunication, water and sanitation, and includes physical facilities (roads,
power plants, etc.) and services (transportation services, electricity services, etc.).
4. Reduce by one-half the world’s poverty ratio of 28.3 percent as of 1990 to 14.2 percent by 2015.

88

Infrastructure Finance: A New Direction for Yen Loans

The first channel is poverty reduction through economic development.
Efficient transport infrastructure (roads, railroads, ports), reliable energy
infrastructure, a safe water supply and sanitation infrastructure, and modern
communications reduce transaction costs of business and improve productivity. Sophisticated urban infrastructure enables densely populated cities toexist and brings agglomeration. These achievements also improve the investment climate and potential for long-term economic development by attracting
foreign direct investments and expanding international trade.5 Sustained economic growth, in turn, contributes to poverty reduction in developing countries (Dollar and Kraay, 2002).
The second channel is the contribution to the distribution of economic
growth. For example, transport infrastructure that connects urban and rural
areas is essential for the rural economy to meet the demands of the urban
economy for agricultural and other products. Through the interaction
between the rural and urban areas, it also helps the effects of growth to affectrural areas. Infrastructure plays an essential role in realizing the mechanismof the classic two-sector model of agriculture and industry.
The third channel includes direct contributions to the poor. Building thetransport infrastructure makes it easier for the poor to access education andmedical services, and access to markets can provide opportunities to improvetheir livelihood. Electricity improves the quality of medical services6 (e.g.,preservation of vaccines in refrigerators, lighting for operating rooms), andmay free rural women and children from long hours of gathering firewood. A
supply of safe water is essential for the health of the poor.
While there is a limited number of infrastructure-related indicators in
the MDGs, infrastructure does play an important role in achieving themthrough these three channels (Leipziger et al., 2003; Willoughby, 2004).
However, there have not been sufficient empirical analyses on the quantitative effects of infrastructure because infrastructure channels are multifac5. Building infrastructure does not automatically lead to economic growth. To understand the relationshipbetween investments and economic growth as 1:1, see Easterly (1999). In addition to infrastructurebuilding, other factors such as the country’s policy and institutional environment and human capitalwould be necessary. On the other hand, even if these other factors exist, poor infrastructure would be abottleneck for growth.
6. For example, Energy for the Poor (DFID,2002b) suggests that support for energy can address many
issues including economic growth, poverty reduction, education, health, and gender. It shows that whenelectricity (economic infrastructure) is supplied, women and children spend less time on housework andgathering firewood, which increases women’s opportunities for economic activities (promotion of gender equality) and children’s opportunities to attend school. It also shows that supply of electricity
makes it possible for hospitals to preserve vaccines and other medical supplies in refrigerators.

89

CHAPTER 4

eted. In addition, there are many issues, including the time-lag between infrastructure building and manifestation of its benefits, the difficulty of capturing
small benefits that spread widely, and the lack of systematic data. Whilethese challenges remain, several attempts have been made to provide some
limited empirical analyses.
For example, the Japan Bank for International Cooperation (JBIC) conducted an empirical analysis on the relationship between roads and medical
services. A study in Indonesia found that 70 percent of pregnant women living along a paved road had a health checkup before childbirth, but for
women who lived along an unpaved road the figure was only 46 percent (Fig.
4-2). Building roads increased the consultation rate and led to better maternal health.
Figure 4-2. Road construction and medical service
8060

Medical check before the childbirthChildbirth in the presenceof medical staff

40
20
%
0
Along the paved roads

Along the unpaved roads

Source: Yamada, Ojima, et al. (2005)

JBIC also conducted a study of transport infrastructure projects in northern Vietnam and confirmed the effects of building transport infrastructure(Haiphong Port and Highway No. 5) through the following six transmission
mechanisms (Fig. 4-3):
・Factories were built along the highway with foreign direct investments(FDI) and local investments, creating about 40,000 jobs.
・Industrial parks were built along the highway, which led to the creationof small- and medium-sized enterprises and hence jobs.
・Stronger industrial links were forged between local and foreign enterprises.
・Fiscal impacts included increased tax revenues from foreign companies.
・Increased production of high value-added agricultural products
improved the livelihood of farmers.
・Access to education and health services was improved.
90

Infrastructure Finance: A New Direction for Yen Loans

Figure 4-3. Infrastracture effect : case of northern Vietnam transportation infrastructure
immediate
impacts
vocational
industrial training
FDI law parks
Doi MoipolicyFDI/local
investment

1.Factory
employment
2.Microbusiness
expansion
3.industrial
linkage

HighwayNo.5 Project
Haiphong
Port Projectagriculturalextension
agricultural
agricultural
creditliberalization
policyfeeder roads
development

Mediumterm impacts

4.Fiscal
contribution
5.Highvaluedagriculture

Sustainableeconomic
growthPoverty
reduction

6.Accessto bettereducation/
health care
Source: JBIC (2003)

Of course these effects were not achieved solely by building infrastructure ― their extent depends on the recipient country’s commitment (the Doi
Moi policy, introduction of foreign investment law), links with other projects(development of industrial parks, vocational training, rural credit finance),and other factors. Infrastructure is an essential condition for economic
growth and poverty reduction, but we must not forget that policies, institutions, and human resources that can effectively utilize the infrastructure arenecessary to increase its effects.

4-3. Demand for infrastructure
Even though infrastructure is being built in developing countries, it is notenough. For example, the capacity of power facilities is far less than that ofdeveloped countries. The average power consumption per capita (2001) is
only 1,054 kilowatt hours (kwh) in developing countries, while a person in anindustrialized country consumes an average of 8,876 kwh. The average number of telephone lines in developing countries is about one-fifth the number
in developed countries, and the degree of road development (road density) is
about one-fourth (Table 4-1). The UN Millennium Project (2005) points out
91

CHAPTER 4

Table 4-1. Infrastracture stock in developing countries
Electricity
capacity(per thousand)Electricity
consumption(per person)

Number of
telephones(per thousand)Road density(Km/Km2)

Access tosafe spring

(kW)

(kWh)

2001year

2001year

2001yearDeveloping
countries

272

1,054

95

0.15

78

East Asia

223

921

59

0.15

71

EuropeCentral Asia

992

3,425

217

0.11

88

431

1,709

150

0.15

88

338

1,411

86

0.08

84

99

426

31

0.94

76

105

394

29

0.08

62

2,044

8,876

501

0.58

99

2000year*(%)
2000year

Latin America
the Caribbean
Sea
Middle East
North Africa
South Asia
Sub-SaharanAfrica*the most recent numbers available between 1996 to 2000 are addopted
Source: World Bank (2004)

that a significant amount of investment ― a big push ― in major infrastructure is needed to escape the poverty trap. For this reason, there is a robust
demand for infrastructure building in developing countries. Fay and Yepes(2003) estimate that the developing countries need a total annual investmentof about US$ 460 billion by 2010. Regionally, the annual demand for capital in
East Asia (including Southeast Asia and the Pacific) between 2005 and 2010
is estimated to be about US$ 200 billion (ADB, JBIC, and WB, 2005), and theannual demand in Africa is estimated to be about US$ 20 billion (Commission
for Africa, 2005).

4-4. Current state of infrastructure financing
What is the current state of financing to deal with these infrastructure gaps?
Funding sources necessary for building and maintaining infrastructure
include domestic funds (government revenue and infrastructure user fees,etc.), private funds, and development assistance (Official Development
Assistance or ODA). The British Department for International Development(DFID) (2002b) estimates that about 70 percent of the funds necessary for92

Infrastructure Finance: A New Direction for Yen Loans

new investments in infrastructure are from domestic sources, while 25 percent are from the private sector and 5 percent from ODA.
(1) ODA financing
Support for infrastructure from ODA declined during the 1990s (Fig. 4-4) for
three main reasons. First, the increasing focus on poverty reduction as theobjective of development assistance gave rise to the notion that infrastructure
was just hollow buildings and often a white elephant. The focus of aid also
shifted to social sectors and the emphasis was placed on program assistanceto improve the policy and institutional environment. A second factor was the
expectation that private funds would support more infrastructure development. The background that influenced this thinking was: (i) poor performance of public institutions in developing countries (deficits, excess
staffing); (ii) the movement to promote private sector participation led by theWorld Bank and IMF; and (iii) involvement of private investors in financing
infrastructure. The third factor was the increasingly vocal concern over negative effects of large-scale infrastructure projects on the environment and society.

70,00030.0%

60,00025.0%

US million$

50,00020.0%

40,00015.0%
30,000
10.0%

20,0005.0%

10,000percentage of infrastracture field

Figure 4-4. percentage of bilateral ODA (into infrastracture field commitment)

0.0%

01990199119921993199419951996199719981999200020012002
amount of bilateral ODA commitment
amount of bilateral ODA commitment in infrastracture field
percentage of infrastracture field
Source: OECD/DAC, CRS data base(2) Private funds
What have been the trends with private funding that were the subject of highexpectations? Between 1990 and 2003, more than US$ 780 billion was invested in more than 2,700 private infrastructure projects in developing countries
93CHAPTER 4

Figure 4-5. regional trend of private sector involved infrastracture (1990-2003)
Sub-Sahalan Africa
4%South Asia
6%
Middle East North Africa
4%East Asia Oceania
24%

Europe Central Asia
15%

Latin America the Caribbean Sea
47%

Source: World Bank, PPI datebbase

Figure 4-6. sector trend of private sector involved infrastracture (1990-2003)
120,000

100,000

million dollar

80,000water and seweragetransportationenergytele communication

60,00040,00020,00001990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Source: World Bank, PPI datebbase

and economies in transition. These investments were not evenly distributed
in different regions. About one-half of the total went to Latin America and the
Caribbean (most of which were asset divisions) while one-fourth went to East
Asia and the Pacific (mainly to new projects), and about 4 percent to SubSaharan Africa, the Middle East, and North Africa (reflecting their poor
progress in reforms) (Fig. 4-5). The distribution was uneven across sectors
as well, and most investments went to the communication and power sectors.
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Infrastructure Finance: A New Direction for Yen Loans

The total investments peaked at US$ 114 billion in 1997 as the unbundled private supply model gained popularity, but declined to about US$ 50 billion in2003 (Fig. 4-6).
One reason for this sharp decline was the deterioration of infrastructure
investments and private financing markets, which were affected by currency/financial crises and corporate scandals involving the flag-bearers of privately financed infrastructure such as Enron. Also, effective regulations andattractive domestic conditions (such as market size and density) are necessary for infrastructure investments, and even if these conditions are met,
there is a significant risk to investing in the infrastructure sector of a developing country.
(3) Domestic funds
Building infrastructure with domestic funds is mainly financed by public
investments, however, the debt/fiscal crises of the early 1980s forced fiscal
adjustments on many countries that had a significant impact on public infrastructure investments (Estache, 2001). For example, the public investments
as a percentage of GDP in Latin America declined between 1980/84 and1995/98 from 3.1 percent to 0.2 percent in Argentina, from 5.0 percent to 2.0
percent in Bolivia, from 3.7 percent to 0.6 percent in Brazil, from 3.1 percent
to 1.7 percent in Chile, from 2.5 percent to 0.4 percent in Mexico, and from
2.0 percent to 0.6 percent in Peru (Kessides, 2004). As discussed above, private financing was expected to fill the gap left by this decline, but did not fareas well as expected.
In order to increase public infrastructure investments there has been amovement to ensure ‘fiscal space’ by improving the methods to establish fiscal targets in IMF programs. One of the issues is whether fiscal targets
should be set in terms of the current fiscal balance instead of traditional indicators ― the overall fiscal balance and the level of public debt (IMF, 2004).7
The aim is to make it easier to continue public investments even under fiscal
austerity by separating them from the current fiscal balance because productive public investments promote economic growth, increase future government revenue, and pay off in the long run. Another aim is to ease the competition between infrastructure spending and other spending (for social insurance and health care, for example) by separating them. However, the IMF’s
7. Other issues include whether public enterprises that are run on a commercial basis should be includedin fiscal indicators, and whether the debt sustainability analysis should include potential risks associated with Public Private Partnership (PPP).

95

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basic objective is to pursue short-term macroeconomic stability by managing
the overall fiscal balance and to ensure long-term debt sustainability by managing the level of public debt (Hemming and Ter-Minassian, 2004).
Infrastructure user fees collected from consumers can also be an important source of domestic funds, but there is a problem ― in developing countries the fees are too low in comparison to infrastructure costs. One reason isthat fee levels involve complicated interests of the government, service
providers, and consumers, for example, one argument against fee increases
is political ― infrastructure users belong to high- or middle-income groups.
The second reason is a concern about the ability of poor people to pay, whichmakes it more difficult to raise the fees. There may be a third reason ― it ispossible that inefficient management is inflating infrastructure costs.

4-5. Private participation and privatization fromindustrial organization theory
The infrastructure supply model is a prerequisite for infrastructure financing.
If the government or public corporations build and own infrastructure andprovide infrastructure services, infrastructure financing would be mainly handled by public funds. On the other hand, if they adopt an infrastructure supply model that uses private sector initiatives through privatization and private
participation, the emphasis of infrastructure financing shifts to the mobilization of private funds. This section discusses the significance and deficienciesof these models in light of the characteristics of infrastructure.
(1) Infrastructure network
The most important characteristic of infrastructure is that it works as a network.8 To provide infrastructure services such as power, transport, and communication services, there must be a network of infrastructure facilities. For
example, electricity services can be provided to consumers only if a network
includes generation (A in Fig. 4-7), transmission (B-C), and distribution (C).
In a similar vein, water cannot be supplied without a network that includes
water sources (reservoirs, rivers) (A in Fig. 4-7), aqueducts or pipelines (BC), water treatment plants (C), pumping stations and distribution reservoirs(C), and water distribution networks (D).

8. Yoda (2000) is a good book that attempts an economic analysis of these network industries using thefindings of the old and new industrial organization theories.

96

Infrastructure Finance: A New Direction for Yen Loans

For transportation or communication, services are provided not throughunidirectional (from upstream to downstream) networks like these, but
through bidirectional road or communication networks (for example, A and
D in Figure 4-7 can be regarded as intra-city lines while B-C can be regarded
as inter-city lines). Significant infrastructure investments are necessary tomaintain or improve network facilities that produce these infrastructure services.
Figure 4-7. characteristic of infrastracture : network

B

A

C

D

(2) Integration
After World War II the typical model for providing infrastructure services
such as power, communication, transport, water, and sanitation was state
owned and vertically integrated, not only in developing countries but also inindustrialized countries (Kessides, 2004). On what theoretical grounds did
this integrated public supply model become mainstream? The main reason is
the features of a natural monopoly found in infrastructure. It is well known
that natural monopolies cause market failures and provide the rationale forpublic intervention, and the fundamental factors that give rise to these natural monopolies are economies of scale, economies of scope, and sunk costs.9
Infrastructure network facilities (A through D in Figure 4-7) require
fixed capital investments to keep pace with an expansion such as an increasein the number of users or an increase in the network distance, but the average cost per unit of goods or services declines as the scale of production
related to infrastructure expands. This is an example of economies of scale.
Under these conditions it is more efficient to have a monopoly rather than
9. For details, see Uekusa (2000).

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multiple entities that provide infrastructure services. Next, in providing infrastructure services, vertical integration of functions from production to delivery to consumers can avoid redundant investments and ensure technical consistency. Benefits including reduced costs can be enjoyed and economies ofscope come to exist. Furthermore, network supply facilities not only needsignificant fixed investments but are also difficult to resell. This characteristic
increases the sunk costs and creates entry barriers. These factors give rise toa structure where new barriers to entry are formed, infrastructure services
tend to be provided in a monopolistic manner, both of which increase therisk of monopoly pricing that is socially undesirable. On the other hand, consumers demand infrastructure services that are affordable and of high quality
because they are essential for their lives.
The rationale for a vertical integration model can also be examined bycomparing it to unbundling infrastructure networks (the vertical separation
model). Unbundling these networks can create coordination problems(Kessides, 2004), which can be explained with the New Contract Theory.10
Infrastructure assets are difficult to resell and their transactions are limited― they have ‘asset specificity’. Also, contracts associated with unbundling(e.g., concession contracts to be described later) cannot provide for every
possible event that may occur in the future, and therefore by definition are‘incomplete contracts’. Asset specificity and incomplete contracts may cause
a hold-up ― in an infrastructure investment, for example, the contractor may
take opportunistic actions such as breaking the contract or demanding renegotiation after the investment becomes a sunk cost. There is an incentive forvertical integration from the perspective of avoiding transaction costs associated with preparing complete contracts (which stipulate all future obligationsin advance) in order to avoid this problem.
There are also technical reasons to adopt a vertical integration model,
especially for electricity because it requires sophisticated system adjustments to balance the demand and supply in real time (Kessides, 2004). Also,
electricity is a semi-finished product at the time of generation ― it is not a
10. While conventional economics develops its argument based on markets, the Contract Theory analyzes
economic phenomena in the dimensions of ‘transactions’ and ‘contracts’. Roughly speaking, it consistsof the Complete Contract Theory (the conventional contract theory) and the Incomplete Contract
Theory (the new contract theory). The former presupposes the existence of complete contracts andmainly deals with the issues that arise from asymmetric information such as moral hazards and adverse
selection. On the other hand, the latter starts from the circumstance where complex contracts are notwritten and deals with how institutions, laws, and organizations complement contracts, and other issues(Yanagawa, 2000).

98

Infrastructure Finance: A New Direction for Yen Loanscomplete product unless it is transmitted (Nanbu and Nishimura, 2002).
These technical characteristics rationalize the vertically integrated structurein the power sector.
The state owned, vertically integrated public supply model can provide
economies of scale and scope while avoiding the problem of monopoly pricing (market failure) and issues of economic and technical coordination.
(3) Unbundling
The integrated public supply model in developing countries came underpressure from various quarters. The first pressure came from developed
countries. Beginning in the late 1970s, deregulation in the US, restructuring
and privatization in the UK, and the EU directives for broader liberalizationand creation of a single market gave rise to a strong trend for privatizationthat took developing countries and transitional economies by storm. The second pressure was born out of macroeconomic factors in developing countries― the debt and fiscal crises in the early 1980s (Estache, 2001). The debt
problems of the 1980s were caused by a deterioration in the ability to pay, somany countries were forced to accept structural adjustments, including fiscal
reform (e.g., conditionalities such as reducing subsidies to state-owned
enterprises in order to reduce fiscal deficits), which had a significant impact
on public infrastructure investments.
The third pressure came from a microeconomic factor of developing
countries ― the performance of public entities, including public corporations. Many of these companies were often run by managers who wereappointed because of their political loyalty (and not their abilities), pursued
multiple, ambiguous, and conflicting goals, and could not utilize investment
funds effectively. In addition, price controls were imposed without considering their impact on the fiscal performance of public entities, damaging theirabilities to mobilize investments and provide reliable services (Kerf andSmith, 1996). The fourth pressure was technological innovations that
improved the technologies for producing and delivering infrastructure services. The reduction in sunk costs also contributed to introduction of competition in infrastructure networks. For example, new technologies reduced theminimum scale of power generation plants and helped reduce investment
costs and time required for planning and construction. Also, low-cost, smallscale generation plants enable micro-grids that supply power to consumers
from a short distance, so they might reduce the dependency on transmission
and distribution networks. In the telecommunication industry, technological99

CHAPTER 4

innovation changed the entire cost structure of the industry.
Under these pressures, developing countries also began to adopt an
unbundled private supply model that utilizes private sector resources. Thismodel has three characteristics: (i) sector restructuring and unbundling; (ii)regulatory reform; and (iii) competitive bidding or auctions (Guasch, 2004).
Let us look at the thinking behind the first characteristic, sector reorganization and unbundling. With infrastructure networks, we assumed that a sector
includes a single network (e.g., generation → transmission → distribution, inthe case of a power network) that has a tendency for a natural monopoly.
There is, however, a need to examine each component of this network to
determine if it lends itself to competition. Some components of a network
may have conditions conducive to the introduction of competition. For example, the production component and downstream distribution component ofutilities, parts of a telecommunication network (long-distance services, etc.),
and operation of a railroad network have some sunk costs but they can be
reduced with technological innovation, and therefore are suitable for competition (Table 4-2).
Table 4-2. Uhcompetitive and components of infrastracture network
Industry
Electricity
Gas

High pressure gas pipeline Gas
supplyHigh-tension transmission Loadpower distribution

Tele communication

Local loop (subscriber line)

Railroad

Track, Signal infrastracture

Water and sewerage

Distribution pipe network waste
water collection network

Power generation Supply to
end users
Production Supply to end users
Storage
Long-distance Mobile, Valueadded service
Railroad management andmaintenance
Water purification Sewage
treatment

Source: Kessides (2004)

This was how an idea was born ― we should introduce competition by
unbundling the naturally monopolistic components and potentially competitive segments. In the power sector, the transmission and distribution components would be separated from the generation component; in the communication sector, the local loop would be separated from long-distance, mobile,and value-added service components; and in the railroad sector, fixed equipment such as rail tracks and signals would be separated from administrationand maintenance. On the other hand, infrastructure facilities that are a non100

Infrastructure Finance: A New Direction for Yen Loanscompetitive component are called ‘bottleneck’ or ‘essential’ facilities and cannot be used for other purposes. Therefore, these facilities represent fixed
costs, a large part of which is sunk costs. They are also difficult to reproduce
from technical and economic perspectives. While bottleneck monopolies
remain in these components and would be administered by the public
sector,11 regulatory reform would be required to avoid the adverse effects ofmonopolies. As main components of regulatory reform, independent regulatory bodies would be established and rules would be introduced to regulate
the supply of infrastructure services by the private sector. This is the secondof the three characteristics mentioned above. The third point, adoption ofcompetitive bidding or auctions, is required to select the most efficient private operator while eliminating the monopoly rent.
(4) Role of yen loans
Under the structure described above, what roles can ODA play in the unbundled infrastructure model that seeks to mobilize private resources and privatization? One approach is to build bottleneck facilities. If a private company
does so, it would not only have significant costs, but also create a risk thatthe company may enjoy the monopoly rent by monopolizing the bottleneck.
For example, when JBIC assisted the Phu My Thermal Power Plant Project
Figure 4-8. Function of yen loan : case of Vietnam Phu My thermal power plants

Phu My power sector
Japanese companies
Investment
Thrmal power
plant 1st plantThrmal power
plant 2nd plant

Yen loanThrmal power
plant 3rd plant

Both domestic and international
private financial institution

syndicate loan

Power transmission sector

JBIC

Loan

International organization(World Band ADB)

11. Some think that even if ‘competition in the market’ is not feasible, this non-competitive (naturally
monopolistic) component can be turned into a competitive component by ‘competition for the market’
through competitive bidding and regular rebidding. However, there are still remaining issues such as
the concern that incomplete contracts might invite opportunistic renegotiation and that it is difficult tomonitor operators who made successful bids.

101

CHAPTER 4

in Vietnam, it provided yen loans to the transmission component, the bottleneck facility in the power sector (Fig. 4-8).
This was a precondition for implementing the power plant component
with the private sector initiative because electricity revenue cannot be
obtained without adequate transmission facilities. If the generation sector isliberalized and transmission charges are set at high levels, certain power
plants may be at a cost disadvantage compared to other plants. A yen loan
was also provided for the construction of the first thermal power plant. Itsconstruction with a yen loan had a demonstration effect and contributed toreducing investment uncertainties. As a result, the BOT (: Build-OperateTransfer) method was adopted for construction of the second and third
power plants.
(5) Mobilization of private resources and privatization
The discussion about mobilization of private resources and privatization canbe summarized as follows. The unbundled private supply model unbundles
infrastructure networks, implements regulatory reform including the establishment of regulatory agencies, and selects private operators through competitive bidding or auctions, but there are several points that we should be
careful about (Kessides, 2004; Guasch, 2004).
First, we should note that unbundling is not a panacea. We need to consider the market size and density of the country in question as a precondition
for unbundling. If the market size and density are not sufficient for many
operators to function there will not be enough competition. Many developing
countries have a problem of small markets. For example, in the power sector
the peak system load is less than 150 MW in 60 developing countries, 150 to
500 MW in 30 countries, and 510 to 1,000 MW in 20 countries. Even a size of
1,000 MW is too small to introduce competition. Another factor necessary for
unbundling mature and developed network facilities that have already
reduced the necessity for new investments that tend to cause incentive problems. However, conditions in many developing countries and transition
economies are just the opposite. These countries need significant new investments because the networks are underdeveloped or not properly maintained
and upgraded. Therefore, the fact that a state-owned system was not effective
does not necessarily mean that unbundling, privatization, and mobilization ofprivate resources are appropriate for all developing countries.
Second, even if unbundling is appropriate, we must note that it is difficult
to alter the structural choices dealing with the degree of vertical integration,
102

Infrastructure Finance: A New Direction for Yen Loansregulations, and institutions after the private sector has participated (theproblem of irreversibility). If the rules of the game of private participation are
not made clear in advance, private sector demands risk premiums and thecost of privatization and mobilization of private resources rises. If the government does not commit to the structure of the infrastructure industry, the private sector thinks that the government itself may take opportunistic actions.
We also need to carefully design the regulation of non-competitive components (bottleneck facilities) in order to harmonize competitive and non-competitive components.
Third, we need to pay attention to the problem of renegotiation in theconcession system. For example, more than 1,000 concessions were granted
in Latin America and the Caribbean between 1985 and 2000, but more than
30 percent of all concessions were renegotiated (Guasch, 2004). The main
challenge of an infrastructure concession is to prepare a complete contractthat covers every contingency that can occur over time. However, an incomplete contract is inevitable if we consider technical complexities and economic uncertainties. When the parties face new information or experience, adjustments through a renegotiation are necessary and also meaningful in terms oftrying to find new risk sharing between the public and private sectors. On theother hand, as discussed earlier, the incomplete contract and specificity of
infrastructure assets create the potential for opportunistic renegotiation byboth the government and the private concessionaire. The renegotiation may
benefit the private operator (the hold-up problem). If the private operator
demands renegotiation soon after the concession has been granted and thegovernment refuses, it would lead to cancellation or interruption of the concession and risk increasing the transaction costs of future concession contracts. Faced with this dilemma, sometimes the government has no choice
but to agree to renegotiation.
Fourth, we need to ensure that the poor can receive and benefit from
infrastructure services. The main incentive for private companies to participate in infrastructure projects is commercial motivation, so they tend to focus
on the communication and energy sectors where they can realize returns relatively early and easily. They also tend to be interested in projects at the central government level and not those at the local level. Therefore, the government needs to offer incentives in order to ensure that the poor will benefit
from infrastructure services (DFID, 2002b).

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CHAPTER 4

4-6. Loans or grants?
This section examines financing modalities. The debate is intensifying about
whether financing to achieve the MDGs should be grants or loans. The
Meltzer Report submitted to the US Congress in 2000 (Meltzer, 2000) proposed that multilateral organizations such as the World Bank should concentrate on the least developed countries, stop loan operations, and provide only
grants. In fact, the International Development Association (IDA) of the WorldBank Group has increased the share of grants in its financial assistance inrecent years.12 Also, the International Finance Facility (IFF) we discussed in
the previous section assumes that funds are provided through grants.
Moreover, Bullow and Rogoff (2005) proposed a complete changeover bymultilateral organization from loans to grants, together with concrete
methodologies.13 These developments show that grants are becoming themainstream.
(1) Significance of loans
Has the significance of loan assistance been really lost? Let us examine thekeys to the effectiveness of loans from several perspectives (Ojima, 2004).
Sustainability and stability of aid volume. If donors are to provide thefinancing necessary to achieve the MDGs and provide those funds in a sustainable manner, loans allow them to re-use loan payments and therefore
reduce donor burden, thus enabling a relatively large amount of aid.
Odedokun (2004) points out that mainstreaming grants has reduced theamount of funds received by developing countries (on a gross disbursement
basis), while aid funds have been volatile and unpredictable (Bulir andHamann, 2003). Loans, which are provided in a stable manner because they
put less fiscal burden on donors, tend to function as a stable source of development funds for recipient countries. Unquestionably, Japanese yen loans,which have been provided in step with China’s five-year development plans,for example, made stable contributions to the performance of Asian countries
12. In the 13th IDA Replenishment (agreed in 2002), 18 to 20 percent of its financial cooperation would be
grants and the share would further increase to about 30 percent in the 14th Replenishment (agreed in2005).
13. Specifically, they recommend that multilateral organizations should stop providing new loans (the firststage), stop borrowing from private capital markets (the second stage; existing debt would be repaid
with the repayments from developing countries), and change their capital from callable to paid-in (thethird stage). The gradual process would take about 20 years. Furthermore, they claim that this approach
can be applied not only for multilateral donors but also bilateral donors when they withdraw from loan
operations.

104Infrastructure Finance: A New Direction for Yen Loansin terms of growth and poverty reduction.
Discipline by loans. Assistance is provided based on a loan agreement
between a donor and a recipient country. The donor appraises projects andprograms beforehand, later confirms how the funds are being spent, andmonitors progress of the project based on the loan agreement. The recipient
country also follows such a procedure. In the case of a loan, the project usually becomes ‘on budget’ and undergoes a rigorous screening process in the
country. Most yen loan recipient countries require approval by the cabinet or
parliament. These factors provide an incentive for the recipient country to try
to recover the cost. An empirical analysis showed that an increase in loans
leads to an increase in government revenue of the recipient country, which
can be interpreted as a government-wide effort for cost recovery (Clements
et al., 2004). These fiscal responses are also important to ensure that achievement of the MDGs will be sustainable.
Development stages. Development is a continuous, nonlinear process thatinvolves economic and social changes. The process of procuring development funds also evolves continuously from grants to loans to private financing (graduation from aid), and these stages often overlap (Fig. 4-9). In aprocess that begins with aid dependency and eventually reaches the final
stage of market dependency where most funds are raised from markets, loan
assistance plays a role in supporting developing countries during a period oftransition before they have access to financial markets. For example, loan
assistance helps improve the financial and debt management abilities of therecipient country through transactions such as receiving and repaying loan
proceeds. The formation of credit culture is essential to participate in theinternational financial system. When adequate information about investment
opportunities and debt servicing capacity is provided to a loan provider, thehistory of credit exposure and repayment helps improve the credit worthiness of a recipient country.

Fund volume

Figure 4-9. Development stage of development funds

Donation
Loan
Privatefinance
Development stage

Source: Yamada, Ojima, et al. (2005)

105

CHAPTER 4

Impact on economic growth. Has the impact of loan assistance been
demonstrated? Sawada et al. (2004) separated aid into three types ― loans,grants, and technical assistance, and estimated the effects of each type topromote growth. They found that loan assistance is always positive regardless of the policy environment, and said that the effect of loan assistance may
be stronger than the others. This “suggests that loan assistance has astronger incentive effect for more efficient investments and policy interventions that lead to higher growth” (Sawada, 2004).14(2) Complementarity of loans and grants
The circumstantial evidence for the effectiveness of loans does not directly
prove that loans are better than grants. As a precondition for the success ofloans, debt must not become excessive. Also, some elements of loan effectiveness can be realized by grants. For example, it is possible to strengthen
screening and monitoring functions using grant agreements or even include
grants in the recipient country budget. The Paris Declaration released in
March 2005 established an international goal of including aid projects in budgets, whether they are supported by loans or grants. Loans and grants can becomplementary, and it is important to find the best way to combine them. For
example, a pilot project funded by a grant could confirm feasibility, followed
support by a loan. (In an afforestation project, for example, a grant could be
used to select a species to plant, which would move to geographical expansion funded by a loan.) It is essential that such a transition happen systematically in order to be effective. An empirical analysis also found that an appropriate combination of loans and grants has positive effects on growth (Iimiand Ojima, 2005).
One attempt to improve the delivery of infrastructure services while taking advantage of the complementarity of loans and grants is ‘output-basedaid’. To realize high-quality infrastructure services at reasonable prices, thistype of aid effectively uses financial resources by assigning different roles topublic and private funds. The role of public funds is to take what have traditionally been inputs (e.g., constructing power plants and schools) and makethem subsidies to outputs (e.g., realizing service delivery to the poor). This

14. Sawada (2004) compared welfare (direct income assistance) and workfare (income support that
requires recipients to work) as incentive effects of debt and theoretically formulated the latter’s screening functions and incentive effects (Besley and Coate, 1992), as well as contrary research on the disincentive effects of debt (Krugman, 1988), and points out that there is a need for further theorization of
incentive effects of loans.

106Infrastructure Finance: A New Direction for Yen Loans

includes (i) cost of new connections, (ii) supporting the transition to a costrecovery fee structure, and (iii) supporting target groups, including the poor
(Fig. 4-10).
Figure 4-10. Concept of Output-based Aid

Input-Based Approach
Inputs(eg, power
plants,schools, etc)

Output-Based Approach

PrivateFinance

Service
ProviderPublicFunding

Outputs

User-Fees(when appropriate)

Serviceprovidermobilizes
privayefinancing

Publicfundingtied toservicedelivery

Users

Subsidies themselves are supposed to be time-limited. Initially, significant subsidies may be needed to reach the cost recovery threshold, but as
the threshold is lowered by efficient management and the level of recovery
from users gradually increases, it is expected that eventually subsidies will
no longer be necessary (Fig. 4-11). When selecting a private operator (a com-

Figure 4-11. Concept of temporary subsidy
Cost-covering tariff

Public Funding

Actual tariff
User Contribution

Time

107

CHAPTER 4pany or NGO) by competitive bidding, quality of services and level ofrequired subsidies are used as selection criteria.
One concrete example is the Pamir Private Power Project in Tajikistan(Fig. 4-12). The Republic of Tajikistan is one of the poorest of the former
Soviet republics (per capita GNI of US$ 180) and the target area of this project, Gorno-Badakshan region, is especially poor with a population of 250,000
and a monthly average household income of US$ 27. The natural environment is also harsh, with the temperature dropping to minus 30 degrees
Celsius in winter.
Figure 4-12. Orerview of Republic of Tajikistan Pamir Power Project
Republic of Tajikistan Pamir Private Power Project

IDA$ 10mil.,
40 years,
at 0.75%$ 10mil., 20 years, at 6.00%$ 4mil.

Output-based Financing ofLifeline Tariffs

IDA Spread
Account
Nat’l Bank of Tajikistan$ 4.5mil., 10 years,
at 10.00%
IFC$ 5mil.
grant
Swiss Grant
Account
Administered by IDA

Average subsidy of 1.85cents/Wh forproviding lifeline consumpcion of 50
kWhs monsh in. summer and 200
kWhs month in winter$ 3.5mil., equity at
10.00% expected
rate of return
Agha Khan
Goundatin for
Economic
Development $ 8.2mil., equity at
10.00% expected
rate of return

Swiss
Govt.

Govt. of
Tajikistan

Pamir
EnergyCO.

Lifeline tariff of
25cents/kWh
Average national tariff of
2.1cents/kWh (4.65cents/kWhwithout concessional finance)

Residential
Consumers

Consumers

Source: Jacquet and Klein (2005)

An unstable power supply disrupts education and health services, andthey also have an air pollution problem. For these reasons, they plan to stabilize the power supply by expanding the Pamir Hydropower Plant (from14MW to 28MW), rehabilitating the power transmission and distribution networks, and taking water from Yashkur Lake. This project targets the poor
and uses a blend of public and private funds by providing subsidies (IDA’s
back finance) to ensure affordability to the poor while ensuring the sustainability of the power company. Notable is the role of subsidies through grant
financing, which keep the service price low at 0.25 cents per kwh. However,
it is expected that the subsidy eventually will be abolished (Fig. 4-11).
108

Infrastructure Finance: A New Direction for Yen Loans

Of course, this scheme has some problems. For example, (i) there is arisk that subsidies will be provided to unintended people, (ii) operation of thesystem will be less efficient than expected and the cost recovery threshold
will not be reached, and (iii) as a result, the subsidies are treated as permanent. However, assistance that combines loans and grants exploits their complementarity.
(3) Assistance for Africa
Finally, in the debate about loans and grants is the issue of debt. Incurring
debt is not necessarily bad for a developing country because borrowing
allows economic entities, including the government, to smooth consumption
and make productive investments, thereby aiding the economy. On the other
hand, there have been many debt crises such as the accumulated debt in
Latin America during the 1980s, the debt problem of low-income countries,
especially the Heavily Indebted Poorest Countries (HIPCs) during the 1990s,
and the declaration of default by Argentine in 2001. The Paris Club, a groupof industrialized countries that deals with debt problems of developing countries, has agreed to 376 debt relief packages since its inception in 1956
through the end of 2004. Figure 4-13 shows the regional breakdown ofdebtor countries that received relief based on a Paris Club agreement. There
were very few Paris Club agreements during the 1960s and the 1970s, but the
number suddenly increased after the 1980s. While the share of Latin
American countries increased after the mid-1980s following the accumulated
debt problem, the largest share until now always belonged to Sub-SaharanAfrica. This is why we can say that the problem of HIPCs in the 1990s was
the debt problem of Sub-Saharan Africa. In Africa, yen loans are still provided
to Morocco, Tunisia, and a few other countries, but providing loans to SubSaharan Africa remains a challenge.
The HIPCs Initiative functions as an international framework for debt
reduction, but one target of the Millennium Development Goals is to complete the process of the Initiative (to be precise, to reach the completion
point). Even in Sub-Saharan Africa, some countries, including Tanzania,
Uganda, Ethiopia, and Ghana, have reached the completion point. Reaching
the completion point means that the concern about excessive debt has been
alleviated for the time being, which raises the question of how to support theformer HIPCs. Should we expect that debt reduction will be repeated andrefrain from providing new yen loans?
We should not refrain from providing new loans across the board.
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CHAPTER 4

Figure 4-13. Transition of Paris Club agreement
Reginai transition of Paris Club agreement (1956-2004)
30
Sub-Sahala Africa
South Asia
Middle East. North Africa
Latin America The Caribbean Sea
Europe. Central Asia
East Asia. Oceania

Number of agreement

25

20

15

10

5

01

98

95

92

89

04
20

20

19

19

19

83

80

77

74

71

68

65

62

59

86

19

19

19

19

19

19

19

19

19

19

19

19

56

0

year of agreement
Source: Ojima (2006b)

Instead, we should stick to two basic points. First, before providing a loan (exante), avoid the problem of adverse selection by screening recipient countries properly with the condition that they must try to improve themselves.
Second, after the loan is provided (ex post), use the monitoring functions ofproject management so that the recipient country continues its efforts forstructural improvements. When it comes to supporting HIPCs whose debt
has been reduced, preconditions for new aid should include stronger screening and monitoring, along with an examination of current debt. We should becautious about providing loans to countries whose debt has been reduced,
but on the other hand, they cannot rely on grants forever. It is not realistic,
however, to leapfrog from grants to private funds because private investors
would consider it was too risky. Japan should show its unique character bymaking good use of loans as well (Ojima, 2006c).
One assistance method that takes advantage of Japan’s unique characteris the Enhanced Private Sector Assistance (EPSA) for Africa, which is being
proposed by our government under the leadership of the Ministry of
Finance. One idea included in EPSA is to provide up to US$1 billion of yen
110

Infrastructure Finance: A New Direction for Yen Loans

loans in five years through the African Development Bank. This assistancewill likely target an improved investment environment, including infrastructure and private sector development, among others. We can also expect thatthe partnership with the African Development Bank will strengthen screening and monitoring functions.

4-7. Decentralization and regional financeAs the so-called ‘trinity reform’ is advancing in Japan, the trend of decentralization can be seen everywhere in the world, and developing countries are no
exception. Merits of decentralization include: (i) accountability is ensured at
a level closer to voters; (ii) increased participation of citizens in public administration (e.g., stronger voice about how tax revenues are spent); (iii)
improved capabilities of local governments; (iv) improved local administration services; and (v) increased revenues through the devolution of taxing
power to local governments. Especially important are the benefits of infrastructure supply being more responsive to beneficiaries’ needs. On the other
hand, disadvantages of decentralization include: (i) destabilization of themacro economy and fewer options in policy implementation; (ii) reduced efficiency from the viewpoint of the entire state; (iii) regional conflict of interest;and (iv) increased income disparity due to the reduced transfer function of
the central government. When building infrastructure, we especially need toconsider that coordination may not take place at the state level, thus economy of scale may be reduced. In Japan, however, certain infrastructure suchas water supplies and sanitation facilities are typically built and maintained bymunicipalities as location-specific, local public goods. Local governments
should be responsible for those infrastructure projects that are local public
goods.
Local governments are separated from the central government, and as
decentralization has progressed, regional assistance has emerged as a newchallenge. The assistance to Indonesia’s Aceh special territory serves as an
example, and regional assistance requires political considerations. Whenloans are directly provided to local governments without a guarantee fromthe central government, securing repayment may be more difficult. One
example of regional assistance is JBIC’s collaboration with the US Agency forInternational Development (USAID) on water sector assistance schemes in
the Philippines.
The first scheme in the Philippines is the Municipal Water Loan
111

CHAPTER 4

Financing Initiative (Fig. 4-14). It combines an existing yen loan to theDevelopment Bank of the Philippines (DBP), a two-step loan to the Policy
Finance for Industrial Pollution Control Project (II), and USAID’s
Development Credit Authority (DCA) for the Local Government Unit
Guarantee Corporation (LGUGC). A combination of yen loan funds and local
private financial institutions (guaranteed by the USAID’s DCA) will financemunicipal water and/or sanitation projects. The second scheme is the Water
Revolving Fund (Fig. 4-15). Based on a model used at the state level in the
Figure 4-14. Philippines municipal finance
EISCP II : 510 Million Peso
Capital Market

USAID
Facility(30%)

LGUGC’s
Guarantee
100%

JBIC

PrivateInvestors /Lenders
DBP

50%

50%

LGUs or WDs

Figure 4-15. Philippines Revolving Fund Framework
JBIC

Capital Market
PrivateInvestors /Lenders

COP/
GFIs
70% 30%

Guarantee
USAID

TA

TA
WRF

LGUs

112

Infrastructure Finance: A New Direction for Yen Loans

US, this is an attempt to create one such fund for the Philippines by using the
yen loan funds and the USAID/DCA guarantee scheme. This is still at theconceptual stage and many design issues remain such as the different rolesof the central and local governments and the administration of the entire
fund, including the private finance portion. Nevertheless, these attempts
toward regional assistance are about to move forward step by step.

4-8. New direction for yen loans
The renewed recognition of infrastructure does not mean that we should simply continue traditional assistance for infrastructure. Far from it, we need toconfront the trade-off between the social justice of delivering services to thepoor and the economic efficiency needed for sustainable service delivery.
The financing to build and maintain infrastructure is significant, so it isessential to identify how to strengthen its financing. Under these circumstances, what roles should yen loans play?
First, if we see infrastructure as a network, we need to continue ourassistance for ‘bottleneck’ facilities. This is a precondition for the mobilization of private resources and privatization. Specifically, the transmission component of the power sector, the intra-city component of telecommunication,
the distribution network of water supplies, the sewer pipe network of sanitation, and the tracks component of a railroad are examples of the bottleneck
facilities. If we are to build an integrated infrastructure network due to theconditions such as market size and market density, assistance to components
other than the bottleneck facilities may be necessary.
Second, we need to advance collaboration between projects funded byloans and grants instead of seeing them as opposing forces. In strengthening
delivery of infrastructure services to the poor, subsidies to cover connections
and other costs are indispensable, and such subsidies are better financed by
grants, not loans. We obviously need to strengthen coordination between yen
loan projects and grant projects, but beyond that, we need a mechanism tosimultaneously provide a loan and a grant for one project or program. It is
possible, albeit from a different perspective, to combine assistance by equity
investment with technical assistance (for example, a JICA expert could participate in the management of an implementing agency in the recipient country).
Third, we need to take a stronger initiative for regional financing.
Traditional schemes can handle assistance through central governments, but
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CHAPTER 4

as decentralization continues and administrative and fiscal authorities aredelegated to local governments, we might need to consider assistance withless involvement of the central government.
Fourth, we need to expand the ODA financing function itself. As thename suggests, yen loans provide funds denominated in yen, but if assistance in other currencies is possible, we would be able to increase development impact, especially if revenue from infrastructure projects are typicallydenominated in the local currency. One of the causes of the Asian currency
and financial crises was the mismatch of currency and terms. If the recipient
country could receive local currency loans, it could avoid exchange risks, but
the exchange risk is then transferred to the donor as the loan provider. We
need to carefully choose a currency that can be hedged (Thai baht, Chinese
renminbi, or Malaysia ringgit, for example). The supply of local currency also
has a direct effect on the money supply of the recipient country, so we mayneed to consider consistency with monetary policy.
Other than local currency loans, there is a possibility of guarantees by
ODA. The main advantage of this scheme is that we can expect to mobilize
domestic savings or encourage the mobilization of foreign private funds.
However, the assistance as guarantees does not involve direct financial mobilization on the part of the donor, so we need to examine whether it qualifies
as ODA as defined by the DAC. France has argued that assistance by guarantees should be considered as ODA. Their argument can be summarized asfollows: (i) although the funds themselves are not provided by a public entity,
the reduction of capital costs by a guarantee is essentially created by the public entity (the requirement of public entity); (ii) the assistance supports projects that are similar to those supported by conventional ODA (such as
microcredits) (the requirement of development objective); and (iii) the difference between the market interest rate and the interest rate with a guarantee
qualifies as a concessional element (the requirement of concessionality).
While this point needs to be carefully examined, guarantees also have thepotential to become an important tool for infrastructure financing.

114

Infrastructure Finance: A New Direction for Yen Loans

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118

5
Improving Grant Aid Cooperation
Strategy and EffectivenessFormation of a comprehensive economic
cooperation policy
Izumi Ohno1

In recent years, the focus of international aid has been shifting to grants andto the poorest countries. This has brought, increased expectation in the international arena that Japan’s grant aid cooperation would be expanded.
Meanwhile, in the domestic sphere the fiscal conditions surrounding ODA
budgets (especially the general account budget) remain tight, prompting
strong demand that ODA be used effectively and efficiently. This combination of circumstance means that at this time, Japan’s grant aid cooperation is
being questioned more than ever, both domestically and internationally.
Against this background, this chapter examines the directions and measures Japan might take to improve its grant aid cooperation, taking into
account changes in both the internal and external aid environments andefforts to realize the visions of the new ODA Charter. Micro-level improvements have recently been made in grant aid cooperation as part of efforts toreform the Ministry of Foreign Affairs (MOFA) and improve the efficiency ofbudget administration. These improvements warrant appreciation. However,they are based on existing aid schemes, planning and implementation systems, not on strategic thinking that positions grant aid cooperation within
comprehensive economic cooperation policy. To address actively the issues
1. Professor, National Graduate Institute for Policy Studies. Heartful thanks are extended to the Grant Aid
and Technical Cooperation Division, International Cooperation Bureau (former Economic Cooperation
Bureau, at this writing) of the Ministry of Foreign Affairs for their fact-checking assistance and comments.

119CHAPTER 5

important both to Japan and to the international community, such as the promotion of economic partnership in East Asia and support for the least developed countries, it is necessary to consider how to utilize grant aid within acomprehensive vision of economic cooperation. Incremental improvementsin the current grant aid schemes are not enough; drastic reforms at themacro-level are essential, such as the establishment of more flexible aid
modalities, consideration of different combinations of various schemes
including public-private partnerships (PPPs), and building the systems to
support these.
This chapter is structured as follows. Section 1 provides an overview ofJapan’s grant aid cooperation; its history, characteristics (aid schemes, subschemes, budgets, allocations by region and country, etc.) and planning andimplementation systems. Section 2 describes internal and external debates
surrounding grant aid cooperation and the subsequent micro-level improvement efforts based on them, such as the pursuit of better transparency, proper implementation, cost reduction, expansion of evaluations and rapid
response to reconstruction needs. Section 3 points out three changes in theinternational aid environment that became prominent in the late 1990s ― (i)increased share of grants in response to the worsening debt problems ofpoor countries; (ii) changes in aid approaches which accelerated with theintroduction of Poverty Reduction Strategy Papers (PRSPs); and (iii) the shift
toward an increasing focus on the poorest countries as aid recipients. It ―then examines the challenges posed by these changes to Japan’s ODA, especially with regard to grant aid. Finally, Section 4 explains that, in order torealize the two-track ODA vision that underlies the new ODA Charter revisedin August 2003, it is necessary to formulate a comprehensive economic cooperation policy which will take into consideration the needs of Japan and alsoof the international society. Section 4 also points a new direction for Japan’s
strategic utilization of grant aid cooperation and the specific measures necessary to it.

5-1. Characteristics of Japan’s grant aid cooperation(1) Overview of history, aid schemes and sub-schemes
Grant aid cooperation is a modality of aid which provides funds with norepayment obligation (grants) to recipient developing countries whose
income levels are low2. As a tentative criterion for determining eligibility, the120Improving Grant Aid Cooperation Strategy and EffectivenessJapanese government accepts the eligibility criterion of the International
Development Association (IDA), provider of concessional financial assistancesuch as interest-free loans and grants within the World Bank Group. In termsof sectors, the basic human needs (BHN) related sectors such as health care,sanitation, water supply, primary and secondary education, and rural andagricultural development as well as environmental protection are the main
pillars. Projects in these sectors generally yield low economic return and are
therefore difficult to finance with loans; nonetheless, they are considered tobe directly linked to the improvement of living standards of the people and tocontribute to human resource development.
Grant aid cooperation began with the introduction of food aid in 1968 followed by general grant aid in 1969. General grant aid was at that time centered on general project grants, project-type cooperation in a wide range ofsectors, including health care, education, agriculture, livelihoods improvement , the environment, transportation and telecommunication (mainly funds
for building facilities and purchasing equipment and materials). In the 1970s,
emergency grants, fisheries grants, cultural grants and aid for increased foodproduction were introduced one after another. Later, more tailored grant aid
cooperation was introduced to meet the needs of different developing countries. In 1978, the Japanese government introduced the debt-relief grantscheme3 which provided grants to developing countries facing serious debt
repayment problems. (When the country repays its yen loan debt, a grant in
the amount of the repayment or a part thereof is provided.) In 1987, the government introduced the non-project grants scheme (grant aid to support the
improvement of economic structure) which provides foreign currency assistance (balance of payments assistance) to import goods urgently needed topromote structural adjustment policies under the advice of the World Bankand the International Monetary Fund (IMF). In 1989, the grant aid for grassroots human security scheme was introduced to support relatively small projects implemented by local municipalities, educational and medical organizations and NGOs in developing countries. In 2002, the grant aid for Japanese
2. The primary eligibility for receiving grant aid in FY2005 was based on per capita GNI as of 2003 to be$1,465 or less, but this condition is applied flexibly in consideration of the needs and diplomatic impact(MOFA document).
3. In 1999 in response to the adoption of the Enhanced HIPC (Heavily Indebted Poor Countries) Initiative,
the government used the same scheme to launch the HIPC Assistance Grant. However, amid the global
trend of debt reduction, the government later abolished the debt-relief grant scheme and switched to
debt forgiveness in 2003.

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CHAPTER 5

NGO projects scheme was adopted to support economic and social development projects and emergency humanitarian assistance projects implemented
in developing countries by Japanese NGOs.
Based on this history, current grant aid cooperation is categorized as follows: (1) general project grants, (2) non-project grants, (3) grant aid forgrassroots human security, (4) grant aid for Japanese NGO projects, (5)grant aid for human resource development scholarship, (6) fisheries grants,(7) cultural grants, (8) emergency grants, (9) food aid and (10) grant aid forunderprivileged farmers (until FY2005 known as aid for increased food production). Among these schemes, general project grants hold the largest
share, accounting for 43% of total grant aid cooperation in the FY2005 initialbudget. Figure 5-1 and Table 5-1 give overview and explanations of theseschemes.
(2) Budget changes
Grant aid cooperation is financed entirely by the general account budget.
Most technical cooperation funds, with the minor small exception of the special account, also come from the general account budget. Sources of yen
loans consist primarily of the capital subscription from the general accountbudget, borrowing from the fiscal investment and loan program (FILP) andloan repayments from developing countries. The amount of assistance for thegeneral account budget, which supports grant aid and technical cooperation,
is determined each fiscal year and the budget must be used in the same fiscal
year.
Under tight fiscal conditions, Japan’s ODA budget has been reduced six
years in succession since FY2000. The cumulative effect of this tightening , isa decline of more than 30% below the peak recorded in 1997 4 (generalaccount budget basis). The grant aid budget has also been reduced morethan 30% over the same period. According to Figure 5-2, which showschanges in the operation budget, the reduction of the overall ODA budget
has led to an especially large reduction in general project grants. The budget
for emergency grants, on the other hand, is increasing on an operational
basis. This is due, partly to reconstruction assistance for Iraq and
4. The ODA budget for FY2006 (the general account portion) was also reduced by 3.4% year-on-year.
Japan had been the largest ODA donor in the world since 1991, but the US has been the top donor since
2001.

122

Improving Grant Aid Cooperation Strategy and EffectivenessFig. 5-1 Japanese ODA and grant aid
ODA

Bilateral
grantsMultilateral
institutions tocontribution,
donation, etc.

Grat aid

General grants aid

General project grant aid

LoanassistanceFisheries grants aid

Non-project grant aid

Emergency grants aid

Grassroots project grant aid

Cultural grants aid

Japanese NGO grant aid

Food aid

Grant aid scholarshipand researchTechnical
cooperation

Aid for increasedfood production

Source: Refer to JICA website, “JICA and grant aid” (http://www.jica.go.jp/activities/jicaaid/ol10.html).
Note: Gray items are schemes where JICA conducts prior studies and facilitation, based on agreement with
MOFA.

Table. 5-1 Overview of grant aid schemes and 2005 budet
Scheme (budet hundreds
Starting
Summaryof million of yen)
year
Expenses for economic development assistance, etc. (the following includes grants only)(160.598 billion yen)
General grants (754.8)· regional development· Grant for infectious disease
prevention and treatment· Information technology aid· Governance aid· Water resource and environment aid· Anti-personnel mine crearance aid· Child welfare aid· Rehabilitation aid· Human resources development strengthening aid· Etc.

1969

Project-type grant aids in sectors covering basic
human needs (social welfare and environment improvement, transportation and telecommunication, medical service and healthcare, education,
agriculture and forestry, etc.). It is becoming morecommon to integrate economic infrastructures(e.g., roads, bridges, ports, telecommunication),
which used to be basically dealt with loans before, into the grant aids, taking situations of heavily-indebted poor countries into account.

No-project grant aid (255)· Sector program aid· Grant aid for conflict prevention and peace building· Grant aid for disposal ofsmall arms
· Etc.

1987

Provide foreign currency necessary to import materials (balance of payments support). The recipient development can save the surplus of domestic currency brought by assistance fund(foreign currency) as the reserve fund and, after
consultation with the Japanese government, use
it for the activities that contributes to the economy.
Social development (sector program aid uses thereserve fund mainly to the sector projects).

Grant aid for grassroots andhuman security projects
(140)

1989

It started as a small-sized grant aid and changed
its name to “Grant aid for grassroots projects” in
1995. It supports the economic. Social development
projects implemented by the local government,
education and medical institute, and NGO, targeting relatively small-sized projects which is benefi-

123CHAPTER 5

cial at grassroots level (10 million yen at the maximum per project). in 2003, it changed its name toreflect more of the concept of “Human security”
and expanded its targeting fields, in addition to
traditional BHN, to the peace building and reconstruction support, and emergent humanitarian assistance (the maximum amount was accordingly
increased up to one hundred million yen per project).
Grant aid for JapaneseNGO’s projects (140)2002

Support social economic projects and emergent
humanitarian assistance by Japanese NGO’s projects.
Social development and (Non-Governmental Organizations Cooperation Division in MOFA, andJapanese embassies).

Grant aid for scholarship andresearch (40)
· Scholarship aid· Research aid

1999

Support developing countries’ students to study inJapan and support for the travel and accomodation allowance of the developing countries’ and(or) Japanese researchers necessary to promote
the research activity in relation to economic andsocial development issues faced in developing
countries.

Grant aid for fishery (56)1973

To contribute to fisheries promotion in developing
countries, offer funding to fishing ships, fishinggears, fishing training facilities, training ships,
fishing port facilities, and construction of fisheryresearch facility.

Cultural grant aid (23.7)

1975

Started as a part of international cooperation in
relations to cultural exchange, supporting conservation and promotion of culture in developing
countries. Support the purchase of necessary
equipments and materials for the preservation
and utilization of cultural assets and heritages,
cultural performances and displays (Cultural exchange Division in MOFA).

Emergency grant aid(307.98)· Grant aid for disaster relief· Grant aid for reconstruction
and development· Grant aid for democratization

1973

Food aid (KR) (109.2)

1968

Provide developing countries facing food shortage with the funds necessarily to purchase main
crops such as wheat, rice, and corn.

Grant aid for increased foodproduction (2KR) (50.04)

1977

To support the plan to expand food production indeveloping countries pursuing food self-sufficiency, provide the funds necessarily to purchaseStarted with the emergent assistance for disasters and provide affected people, refugees, anddisplaced people in natural disasters or civil wars
with urgent humanitarian assistance. The fund iseither directly to the affected government given orindiectly to international humanitarian assistanceorganizations (WFP, UNHCR, etc.). It started thedemocratization support in 1995 (by providing thedeveloping country’s government or international
institutes with the purchases cost of materials
necessary for democracy promotion projects).
Aid cost for increase of food production (15.924 billion yen)124

Improving Grant Aid Cooperation Strategy and Effectivenessagricultural materials such as fertilizers and agricultural machines. Changed its name (Aid for expansion of food production) in 2005.
Source: Refer to ODA website (MOFA), JICA website, “JICA and Grant Aid”, and JICS website, “Grant
Aid.”
Note: In 2007 sereral new schemes are to be introduced including ‘Grant aid for anti-terrorism and security policy’ (7 billion yen), “Grant aid for disaster prevention and emergency restoration (3.5 billion yen),” and “Grant aid for community development (4 billion yen)” as new schemes.

Afghanistan and partly to assistance and recovery from the Sumatra earthquake and the Indian Ocean tsunami5 of December 2004. The grant aid forgrassroots human security scheme was launched in 1989 as a small-scale
grant facility with an annual budget of ¥300 million (32 countries, 96 projects). But it has grown rapidly ; its annual budget having reached ¥15 billion
in FY2003-04. The average annual number of projects for the three years
from FY2002 to FY2004 was about 1,400.
(3) Distribution by region and country
The regional and country distribution of Japan’s grant aid shows that the top
recipient for many years was Asia. Asia was followed by Africa with the
Middle East and Latin America in third place receiving about the sameamounts. Beginning with reconstruction assistance for Afghanistan and Iraq,
from circa 2003, assistance for the Middle East grew significantly. In FY2004,
the Middle East region received the most grant aid, surpassing both Asia andAfrica. In FY2000 on the exchange of note (E/N) basis, Asia’s share was 41%,
followed by Africa (29%) and Latin America (13%). The Middle East was infourth place with just 9%. By FY2004, however, the distribution had changed
dramatically, with the Middle East taking top place (44%), followed by Asia(29%) and Africa (17%). (see Figure 5-3)
In Africa the main modalities of Japanese ODA are grants and technicalcooperation because yen loans have been suspended in countries that haveapplied to receive the benefits of the Enhanced HIPC (Heavily Indebted Poor
Countries) initiative6. The increasing international attention directed to
Africa’s development has prompted many donors to increase their aid to that
5. For example, the government allocated an additional ¥118.8 billion to the grant budget within the supplemental budget in FY2003 in order to implement the provision of $1.5 billion in grants pledged in
October, 2003 at the Iraq Reconstruction Donor Conference (Nakao 2005). It has been pointed out,
therefore, that the general account budget was not reduced as drastically as the initial plan suggested.
6. At the G8 Summit in 2005, the Japanese government announced a plan to resume providing yen loans
in collaboration with the African Development Bank as a “joint initiative for the development of theprivate sector in Africa” (Enhanced Private Sector Assistance for Africa: EPSA).

125

CHAPTER 5

Fig. 5-2 Transition of uncompensated financial assistance business budget(hundreds ofmillions of yen)

Grant aid for general projects

3,000

Debt relief grant aid Note: (1)No-project grant aid

2,601

2,635

2,644

Grant aid for grassroots humansecurity projects Note: (2)Grant aid for JapaneseNGO’s projects
Grant aid for scholarshipand research Note: (3)Grant aid for fishery
Cultural grant aid

2,500

2,379

2,405

2,370

Emergency grant aid Note: (4)2,321Food aid
Grant aid for increasedfood production Note: (5)2,000 1,220

1,251

1,251
1,141

1,123

1,080

873

1,500

1,894.78
1,821.00
1,765.22

895.00 784.00
324
457

754.80

345

464
330

360

345

242

227

267

85
8
96
28
152

100
27.5
94
28
112

112

103

1,000
282

500

380

227

214

45
100
25
92

50
100
25
97

207

70
2.5
92
23
97

133

153

145

127

302

280

57
91
23

263

253

310.00
100
20
42.5
77
26
222

222.00

1997

1998

1999

150.00 140.00
27
28.5
35
40
60
56
23.50 23.70
316.56 307.98

107
214

213

2000

2001

128

107.64 104.44 109.20
51.04 50.04 50.04

2002

2003

0
1996

150.00
22.0
47.5
65.6
24.00

270.46 255.00

2004

2005
(year)

Source: MOFA “ODA white paper 2005” Figure III-36 “Budget transitich of grant aid”
Note: (1) Abolished in 2002.
(2) Changed from “Grant aid for grassroots projects” in 2003.
(2) Changed from “Grant aid for scholarship programs (started in 1999)” in 2001.
(2) Changed from “Disaster relief of emergency grant aid” in 1995.
(2) Changed from “Grant aid for increased food production” in 2005.

region (especially their grant aid). In the case of Japan, however, reduction in
the ODA budget has seen grant aid for Africa reduced by 30% on a net spending basis (US$) -- to 40% from its peak in 1999. The total ODA amount for the126Improving Grant Aid Cooperation Strategy and EffectivenessFig. 5-3 Transition of regional distribution of grant aid(comoarison between 2000 and 2004)
Central andSouth
Middle and America
Near East 13%
9%

East Europe
Central Asia
6%

Oceania3%

Africa29%

Central andSouthAmerica
4%

Etc.
0%

Asia
41%

East Europe
Central Asia
3%

Middle andNear East
44%

Etc.
1%

Asia
29%

AfricaOceania17%
3%

Figure 5-4. Breakdown of bilateral ODA patterns of Japan to Africa(comparsion between 1999 and 2003)
1,200.00
1,000.00
800.00600.00400.00200.000.00
1999
Official loan aid

2003
Technical cooperation

Grant aid

Source: Figure 5-3, 5-4 are extracted from ODA white paper 2005 and 2001, respectively.

region has also been significantly reduced. (see Figure 5-4)
(4) Planning and implementation systems
As the leading ODA ministry, the MOFA has responsibility for coordinatingwith other ministries and supervising implementation agencies. In actuality,
the planning and implementation of ODA policies and budgets are scatteredacross many organizations. Japanese ODA is broadly divided into grant aid
cooperation, technical cooperation (itself a form of grant aid), yen loans (concessional loans), and contributions to international organizations.
Implementation of bilateral aid is divided among MOFA, which handles grant
aid, the Japan International Cooperation Agency (JICA) and relevant ministries which handle technical cooperation, and the Japan Bank forInternational Cooperation (JBIC) which handles yen loans. Contributions tointernational organizations are divided between MOFA, which deals with
UN-related organizations, and the Ministry of Finance (MOF) which deals
127CHAPTER 5

with development finance organizations including the World Bank.
Grant aid cooperation is under the sole charge of MOFA which is responsible for overall policies and implementation. Nonetheless, as Figure 5-1
shows, JICA is in charge of general project grants, grant aid for humanresource development scholarships, fisheries grants, cultural grants (building facilities and large-scale equipment procurement) as well as studies andimplementation facilitation work for food aid and grant aid for underprivileged farmers. MOFA implements part of the non-project grants, emergency
grants and cultural grants directly by collaborating and coordinating withprocurement agencies and international organizations7. Japanese diplomatic
missions play an important role in implementing grant aid for grassroots
human security. They examine requests for assistance in the respective
countries, select the candidate projects (to be approved by the central ministry), sign grant agreements with the requesting groups, disburse the funds,
and implement and monitor the projects. The grant aid for Japanese NGO
projects is a scheme with which MOFA directly supports Japanese NGOs.
JICA is involved in more than 50% of the grant aid budget (operational
budget basis), including the general project grants which have the largest
budget, through basic design and implementation facilitation work. Figure 55 is an operational flowchart of general project grants and fisheries grantsthat describes the roles of MOFA, diplomatic missions and JICA.
With regard to its implementation system, some aspects of Japan’s procurement methods are relevant here. Within grant aid cooperation, primarycontractors for general project grants, fisheries grants, cultural grants andfood aid are limited to Japanese companies, a situation which often is criticized both domestically and internationally for increasing costs. The OECD
Development Assistance Committee (DAC) also pointed out in the context of
its 2003 Peer Review of Japanese ODA that Japan’s grant aid is “de facto tied
assistance” and that “such a system goes against the trends of promoting theownership of recipient countries and integrating donors’ procurement systems, and against the direction of reducing the aid administration burden ofrecipient countries.” DAC recommended that “Japan should work with the7.

Both MOFA and JICA often use a procurement agent (typically Japan International Cooperation
System (JICS)) to study necessary equipment and materials and manage the procurement based on acontract with the recipient government.

128

Improving Grant Aid Cooperation Strategy and Effectiveness

Figure 5-5. Workflow of grant aid: Role of MOFA and JICA
(in the cases of grant aids for general projects and fishery)
MOFA・Request

JICA
Assistance request fromdeveloping countries

・Select the survery proposal,
Notify JICA
・Confirmation of basic design
survery. Examine the survey
result・Select the implementing
proposal・Hold the conference with MOF
about the implementation
・Cabinet approval・Signing of E/N・Declare prior evaluation sheet
・Consultant contract, Confirm
the contract of Implementing
agencies
・Confirm the progress and audit
resultStudy the proposal

・Give technical examinationand comment on the content
of requests, including
consideration to enviromentand social impacts
・Conduct basic design survey
including the selection of the

Examine the contenfot
proposal and decide

Implement the project・Examine the payment
documents and make payment
and confirmation of completion

consultant
・Facilitating implementation
work (consultant contract,
implementation of detailed
design, bidding book writing・bid, selection of consultants
and make contracts)
・Check and audit theimplementing situation on site.
・Confirm the completion
・Follow-up cooperation

Evaluation and follow-up
・Ex-post evaluation (2005〜)
Source: Retro MOFA “Grant Aid Guideline (August. 2004)” and JICA website, “JICA and Grant Aid.”
Note: JICA entrusts procurement management tasks to JICS

DAC on identifying concrete measures to progressively untie the use of grant
funds for primary contractors in the spirit of the recommendation on untying
ODA to the least-developed countries8.”
The DAC agreement to recommend the untying of ODA to the leastdeveloped countries with high levels of aid dependency occurred in May
2001, and the recommendation became effective in January 2002. (For untied
projects donors are asked to report each project’s amount, tender period, procurement system, etc., to the DAC secretariat.) MOFA reports grant aid projects subject to this recommendation, as untied based on the following reasoning: although primary contractors are Japanese companies, they are
8. MOFA ODA website, “DAC Peer Review of Japan, outline and evaluation” and “DAC recommendations to the Japanese government” (December 2003).
http://www.mofa.go.jp/mofaj/gaiko/oda/index.html

129

CHAPTER 5

selected through competitive bidding and their contracts do not requirethem to procure Japanese equipment, materials or services (Shirai 2005).
MOFA gives as the reasons for limiting the primary contractors to Japanesecompanies, the need to synchronize project implementation with theJapanese government’s budget administration process (single-year budget
system), the need to ensure the quality of assistance and the need to maintain continuity.
Many times in the cases of other donors who offer loans, one organization is in charge of both the grants and the loans forms of financial cooperation, and the same procedures are applied throughout the project cycle ofproject selection, appraisals, implementation, evaluations and monitoring.
For example, the German Ministry of Economic Cooperation andDevelopment is responsible for aid policies in general and the German
Corporation for Technical Cooperation (GTZ) handles technical cooperation.
But the implementing agency of financial cooperation, the German
Development Bank (KfW) is in charge of both loans and grants, and changes
the concessionality of funds (loans or grants) based on income level andother factors of the recipient country. (Bilateral financial cooperation with
developing countries is only a part of KfW’s operations. It also provides medium- to long-term financing for the advancement of the domestic German
economy and export credits.) France reformed its aid organizations in 1998
so that. aid policies are now managed by the Directorate General forInternational Co-operation and Development of the Ministry of Foreign
Affairs (bilateral aid and contributions to UN agencies, etc.) and the Ministryof Economy, Finance and Industry (aid to developing countries other thanformer colonies and contributions to the EU and international developmentbanks). But under the shared supervision of these two ministries, the French
Development Agency (AFD) provides grant aid, technical cooperation(although the Foreign Ministry also implements a part of it), loan aid, andeven semi-commercial loans and equity investments (recipients are Priority
Solidarity Zones, ZSP, defined by the French government, overseas departments and overseas territories) (Japan Bank for International Cooperation 2004).

130Improving Grant Aid Cooperation Strategy and Effectiveness

5-2. Domestic debates surrounding grant aid and recent
initiatives(1) Domestic debates
In response to the increasing need for public understanding with regard to
the effectiveness of ODA under tight fiscal conditions and to the increasing
demands for its reform following a series of scandals, in 2002 MOFA
announced numerous initiatives centering on public participation, securingtransparency and improving efficiency. These were also based on recommendations by the Second Council on ODA Reform (a private council convenedby the Foreign Minister which submitted its final report in March 2002) andthe MOFA Reform Advisory Board (which consisted of well-informedexperts and was chaired by the Foreign Minister, and submitted its final
report in July 2002). Many initiatives were launched from the perspective ofstrengthening strategy, including the following: establishment of the Board
on Comprehensive ODA Strategy as an advisory body to the Foreign
Minister (June 2002); enhancement of the country-by-country approach(establishment of local ODA Task Forces in March 2003, and expansion andimprovement of Country Assistance Plans); revision of the ODA Charter(August 2003); and preparation of the new Medium-Term Policy (February2005).
In response to the overall momentum for ODA reform, efforts toward
gradual improvement took place in grant aid which had been criticized forsome time for a lack of transparency, poor information disclosure, high procurement costs and inadequate evaluations. In 2005, the desireability of further improvements in the efficiency of grant aid was expressed in rapid succession, in the Basic Policies for Economic and Fiscal Management andStructural Reform 2005 (the so-called “Honebuto (muscular) Plan 2005)9
which was adopted in June by the Cabinet following the debates in theCouncil on Economic and Fiscal Policy, and in the budget administration
study conducted by the Ministry of Finance. MOFA created a working groupwithin the Board on Comprehensive ODA Strategy to examine the issue, andpublished a report in December entitled “Checking and Improving ODA ―For Higher Quality ODA.” The following sections describe the main domes9. Cabinet Office “Basic Policy on Economic and Fiscal Management and Structural Reform” Cabinet
Decision dated June 21, 2005 ― The Fifth Basic Policy ― ”Realizing a small and efficient government”

131

CHAPTER 5

tic debates and recent efforts toward improvement, with a focus on grant aid.
(2) Transparency, information disclosure and proper implementation
Council on the Proper Implementation of Grant Aid Cooperation: The final
report of the MOFA Reform Advisory Board recommended measures toensure transparency in the selection and implementation processes of grant
aid, and measures to expand ODA evaluations to determine effectiveness. In
response to the recommendations, MOFA created the Council on the Proper
Implementation of Grant Aid Cooperation consisting of well-informed independent experts and reporting to the Director-General of the Economic
Cooperation Bureau. The Council meets bi-monthly or so, exchanging opinions on cross-sectoral topics such as information sharing and examination
during the main stages of a grant aid project cycle, submit for Cabinet
approvals, bid tendering and actual project implementation (proceedings are
published in MOFA’s ODA website).
Grant Aid Cooperation Appraisal Guidelines: These Guidelines give perspective and procedures for the appraisals to be conducted to ensure theproper implementation of grant aid projects, including environmental andsocial considerations at each stage of the project cycle, from project identification and formulation to implementation and post-completion supervision10.
The Guidelines are applied to general project grants and fisheries grants,
except for general project grants implemented by international (or regional)organizations with different implementation methods (regional development
grants, grants against infectious diseases, and part of child welfare grants)
which are excluded. The guidelines were published as “Grant Aid
Cooperation Appraisal Guidelines (Provisional Version)” in August 2004
(MOFA website), but are currently being used on a pilot basis. Necessary
revisions based on the opinions of interested parties during this pilot phasewill be made before these Guidelines are fully applied.
(3) Expansion of evaluations
In order to verify and receive better advice on the feedback of evaluations, in
December 2001 MOFA created the Evaluation Feedback Committee consisting of independent experts (in 2003 the Committee was renamed the
10. JICA revised its Guidelines for Environmental and Social Considerations in April 2004, which also
applies to JICA’s preparatory studies for grant aid. Therefore, at each stage of grant project formationand implementation, MOFA basically applies JICA’s “Guidelines for Environmental and Social
Considerations” for its activities.

132

Improving Grant Aid Cooperation Strategy and Effectiveness

External Advisory Meeting on ODA Evaluation, and JICA and JBIC established their respective similar evaluation committees in June 2002). Based ona division of responsibilities wherein MOFA handles policy and programlevel evaluations and implementing agencies handle project level evaluations.
JICA, which is in charge of basic design studies and encouraging implementation, has been conducting ex-post evaluations on the adequacy and effectiveness of the basic designs of certain individual projects (MOFA 2005a).
However, this has not necessarily allowed MOFA to carry out its own ex-post
evaluations of individual projects to improve at its own initiative both thequantity and quality of projects or more systematically to incorporate in
future project formations the lessons learned from project implementation.
In 2005, the “Honebuto Plan 2005” (adopted by the Cabinet in June) andMOF’s budget administration study called for the establishment of a projectlevel grant aid evaluation system. In response, MOFA decided to build its
own such system, to begin in FY2005. Specifically: (i) Evaluations will be conducted by the central Ministry and by diplomatic missions abroad; (ii) Fromthe pool of about 110 projects with a cost exceeding ¥1 billion that have been
completed three to five years previously, about 50 will be selected (one totwo projects per diplomatic mission); (iii) Evaluation methods based on international standards (OECD-DAC’s five evaluation criteria, the Plan-Do-CheckAct cycle) will be employed and to the extent possible evaluations based on
results orientation will be conducted; and (iv) To ensure objectivity, outside
experts (Council on the Proper Implementation of Grant Aid Cooperation,
External Advisory Meeting on ODA Evaluation) will be consulted withregard to evaluation criteria and findings. Evaluation results will be publishedon websites and other media. Looking forward, MOFA is aiming to implement full-fledged ex-post evaluations for as many projects as possible while
utilizing development experts to acquire specialized and technicalknowledge11. Tables 5-2 and 5-3 show the recommendations to establish an
ODA evaluation system and recent efforts to expand evaluations, respectively.
(4) Reducing costs and increasing efficiency
For many grant aid projects, primary contractors must be Japanese compa11. In the FY2006 budget, MOFA earmarked a new budget item (¥61 million) to enhance the evaluation
methods and increase the number of evaluated projects, and to strengthen the implementation system
by involving independent experts, etc.

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CHAPTER 5

Table 5-2. Remarks about ODA’s evaluation system
Basic policies for economic and fasical management and structural reform in 2005
(June, 2005, cabinet approval)
・Implement ODA in a proper way, based on the result of examination of accountsettlement in the diet. Conduct the third-party objective evaluation (including thecost-benefit analysis) on the outcome of ODA projects, announce the result, andestablish the PDCA (plan-do-check-act) cycle reflecting in the ‘plan’ and ‘do’ in
ODA policy.
・As for the grant aids, it is necessary to conduct the quantitative ex-post
evaluation including cost required in the projects, reduce the procurement cost,and make the implementation more efficient.
MOF budget execution survey 2005
・We should set a cost reduction goal and start implementing such approaches.
・Therefore, we should take action in such ways as making the bidding system
more competitive, selecting equipments and materials very carefully, andincorporating the system reflecting the local procurement price.
・Also, we should adopt the system to take the ex-post quantitative evaluation oneach project as to how much it actually cost or whether it reached its original
goal and to announce the result.

Table 5-3. Recent actions for the improvement of ODA evaluationlevelsODA ex-post evaluation targets
type of evalution
main targets

・Country evaluation
・Main issue
evaluation
Program ・Sector evaluation
level
・Scheme evaluation
Project ・Project evaluationlevel
Policylevel

Country assistance policy (plan, principle)
Assistance policy for main issues (main issues of
ODA middle-term policy, sectoral initiatives)
Assistance in general for one country, one sector
technical cooperation (JICA protects)
Loan (JBIC projects)

Policy for project-level ex-post evaluation
Grant aid
Loan
Techical cooperation
Using the consultant,evaluate the technicalcooperation projects (40or so) of more than acertain scale completed
three years before

Source: MOFA reference

134・Make an experimental
Using the consultant,evalution on the projects
evaluate all the projects(50 or so) more than one(50 or so) completed two
billion yen completed
years before
three to five years before
through the Japanese
oversea establishmentsfrom 2005.
・Aim to make a subtantial,
ex-post evalution for as
many project as possible
involving the experts froma technical point of view
from 2006 (currently underthe budget request).

Improving Grant Aid Cooperation Strategy and Effectivenessnies, but the involvement of Japanese consultants and constructors increases
project cost compared to cases where goods and services can be obtained
locally. Cost goes up as well if contractors rush to meet the deadline imposedby the one-year budget of ODA ― projects in principle must be implemented
and completed within the same year.
School construction is an area where this situation is particularly apparent. School construction accounts for a large share of education aid and criticism is often heard that schools built with Japanese general project grants
are unnecessarily expensive. The recent thrust in aid requires that the criticism be taken seriously. Since the 1990s, various organizations have become
involved in building primary schools, due partly to a trend of emphasizing
support for primary education (the World Conference on Education for All at
Jomtien, Thailand, and the UN Millennium Development Goal to “achieve
universal primary education by 2015”, etc.). Moreover, primary education is
one of the sectors where aid coordination is vigorously pursued. Especially in
sub-Saharan Africa, new aid modalities such as budget support and pooled
funds are becoming popular, and there is an increasingly strong trend for all
donors to procure goods and services through the system of the recipient
government (see 5-3 (3) below for details).
Table 5-4 is a comparison of school construction costs by aid implementing organization, prepared by a coalition of NGOs which provides assistancein Cambodia’s education sector (People’s Forum on Cambodia, Japan).
Looking at construction cost only, schools built by Japanese general grants
stand out for costing some three times more than schools built by NGOs andother organizations. A simple comparison like this may be somewhat misleading. Construction conditions and environments are not uniform acrossCambodia and different aid organizations have different reasons and philosophies for building schools. However, this table raises the important question
about how school construction is being financed by general grants (TheInternational Development Journal 2004). Similar problems of higher costs
have been pointed out in well-drilling projects.
More than a few governments of developing countries are willing toaccept lower costs if more schools can be built and there have been efforts inrecent years to bring the costs down. Through the adoption of appropriate
specifications and scales, procurement from local and third country sourcesand other measures, the cost per square meter has been reduced substantial135

CHAPTER 5

Table 5-4. Situation of school canstructions in Cambodia by each organization(Made by citizen Forum in Cambodia, Japan)
supporting organization

year

ODA/General grant aid projects
ODA/NGOGrant aid project
Frame NGO (EU budget)
Association
Shanti Volunteer Association

3920thousand yen

2002
2001–02

JHP·School BuildingNGO

Simplified building cost per classroom

2004

about600thousand yen
about640thousand yen

2003

about900thousand yen

2002
1998–99

lest yhan1300thousand yen
about1000thousand yen

(SVA)

1997

about950thousand yen

Foundation for International
Development/Relief (FIDR)

1997

about600thousand yen

2001–03about670thousand yen

Internationai Asian Development Bank
Organization (ADB)

Source: MOF (2005), “International Development Journal” (February, 2004) P. 26

Table 5-5. Examples of school building projects on cost reduction
Philippines
Guinea1998
1998

73,004 yen/m2
59,400 yen/m2

South Africa

1998

65,900 yen/m2

2003

48,530 yen (about34%less)

2002
2003

46,800 yen (about21%less)
42,700 yen (about35%less)

Source: MOFA “Review and impravement of ODA” (December, 2005) P. 27

Table 5-6. Grant aid adapted to the recipient country’s situation
Nepal

Afghanistan, Zambia, Laos

Vietnam

The Japanese side procures the construction materials, and the
Nepal local people including parents of the students are in
charge of building operations while the Japanese archtecturecompanies manage the construction.
Local construction companies conduct the trial construction
under the plan and design by Japanese archtecture companies
based on the basic design survey. Also data was collected forfurther cost reduction.
Flooding caused by monsoon destroyed most of the local
schools except the ones made by Japan, which led, among
Vietnamese, to the high reputation of the Japanese schools. The
Vietnamese government adopted the Japanese standard fortheir school construction.

Source: “International Development Journal” (February, 2004) P. 29 and MOFA “Review and inprovement of
ODA” (December, 2005) PP. 26-27

ly (see Tables 5-5 and 5-6). On the other hand, some developing countries
prefer the high technical abilities of Japanese companies and the durable
buildings they provide. For this reason, the Japanese government currently
has a policy of first confirming the preference of the partner country. If it
prefers government-to-government assistance, Japan will offers a general pro136

Improving Grant Aid Cooperation Strategy and Effectivenessject grant with an emphasis on quality; if it prefers an NGO-implemented project, small-scale assistance will be offered through grant aid for grassroots
human security or grant aid for Japanese NGO projects. A new aid scheme
called “grant aid for community empowerment” was to be launched in
FY2006 to allow locally-tailored designs and the use of local contractors in
the construction phase. Within the next five years, there are plans to establish a cost reduction goal ― to reduce the cost of primary and middle school
construction projects in Africa by more than 30% ― and to follow up on theachievement of this goal. At the same time, the government will consider
measures to further reduce the costs of general project grants.
(5) Greater flexibility in non-project grants for emergency/
reconstruction assistanceIn the non-project grant scheme, funds are provided to a recipient country in
one disbursement, then used to import goods necessary for development andpoverty reduction. Non-project grants can be implemented more quickly andflexibly than general project grants, which require advance project formation
work on the donor side. Since in principle non-project grants are untied, theyalso can be less costly.
In addition to these established characteristics, to respond adequately to
the great devastation and urgency of the Sumatra earthquake and Indian
Ocean tsunami, the Japanese government further eased the traditional principles of non-project grants so that added flexible and timely assistance could
be provided to cope with the damage. Specifically, procurement methods andeligible areas were expanded to: (i) allow local procurement; (ii) allow service procurement for transportation and reconstruction work; and (iii)
exempt recipients from an obligation to accumulate counterpart funds. Since
traditional non-project grants basically provide foreign currencies for importing goods, and utilize counterpart funds ― accumulated through the sale ofthese goods ― to provide local currency support, theise modifications added
considerable flexibileity to the scheme’s emergency reconstruction application12. For Sri Lanka, one of the most affected countries, it has been reported
12. For detailed evaluation of emergency recovery assistance with flexible and timely use of non-project
grants, see MOFA “Damages from Sumatra Earthquake and Indian Ocean Tsunami ― Mid-Term
Evaluation of Bilateral Grant Aid” (December 26, 2005) and “Report on Assistance to Sumatra
Earthquake and Tsunami Affected Regions: Expansion of Methods and Applied Fields in Procurement”
International Development Journal October 2005 issue (pp. 32-33) and “What Assistance Do People
Want? ― Japanese Aid to Indonesian Earthquake and Tsunami Affected Regions” Diplomacy Forum
April 2006 issue (pp. 68-73).

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that, when the non-project grants were used to build schools in accordancewith local specifications, the unit cost was reduced by more than 50% (MOFA(2005a)).
When implementing the non-project grants in the affected countries, theJapanese government utilizes procurement agencies which manage funds
and procure goods and services on behalf of recipient governments. The
Japan International Cooperation System (JICS) signs a procurement agency
contract with the government of an affected country, selects and executes
contracts with consultants who manage the construction and contractors,
and handles such responsibilities as progress management, financial management and completion inspections. In some cases, JICA conducts an emergency development study in advance to examine the design and technicalspecifications related to the selection of consultants and/or contractors.
These micro-level improvement efforts are certainly important and useful.
However, these initiatives are taken largely as an answer to the following
question: How can cost be reduced and efficiency increased under tight fiscal
conditions, and how can better information disclosure and transparency beachieved under the current schemes, and planning and implementation systems? These initiatives are not necessarily prompted by changes in the international aid environment or by strategic thinking for realizing Japan’s vision
set out in the new ODA Charter. The significance of the ongoing improvement efforts is undeniable, but at the same time, it is important to reform
grant aid cooperation from a macro-level perspective, so that strategic andpolicy-coherent overseas economic cooperation can be formulated and implemented.

5-3. International aid environment surrounding grant aid
cooperation(1) Changes in the international aid environment
Since the latter half of the 1990s, the environment for international aid haschanged drastically. Globalization has widened disparities among developing
countries, the debt problems of poor countries have worsened, and aid
fatigue on the part of industrialized countries has deepened. Poverty reduction has come to be emphasized as the overarching goal of development,
focus has shifted to support for the least developed countries, including138

Improving Grant Aid Cooperation Strategy and Effectivenessthose in sub-Saharan Africa, and the share of grants in international aid has
been increasing. International initiatives such as the Poverty Reduction
Strategy Papers (PRSPs) introduced by the World Bank/IMF, Millennium
Development Goals (MDGs) adopted by the United Nations and an aid effectiveness declaration by OECD/DAC are emblematic of the new aid environment.
These changing environment has great significance, directly and indirectly, for Japan’s grant aid cooperation. Firstly, the increased reliance on grants,
or “grantization” of aid, means that grants rather than loans are now the central tool for assisting the poorest countries. This has brought Japan’s grant
aid under increasing scrutiny. Secondly, with the adoption of PRSPs, changes
in aid approaches, evident since the latter half of the 1990s, accelerated interms of donor cooperation in policies, aid money and procedures as well as
in policy dialogues with recipient countries. The situations these changes
have created are beyond the coping capacity of the current project formationand implementation systems; for example, in overseas diplomatic missions
there are vastly fewer personnel involved in project formation and supervision of grant aid than even those working at local offices of JICA, which provides technical cooperation on a grant basis. Thirdly, the increased focus on
assisting the poorest countries has led to the marginalization of assistance to
middle income countries. Japan, which over the years has directed its ODA
toward lifting East Asian countries to middle income status, is now wondering how to move forward regional economic cooperation relationships andhow to position its grant aid cooperation in the region. These three points
will be explained in detail below13.
(2) “Grantization” of international aid
In recent years, many donor countries have switched their bilateral aid fromloans to grants. Multilateral development finance organizations including theWorld Bank also have switched part of their concessional loans to grants.
Figure 5-6 shows changes in the share of grants in international assistance.
Numbers are shown on a gross basis (operational budgets) to show how
much of new ODA commitments are allocated to grants. This trend became
definitive when the IDA (International Development Association) decided toprovide grants in its 13th replenishment. IDA is World Bank Group organiza13. For a discussion of the implication of recent changes in the international aid environment for Japanese
economic cooperation in general, see Ohno (2002).

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CHAPTER 5

tion that provides concessional loans to low income countries. Those with
2004 income per capita of less than $965 are eligible for IDA’s assistance(this cutoff is for the Bank’s operations in FY2006). The loans are provided
with no interest, for a term of 35 or 45 years with a grace period of 10 years,
but there is a service charge of 0.75% per year. The loans are funded by thecontributions of developed countries that are solicited every three years(“replenishments”).
Figure 5-6. Transition of International ODA Loans and ODA Grants
US mil
90,00080,000ODA Loans GrossODA Grants

70,00060,00050,00040,00030,00020,00010,00001960 63

66

69

72

75

78

81

84

87

90

93

96

99 2002Year

As international pressure mounted to provide debt relief to HIPCs, theIDA-13 replenishment (for the three years beginning in July 2002) allowed
for the first time the provision of grants, although only in certain cases (postconflict, disaster relief, HIV/AIDS) and to certain countries (those with low
debt sustainability). The share of grants was set at 18-21% of the total. For the
IDA-14 replenishment (for the three years beginning in July 2005), the shareof grants was increased to about 30%, and the extent of grant provision toeach country became based on its policy performance and debt sustainability.
As Figure 5-7 shows, grants accounted for an overwhelming share in
Japanese ODA during the 1960s when Japan began its foreign aid as postwar
compensations. Thereafter, however, more yen loans were provided and theshare of grants decreased. Since the latter half of the 1980s, the share of yen
loans expanded, partly in connection with Japan’s policy of “current accountsurplus recycling”, and as the share of loans in Japanese ODA grew faster140

Improving Grant Aid Cooperation Strategy and Effectivenessthan in that of other donors. In recent years the share of grants has been rising because assistance to the countries that have applied for the Enhanced
HIPC Initiative is constituted mainly by grant aid and technical cooperation,
as noted above in 5-1 (3). The average share of grant aid (including technicalcooperation) between 2001 and 2003 was about 45%.
Figure 5-7. Transition of Japan ODA Loans and Grants
US mil
16,00014,000ODA Grants
ODA Loans Gross

12,00010,000
8,000
6,000
4,000
2,000
0
1960 63

66

69

72

75

78

81

84

87

90

93

96

99 2002Year

notes: Grants include technical co-operation. Loans are gross - based.
Source: Both figure 5-6 and 5-5 are extracted from OECD, Geographical Distribution of Financial
Flows to Aid Recipients 1999-2003 (2005), CD vitsion(3) Changes in aid approaches
PRSPs were introduced by decision of the IMF/World Bank Annual Meetingof September 1999. They are development plans that the developing countries themselves prepare holding poverty reduction as the ultimate goal with
their own initiative (ownership) and stakeholder participation (partnership)as the two pillars. In reality, preparation of a PRSP has become a requirement
for indebted countries to be eligible for debt relief under the Enhanced HIPC
Initiative and for low income countries to receive concessional IDA (World
Bank) and PRGF (IMF) loans. PRSPs now function to (i) determine access toaid money, (ii) drive the content of development strategies, (iii) establish acooperation framework (aid coordination) among development actors, inaddition to (iv) considered as a means to achieve international goals such as
the MDGs. They have thus come to wield enormous influence over thedevelopment policies of the poorest countries.
The mainstreaming of PRSPs, together with the heightened international
attention on improving aid effectiveness, has accelerated changes in aid
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CHAPTER 5

approaches. Donors are required, more than ever, to cooperate with eachother in terms of strategic and policy frameworks, harmonization of aid procedures and integration of aid money (introduction of new aid modalities
such as budget support and pooled funds14), among others. With regard tohighly aid-dependent countries (typified by the least developed countries in
sub-Saharan Africa) in particular, there is increasing international appreciation (including by those who work on the ground in developing countries) oflessons learned from the mistakes of past approaches: Unless individual aid
projects are designed and implemented in line with the recipient government’s own systems for development planning, budgeting, disbursements
and procurement, etc., they may create wasteful redundancies, increase thecost of the development effort, and increase the burden of dealing withdiverse aid procedures. As a result, they tend to reduce the sustainability of
projects after aid has been completed.
An example of this is Tanzania in the mid-1990s where, the problem of aid
coordination became so serious. that donors and local experts conducted astudy. The report issuing from the study recommended that interested parties construct a new relationship between the government and donors,
including a review of aid approaches 15. The “Helleiner Report,” as it is
known, pointed out that about 40 donors were implementing more than 2,000
projects in Tanzania, creating a project deluge. Tanzania was shouldering
great operational burdens trying to satisfy the different aid procedures
required by the different donors, and there were serious problems associatedwith a lack of coordinating capabilities on the part of the Tanzanian govern14. Budget support is an aid modality which disburses aid money through the government’s fiscal andaccounting systems. It is differentiated from project-type aid which earmarks the use of funds or provision of goods and services to specific projects. With the introduction of PRSPs, European donors, theWorld Bank and other organizations are actively promoting it especially in sub-Saharan Africa. Whenbudget support is provided, the government and donors have policy dialogues about high priority development strategy (PRSP) and budget allocation. Budget support can be categorized into two kinds: (i)general budget support which encompasses the government’s entire fiscal and expenditure frameworks;and (ii) sector budget support which encompasses all projects included in a program for a specific sector. Pooled funds are an aid modality in which multiple donors pool their funds and share programs,
disbursements and procurement conditions, etc. However, since budget support was introduced only a
few years ago, it remains to be seen whether it is achieving its objectives (aiding the developing countries’ poverty reduction efforts based on the PRSP and improving donors’ aid effectiveness, etc.).
Currently, donors are jointly evaluating general budget support (the final report is due in 2006).
15. Helleiner, et al.(1995) Report of the Group of Independent Advisers on Development Cooperation
Issues between Tanzania and its Aid Donors, Royal Danish Ministry of Foreign Affairs. Takahashi(2003) discusses in detail the crises that project assistance brought especially to sub-Saharan Africa,
including the review of past literature.

142

Improving Grant Aid Cooperation Strategy and Effectivenessment and donor-led project formation. The conclusion now widely accepted
is as follows: To overcome such problems and to build developing countries’
capacities, donors should not formulate projects outside the developing country’s systems; rather, they should (i) share a policy framework, (ii) disburse
funds predictably through the recipient government’s systems and (iii) share
the procurement procedures (all these are related to utilization of the government systems). Budget support and pooled funds have emerged as aid
modalities that permit these initiatives.
(4) Shift in aid target countries
Closely related to the “grantization” of aid described above is the focus on
the least developed countries and the concurrent marginalization of middle
income countries. There is a belief that donors should provide grants only toleast developed countries with low debt capacities. Middle income countries
with access to international financial markets can in principle be left to private funding, with only limited provision of concessional loans.
A clear definition of middle income country is difficult, but in World Bank
terminology, they are countries eligible for IBRD loans at market-based interest rates. This is a quite broad definition, from lower middle income countries with per capita income of about $800 to upper middle income countries
with per capita income of more than $3,000, categorized as emerging market
economies16. Within East Asia, where Japan considers the economic cooperation relationships to be important, there are low income countries such as
Laos, Cambodia and Vietnam and middle income countries such as China,
Indonesia, the Philippines, Thailand (lower middle income) and Malaysia(upper middle income).
About 80% to 90% of Japanese yen loans are for Asia. East Asian middle
income countries, as listed above, account for a large share, 40% to 50% of thetotal for all regions in FY2002-04 on an approval basis. 17 Thailand andMalaysia, which were important recipients of yen loans during the 1980s
until the mid 1990s, including assistance following the Asian financial crisis,
16. For example the World Bank and DAC categorize developing countries based on their FY2002 GNI
per capita as follows: (i) $735 or less: low-income countries (LICs); (ii) $736-$2,935: lower middle
income countries (LMCs); (iii) $2,936-$9,075: upper middle income countries (UMCs); and (iv)
$9,075 or more: high income countries (The World Bank and DAC documents).
17. See JBIC Yen Loans Activity Report (FY2003-FY2005) “Statistics and data: Actual Yen Loans byCountry and Region.” http://www.jbic.go.jp/japanese/base/achieve/nenji/index.php

143CHAPTER 5

achieved a certain level of economic growth and poverty reduction results
and gained access to global financial markets. In the parlance, they have
“graduated” from the World Bank (IBRD) and Asian Development Bank official assistance. These countries have also largely graduated from yen loans ;furthermore, the Japanese government intends to end new yen loans to
China by around FY2008. These countries are now turning to domestic andprivate sources (both domestic and foreign) for infrastructure building.
Future official financial assistance to East Asian middle income countries
must respond to that region’s dynamic processes of economic development.
Traditionally, economic cooperation for East Asia has been described as a“trinity” of aid, trade and investment: ODA functioned as a catalyst to incorporate Japanese economic activities deeply into the region’s production network and at the same time contributed to the creation of a dynamic force that
promoted the division of production within the region. Looking forward, topromote East Asia’s economic partnership and market integration, continuation of the economic cooperation relationships with these countries is important (see 5-4 (2) below for details). If the current international trend is moving toward a significant restriction in concessional assistance for middle
income countries, and if middle income countries have a strong need for privately financed infrastructure, it would be worthwhile to consider creating a
new concept for economic cooperation programs that is not bounded by thedefinition of ODA. (IBRD loan terms are “hard” (non-ODA), meaning that itraises funds at market interest rates by issuing bonds.).
(5) Challenges for Japanese grant aid posed by above factors
As described above, the grantization of international aid has progressed. In
assisting sub-Saharan Africa countries and other least developed countries,
there is increasing call for international coordination that will improve aid
effectiveness and that will center on PRSPs in order to achieve MDGs. In
Japan, too, the relative importance of grant aid assistance for the least developed countries has grown since it forgave yen loan debts under the
Enhanced HIPC Initiative. Enhancing the competitiveness of grant aid isessential for improving the effectiveness of Japanese ODA, but there arethree challenges to be dealt with.
The first challenge: The policy content in grant aid cooperation should be
increased and its position in the project formulation and implementation
144

Improving Grant Aid Cooperation Strategy and Effectivenessstages of the recipient country’s policy system should be clarified. It is important also to actively participate in policy dialogues in the recipient country
and construct support systems for that purpose. Beyond simply supporting
projects indicated in PRSPs and development plans, coordination with other
donors and complementarity with their assistance must be kept in mind.
Also, to be kept in mind is that partnerships with diverse development actors
insures the “localization” of aid. The implementation system should be
strengthened by, among other things, building the necessary humanresources capable of active participation in local aid coordination meetingsand other discussions. However, even compared to JICA which is in chargeof technical cooperation, local embassies involved in project formation andimplementation supervision of grant aid are severely understaffed.
The second challenge: With particular reference to initiatives to improveaid effectiveness in the least developed countries, continued Japanese efforts
are required for dealing with such issues as improving aid money predictability (on-budget), disbursements and procurement in accordance with therecipient government’s system (untying) and cost reduction. With regard to
the untying of procurement, a concern is often voiced that this goes against
the principle of “aid with a human face,” but even if Japanese companies do
not undertake the projects, it is still possible to provide “aid with a humanvoice” through policy dialogue and through demonstration of Japan’s aid philosophy. It is said that in general tied aid weakens competition among suppliers by requiring goods and services to be procured from the donor country,
that it tends to encourage profit-motivated suppliers to charge high prices
and fees. It is also said, that untied aid is preferable to tied aid because: (i) it
allows greater freedom to the recipient country in the use of aid funds; (ii) it
encourages the harmonization of procedures among donors; and (iii) therecipient is free to purchase goods and services and technologies that arecheaper and better suited for local conditions rather than capital-intensive
technologies18.
The third challenge: It must be acknowledged that budget support andpooled funds are now well-established aid modalities, and that modalities pro18. The issue of tied and untied is related to the level of technology and quality required by the developing
country, so which is better is not a simple matter. However, in general, there are many people who
advocate the untying of aid from the perspective of economic efficiency. For details, see Shirai (2005)
p. 299.

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viding local currency in addition to the traditional non-project grants (foreign
currency support) are similarly useful. Some efforts in this direction havealready begun by Japan. The Japanese government has allowed flexible application of non-project grants for emergency/reconstruction assistance, accepting local and service procurement as well as exempting recipients from theobligation of accumulating counterpart funds. If local currency support
schemes such as budget support and pooled funds are institutionalized, there
will be more options for dealing with the high cost of grant aid cooperation.
New aid modalities can be helpful for developing countries with strong tendencies toward emphasizing higher quantity and lower costs in building facilities in the educational, health and water sectors. Compared to the construction of facilities by grant aid for grassroots human security and grant aid forJapanese NGOs, utilization of new aid modalities can provide more funds.
Local currency support schemes are likely to be useful also if the scale ofproject is increased and two-dimensional expansion and development are
pursued. It is not yet clear how and to what extent the to-be-adopted grant aid
for community empowerment will be applied; hopefully, it will meet theneeds of developing countries and provide more options.

5-4. Formation of a comprehensive economic cooperation
policy ― Realizing the vision of “bisecting ODA”
and the role of grant aid cooperation(1) New ODA Charter and argument for “two-track ODA”
How should Japan provide strategic aid within the new trends describedabove while still responding to domestic calls for reform? Certainly, therecent aid trends are based on the realization that past approaches to supporting the poorest countries, including those in sub-Saharan Africa havefailed. Japan has an obligation to honestly face the failures while helping
these countries achieve sustainable growth and poverty reduction. With
regard to East Asia, the picture is somewhat different. For many years Japan
has cooperated with East Asian countries and provided them loans in a “trinity” of trade, investment and aid, effectively, incorporating them into a dynamic production network. Some East Asian countries have already been “graduated” from aid. Deepening economic collaboration with this region, should
benefit not only Japan but the other countries as well. This relationshipremains important despite the trend of directing international aid toward thepoorest countries19. It is also true that East Asia consists of diverse countries
146

Improving Grant Aid Cooperation Strategy and Effectivenessin different stages of development and that the North-South problem exists
within the region. If dynamic development of the entire region is to be sustained and market integration promoted, the issue of bridging intra-region
gaps must be addressed, and in that sense, Japan’s aid to the less developed
countries has an important role in the East Asia region (Miura 2005).
Indeed, the new ODA Charter, revised in August 2003, is based on theseconcepts, stating “The objectives of Japan’s ODA are to contribute to thepeace and development of the international community, and thereby to help
ensure Japan’s own security and prosperity.” The new ODA Charter, in otherwords, is based on the idea of “two-track ODA.” Specifically, Japan’s aid strategy can be described with two pillars. The first is cooperation from the perspective of “regional contributions,” including designating Asia as the priority region, and promoting market integration, especially with East Asia,
through enhanced economic collaboration, and reduced intra-region disparities. The second pillar is cooperation from the perspective of “global contributions,” including support for BHN (basic human needs), which directly
contributes to poverty reduction, and assistance for peacebuilding and reconstruction.
In the “Honebuto Plan 2005” adopted by the Cabinet in June 2005, ODA is
positioned with a policy objective of “enhancing global strategy” with “initiatives to usher in a new dynamic era.” This document proposes promoting
economic collaboration mainly with East Asia, and strategically utilizing ODA
and private resources within that framework.
At this juncture, there is little need to define the geographic areas of“regional contributions” and “global contributions” too rigidly. Japan may
19. The Ministry of Economy, Trade and Industry released an interim report of the Economic Cooperation
Subcommittee of the Trade and Economic Cooperation Committee of the Industrial Structure Council
in July 2005, which described Japan’s economic cooperation experience in East Asia as follows: “Theeconomic cooperation method, which is clearly different from those of other developed countries that
center on grant aid and which aims for independent development by drawing on the vitality of the private sector of the partner country, is something we can be very proud of, considering its achievements
as the “Japan ODA Model.” Now that we are in the 21st century, we believe that its importance is
growing even more.” With the premise that the recipient country has achieved appropriate governance,
the Japan ODA Model activates the dynamism of economic growth through (i) building the base for
economic development, which comprises building hard and soft infrastructure and nurturing industrial
human resources; (ii) implementing economic cooperation while utilizing yen loans and technical cooperation as main tools; and thereby (iii) promoting the production, trade and investment activities of theprivate sector in the recipient country.

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interpret regional contributions” flexibly and adopt a policy to selectively provide assistance that is designed to achieve “poverty reduction through economic growth” to countries outside of East Asia if they meet certain criteria.
Given that economic collaboration is deepening with South Asia, an emphasis on greater Asia should be at the core of the regional strategy. With regard
to Africa and other regions, it is meaningful to assist countries that meet certain governance criteria ― such as political and economic stability ― in a
way that suits the local conditions and energizes the private sector. However,in the case of Africa, the role of yen loans is more limited than in Asia (at present grants and technical cooperation play a central role). In addition, in the
short term it would be difficult to increase direct investments in the African
manufacturing industry as rapidly as was done in East Asia. Therefore,
except for a few countries with natural and energy resources, it is likely thatJapan will, for the time being, focus its efforts on strengthening the linkages
between agriculture and industry, and promoting basic industrial development through industrializing rural communities by utilizing the local agricultural produce and developing local industry.
The following sections discuss how to formulate and implement economic cooperation policies that consider the needs of both Japan and the international community, based on dual perspectives for strategic aid and the visionof “two-track ODA”: (i) attend to economic integration in East Asia through
PPP support to more developed countries and development assistance support for less developed ones (“regional contributions”); and (ii) effective initiatives for reducing poverty in the poorest countries, as part of international
cooperation (“global contributions”).

(2) “Regional Contributions” ― Economic collaboration in East Asia,
reducing intra-regional disparities
Over many years, Japan has built a close economic cooperation relationshipwith East Asia, and the trade and investment relationship has deepened evenfurther in the last decade. As Figure 5-8 shows, East Asia (including China,
Korea, Taiwan and the 10 ASEAN countries) has a population more than fourtimes that of NAFTA and the EU, and is the most important trading partnerof Japan in terms of both imports and exports. As these trade and investment
relationship deepens, it creates strengthened demand for economic cooperation to promote economic collaboration.
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Improving Grant Aid Cooperation Strategy and Effectiveness

Figure 5-8. Transiticn of trade relationships between Japan and other regions(increase of East Asian) importanceTransiticn of trade relationships between Japan andother regions (increase of East Asian) importance
Total share of the international
market : 38% (1992 〜 2001)

Direct investment : 27%

Import share
26% (1992)→ 20% (2002)

14 → 13%EU

20 → 15%

Population : About 380
million people
Real growth rate : About 1.0%

Population : About
127 million people
Real growth rate :About 0.3%

Export share
31% (1992)→ 31% (2002)

Direct investment :18%
31 → 43%(

NAFTA
Population : About
420 million people
Real growth rate :About 3.4%

33 → 42%

East Asia
China, South Korea,
Taiwan, Hong Kong
ASEAN10)

Population : About 18.9 billion people
Real growth : About 7.7%
material : METI
Note: If the years are not listed, follow the example. Populotion and real growth rate are the data of 2002.

In order to sustain dynamic development in East Asia, economic cooperation to improve trade and investment in the areas of infrastructure building
should be continued in terms of hardware, software, and human resource
development, etc. At the same time, attention must be paid to the fact thatcountries in the region are at different levels of economic and industrial
development, and that contents and focus of economic cooperation should
differ accordingly. For example, for advanced ASEAN countries that havealready built industrial infrastructure, such as Thailand and Malaysia, it isimportant to build “hard” infrastructure by supplementing private resources
with public assistance, to build “soft” infrastructure for building moreadvanced institutions, to develop industrial human resources centering on
highly skilled specialists, and to help improve their international competitiveness through promoting private investments even further. Relatively developed countries that have achieved a certain level of development, such as
Indonesia, the Philippines and Vietnam, need assistance that promotes indus149

CHAPTER 5

trial accumulation by improving the investment environment, including hardand soft infrastructure building, promotion of SMEs, and human resource
development for supporting industries. The least developed ASEAN countries such as Cambodia, Laos and Myanmar (CLM) require assistance inbasic “hard” infrastructure building, institution building for more efficient
distribution of goods, and cooperation for reducing economic disparities in
the region (Ministry of Economy, Trade and Industry (2005b)).
The Ministry of Economy, Trade and Industry (METI) and JICA each has
recently published a noteworthy report on adopting PPP for infrastructure
projects (see chapter 8 of this volume for defails). In certain areas where private companies can enter without government financial support, infrastructure can be built with PFI (Private Financial Initiative) or through privatization. In areas where private companies cannot enter without government support, projects are not commercially viable unless the government and privatecompanies share the costs and risks appropriately. The PPP method, which
utilizes fiscal and aid resources, can be especially helpful in building infrastructure in developing countries (see Figure 5-9). PPP can be positioned
between ODA and commerce and be expected to create commercially viable
areas where corporations have previously not entered (market failures)
Figure 5-9. Definition of PPP

Commercial viability

Measures

Sectors where commercial viability can not becreated at all

Government finance(including loans)

Sectors where commercial viability can be created through public-private partner-ship
Sectors where commercial viability already exisys

PPP

Finance package : developing countries’ finance,
grant aid loan, technicalcooperation, commercial
loan
Involvement of
the government
Privatizatio ofprivate enterprises

PFI, privatizatio,
ovtsourcing, etc.

Source: Report of the Asian PPP study Group METI (April, 2005)
notes: Private financial initiative PFI means private enterprises operate the whole market mechanism when it is commercial viable. On the other hand, PPP enables private enterprises
to make profits, by having both the government and private enterprises share the proper
cost and risk, in the project where private enterprises might lose their profits if they operate alone. Also, PPP is the methodology even when private enterises can make profits,
increase the efficiency through market enhancement.

150

Improving Grant Aid Cooperation Strategy and Effectivenessthrough “market enhancing measures” such as government built infrastructure in the project site vicinity, corporate subsidies and user fee subsidies.
To promote infrastructure building with PPP, it is essential to establish
appropriate financing mechanisms. Both the METI and JICA reports propose
financing mechanisms that combine different schemes such as grant aid, yenloans (concessional loans), export credits and commercial loans. 20 (fordetails, see Figure 4-12 in Chapter 4). In addition, the JICA report contemplates utilizing technical cooperation to build institutions necessary to promote PPP and conducting development studies (sector studies) to formulate
financing packages for PPP. This is significantly different from the traditional
concept of development studies (feasibility studies for specific grant aid or
yen loan projects), and includes analyses of power demand, project plans,
fund-raising and post-completion budgeting as well as the design of financing
packages. With regard to budgeting, the business management point of view
would take account of construction costs and the beneficiaries’ and residents’ability to pay to determine the amount of subsidies (grant aid and yen loans).
(3) Effective efforts to deal with “global issues,” aid to the poorest
countries
From the perspective of “global contributions,” i.e., assisting the poorest
countries in BHN centered on basic living conditions, peacebuilding andreconstruction, etc., it is especially important to attend to the issues raised in
Section 5-3 above, “International aid environment surrounding grant aid
cooperation,” and try to establish an effective aid approach and the requisite
systems.
It is believed that many of the poorest countries in sub-Saharan Africa arehaving difficulties in achieving the MDGs, and that there is an extremely
urgent need for BHN assistance in such areas as basic education, health and
20. Report of the Asian PPP Study Group of the Ministry of Economy, Trade and Industry (April 2005);
JICA’s “Project Research on Infrastructure Building and Management Projects by PPP” (April 2005);
and “Basic Research on Supporting the Introduction of Public-Private Partnership in Development
Projects in Developing Countries” (March 2005). METI’s report proposes the creation of an “Asia
Development Revenue Bond” based on project finance. In addition, it points out the ways to utilize
ODA such as (i) providing yen loans to local governments (sub-sovereign), (ii) enhancing yen loans
and technical cooperation for infrastructure management and administration, (iii) market enhancement
measures by sector loans and grant aid (cost compensation), and (iv) using yen loans and CDM for
ESCO (Energy Service Company) and urban transport projects, etc. JICA’s report examines the possibility of introducing PPP in JICA projects including development studies.

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CHAPTER 5

the fight against infectious diseases. These countries are highly dependent
on aid. Especially in the areas mentioned above, there is active coordination
between governments of developing countries and donors, as well as among
donors. Considerable efforts is being made to improve aid effectiveness(such as sharing of policy frameworks, disbursements and procurement
through the government’s systems, higher predictability through aid budgets, as described in 5-3(3)). Therefore, when countries under these conditions are helped through grant aid, it is necessary to understand the reasons
behind the emergence of international debates surrounding the improvement of aid effectiveness and then to work to improve the effectiveness ofgrant aid in terms of both contents and procedures.
In terms of contents, it is important to position each individual project
within a policy and institutional framework, and to pursue program assistance which utilizes pooled funds and budget support through monetary andpolicy inputs so that the benefits of aid projects will spread to different areas
even after completion. To accomplish this, the policy contents of grant aid
cooperation must be enhanced, the processes of project requests andappraisals must be improved, different aid schemes such as technical cooperation and yen loans must be coordinated, non-project grants and counterpart
funds must be strategically utilized, and aid modalities that institutionalize
budget support and pooled funds must be formulated, among other things.
In terms of procedures, there must respond to the increased demand for
putting aid money on-budget (disclosure of disburse amounts, budgeting thefunds in the developing countries’ accounts), and improve predictability ofgrant aid cooperation. The demand is expected to intensify for untied procurement that utilizes the government’s systems and reduces costs. Given
the recent improvement efforts described above (5-2 (4) and (5)), flexible useof non-project grants should be considered for countries which prefers morequantity with lower costs when it comes to building educational, health or
sanitation facilities. In some cases, a decision to untie contracts (in phases)
should be considered for general project grants, even if initially this is limited
to the poorest countries and social sectors.
(4) More strategic and effective grant aid cooperation
Based on the above, the distinction between “regional contributions” and“global contributions,” make it necessary to position grant aid cooperation
152

Improving Grant Aid Cooperation Strategy and Effectivenessstrategically within Japan’s comprehensive vision of economic cooperation,and to take measures to enhance its effectiveness. In doing so, the following
three points are recommended for government consideration: First, Japan isproviding more grants to Asia than to sub-Saharan Africa. According to
Figure 5-10, the average ODA for FY2002 and FY2003 (net expenditurebasis) shows the amount of grant aid provided to East Asia alone exceedsthat to sub-Saharan Africa. Second, in East Asia the effectiveness of grant aid
must be considered while paying critical attention to its complementarity
with yen loans and technical cooperation because various aid schemes arebeing used there. In contrast, grant aid itself is the central tool in Africa, so
enhancing its effectiveness is important to the overall effectiveness of Japan’sODA (Figure 5-10). Third, while Japan is by far the largest donor in Asia, itspresence in Africa is smaller than that of Western donors (at least in terms ofaid amounts), so coordination with other donors is essential (Figure 5-11).
These points should be considered in addition to the different needs of developing countries and the positioning of aid within their economic relationshipwith Japan, as described above; utilization of grant aid should be re-examinedin each region and country. Based on such a comprehensive review of grant
aid cooperation, it is appropriate to think about concrete measures such (i)fundamental revision of the aid schemes themselves and (ii) further reformof aid planning and implementation systems.
Fundamental revision of aid schemes: First, under strategic thinking andto change the scheme itself to facilitate use toward the desired objectives,
grant aid should be combined with other Japanese aid schemes (packaging).
For example, in economic cooperation with East Asia, grant aid could be
Figure 5-10. Regional allocation of Japan’s bilateral ODA patterns(On average of 2002 to 2003, net disbursement basis)
Million dollars
4,000

3,655

3,500
3,000
2,417

2,500
2,000
1,500
1,000

556

500
0
−500

政府貸付等
Loan
Technical cooperation
Grant aid

Asia Northeast・Southeast Asia Africa
Source: MOFA (2004) ODA white paper

153

CHAPTER 5

Figure 5-11. Percentage of regional disbursement DAC leading countries
Asia

Germany
5.9%

Etc.
23.5%

Africa
Japan
43.9%

8,339
Million dollars

U.K.
10.9%

U.S.
15.8%

U.S.
25.5%

Etc.
37.2%
17,289Million dollars

U.K.
10.9%

Germany
11.1%

France17.4%

Source: FOFA (2005) ODA white paper

incorporated, together with yen loans and commercial loans, into financial
assistance for infrastructure building as part of PPP financing packages. Thatwould be one way to utilize grant aid effectively. When grants are used aspart of the PPP methodology (as user fee subsidies and corporate subsidies,etc.), untied schemes such as local currency assistance (budget support,
pooled funds, etc.) by non-project grants might be the main modality, insteadof conventional general project grants. On the other hand, in the BHN assistance for the poorest countries in sub-Saharan Africa and other regions, aneffort would be needed to position grant aid within the policy system of therecipient country represented by the PRSP, and packaged with Japanesetechnical cooperation and other donors’ assistance. In so doing, different
schemes should be used such as general project grants, non-project grants
and grant aid for grassroots human security based on the needs of the recipient country. At the same time, the introduction of new aid modalities that can
provide local currency assistance, could be considered, as necessary.
From the introduction of grant aid in the late 1960s until now, many andvarious schemes and sub-schemes have been created, and the budget items
have become increasingly segmented (see Table 5-1 above). This wasundoubtedly caused by an opportunistic, short-sighted “approach” of government agencies which, in their budgetary requests to MOF, proposed newschemes or sub-schemes every time a newly emerged theme attracted international attention. However, at this time there are domestic and international
demands to enhance the competitiveness and effectiveness of grant aid.
Drastic rethinking of various existing schemes is called for, including thepossibility of integration, scrap-and-build, and changing the schemes them154

Improving Grant Aid Cooperation Strategy and Effectivenessselves.
Further reform of aid planning and implementation systems: Changes
such as the “grantization” of international aid and the popularization of policy
assistance to the poorest countries stimulated by the introduction of PRSPs
mean that grant aid is more closely linked to the policy assistance framework, in which the former OECF (reorganized into JBIC) was involved
through structural adjustments in the period before the Enhanced HIPC
Initiative came into existence. Diplomatic missions (and JICA, JBIC) are
required more than ever to be aware of the local policy framework represented by the PRSP and to deal with it by enhancing policy content and othermeasures. Moreover, given the results of the IDA 14 Replenishment, theWorld Bank is establishing the practice of providing aid based on policy performance and debt sustainability, and providing both grants and loans to thesame country in line with the priorities of the PRSP. With regard to the
future aid policy of Japan, the central ministries and agencies must build asystem that can organically combine grants and loans based on the needs
and debt repayment capacities of developing countries. Closer coordination
among the MOFA, MOF, JBIC and JICA is required. With regard tostrengthening the country-by-country approach, there have been importantdevelopments in recent years, such as the establishment of local ODA Task
Forces and improvement and expansion of Country Assistance Plans.
However, a mechanism or system should be created to ensure that grant aid
is incorporated into these initiatives (both at the local level and at headquarters). To do so, the mandates of each division within the MOFA Economic
Cooperation Bureau should be reviewed, Country Assistance Plans should
be strengthened, allocated budgets should be coordinated strategically withlocal ODA Task Forces. Coordination among different aid schemes should
be ensured.21
Finally, while the perspective based on “two-track ODA” emphasized inthis chapter will become extremely important as grant aid cooperation is21.

On this point, the more comprehensive institutional reforms have been underway since 2006. These
include: (i) the establishment of the Overseas Economic Cooperation Council — a ministerial meeting
chaired by the Prime Minister and supported by the Cabinet Secretariat — to strengthen strategic planning of ODA (April); (ii) the establishment of the MOFA International Cooperation Bureau by integrating several divisions handling multilateral development into the Economic Cooperation Bureau(August); and (iii) the decision to integrate ODA loan operations (currently under JBIC) and substantial
part of grant aid (currently under MOFA) into JICA by October 2008.

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reviewed in a comprehensive manner, this does not cover all issues, andthere may be other perspectives that should be considered. Although notcovered in depth in this chapter, adequate consideration must be given to
support for peace-building and reconstruction, which Japan is strengthening
in response to recent international developments. To what extent should
Japan get involved through bilateral aid, and what approach is appropriate?
There are many issues to be coordinated such as the relationship with thecurrent Constitution, the role of the Self-Defense Forces and international
peacekeeping operations. How Japan deals with peace-building and reconstruction assistance will have a huge effect on the status of grant aid cooperation. Furthermore, in relation to the division of roles with technical cooperation, different aspects will be important, such as how to build a cooperative
relationship with countries in East Asia which have “graduated” from aid andare now becoming emerging donors, and how to utilize grant aid.
Currently grant aid budgets are segmented, complicated and diverse,
which limits the scope for strategic improvement described in this chapter.
Now that its effectiveness and competitiveness are being critically examined,
grant aid cooperation warrants a drastic overhaul and consolidation. Thisshould be, based on the needs of recipient countries and Japan’s strategic
thinking, from perspectives such as (i) assistance for low income (the poorest) and lower middle income countries (project, non-project assistance); (ii)
PPP assistance and cooperation with emerging donors taking upper middle
income countries into account (non-project assistance); (iii) assistance forpeace building and reconstruction; and (iv) support for activities at the grassroots level and NGOs. When this has been done, other issues should also be
discussed, such as tied aid, the single-year budget system, and introductionof budget support-type schemes in non-project assistance (which currently
conform to balance of payments assistance). To do this, a consensus should
be formulated involving not only MOFA, but also MOF, METI, the Board ofAudit, aid implementing agencies such as JICA and JBIC, and the business
community and public. The recent debates on the restructuring of the ODA
organizations, which was spurred by the reform of government-affiliatedfinancial institutions, offers a great opportunity for a return to the basics andto think about the ideal future of Japanese economic cooperation, including
grant aid.

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Improving Grant Aid Cooperation Strategy and Effectiveness

References
Japanese
JBIC ODA Loan Report 2003, 2004 and 2005
http://www.jbic.go.jp/english/base/achieve/annual/index.php＿＿＿＿ (2004) Taigai Enjo toshiteno Kaihatsu Enjo [Development Assistanceas Foreign Policy] JBIC Institute, July 2004, JBIC Research Paper No.29.
JICA Grant Aid Homepage ‘JICA and Grant Aid,’ http://www.jica.go.jp/activities/jicaaid/ol10.htm＿＿＿＿ (2005a) Tojoukoku no Kaihatsu Jigyou ni okeru Kanmin Partnership(PPP) Dounyuu Shien ni kansuru Kisokenkyuu [Basic Studies on
Introduction of Public Private Partnership in Development Assistance inDeveloping Countries], April, 2005.
＿＿＿＿ (2005b) PPP ni yoru Infra Seibi Uneijigyou ni kansuru Project
Kenkyuu [Studies on Infrastructure Building and Management by PPP],
April, 2005.
Japan International Cooperation System (JICS) Homepage
http://www.jics.or.jp/jigyou/index.html
Kokusai Kaihatsu Journal Sha [International Development Journal] (2004)“Tokushu Gakko Kensetsu Kyouryoku wo Kaibousuru - Tetsugaku, Cost,
Kouka,” [Feature: Inspecting School Building Cooperation - Philosophy,
Cost and Effects], Kokusai Kaihatsu Journal [International Development
Journal] October, 2005, pp.32-33.
Ministry of Finance (2005) Zaiseiseidotou Shingikai Zaiseiseido Bunkakai
Saishutu Gourikabukai oyobi Zaisei Kouzou Kaikaku Goudoubukai[Pubic Finance Institution Council Public Finance Subcommittee Joint
Working Group on Expenditure Rationalization and Restructuring of
Public Finance], Distribution documents No.2 ‘ODA etc.’
http://www.mof.go.jp/singikai/zaiseseido/siryou/zaiseic/zaiseic171020/zaiseic171020b_1.pdf.
Ministry of Foreign Affairs of Japan ODA Homepage(http://www.mofa.go.jp/mofaj/gaiko/oda).
＿＿＿＿ White Paper on Official Development Assistance (ODA)(http://www.mofa.go.jp/mofaj/gaiko/oda/shiryo/hakusyo).
＿＿＿＿ (2004) Musho Shikin Kyouryoku Shinsa Guideline, [Guidelines to
Audit of Grant Aid Assistance], preliminary version, August 2004.
＿＿＿＿ (2005a) ODA no Tenken to Kaizen: Yori shituno Takai ODA wo
Mezashite, [Inspection and Improvement of ODA: In Pursuit of ODA with
Substance].
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CHAPTER 5＿＿＿＿ (2005b) Sumatra Oki Jishin oyobi Indoyo Tsunami Higai - Nikokukan

Musho Shikin Kyouryoku ni kansuru Chuukan Houkoku [The Damages
by Earthquake in Sumatra Offshore and Indian Ocean Tunami - Midterm
Report on Bilateral Grant Aid] December 26, 2005.
Ministry of Economy, Trade and Industry of Japan (2005a) Asia PPP
Kenkyukai Houkoku, [Asia PPP Study Team Report], April, 2005.
＿＿＿＿ (2005b) Sangyou Kouzou Shingikai Boueki Keizaikyouryoku
Bunkakai Keizaikyouryoku Shouiinkai Chukan Torimatome - “Wagakuni
Keizaikyouryoku no Seikou Keiken wo Fumaeta ‘Japan ODA Model’ no
Suishin,” [Midterm Report by the Industrial Structure Council Trade andEconomic Cooperation Subcommittee Economic Cooperation Working
Party - Promotion of ‘Japan ODA Model’ Based on Success on Japan’s
Economic Cooperation], July, 2005.
Miura, Y. (2005) Shijou Togou to Nihon no Yakuwari - ASEAN Kouhatsu
Koku no Hatten wo Unagasu [Market Integration and Japan’s Role Development Promotion of CLMV countries,] Chapter 1 in Watanabe, T.
ed., Nihon no Higashi Asia Senryaku - Kyoudoutai heno Kitai to Fuan
[Japan’s East Asia Strategy - Expectation and Anxiety to the Community],
Nihon Sougou Kenkyuujo Chousabu Kantaiheiyou Senryaku Kenkyuu
Center.
Naikakufu [Cabinet Office] (2005) Keizai Zaisei Unei to Kouzou Kaikaku ni
Kansuru Kihon Hoshin, [Basic Principle on Economic and FinanceManagement and Structure Reform] Cabinet Council Decision on June,
21 2005 - 5 th Basic Principles - “Chiisakute Kouritutekina Seifu no
Jitsugen ni mukete,” [In pursuit of small and efficient Government
Structure].
Nakao, T. (2005) “Wagakuni no ODA to Kokusaitekina Enjochouryu,”[Japanese ODA and International Development Trends], Finance, Vol.40,
No.10.
Ohno, I. (2002) Beikoku ni okeru Sekaiginkou no Kaikaku Rongi to Kokusai
Kaihatsu Chouryu [Discussion on Reform of the World Bank in the U.S.
and Trends in International Development], GRIPS Development Forum
Discussion Paper No.2. May 2002.
Shirai, S. (2005) Macro Kaihasu Keizaigaku - Taigai Enjo no Shin Chouryuu,[Macro Economics of Development - Trends in Foreign Assistance],
Yuhikaku.
Suzuki, H. (2006) Hitobito ga Shin ni Motomeru Shien towa - Indonesia
Daijishin Tsunami Saigai heno Nihon no Enjo [What is really needed158

Improving Grant Aid Cooperation Strategy and Effectivenessassistance - Japan’s Aid to Damages to Indonesia Earthquake], Gaikou
Forum, [Foreign Policy Forum], April, 2006, pp.68-73.
Takahashi, M. (2003) Enjokyouchou - Nihon no Taihinkonkoku Kyouryoku
heno Toi [Aid Coordination - Questions to Japan’s Cooperation to Poor
Countries], IDCJ Forum, No.23, March, 2003.

EnglishHelleiner, et al. (1995) Report of the Group of Independent Advisers on
Development Cooperation Issues between Tanzania and its Aid Donors,
Royal Danish Ministry of Foreign Affairs.
OECD (2004) Geographical Distribution of Financial Flows to Aid Recipients
1998-2002.
World Bank Homepage
http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/

159

6
JICA and Future TechnicalCooperation
Koichi Miyoshi16-1. Introduction
The Japan International Cooperation Agency (JICA) has its roots in the Asia
Society, an organization that was established in 1954, later to become theOverseas Technical Cooperation Agency in 1962. The name was changed to
JICA in 1974, and in 2003 it was reorganized as an independent administrative institution.2
Japanese Official Development Assistance (ODA) includes bilateral
grants (technical cooperation and grant aid), governmental loans, and contributions and capital subscriptions to international organizations. Amongthem, JICA is in charge of technical cooperation and grant aid that includes
bilateral donations. The budget for grant aid belongs to the Ministry ofForeign Affairs, but JICA plans grant aid projects and supervises their implementation as part of its technical cooperation. In FY2005, JICA implemented
grant aid and technical cooperation of ¥160.1 billion and ¥101.5 billion,
respectively (JICA, 2005). JICA controls about 50 percent of technical cooperation funds and 60 percent of grant aid coming from the Japanese government.
A large part of technical cooperation not undertaken by JICA is government-financed foreign students from developing countries, mainly in Asia.
Also included in technical cooperation are the activities of corporations andfoundations such as the Association for Overseas Technical Scholarship and
1. Professor, Graduate School of Asia Pacific Studies, Ritsumeikan Asia Pacific University.
2. In addition, the government intends to integrate yen loans currently implemented by the Japan Bank forInternational Cooperation and grant aid implemented by the Ministry of Foreign Affairs into JICA as
government-affiliated financial institutions are privatized and consolidated.

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JICA and Future Technical Cooperation

Japan Overseas Development Corporation that receive trainees and dispatch
experts, among other things, as executing agencies for the technical cooperation budgets of related ministries.3
This chapter discusses JICA’s technical cooperation and looks at its
future by focusing on its institutions.4 When the auther was involved in technical cooperation at JICA, he was most concerned with the relationshipbetween technical cooperation activities and institutions. What JICA does ordoes not do is highly dependent on its institutions. In general, institutions are
created to achieve specific objectives, but once established, they adapt to thechanges in the environment. Changes are made to implementation methods
and organizations, and institutions shape the activities of the organizations.
These changes, however, are largely defined and influenced by thenature of institutions when they were originally created. This is why it isimportant to look at JICA’s institutional changes when we think about its
future. Of special importance are the original technical cooperation methods
and changes in institutions that were created based on them. Also important
are the adoption of country-specific and thematic approaches in connection
with the creation of Regional Departments in 2000 and the reorganization in
2003. Institutions created at the very beginning of technical cooperation andas a result of the 2003 reorganization define much of JICA’s activities. This
chapter describes these characteristics and examines JICA’s technical cooperation. In this chapter, the term ‘institution’ is used as a broad concept that
includes norms, rules, operational methods, and organizational arrangements.
The following section examines the institutional characteristics of JICA’s
technical cooperation. First we examine the characteristics of operational
methods and institutions that are based on JICA’s technical cooperation(schemes). JICA’s aid schemes influence its technical cooperation, especiallyits organizations and operational methods, thus I would like to focus on themand highlight the changes in JICA’s technical cooperation and their significance. Section 6-3 discusses organizational reforms, budget restructuring,delegation of authority to overseas offices, preparation of Country
Implementation Plans and Thematic Implementation Guidelines in connec3. For example, the Association for Overseas Technical Scholarship receives executives, managers, andengineers from developing countries to Japanese companies for practical and management training withthe objective of achieving economic growth and stability in developing countries.
4. The content of this chapter owes much to the author’s involvement with planning, research, study, discussions, and consultations with involved parties, and observations of projects during his work at JICA
from 1971 and 2003 and thereafter. The content of this chapter depends much on Miyoshi (2005).

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tion with changes in the aid environment. It also surveys adoption of countryspecific and thematic approaches. In Section 6-4, clarifies these changes areclarified by discussing specific examples of JICA’s technical cooperation. The
organizational changes caused by the adoption of country-specific and thematic approaches are beginning to change JICA’s technical cooperation projects actually. Section 6-5 summarizes the changes in JICA’s institutions
based on discussions of the previous sections, and finally, suggests future
directions.

6-2. Genesis of technical cooperation and elements thatshaped JICA
(1) JICA’s technical cooperation
The most prominent and broadly-recognized characteristic of JICA’s technical cooperation is cooperation modalities, or schemes. While each aid organization has its own, JICA’s schemes are unique in that they have defined how
projects are implemented in detail and shaped JICA’s technical cooperation.
The schemes largely depend on how Japanese technical cooperation began.
JICA’s technical cooperation can be traced back to the Asia Society, JICA’s
predecessor, which began to accept trainees in 1954 when Japan joined theColombo Plan and started to dispatch experts in 1955. Since then, JICA has
used this modality ofto dispatched experts as its operational framework. It
also accepted trainees and provided equipment as one element of technicalcooperation. Schemes have dictated the daily operation of technical cooperation and JICA’s organizational structure. Budgets were prepared, written
requests from recipient countries were submitted, project selection methods
were defined, and organizations were created on a scheme-by-scheme basis.
Moreover, by dispatching experts and later accepting trainees and providing
equipment in association with these experts, the schemes offered in-kind aid
instead of providing money to the recipients.5 The operational systems werestructured to fit the schemes.
5. Technical cooperation from other aid agencies is mainly based on experts and training, the same as inJapan, but in many cases it is implemented with fund-provision-type procurement methods. Also, basedon recent criticism of the use of foreign experts, some donor countries are reviewing their activities.
The United Kingdom and the Netherlands, for example, are reducing the number of domestic experts,
which relates to untying technical cooperation. On the other hand, Canada, the US, and France areemphasizing project-oriented cooperation. Technical cooperation by the World Bank and regional
development banks often employs advisors for studies that prepare plans for loan projects and formulate policies.

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JICA and Future Technical Cooperation

These schemes were defined in detail in budgetary requests and associated explanations, and in JICA’s various operational procedures.6 While theschemes have changed based on the evolving development needs, thechanges have been gradual ― necessary changes would be made to an existing scheme and the scheme would be then be reorganized into a newscheme. Implementation methods that centered on dispatching experts andaccepting trainees never changed. When a new scheme is requested andapproved as a new budget item, the budget and implementation scheme arein effect inseparable.
More specifically, JICA created new schemes such as the project type
technical cooperation and development studies, which now account for the
majority of its activities. These meet the needs of development cooperation
by expanding the older schemes of dispatching experts and accepting
trainees, but these new schemes are essentially a combination of dispatchingexperts, accepting trainees, and/or providing equipment, and are an extension of systems that existed at the beginning of technical cooperation.
The main schemes for technical cooperation took several forms.
Characteristically, each scheme is further divided into smaller activities.
Acceptance of trainees. This scheme is divided into group training
courses where training is established for specific themes ― individual training based on a developing country’s specific requests and long-term training
where trainees study for more than a year to obtain an academic degree.
Detailed implementation methods are designed for different types oftrainees: general technical trainees, governmental general requested
trainees, third country trainees, second country trainees, paid trainees, international organization trainees, development cooperation trainees, immigration trainees, invited junior trainees, Japanese descent trainees and regional
proposal-type trainees. Group training courses are carried out at 12 international centers located in various parts of the country, with cooperation fromtraining implementation agencies based on the common needs of developing
countries. Training is administrated by the instructors sent from cooperatingorganizations. Overseas training is divided into third country training andlocal domestic training (second country training). Third country training acountry within a region that shares a social and cultural background is conducted in and has better technology in a certain area and provides trainingthat suits regional conditions. Local domestic training is provided in the
6. For details, see JICA’s internal rules and implementation guidebooks.

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recipient country to meet its specific development challenges by developing
human resources with in the country. These training programs are implemented by cooperating organizations based on JICA’s technical cooperation
activities.7
Dispatch of experts. This scheme dispatches individual experts andproject experts. As for project experts they will be described later. Individual
experts are dispatched to administrative agencies and research institutions indeveloping countries as advisors etc. and transfer technology to engineers or
administrative officers who are designated as their counterparts. Sometimes
a team of several experts is dispatched to provide technical guidance,
research assistance, or policy recommendations in a certain field or for a certain issue. In this case the cooperating agency is appointed and the cooperation is implemented in a way that is similar to a project. Depending on theiractivities, experts fall in a number of categories: general experts, third country experts, overseas technical training instructors, international organization
experts, grant aid experts, disaster assistance experts, country-specific project planning experts, thematic project planning experts, and grassroots technical cooperation experts.
Project-type technical cooperation. To increase its effectiveness, project-type technical cooperation combines the dispatch of experts, acceptanceof trainees, and provision of equipment. This scheme covers four broad sectors ― social development; healthcare, population and family planning; agriculture, forestry and fishery; and economic and industrial development. This
scheme consists of primarily human resource development, dissemination oftechnology, and research and development. And it is implemented by counterpart agencies such as universities, training centers, and research institutions. This type of cooperation has been implemented in conjunction with
grant aid, for example, the Jomo Kenyatta University of Agriculture andTechnology Project in Kenya. Project period is typically five years, and thetypical budget is between ¥300 and ¥500 million.
Development studies. Development studies support public development plans in developing countries covering social development, agriculturaland forestry development, and industrial development. Depending on content of study and the project phase, the scheme is also divided into masterplan studies, feasibility studies, and preparation of basic data such as topographic maps. The studies are conducted by a team of consultants who com7. Many training implementation agencies administer training courses as domestic training or educationalorganizations. JICA’s training is often implemented as a customized version of such courses.

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pilesummarize their work in a report. These reports are used by developing
countries for their policy decisions, and also by JBIC and international financial institutions as basic data for iudging whether they should provide loan ornot.
Grant aid. Grant aid falls in six categories: general grants, fisheries
grants, aid for increased food production, food aid, cultural grants and disaster relief grants. As part of its technical cooperation, JICA administers theimplementation of general grants, fisheries grants, and grant aid for theincrease of food production, all of which have close connection with technicalcooperation. General grants cover healthcare, education, agriculture, andtransportation and include construction of hospitals, schools, water supply
and irrigation facilities, as well as provision of construction equipment, materials, and buses, etc. 50% of project type technical cooperation is implemented in conjunction with grant aid. Currently, the dispatch of experts, projecttype technical cooperation, development studies, and third country training
are unified into a new operational modality, Technical Cooperation Projects,
but their original divisions remain. This will be discussed later.
(2) Technologies to be transferred and utilized — Experience ofexperts and that of Japan
What concepts were behind the creation of these schemes? First, JICA’s
technical cooperation was based on a method that aimed to develop humanresources and to strengthen organizational capacity in developing countries
by transferring Japanese technology. That is why the dispatch of experts
abroad and training in Japan by expert instructors have been important components of JICA’s technical cooperation.
Saito (1979, pp.37-38) discusses the channels of technology transfer andmakes the distinction between technology that is embodied in capital andtechnology that is embodied in people. Under this classification, one characteristic of JICA’s technical cooperation was that it relied mostly on technology that was embodied in people, or experts, and aimed to transfer and use
technology through experts who were engineers. Equipment and facilities
were also provided at the same time, but they were considered only as ameans to transfer and use the experts’ knowledge and skills.
In this type of technical cooperation where main actors are technologythat is transferred and utilized are mostly in the form of personal experience,subjective insights, and even gut feelings of the experts, or what we mightcall ‘tacit knowledge’. In JICA’s technical cooperation, advice and training by
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experts that creates reciprocal communication become an important factor.
Technical cooperation requires face-to-face activities, and for this reason
expenses for sending experts and accepting trainees accounts for much of
JICA’s budget. During in FY2004, JICA dispatched 4,340 experts. The number is even larger if 7,548 members of dispatched study team are included.
JICA accepted 20,089 new trainees in FY2004 in the same year. Technology
transfer through Japanese experts is considered most important.
The emphasis in this type of technical cooperation is the technology
embodied in Japanese experts and Japan’s experience in development.
Therefore the experts are principally Japanese. Most JICA experts were sentfrom public organizations such as the central government, local governments, public foundations, as well as universities, research institutions, andtraining centers. Their work based on ‘hard’ technology that supported
implementation of Japanese development policies, but a few programs basedon ‘soft’, such as legal system improvement.8(3) Technology transfer to specific organizations as projects
Next, let us look at the implementation of technical cooperation. Technicalcooperation was initially aimed at a person-to-person level. Japanese experts
were sent as technical advisors to organizations that needed technology andtransferred their knowledge and skills to their counterparts. It is expectedthat these counterparts then share the transfered technology with others
which results in taking root in developing countries.
Technology transfer which started as dispatch of individual experts andreceiving trainees has now expanded to specific organizations, especiallyresearch institutes, universities, and training facilities. Project-type technicalcooperation was introduced as a scheme to enable efficient technology transfer for specific organization. Organizations or agencies were selected or
newly established for technology transfer, which was expected to be systematically transferred to engineers and researchers who were counterparts of
the Japanese experts.
The scheme’s evolution from the dispatch of individual experts to projecttype technical cooperation had a significant impact on the development of
JICA’s technical cooperation and organizational structure. These schemes
were considered an effective way to implement technical cooperation witheducational and research institutions such as universities and vocational
8. In recent years legislative cooperation has been emphasized and is being attempted as a new thematic
area.

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training schools. From 1954 to 2003, 246,277 trainees were accepted and70,694 experts were dispatched.9 A considerable number of them were mainly trainee received from these projects and experts dispatched from thesecooperating educational and research institutions. Between 1953 and 2002
there were 916 project-type technical cooperation. 10 There were many‘model’ projects that were part of the effort to strengthen capacity of recipientorganizations.
These schemes have their roots in the Technical Cooperation Center
Initiative advocated by Prime Minister Kishi in 1957 when he visitedThailand, East Pakistan (Bangladesh), Ceylon (Sri Lanka), and Iran.
Technical training centers were built in Thailand (for telecommunications),
East Pakistan (for agriculture), Ceylon (for fisheries), and Iran (for small andmedium enterprises), and they became the prototype for project technicalcooperation. The ASEAN Human Resource Development Project, advocatedby Prime Minister Suzuki in 1981 during his visits to the five ASEAN countries, tied technical cooperation to grant aid and strengthened this approach.
The ASEAN Human Resource Development Project, which included the
Human Resource Development Center in the Philippines, Primary
Healthcare Training Center in Thailand, Vocational Training and Advanced
Skills Training Center in Malaysia, Training Center for Vocational Training
Instructors and Small-Scale Industry Promoters in Indonesia, andProductivity Improvement Project in Singapore, showed such characteristics
as well (JICA, 1999a). King Mongkut’s Institute of Technology Ladkrabang in
Thailand, the Higher Education Development Plan in Indonesia, Jomo
Kenyatta University of Agriculture and Technology in Kenya, and Vocational
Training Center in Senegal, among others, are often cited as typical JICA projects.11(4) Emphasis on ensuring output — Project based approach byschemes
What was emphasized during project implementation? One of the criteria
used to select projects is consistency of the recipient country’s policies anddevelopment plans. Projects were considered as a means to support the policies, but the policies themselves were not discussed very much between
9. Based on JICA documents.
10. The number 916 is an approximation. It includes 692 between 1954 and 1997 (Reference Section of the
JICA 1998 Annual Report) and 224 projects started in the five years between 1998 and 2002 derived bysearching projects using the CD-ROM of JICA 2003 Annual Report.
11. On many occasions this has been described as a typical JICA project.

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recipient country and Japan. Policies were treated as a given because interventions are considered to be an interference in domestic affairs. Anotherreason is that traditionally developing country’s policies were often little
more than project lists and were not constructed as a policy structure.12,13
Such tendencies were also found in development studies. A development
study is a scheme that dispatches teams of experts to developing countries toprepare development plans, but many studies took the existing policies as aprecondition and focused on making plans for infrastructure. The result isthat many plans proposed by development studies involve infrastructuresuch as roads and transport networks, water supply facilities, waste disposal
systems, and power generation and distribution facilities.14 In this sense we
can say that JICA’s technical cooperation has been based on a project based
approach and emphasized output. Given the lack of a clear policy structure indeveloping countries, this was an effective way to cope with the situation.
JICA’s scheme-based institutions were formulated in this environment andproduced results.15(5) Scheme-based operational departments
The implementation of scheme-based technical cooperation reflected on theorganizations as well. When the Overseas Technical Cooperation Agency,
JICA’s predecessor, was established in 1962, its main components were theDomestic Operation Department that implemented training programs, theOverseas Operation Department that dispatched experts, and theDevelopment Studies Department that dispatched study teams.
Subsequently, technology transfer to specific organizations in recipient countries was implemented by creating the Sector Operation Department thatcombined the dispatch of experts, acceptance of trainees, and provision of
12. Here, the term ‘policy structure refers to the relationship between a series of objectives and the means
to reack those objectives as indicated sequent levels of policy, program and project.
13. In aid meetings and on other occasions, aid requests were often presented in the form of project lists.
14. Many development study reports focus their analyses and discussions on facilities and not on thechanges in policies and program or, measures, organizations and, or institutions that affect condition of
the facilities.
15. Effectiveness and Challenges of Japanese International Cooperation (2003) attempted to verify aid
effectiveness by looking at the Cebu Socio Economic Empowerment and Development Project in thePhilippines, the Improvement of Educational Achievement in Science, Technology and Mathematics in
Basic Education Project in Ghana, Pharmacy Project in the Philippines, High-Yield Rice Cultivation
Technology Research Institute Project in the Philippines, Training Services Enhancement Project for
Rural Life Improvement in the Philippines, Nursing Education Enhancement Project in El Salvador,and Reproductive Health Project in Vietnam, among others, as JICA model and its results show thesame tendancy.

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JICA and Future Technical Cooperationequipment and materials which were implemented by these operational
departments. By the time JICA was established, the Sector Operation
Department had developed into five sectoral departments (social sector, agriculture, forestry, industry, and healthcare), and became the main department
for JICA’s operations.
These five sector operations were implemented with separate budgets
and different procedures and departments in charge were generally arrangedby operational modalities and sectors, thus they effectively promoted JICA’s
scheme-based methodologies. This organizational arrangement would continue until the shift to a country-specific approach in 1999, which will be discussed later.16 The emphasis on schemes led to standardization of operations
which in turn made it easier for staff to learn and execute efficiently. It also
made it easier to maintain close communication with domestic cooperating
agencies (mainly the line ministries at central level). For these reasons, we
can say that the emphasis on schemes worked as an effective mechanism
during the period of aid expansion.
Figure 6-1 shows the cooperation for a specific development issue in‘Country A’ under this organizational system. In the scheme-based operational department system, each department selected and implemented projects. Each operational department examines the feasibility of projects basedon requests from the country and make decvsion. Projects are then coordinated during annual consultations with the country. Next, based on this coordination, the decision to implement the projects would be communicated,17
and as a result, cooperation with Country A became what is shown inside the
Figure 6-1. Cooperation to A country and measvres to indivisual schemes

Cooperation to A
country coordination by
Planning and
Coordination Dept.

Domestic
Operation
Dept.

Oversea
Operation
Dept.

Project
Cooperation
Dept.

Deveropment
Study Dept.

Training

Dispatchingexperts

Technical cooperation
projects

Development
study

16. At the time it was established, JICA had other operations such as technical cooperation including theabove mentioned activities, the Japan Overseas Cooperation Volunteers, development cooperation, andemigration. Subsequently, grant aid and operations related to disaster relief emergency femergency rescue teams were added, and the scope of operations was further expanded.
17. Traditionally, annual consultations with developing countries were conducted on a scheme-by-scheme
basis.

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broken lines ― collection of scheme-based aid projects. Each project was
implemented separately by each operational department.

6-3. Reorganization as an independent administrative
institution and introduction of country-specific andthematic approaches(1) Creation of Regional Departments
The creation of regional departments triggered drastic changes in JICA’s
scheme-based aid system. With its organizational reform in January 2000,
JICA created four regional departments (I for Southeast Asia; II for the East,
Southwest, Central Asia, the Caucasus and Oceania; III for the Middle East,
Africa, and Europe; and IV for Latin America and the Caribbean). Regional
Departments were formally promoted from regional divisions that belonged
to the Planning Department, but they had a significantly different impact on
JICA. In addition to country-specific project planning, coordination, project
identification, and formulation, Regional Departments became responsible
for overseas training and dispatch of individual experts. This change in jurisdiction shifted JICA’s project implementation system from scheme-based
where Operational Departments selected the scheme and individual projects
to country- and region-based where Regional Departments were in charge.
Creation of the Regional Departments strengthened the country-specificapproach and changed operational implementation methods. Country
Implementation Plans and Thematic Request Surveys began a systematic
process of clarifying and positioningturning schemes asinto the means ofdevelopment cooperation.
(2) Country Specific Implementation Plans and Thematic Request
SurveysCountry Implementation Plans were prepared to implement the government’s aid policies described in the Country Assistance Plans and other documents. Plans were written for all of JICA’s operational schemes in countries
where it has overseas offices. The plans were prepared in the following
order: (i) confirmation of the country’s priority sectors and issues throughpolicy dialogues at the government level; (ii) consolidation of development
issues and clarification of JICA’s operational cooperation policies; and (iii)establishment of concrete goals and preparation of systematic input plans foreach operational modality to achieve these goals. Through this process, JICA
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JICA and Future Technical Cooperation

was expected to accumulate the practical consultations with counterparts of
the recipient country and formulate a consensus on prioritized development
issues and specific projects.
The plans included: (i) basic policy of JICA’s cooperation based on therecipient country’s development goals and priority areas, priority aid areas of
the Japanese government, and the government’s policies themselves; (ii) a
development issues matrix (which analyzes development issues and areas
and extracts JICA’s cooperation programs), an operational rolling plan
(which lists a planned combination of projects in chronological order over
five years for each development issue), and an input plan for each scheme(which lists the number of projects on the rolling plan for each scheme); and(iii) cautions related to the implementation structure of the recipient andsafety issues, lessons learned from past evaluations, and activities by othermajor donors.
Thematic Request Surveys evolved from surveys of developing country
requests for technical cooperation that used to be implemented for each
operational scheme. They are an attempt to identify the recipient country’s
problems and the aid that is necessary to address them. Thematic Request
Surveys have been adopted in phases since FY2000. In the surveys, eachscheme is considered as a means to address specific issues in the recipient
country. They are expected to match the country-specific thematic approachthat JICA is trying to promote under the Regional Departments system, andalign with the operational program planning process that addresses development issues.
(3) JICA as an independent administrative institution with Regional
Departments and Development Issue Departments
The effort to turn schemes into means was accelerated by the 2003 reorganization of JICA as an independent administrative institution and by consolidation of organization system consisting of with Regional Departments andDevelopment Issue Departments. The new JICA inherited the old operations
and organizations, but JICA was given a certain level of autonomy to administer its operations effectively and efficiently. Parts of its operations were abolished or changed ― development loans and investments and emigration support operations were abolished, peace-building support was explicitly added
as an objective, and supporting civil cooperation activities was recognized as
an official activities. Other changes include more autonomy and flexibility inthe administration of operations, organizations, and budgets, and increased
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CHAPTER 6emphasis on results through the adoption of medium-term targets and performance evaluation systems. In this new framework, budgetary systems,
operational methods, and organizations were reviewed and reformed.
In April 2004, the four Regional Departments were reorganized into fiveby creating a department in charge of Africa separating from Department III.
Also, the eight Operational Departments that had been organized in accordance with schemes (five in charge of project-type cooperationss and three incharge of development studies) were reorganized into five Thematic
Departments (Social Development, Human Development, Global
Environment, Rural Development, and Economic Development).
Development issues had been tackled by each scheme, but this reorganization established a matrix system based on regions and issues that tries toresolve issues by combining various inputs and assembling projects (Fig. 62).18 This was a huge change for JICA. Old scheme-based operational methods and organizational structures came to an end, and they were reorganizedby country and by development issues. Schemes are now clearly positioned
as a means to solve these issues.
Figure 6-2. Development issues of A country and measures by the scheme formation
Development
Issues Dept.

Regional
Dept.

Training

Development
issuesTechinicalcooperation
project

Development
study(4) Preparation of Development Issue Guidelines
To strengthen the thematic approach, Development Issue Guidelines wereprepared along with the Country Implementation Plans. Development Issue
Guidelines are prepared by the Sectoral and Thematic Network that wasestablished based on thematic teams composed of JICA personnel and thematic support committees that include external experts. The guidelines
include (i) current situations of the development issue and trends in international aid; (ii) trends of Japanese aid and lessons learned; and (iii) JICA’s
18. The World Bank and the US Agency for International Development (USAID) were each reorganized
into a matrix structure in the late 1990s.

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JICA and Future Technical Cooperationcooperation strategy, and prepared as guidelines for future planning andimplementation of cooperation activities. The Country Implementation Plans
and Development Issue Guidelines are expected to support planning andimplementation of problem-solving programs of developing countries basedon JICA’s country-specific approach, combine the three pillars (country- andregion-based approach, development issues, and operational schemes) systematically, and enable highly-qualified cooperation activities specifically tailored to solve the issues of developing countries.
(5) More flexible budget structures and delegation of authority tooverseas offices
JICA has been trying to shorten the lead time of projects, remove the barriers between different budget items, and reorganize and consolidate budgets.
For example, overseas training, dispatch of individual experts, development
welfare support programs, and development partner programs were consolidated under overseas cooperation activities. In this manner, budget structure
was converted so that funds can be shared among different schemes. When
JICA was reorganized as an independent administrative institution in FY2003,
the budgets for the primary operations of technical cooperation such as training, technical cooperation projects, and development studies were consolidated into technical cooperation projects. This consolidation of budget items,
together with the establishment of Thematic Departments in April 2004, provided flexibility to the preparation and implementation of country plans, laying the groundwork for dealing more effectively with thematic issues.
This added flexibility in budget structure also accelerated the delegationof significant authority from headquarters to overseas offices. Traditionally,
operational departments in JICA’s headquarters were responsible for project
implementation and overseas offices were only partially responsible for project supervision. In the new system, overseas offices bear responsibility forthe entire project cycle, from project identification and project formation toplanning, implementation, and evaluation. This devolved system became possible by changing JICA’s scheme-based project administration.

6-4. New changes and their potential
These institutional changes are beginning to have an effect on JICA projects.
Four project trends reflect these changes.

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CHAPTER 6(1) Water Supply System Capacity Building Project in Cambodia:
Cooperation for an entire administrative organization
The Water Supply System Capacity Building Project in Cambodia was implmented from October 2003 to October 2006. The counterpart organization
was the Phnom Penh Water Supply Authority (PPWSA) within the Water
Supply Bureau of the Ministry of Public Works. This project is an example oftechnical cooperation that was designed for an existing administrative organization. It was implemented as a project that was deeply embedded as a basic
component of Cambodia’s policy system. In similar projects in Thailand,
Vietnam, Indonesia, and Egypt, JICA established independent organizations,
usually a central training center, and trained personnel based on the idea of
establishing a project. In reality there were more than a few cases that hadsustainability problems ― in some cases budgets were cut after the project
was completed because those training centers were organizationally distantfrom the target administrative agencies. In the Cambodian project, the training center was incorporated into the administrative agency (which was also
the implementing agency). This was an expansion ― from limited assistancedesigned to transfer water supply technology to a specific training agency inthe water supply sector to assistance designed to bring about changes in theentire water supply system.
This kind of technical cooperation requires compliance and strict consistency with Cambodia’s water supply sector policies and strategies. In fact, theproject was designed to contribute to human resource development that supports institutional reform in the water supply sector and expansion of watersupply systems to meet the demand. Organizational capacity building
through human resource development was essential. Coordination withother aid agencies was required, and the project used multiple schemes in amore programmatic approach.
Water supply facilities have been built with assistance from donors, andthere is an urgent need to train personnel to operate and maintain new facilities efficiently. In Phnom Penh, the Chroy Changwar Water Supply Facility,
which was constructed with a loan from the World Bank, began operation in
2002. Expansion and rehabilitation of the Phum Prek Water Treatment Plant,
which was financed by Japan’s grant aid, was completed in 2003. With completion of these two facilities the gross water treatment capacity of PPWSA
almost doubled from 120,000 cubic meters per day (supplying water to about
332,000 users) to 235,000 cubic meters per day (about 545,000 users). Also,
rural water supply systems outside of Phnom Penh that fall under the juris174

JICA and Future Technical Cooperation

diction of the Water Supply Bureau of the Ministry of Industry, Mines, andEnergy, are being administered in 28 cities (as of 2002, the gross water treatment capacity was 38,000 cubic meters per day, supplying water to about
126,000 users). New water supply facilities are being built by Japan’s grant
aid in Siem Reap City, loans from the Asian Development Bank are rehabilitating six facilities, and loans from the World Bank will finance 149 facilities.
This project educates and trains employees of the PPWSA, the Water
Supply Bureau of the Ministry of Industry, Mines, and Energy, and rural
water supply agencies. It is also expected to expand training of prefecture
water supply departments, part of which is currently outsourced. A training
center has been established to train rural water supply engineers and trainers are trainned there.
The project team includes three Japanese long-term experts. In addition,short-term experts from Japan provide on-the-job training to senior officers.
Employee training programs are being conducted both in Japan and
Thailand. The training programs in Japan are tailored for each recipient
agency after consultations between experts and agencies, and are producing
good results. Kitakyushu City is the implementing organization of the projectin Japan. Training at the Metropolitan Waterworks Authority’s Waterworks
Technology Training Institute (MWTTI) in Thailand focuses on project management. The programs are implemented based on a contract between JICA
and MWTTI. Japan has before never before implemented systematic humanresource development using training centers, but now the training at
MWTTI is an effort to learn how to run training centers. This project has astudy component to prepare a water supply sector master plan that is being
implemented simultaneously. With regard to developing human resources insubjects closely related to water supply such as water chemistry control, thedevelopment study currently being conducted will reveal real needs forhuman resource development. JICA plans to prepare a long-term plan basedon the results of this study.19(2) Use of overseas resources: Exploiting overseas technologies andexperience
As authority has been delegated to overseas offices, some JICA projects areusing local operation budget and other resources available from neighboring
countries. Examples include the Water Supply Human Resource
19. Based on the JICA thematic evaluation, Assistance for South-South Cooperation.

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Development Project in Laos, the Water Supply System Capacity Building
Project in Cambodia, Project for Strengthening Health Services for Childrenin Laos, and Health Services Assistance Project of the Maternal and Child
Health Project in Cambodia (Phase II).
These Japanese technical cooperation projects use related agencies inThailand and Malaysia, establish training courses, and build systems thatcompliment Japanese technology and experience. Water supply projects
incorporate training at the Waterworks Technology Training Institute in
Thailand, and health projects incorporate training at Khon Kaen University
and Chiang Mai University in Thailand and Sarawak General Hospital in
Malaysia, respectively. The implementation itself was undertaken under thecontracts between JICA offices in Laos and Cambodia on one hand, and thetraining implementation or expert dispatching organizations. The characteristic here that training courses are designed according to the will of each project which is the beneficiary of the training. Training participants are selected
deliberately based on the outcome expected by the organization that sends
the trainees, so that the training implementation organization and trainee dispatching organization clearly recognize it and confirm its manifestation.
For example, the objective of the Water Supply Human Resource
Development Project in Laos is to improve the technological and administrative capacity of water supply agencies in Laos and seeks to improve capacity
in water pipe installation and management, operation and management ofwater treatment facilities, and water quality control by water supply agencies
throughout Laos. Resources in Thailand were incorporated in the project
during the planning phase. For example the plan incorporates training in
Thailand at the Waterworks Technology Training Institute, invites Thai andJapanese experts, in addition to counterpart training in Japan. Training content was determined after consultations with the implementing agencies.
While these projects are similar in form, their training approaches are different because the countries’ development and languages are different. In the
Water Supply System Capacity Building Project in Cambodia, the training
courses were conducted under a contract between the JICA Cambodia Officeand the Waterworks Technology Training Institute in Thailand. Because
there were not many trainees, the major training was conducted in Japan,
and unlike the initial plan, only the training on issues unique to developing
countries was conducted at the Waterworks Department of Thailand.
In the Maternal and Child Health Project in Cambodia–Phase II, between
2000 and 2002 13 people were sent to Khon Kaen University in Thailand and176

JICA and Future Technical Cooperation

four people to Sarawak General Hospital in Malaysia. These training courses
were created based on the needs of Cambodia identitied by Japaneseexperts. The experts accompanied the trainees so they could assess andadjust parts of the training.20(3) Asia-Africa Knowledge Co-creation Project: Program-oriented
training projects
The Asia-Africa Knowledge Co-creation Project exploits the region-specifictraining framework to encourage Asia-Africa cooperation based on the needs
and initiatives of African countries. Participating organizations in Asia andAfrica work as partners to create and share projects such as policy proposals
for development issues, proposals for organizational improvements, manuals
for practitioners, and project proposals.
This is an attempt to convert a training operation that was traditionally ascheme into a project. This project includes seminars and symposiums as
training schemes and research activities as Policy Research Projects (PRP)in participating African countries. The scheme (training) is used as a means
to an end. One of the characteristic is that the project is based on Asian technology particularly Thai and Indonesian.
The first phase was introductory seminars in Japan and Thailand to share
the Asian experience and project objectives. In the mid-term seminar in
Thailand, participating Asian and African organizations discussed proposed
policy research projects prepared by the African organizations based on the
introductory seminars with the purpose of creating projects. Through thiswork organizational partnership were established to implement the policy
research projects. Four groups of PRPs were established:Group 1 — Poverty reduction through processing agricultural products and income-generating activities.
• Kenya: PRP for making a food processing manual• Malawi: PRP for making an extension officer manual using ‘one village
one product’.
Group 2 — Natural resources management• Senegal: PRP for making a water resource management plan
• South Africa: PRP for Soil conservation

20. Based on the JICA thematic evaluation, Assistance for South-South Cooperation.

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CHAPTER 6Group 3 — Capacity building for farmer associations and extension
systems• Uganda: PRP for Capacity building for extension officers in irrigation• Zimbabwe: PRP for Improving extension systems
Group 4 — Indigenous knowledge, local resources, changes inbehavior• Ethiopia: making an extension officer manual using area studies• Tanzania: PRP for Community-based AIDS management
Participating organizations included those involved in rural community
development in eight African countries (Ethiopia, Kenya, Malawi, Senegal,
South Africa, Tanzania, Uganda, and Zimbabwe), equivalent organizations inThailand and Japan, the African Institute for Capacity Development (AICAD),
and a JICA technical cooperation project in Indonesia, Community
Empowerment Program with Civil Society in Indonesia (PKPM Project).
JICA participants included external advisors for this project, people in charge
in domestic and overseas JICA organizations, and consultants.
The policy research projects are being implemented by the respective
African countries and related organization of the Asian counterpart country
with financial assistance from JICA. Final products were prepared throughcollaborative work between the related organizations in both African andAsian countries based on the dispatch of African experts to Thailand andIndonesia as well as dispatch of Asian counterpart organizations to Africa.
The final seminar is expected to be held in Africa to share the results, andsubsequently, projects will be implemented based on those results.21(4) Education Project in Honduras: Promoting the program approach
Since Hurricane Mitch hit the country hard in 1998, Honduras has prepared
several strategies ― the Master Plan for National Reconstruction andTransformation (PMRTN), Poverty Reduction Strategy Paper (PRSP, 2001),
the Government Plan by the Maduro Administration (2002), Ministry of
Education Action Plan (2002), and Education for All–Fast Track Initiative(EFA-FTI, 2002). Most recently, the EFA-FTI Plan was prepared based onthese strategies and projects are underway.
More than 90 percent of the government’s education budget is allocatedto teacher salaries, thus implementation of the EFA-FTI projects depends on
donor assistance and education plans are influenced by donors. Major activi21. Descriptions here depend on the author’s participation in JICA’s Asia-Africa Knowledge Co-creation
Project. Ethiopia’s PRP was not implemented at all.

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JICA and Future Technical Cooperationties include improving the efficiency of basic education such as developing
educational materials and teacher training. While the EFA-FTI plan receives
financial assistance from the common fund established by the World Bank,
Canada, Sweden, Germany, and other donors, project technical cooperationis also recognized as an aid modality. Each donor cooperates based on its
their own aid modality.
Since support for reconstraction after Hurricane donor coordination isarranged through donor meetings. Under this circumstance, JICA is implementing the Basic Education Enhancement Program that includes theArithmetic Instruction Improvement Project, Model Projects, and policy advisors, which provides an example of a program approach.
The Basic Education Enhancement Program aims to improve the efficiency of basic education and the quality of teachers. Many donors support
teacher training and making teaching materials to improve graduation rate,
which is one of the goals in EFA-FTI. One important component of the program is to improve arithmetic capacity which is overall goal in EFA-FTI.
Developed teaching materials are distributed nationwide and other donors
provide funds or use them for training. While JICA’s Basic Education
Enhancement Program and Spain’s project support training for incumbent
teachers, Germany supports training for new teachers. The US has offered todevelop standardized, common achievement tests to verify academic
improvement. All of these activities considered to be complementary.
To support educational policies, two long-term experts have been dispatched to coordinate aid in the education sector and to formulate educational projects. These experts are involved in the JICA program and Honduras
basic education sector to prepare programs and promote aid coordination,and have played an important role in the development of JICA’s program.
The aid coordination expert has contributed to preparing and implementing
the EFA-FTI Plan as chairperson of donor meetings in the education sector.
This is why the basic education program that was prepared before the EFAFTI Plan was ensured a position and was able to play an important role inachieving aid coordination in the Basic Education Enhancement Program.
Both of these experts had been Japan Overseas Cooperation Volunteers inthe Honduras education sector before, and their expertise and experience
were of considerable help (JICA 2006).

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6-5. Sustainability of JICA’s institutional changes due to
its reorganization as an independent administrative
institution
JICA’s technical cooperation structure has changed since Japan began providing aid based on scheme, but pivotal changes occurred in 2000 when
Regional Departments were created. The reorganization as an independentadministrative institution made these changes more obvious (Table 6-1).
Table 6-1. Institutional change of JICA before and after the transformation into
independent administrative institutions
Approach

before. Active use of schemes. Segmented. Independent

Method of technical . In-kind. Procurement from Japan
assistanceConcept ofdevelopment
assistance

Organizational
structure
Level ofIntervention. Technical transfer to the counterpart. Technical transfer by the expert. Emphasis of Japanesetechnology and experiences. Emphasis of setting the place. Scheme based managementstyle. Initiative by the head quarter. Output-oriented. Purpose is to transfer thetechnology

after. Development issue-oriented activity. Country oriented and issue-oriented
approach. Consider schemes as measures. Formation of different scheme. In-kind. Use of contracts. Procurement from Japan andoutside Japan. Capacity development of counterpart institution. Combination and use of technology
and experiences bath inside andoutside Japan. Issue based management style. Initiative by the overseas offices. Outcome-oriented. Purpose is to realize the outcome

In its former configuration, JICA’s technical cooperation, project implementation methods, and organizational systems were based on schemes, andprojects were implemented in accordance with the schemes. Each scheme
had the authority to execute its budget independently and to implement projects, and projects were implemented within the framework of schemes. A
scheme was an independent entity and each one adopted a project approachwith an output that it can manage itself as an objective. In scheme based
approach Japanese technology and experience were treated as resources,
resources that depended on Japanese experts. The main objective was totransfer technology to a counterpart, and the project was considered complete when the output was confirmed.
Amidst significant changes in the aid environment, however this former
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configuation met institution fatigue. The creation of Regional Department
was to address this problem. It promoted turning schemes into means fordevelopment cooperation. They established a process where projects are
based on country-specific implementation plans and Thematic Request
Surveys from recipient country. Such moves provided an opportunity to consolidate the budget and created momentum to combine multiple schemes.
Under this circumstance, JICA was reorganized as an independent administrative institution. Introduction of the thematic operational system, which was
implemented along with the reorganization as an independent administrative
institution, accelerated the process of turning schemes into means.
Delegation of authority to overseas offices also promoted this process.
Procurement procedures also changed. Procurement based on contrats
made it easier to use foreign technology and experience. All these changes
have made it easier to implement country-specific and thematic approaches.
More outcome-oriented operations are now possible.

6-6. Conclusion — strengthening country-specific andthematic approaches
This section takes a new look at the framework of JICA’s technical cooperation, discusses its challenges, and discusses the future of technical cooperation.
(1) Reorganization of the framework of technical cooperation: Policy
structure of developing countries and technical cooperation
Government activities are generally divided into levels such as policies, measures, and projects that emerge as a series of policy structures. Figure 6-3
shows a policy structure of a developing country with three levels. Causal
connections formulate policy structures, for example, final outcomes(changes in the target society), intermediate outcomes (changes in the target groups, including people and organizations), outputs (goods and services
produced by activities), activities (a series of acts that use inputs to produce
outputs), and inputs (human resources, materials, equipment, administrative
costs, facilities, funds, expertise, time, etc.).
Figure 6-4 shows such a policy structure in a matrix.22 Recently, developing countries have implemented various reforms in fiscal and financial management, organizations, education, health, and decentralization, and consequently their policy structures are clearer. On the other hand, donors are181CHAPTER 6

Figure 6-3.
Policy Structure
Policy Finaloutcome

Measureintermediate outcome

Measureintermediate outcome

Project output

Project output

Project output

Project output

ActionActionActionAction

Input

Input

Input

Input

Figure 6-4. The policy system and Intervention to the policy, program, andproject in developing countries
PolicyMeasureFinal outcome

Medium term
outcome I
Medium term
outcome II

OutputOutput I-I
Output I-II
Output II-I
Output II-II

Intervention to policy

Project
Activities
Activities I-I
Activities I-II
Activities II-I
Activities II-II

Input
Input I-I
Input I-II
Input II-I
Input II-II

Intervention to program
Intervention to program

increasingly involved as stakeholders in policy formulation through policy
dialogue and policy supporting activities. As a result, aid activities can now be
divided into two large categories ― assistance at the policy and programlevel and traditional assistance for projects. In Figure 6-4, arrows show thepositioning of a donor’s assistance and interventions through technical cooperation in the policy structure of a developing country. Technical cooperation
at the policy and program level deals with effective ways to distributeresources to establish goals, legal systems, organizations, institutions, or
selection of projects to achieve the final and intermediate outcomes. Thereemphasis would be placed on overall capacity building by using a combina22. Turning a policy structure into a matrix enable it to be controled. For such conceptualization of policy
structures by matrices, see JICA Planning and Coordination Department (2004) and Miyoshi et al.
(2003).

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tion of organizations and technologies that already exist within the recipient
country, instead of technology transfer to specific organizations.
Technical cooperation for projects emphasizes producing outputs, andsupports efficient implementation of projects as measures of policy and program implementation ― planning, implementation, and evaluation. Withinsuch a framework, donors would be required to clarify which parts of thedeveloping country’s policy structure they address, support and intervene. In
this case, projects would look very different when they are implemented aspart of a program that aims to ensure outcomes compared to when they are
implemented as individual and independent projects.
(2) Future challenges
With such a framework for technical cooperation and based on our examination in the previous sections, the author would like to point out the challenges faced by JICA’s technical cooperation.
Turning schemes asinto means for development cooeration.
Traditionally, implementation of JICA projects has been dictated by schemes,
but this scheme-oriented system has been shifting to a system that turns
schemes into means for development cooperation. Now it is based on country-specific and thematic approaches as a result of institutional changes that
accompanied the creation of Regional Departments. Traditionally, JICA
developed its operations to fit the schemes, but the turning of schemes intomeans allowed selection of means that fit the development issue. Such atrend promotes a shift from a project-based approach to a program-based
approach. It becomes possible to combine schemes and provide support inaccordance with the outcome. To promote this trend, we need to pursue thepath of turning schemes as into means even further to include grant aid andyen loans. From now on, we need to include these in our pursuit of turning
schemes into means. Based on our examination, an effective way would be toconsolidate all schemes under Regional Departments. The author believes
that the introduction of such an institution would be effective.
Reforming procurement for more effective use of resources. Use ofvarious resources is becoming especially important in JICA’s technical cooperation because, while we examined JICA’s institutional changes in this chapter, JICA’s in-kind procurement method remains unchanged. Such a procurement method has been appropriate for technical cooperation that implements
Japanese technology and experience through the dispatch of Japaneseexperts. It legitimized securing experts from Japanese public organizations,
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however, the scope of technical cooperation is expanding.23 It is impossible
to deal with such circumstances with JICA’s traditional scope of activities. It
is important to construct a broader mechanism that uses the various
resources that exist in Japan and abroad.
Partnerships with domestic universities and other organizations will be
an important factor to expand resources for technical cooperation. One
approach would be to incorporate foreign universities into JICA projects byusing the domestic network of universities. It will be essential to seek
resources broadly outside from Japan. Up to now JICA has provided technical cooperation to many organizations and agencies many of whom havealready gradated from being recipients. JICA should use these resources thathave close relationship with JICA. To do so, the in-kind procurement methodneeds to change into contract-based and further to buget finance-based. The
current in-kind provision of experts and training opportunities gives and constraints on cooperation and interventions. More flexible procurement methods will make it easier to use a wider range of resources.
Selection and clarification of approaches. When selecting technicalcooperation projects, it is important to clarify whether the objective is cooperation for the policies and programs of a developing country, or cooperation
for projects and through what kind of approach the technical cooperation
should be implemented. As Figure 6-4 highlights, it is important to recognize
the differences between these two approaches. For the policy and program
based approach, important factors include the ability of aid agencies to analyze policies as well as consultation and coordination with various stakeholders. In recent years JICA has been implementing the policy and program
based approach under the name of cooperation for policy support assistance,
but it still does not have a clear assistance concept, and it has not accumulated sufficient experience. Especially, for project-type cooperation, JICA isrequired to clarify its position about which projects will contribute to therecipient country’s policy structure. It is necessary to take a program based
approach which, unlike the traditional project-based approach, positions technical cooperation projects within the policy structure and supports the overall
implementation of policies together with other projects. And under this program based approach, it is necessary to support projects that aim for outputs
that ensure outcomes, instead of aiming for the outputs themselves.
On the other hand, such cooperation for policies and programs will have
23. For example, see Chapter 9 for constraints in Africa.

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a strong connection to the previously discussed methods for procurement
and fund provisions as well. For cooperation to policies and programs, thedispatch of experts, support for symposiums and seminars, studies to formulate policies and programs, and joint evaluations to assess effects will be
important. These activities require flexibility because they must be implemented by aid organizations under the leadership of developing countries,
however, JICA has had little experience in these policies and programs based
approach. This is a significant disadvantage, and in addition the current
methods of procurement and fund provision do not have the flexibility thatfacilitate this kind of cooperation and interventions. Rather, these procurement and fund provision methods restrict activities and make it difficult tocapture appropriate opportunities and act in a timely manner. A system thatallows flexible actions is required.
Strengthening an outcome orientation and emphasizing evaluations. The shift to a project program based approach means that the focus ofassistance shifts from outputs to outcomes. To emphasize outcomes, wemust identify the desired outcomes and clarify the logic of project activities.
Moreover, implementation capabilities are required. It is important to position JICA’s projects in the policy structure of the developing country by asking such questions as what are desired outcomes, what kinds of project activities will produce those outcomes, and what kinds of capabilities are
required. Only after we clarify the logic in the policy structure and implement
the project can we expect to see the effects of JICA’s technical cooperation.
To ensure such outcomes, it is essential to incorporate various stages of evaluation from ex ante and ex post evaluations in the project management cycle.
Moreover, program based evaluations with a focus on policies and programs
need to be implemented.
Emphasis on aid coordination. Aid agencies’ project implementation
methods have changed significantly due to the introduction of strategies that
aim to reduce poverty in developing countries and efforts to clarify the policy
structure. There is new recognition that it is difficult for individual aid agencies to produce satisfactory outcomes, and agencies are moving to identify
areas in which they can cooperate. JICA will also be required to identify
where it could contribute, and this will lead to share roles with other donors.
During implementation JICA will be required to coordinate progress. To doso, it is necessary to emphasize aid coordination more than ever.
This chapter examined the characteristics and changes of JICA’s technical cooperation with a focus on its modalities or schemes, as well as the insti185

CHAPTER 6

tutional changes which have taken place. Creation of Regional Departments
diminished the superiority of schemes that had defined JICA’s technicalcooperation and instead brought the country- and issue-oriented programapproach. This is a paradigm shift in JICA’s technical cooperation. The issues
discussed in this section are to further strengthen these institutional changes
and are mutually linked. They will affect the future of JICA’s technical cooperation, and more broadly the future of Japanese technical cooperation. And,discussions on JICA’s changes and institutions will intensify under the integration of yen loans with JICA’s operations. The author hopes that the resultsof this chapter’s examinations will also provide some insights to such future
discussions.

References
Institute for International Cooperation (IFIC) (2001) Hinkon Sakugen ni
kansuru Kiso Kenkyuu [Basic Studies on Poverty Reduction], IFIC.
JICA Annual Report 1999-2005.
＿＿＿＿ (1998) DAC Shin Kaihatsu Senryaku Enjo Kenkyuukai Houkokusho,[Study Team Report for DAC New Development Strategy Assistance],
JICA.
＿＿＿＿ (1999) Kokusai Kyouryoku Jigyoudan 25 Nenshi, [JICA History of 25
Years], JICA.
＿＿＿＿ (2003) Project Kenkyuu: Nihongata Kokusai Kyouryoku no Yuukousei
to Kadai, [Studies on Effectiveness and Issues of Japanese International
Cooperation], JICA.
＿＿＿＿ (2006) Tokutei Tema Hyouka to Program Hyouka (Honduras Kiso
Kyouiku Bunya) Houkokusho, [Evaluation Report for Specific Theme andProgram ‘Basic Education Sector in Honduras’], JICA.
JICA Planning and Coordination Department (2004) Tokutei Tema Hyouka
and Program Hyouka Philippines Jinko/Kenko Hoken Center/USAID
Renkei Part II Kansensho Taisaku Bunya, [Evaluation Report for Specific
Theme - Population and Health Center in Philippines in Partnership with
USAID Part II Measures for Infectious Disease Sector], JICA Planningand Coordination Department.
Kumakura, Y., N. Miwa, I. Makino and H. Kanda (2002) ATOS Kenshuu
Jigyou Hyouka System [AOTS Training Evaluation System], Nihon
Hyouka Kenkyu, Vol.2, No.2, pp.47-56.
Miyoshi, K. (1991) “Kaihatsu Enjo Kikan ni okeru Chishiki Kanri,”[Knowledge Management in Development Assistance Agency], Journal
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JICA and Future Technical Cooperationof International Development Studies, Vol.8, No.2, pp.29-43.
＿＿＿＿ (2005) “Gijutsu Kyouryoku,” [Technical Cooperation] in Goto, K., I.

Ohno, and T. Watanabe, eds., Nihon no Kokusai Kaihatsu Kyouryoku,[Japanese International Development Assistance], Nihon Hyouronsha.
Miyoshi, K., K. Sakamoto, and R. Abe, (2002) “Program Enjo to Project Enjono Nigenron wo koete: Tanzania no Jirei kara,” [Beyond Dualism of
Project-based Assistance and Program-based Assistance, TanzanianExperience], African Studies, Vol.60, pp.123-137.
Miyoshi, K., S. Morita, and T. Aizawa, (2003) “Wagakuni Hyouka ni okeru
yori Tekisetsu na Program Theory no Kouchiku wo Mezashite - Kokusai
Kyouryoku Hyouka to Seisaku Hyouka ni Shouten wo Atete-,” [In Pursuitof Building More Appropriate Program Theory in Evaluation in Japan],Nihon Hyouka Kenkyu, Vol.3, No.2, pp.40-56.
Saito, S. (1979) Gijutsu Itenron, [Theory of Technology Transfer,]
Bunshindo.
Takashima, H. and K. Miyoshi, (2000) “Enjo wo Meguru Kankyou Henka to
Enjo Jisshi Kikan no Taiou - Kokusai Kyouryoku Jigyoudan no Soshiki
Kaikaku wo Jirei to Shite,” [Changes in Environment in Development
Assistance and Stance of Aid Implementing Agency - Example from JICA
Organizational Reform], Journal of International Development Studies,
Vol.9, No.2.

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7
Human Security and Aid from the
Perspective of an Aid Practitioner
Koji Makino1

People tell me that they don’t quite understand the concept of human security. Some even dismiss it merely as an abstract slogan or advocacy, but it is apractical concept that can be useful to us all.
We are constantly exposed to many hidden and unpredictable risks ―traffic accidents, sudden illness, unemployment, fires, and earthquakes, forexample. In developing countries with suffocating poverty and poor governance, people face far greater risks than those in industrialized countries,
and the consequences are more serious because their ability to cope withthem is limited (Theultimate and worst outcome could be mega-death).
Those especially vulnerable to crises are the extremely poor and the sociallydisadvantaged. In various crises, the combination of ‘fears’ and ‘deficiency’
can become a vicious spiral that in turn causes livelihoods to deteriorate(downside risks). The concept of human security focuses on those downside
risks and attempts to find a comprehensive solution.
This chapter attempts to interpret the concept of human security as
plainly as possible from the development perspective of an aid practitioner,
and then discusses its implications for aid.

7-1. Background and history
7-1-1 Human security
In recent years people, goods, money, and information have traveled frequently across national borders, and societies have become increasinglyinterdependent. Concurrently, regional conflicts, terrorism, and infectious
1. Japan International Cooperation Agency (JICA) Planning and Coordination Department, Human
Security Group, Human Security Promotion Team Leader

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diseases (HIV/AIDS, avian flu, for example) are also crossing borders andthreatening people more than ever. In some cases, states themselves havebecome a threat to people (such as Iraq and Sudan). Traditional conceptual
frameworks that consider states as the smallest units, including national
security, are inadequate to cope with these new and grave international
threats. What is needed today is the concept of ‘human security’ that focuses
directly on people.
7-1-2 History
The first appearance of human security in a public document occurred in the1994 Human Development Report of the United Nations Development
Programme (UNDP). Subsequently, the Japanese government’s advocacy at
the UN Millennium Summit in September 2000 led to the creation of theCommission on Human Security, co-chaired by Sadako Ogata (nowPresident of JICA) and Amartya Sen (now a professor at Harvard University).
After five meetings, the Commission submitted its report to UN SecretaryGeneral Kofi Annan in May 2003.
The Japanese government considers human security as one of the pillars
of its diplomacy. In 2003, the government revised the Official Development
Assistance Charter, the core of Japanese aid policies, and positioned humansecurity as one of five basic principles. The Medium-Term Policy on Official
Development Assistance (New Medium-Term ODA Policy), adopted in 2005,
positions human security as a core philosophy of substantive aid and statesthat it is “a perspective that should be reflected in all of development assistance.” To promote the achievement of human security, the Japanese government created the Trust Fund for Human Security in the UN in 1999.
At the G8 Summit in June 2003 (Evian Summit), Prime Minister
Koizumi’s statement led to the inclusion of this sentence in the Chair’s
Summary: “We took note of the report of the Commission on Human
Security.” In addition, the Leaders’ Declaration at the 11th Asia Pacific
Economic Cooperation (APEC) Economic Leaders Meeting mentioned theircommitment to “enhancing human security.”
In Africa, an NGO network, African Human Security Initiative (AHSI),
was created to monitor the human security efforts of the governments ofleading member countries of the African Union (AU). More developing countries are launching concrete initiatives. For example, Thailand created theMinistry of Social Development and Human Security and Bolivia may position human security as a pillar of its new national development strategy.
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According to the final document of the UN World Summit in September
2005, the world leaders made a commitment to “discussing and deepening
the notion of human security in the General Assembly.”

7-2. Human security
7-2-1 Definition
What is the concept of human security? The report of the Commission on
Human Security defines it as “to protect the vital core of all human lives inways that enhance human freedoms and human fulfillment,” and to construct
the systems necessary to do so.
In addition to this definition, the Japanese government complemented
the approaches to realizing human security that are mentioned in theCommission’s report, such as “protection and empowerment” of people. It
defined human security in the New Medium-Term ODA Policy (February2005) as “focusing on individual people and building societies in which everyone can live with dignity by protecting and empowering individuals and communities that are exposed to actual or potential threats.”
As examples of threats to people, the Medium-Term Policy lists fears,
such as conflicts, terrorism, crime, human rights violations, displacement,
epidemics of infectious diseases, environmental destruction, economic
crises, and natural disasters; and deficiency, such as poverty, hunger, andlack of educational and health/medical services.
7-2-2 Interpretation of human security
To rephrase these definitions, human security (i) guarantees the bare necessities and essentials for people’s lives and livelihoods; (ii) ensures that thoseguarantees will not be lost in the future; and (iii) builds mechanisms to do so.
To simplify even more, we can say that human security is a “framework forbuilding a society where people can live in peace.”
The content of (i) above corresponds to the “vital core of all human
lives” in the official definition, but even the report and other related documents state that human security is difficult to define because it is different
depending on the country, region, and situation in which people find themselves. However, we can interpret it to include basic human needs such as
minimum income, education, healthcare, and water, as well as political andsocial rights. It can be interpreted as an approach to deal with the problemsof poverty in a broad sense.
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Even if (i) is temporarily secured, people can lose it due to politicalunrest, unexpected natural disasters, accidents, and illness because they arealways in an unstable condition. Therefore, (ii) states the necessity to takemeasures so that it will not be lost.
For (iii), the Commission’s report aims to build an integrated system ofpolitics, society, environment, economy, military, and culture (building themechanism), and concludes that to do so, we need to not only improve thecapabilities of the state, but also build strong partnerships with other players
such as NGOs, international organizations, regional organizations, and civilsocieties. The objective of mechanism building is to promote two approaches
at the same time ― one to ‘protect’ people in the form of governments andother actors providing various (social, economic, political, military) services,and the other to ‘empower’ people.
7-2-3 Freedom from deficiency and freedom from fears
The added value of human security as a concept in comparison to other concepts, theories, and strategies of development lies in the fact that it focuseson downside or downturn risk. People, especially those in developing countries, are always exposed to risks that may turn worse ― what we call downturn risks. That is why we have emphasized not only the relatively static
point of (i) guaranteeing the bare necessities and essentials for people’s lives
and livelihoods, but also the dynamic aspect of (ii) ensuring that those guaranteed things will not be lost in the future.
Figure 7-1. Concept of human security
Terror(conflicts,
disasters,
infectiondisease,economiccrisis, etc.)

Deficiency(poverty)

Close correlation

What are the factors that give rise to those downturn risks? While it is
impossible to present an exhaustive list, people are negatively and severely
affected by various risks categorized as fears in human security, including
conflicts, terrorism, crime, human rights violations, epidemics of infectious
diseases, environmental destruction, economic crises, and natural disasters.
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In human security, broader issues of poverty such as hunger and lack of educational and health services are categorized as deficiency. The true worth ofthe concept lies in the fact that it attempts to correlate and analyze theseissues of deficiency and fears, and thereby find comprehensive solutions tothese problems. In our interpretation of human security, (i) guaranteeing thebare necessities and essentials for people’s lives and livelihoods corresponds
to solutions to the problem of deficiency, whereas (ii) ensuring that thoseguaranteed things will not be lost in the future is related to the problems offears.
7-2-4 New aspect of poverty ― perceived risks(1) Findings of participatory poverty assessments
Various participatory poverty assessments (PPAs) in many countries including the Voices of the Poor project of the World Bank, have recently revealed
that people are extremely concerned about the uncertainty of their future.
Poverty includes not only the state of few or low-level possessions, but also
the precarious situation (vulnerability) where people can lose even the few
things they have (the ultimate misfortune being a sudden death). In somecases the poor consider the uncertainty of lives and livelihoods due to potential shocks more serious because of lack of access to income and social services (Meier and Stiglitz, 2001).
Aspects of fears such as vulnerability and shocks are very closely correlated to the aspects of deficiency or poverty. Those who are most severely
affected by various shocks are the vulnerable people who suffer from broadly-defined poverty or other deficiency, including the extremely poor, the illiterate, those who cannot maintain physical health, those who lack social andpolitical rights, and the socially disadvantaged (elderly people, widows, pregnant women, children, and the handicapped). In developing countries weoften observe a situation where those who suffer from deficiency are pounded repeatedly by significant external shocks such as conflicts and natural disasters as well as smaller shocks, and spiral down into a more severe state ofpoverty. The perspective of human security focuses on this serious situation
where the already poor are exposed to risks that can make them even poorer.
(2) Vicious cycle of fears and deficits
Let us consider the case of a poor farming family in rural Africa. Usually they192

Human Security and Aid from the Perspective of an Aid Practitioner

cultivate a small parcel of land to produce mainly maize and several othervegetables to eke out a scanty livelihood. If this poor peasant family was hit
by a serious natural disaster in the form of a drought (e.g., a ‘fear’), what
could they do? If this household were hit by severe damage that could not be
mitigated by eating all their stored food and receiving help from an informal
network of the community and nearby relatives, this family, which does nothave any savings in the bank or benefits from a non-existent governmentalsocial safety net, would be forced to sell their means of production such as
cattle or part of their land. We have seen situations where they stop sending
children (mostly girls) to school. The Voices of the Poor report points outthat the poor have very limited options to cope with these shocks, and they
face difficult trade-offs to simply survive until the next day.
Even if the drought ended and the next wet season provided enoughrain for cultivation, the family would be poorer because they already soldtheir cattle and must rely on manpower, or they sold a part of their land andcrop yields would be reduced. If parents cannot provide a decent education
for their children, the next generation is likely to be just as poor as its parents, thus poverty is inherited. This example depicts a vicious cycle where an
already poor household that suffered from deficiency is hit by a fear in theform of a drought that makes the situation worse and the household poorer.
One can easily replace the drought with any other element of fear such as aconflict, sudden illness of parents or an accident. These vicious cycles arewidely observed in developing countries.
7-2-5 Development strategy that incorporates human security
Based on recognition of the situations described above, assistance strategies
in developing countries that incorporate the perspective of human security
should aim to end this vicious cycle of deficiency (poverty) and fears (risks).
We need to think about three aspects of risk management: (i)prevention/mitigation of fears (threats and risks), (ii) coping with humansecurity crises, and (iii) promotion of medium- and long-term abilities to copewith risks in order to reduce chronic poverty. The figure 7-2 is a visualizationof this concept (JICA IFIC, 2005).
A basic measure to promote poor-sensitive growth aims to support thepoor through human development and improved governance. In addition, we
need to complement it with (i) prevention/mitigation through measures thatprevent fears or reduce risks, and (ii) coping, adequate measures to deal withfears when they arise.
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Figure 7-2. Human securitys perspeitive incorporated development (assistance)
External shocks (conflicts, natural disaster, intectious, etc.)
Prevention

CopingBreak thecircleBreak thecircle
Daily
shock

shock

Vulnerable poor people(developing countries)
Downside

Downside

Promotionbottom up

Human resources
development

For example, in a case dealing with HIV/AIDS, one would first take measures to prevent the shock of being infected such as education, provision ofcontraceptives, and improved testing based on the reality that there is no
cure for AIDS at the moment (prevention/mitigation). If people are actuallyinfected with HIV/AIDS, one would take reactive measures such as treatment to delay the onset of the disease, counseling, and caring for patients
who develop AIDS (coping). However, given that those who are vulnerable tothe fear of HIV/AIDS are the poor, these direct measures against HIV/AIDS
are insufficient. In fact, it is important to have a broader effort to increase
their income and improve basic healthcare, education, and political participation (promotion).
Once a natural disaster ― an external shock ― such as an earthquake,flood, drought, or typhoon strikes, it causes extensive damage. However,according to the report of the Commission on Human Security, Human
Security Now, in the 1990s the number of reported natural disasters wasmore than twice the number in the 1970s, but due to preventive measures(prevention and coping), the number of victims in the 1990s was only 40 percent of the 1970s figure. The rate of fatalities from natural disasters in coun194

Human Security and Aid from the Perspective of an Aid Practitioner

tries with good performance in human development is estimated to be 1/13of the rate in countries with bad performance. These statistics provide evidence that promotion, prevention, and coping are effective.
7-2-6 Approaches to achieving human security ― protection andempowerment
As actual approaches to achieving human security, protection and empowerment are considered important. The government and other organizations
safeguard people from serious threats of fears and deficiency through various services (protection), and at the same time ensure that they can copewith the threats by increasing their ability to act for themselves or others(empowerment). One can liken this process to a person who not only wears
armor to fortify his or her surface, but also obtains true strength by training
his or her mind.
The Human Security Report states that protection and empowerment
complement and strengthen each other, and empowered people not only
avoid immediate dangers but also demand improvements in the mechanisms
to protect them. Specific examples would include a case where empowered
people warn the government of a food shortage in its early stages, encouraging the government to act and prevent a famine before it happens; or a casewhere they protest human rights violations by the state and pave the way fora better legal system.
In reality, the ‘place’ where protection and empowerment take place
would be the community. The safety of an individual cannot be separated
from the functions of a social community to which he or she belongs. In
other words, to achieve human security it is essential to strengthen the community through protection and empowerment.
For example, a technical cooperation project that JICA is implementing
in Niger is designed to improve governmental ‘protection’ in the form ofbasic education services, but it also encourages parents and local residents toactively participate in school activities in an attempt to create better schools.
This is leading to empowerment of communities that creates a virtuous cycle.

7-3. Relationships between human security and MDGs,
PRS, human development, and other aid strategies
7-3-1 Millennium Development Goals (MDGs)
Human security is considered a concept that supports the achievement of the195CHAPTER 7

Millennium Development Goals (MDGs). Human security emphasizes theimportance of freedom from fears and empowerment that are not expressly
stated in the MDGs.
Among the several agendas of the Millennium Declaration, 2 MDGs
focus mainly on those related to development and poverty reduction. The
Millennium Declaration contains other agendas such as “peace, security, anddisarmament;” “human rights, democracy, and good governance;” and “protecting the vulnerable.” These agendas are closely related, and unless wetackle them comprehensively, achievements in individual agendas will not besustainable. Human security, which focuses on people and brings all of thevarious threats people face into view, is positioned as an important concept
for realizing the visions of the Millennium Declaration.
To achieve the MDGs or the visions of the Millennium Declaration, it isessential for people in developing countries to improve their ability to solve
their own problems. For this to happen, it is important to not only increase
the amount of aid, but also to support human resource development, organizational enhancement, and institutional building through aid.
7-3-2 Poverty Reduction Strategies (PRSs)
Human security does not replace the existing frameworks or agendas ofinternational coordination such as Poverty Reduction Strategy Papers(PRSPs), but complements and strongly supports them. Human security
approaches the prerequisites for the proper functioning of international coordination frameworks or the achievement of international agendas.
It is no exaggeration to say that development/aid agendas have been
consolidated into a single goal of poverty reduction. Under this poverty
reduction rubric, some donors in the international community have tended toshift most of their resources to social development sectors that would directly lead to poverty reduction. However, the Japanese government has advocated an approach of supporting sustainable poverty reduction through growth.
To reduce poverty, we need to balance the distribution of social development
measures and growth-oriented measures centering on improving productivi2. In September 2000, the United Nations Millennium Summit in New York brought together 189 headsof states who adopted the Millennium Declaration which states the goals of the international community in the 21st century. The Declaration contains an agreement of the international community to collaborate and coordinate on seven themes in order to achieve fair and sustainable world peace: (i) Peace,security and disarmament, (ii) Development and poverty eradication, (iii) Protecting our common environment, (iv) Human rights, democracy and good governance, (v) Protecting the vulnerable, (vi)Meeting the special needs of Africa, and (vii) Strengthening the United Nations.

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ty and competitiveness, all of which is underpinned by improved governance.
All aid activities boil down to a strategy of supporting that direction.
This direction is now largely supported by the PRSPs of various countries
and the IMF/World Bank joint review of the PRSPs. By focusing on people
and introducing the dynamic aspects of poverty such as threats, risks, andvulnerability into the paradigm of poverty reduction, which includes social
development and growth-oriented measures, the concept of human security
has established a new axis. Another characteristic of human security is thatin order to cope with risks, it requires stronger public actions from the international community, governments, and NGOs, including ‘horizontal’ collaboration among development actors, ‘vertical’ collaboration between governments and communities, and comprehensive approaches.
For example, in agricultural development, PRSPs prepared under thestrong influence of IMF/World Bank tend to adopt market-oriented
approaches, but from the perspective of human security, they must be balanced with the concept of food security which requires that minimum foodsupplies are ensured. It is vital that promotion of technological innovations,increased production, and a stable food supply through sensible use of market functions goes hand in hand with increased income and food purchasing
power of individual farmers. This ability to present policy alternatives to
PRSPs is another strategic contribution of human security (Takahashi, 2005).

BOX 7-1: Human security and economic development
Some may believe that economic development projects and humansecurity have not much in common, but they would be wrong. One
major reason why the Japanese government began to take serious initiatives in human security was the Asian currency crises. In his speech inSingapore in May 1998, then-Foreign Minister Obuchi called for consideration for the effects of the Asian currency crises on the poor and othervulnerable people and pledged support for human security-related
efforts.
In the concept of human security, not only are prompt and appropriate actions after a currency crisis considered important, but also reduction of risks and prevention of future crises. In the context of economic
development, for example, one would promote measures that contributeto macro-economic stability. At the same time, pro-poor growth is considered extremely important from the perspective of human security.
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Chapter 5 (Economic Security) of the report of the Commission on
Human Security identifies four policy action priorities to promote
human security:
・Encouraging growth that reaches the extreme poor,・Supporting sustainable livelihoods and decent work,
・Preventing and containing the effects of economic crises and natural
disasters, and・Providing social protection for all situations.

7-3-3 Human security and human development
Human development and human security have a complementary relationship. Sen, who was the co-chair of the Commission on Human Security
together with JICA’s President Ogata, clarified the relationship:
Human development focuses on “progress and expansion” and has an“upward-oriented, optimistic quality,” whereas human security is a concept that focuses on “guarding the rear in order to defend what must be
defended” and pays attention to the “risks of sudden distress,” while
attempting to empower people so that they can overcome these risks(Mine, 2005). “Human security” complements the optimistic andexpanding nature of human development by deliberately focusing on
downside risks (JICA IFIC, 2005).
Figure 7-3 is a visualization of this distinction (Mine, 2005). While
human development aims for upward development, in the real world of developing countries various shocks such as conflicts, economics, and natural disFigure 7-3. Human resources development and human security
Normative path of humanresaurces develoment
Phase when downside risks
become the mainstream

Realistic path of humanresouces development

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asters occur and put downward pressures to people and countries. The concept of human security attempts to face and cope with these negative dynamics.

7-4. Incorporation and use of human security indevelopment assistance
7-4-1 Basic concept
To incorporate the concept of human security into development assistance, it
is helpful to divide the process into two stages or levels ― the aid strategy
stage (strategy level) and practical application stage (project or programlevel).
(1) Aid strategy level
The first step is to review the existing aid strategy or the national development plan (such as PRS) of the recipient developing country from the perspective of fears and deficiency to determine if existing aid priorities adequately deal with these issues. Even if they do, are they connecting the twoelements?
Depending on the situation, different questions should be asked. For
example, in the area of fears, one could ask whether the aid priorities consider or are effectively dealing with the impact of civil war, military threat from aneighboring country, ethnic conflicts, unstable economy, natural disasters
such as droughts, infectious diseases such as AIDS and malaria, and organized crime. In the deficiency category, the main question would be whether
existing aid is effectively addressing the issues of broadly-defined poverty
such as income, basic healthcare and educational services, water and shelter,etc.
Aid can only address a portion of the needs of a recipient country, so
existing aid may not cover all the fears and deficiency of the country in question, or it addresses either one or the other The point is that when we review
or formulate an aid strategy, this perspective helps us identify elements thatare otherwise easy to miss so that we can modify the plans accordingly (especially fears that are often overlooked).
Another point to keep in mind is that many efforts seemingly in the areaof deficiency can simultaneously address fears. For example, if aid priority isa stable water supply and the specific aid components are construction of adam, building supply networks, and institution building, the project will not
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only address the lack of water supply (a deficiency issue), but also someissues of fears by controlling the river and thereby preventing floods and alleviating the effects of drought. While we should initially look at things fromthe perspectives of fears and deficiency, we need to think deeper and avoid
automatic categorization.
Next, if we examine an existing aid strategy in its three aspects
described in Section 7-2-5 ― (i) prevention/mitigation of fears (threats andrisks), (ii) coping with human security crises when they occur, and (iii) promotion of medium- and long-term abilities to cope with risks ― the conceptof human security will be more deeply incorporated into the strategy. The following cases are based on these three aspects.
Case 1. As a result of reviewing the issues of Country E from the perspective of human security, JICA decided to incorporate into the country assistance strategy (i) assistance for ethnic minorities that have enormous socialand economic problems and do not receive timely care from the government(narrowing the target of promotion); (ii) assistance to improve the safety of
citizens because organized violence is rampant and the activities of citizens
are severely affected; and (iii) assistance to cope with typhoons that cause
tremendous physical damages and human suffering every year (prevention
and coping).
Case 2. Country M is an underdeveloped country where a 30-year civil war
ended 10 years ago but its scars are still visible and a high incidence of
HIV/AIDS is a problem. JICA’s country assistance strategy incorporates (i)efforts to promote peace building such as education for conflict prevention,
coping with land mines, and revitalizing and improving the mass media; (ii)coping with HIV/AIDS (prevention and coping); and (iii) improving the job
situation for the poor through the development of small enterprises (promotion).
Case 3. The priority in Country G has always been assistance for math andscience education. From the perspective of human security, the revised priority now reads “math and science education that is sensitive to the weak” andincorporates measures to help the weak and the handicapped, including
hearing-impaired children.
(2) Practical application level (program/project level)
This section discusses a review at the level of actual aid approaches such as
programs and projects. It specifically looks at projects in the planning stage
or those being implemented from the perspective of human security. The
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Human Security and Aid from the Perspective of an Aid Practitioner

review should focus on people and check whether the project (i) works withthe community to empower people and with the government to ensure thesustainability and dissemination of aid impacts (improving vertical relations);(ii) maintains close collaboration with the government, NGOs, private companies, and other donors (improving horizontal relations); and (iii) pays sufficient attention to the vulnerable.
JICA has come up with seven principles of human security to actually
incorporate the concept when formulating and implementing its projects andprograms:(i) Reaching those in need through a people-centered approach(ii) Focusing on the most vulnerable people whose survival, livelihood,and dignity are at risk(iii) Empowering people as ‘actors of development’ as well as protecting
them as recipients of aid(iv) Comprehensively addressing both ‘freedom from deficiency’ and‘freedom from fear’(v) Responding to people’s risks (threats) by assessing and addressing
threats through flexible and inter-sectoral approaches(vi) Working with both central government and local communities toachieve sustainable development of the country and local society(vii) Strengthening partnerships with various actors in developing countries, including other donors and NGOs to achieve a higher impact
from assistance
7-4-2 JICA’s action on human security
The first Phase of the JICA Reform Plan, announced in March 2004, lists
human security as one of the three key elements of JICA’s reform, along with“field-based management” and “effectiveness, efficiency and speed.” With
this in mind, JICA is taking four actions on human security.
(1) Incorporating human security in JICA’s country and regional aid
policies
JICA analyzes key issues related to human security at the national andregional levels in order to incorporate the concept into its Country assistanceplans and other implementation policies.
(2) Incorporating human security in projects and programs
Under implementation policies at the national and regional levels and based201

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on the seven principles described above, JICA explores ways to put humansecurity into practice in its programs and projects. Good practices in terms ofhuman security are discussed and shared within the entire organization.
(3) Improving development instruments and implementation
procedures
JICA is addressing a number of issues including (i) speeding up the project/program cycle of planning, design, and implementation; (ii) assessing
social, political, and economic conditions surrounding individuals and communities, including their vulnerability; and (iii) implementing, monitoring,and evaluating projects and programs in a flexible, tailored manner based on
the conditions of individuals and communities.
(4) Mainstreaming the concept of human security
JICA is proactively exchanging views on how best to put human security into
practice, not only within JICA, but also with its partners, including developing country governments, other donors, NGOs, consultants, and scholars.
Progress has already been made in developing partnerships with other
donors including projects of the UN Trust Fund for Human Security and thesocial development strategies and programs of the World Bank.
7-4-3 Effects on JICA of adopting the human security concept andremaining issues(1) Effects on JICA
More than two years after JICA announced its commitment to practicing theconcept of human security, what changes have taken place in JICA? Adoptionof the concept is certainly causing both tangible and intangible changes,
including these examples:(i) Mainstreaming of locally-initiated projects led by overseas offices(Timely and tailored responses to local needs. According to estimates, start-up time and costs for some projects were substantiallyreduced.).
(ii) JICA is taking risks and providing assistance to countries affected byconflicts (Sudan, Gaza, Sri Lanka).
(iii) Both communities and governments are involved in more projects.
(iv) Active involvement with natural disasters and infectious diseases(tsunami, earthquake, influenza).
202

Human Security and Aid from the Perspective of an Aid Practitioner(v) JICA has become more sensitive to vulnerable people and regions.
(vi) Human security is reflected in Country or Regional Plans (mentioned as a basic country policy or priority area).
(vii) More projects based on the concept of human security are being
formulated.
(viii) Progress in institutional reforms (speeding up the process of peacebuilding and disaster relief, including the ‘fast-track’ system).
(ix) Building common ground (values) with other actors includingNGOs.
(x) JICA is now able to better express its ideas to other donors (strategic communication).
(xi) Progress in specific collaborations with international organizations
and other donors (the UN Trust Fund for Human Security, World
Bank, UNDP, etc.)(2) Remaining issues in practicing human security
JICA understands the concept of human security, has identified effective
approaches, and has begun to incorporate them in its projects and programs.
We are now beginning to see the results. To enhance this practice in the
future, JICA needs to address following issues, among others:(i) Win the understanding of more people and organizations.
(ii) Improve approaches and methods.
(iii) Produce more sophisticated analyses (measure social vulnerability,
downside risks, etc.
(iv) Review evaluation and monitoring methods.
(v) Collaborate more with actors in non-aid sectors (emigration, trade,etc.)7-5. Case studies
7-5-1 Bolivia ― Good practice in the pursuit of human security(1) Background
Half a century after the 1952 revolution, Bolivia is again at an important turning point socially, economically, and politically. While various reforms have
improved some social development indices such as infant and child morality
rates, the income level remains low, ethnic inequality and income gaps are
widening, and social discontent is growing against a background of a long203

CHAPTER 7

period of economic stagnation and issues around the indigenous people.
The social discontent has caused repeated acts of social unrest such as
roadblocks and riots, protesting government policies such as the privatization of public corporations, a ban on coca cultivation, and changes in the natural gas development laws. Against this background, Evo Morales, the representative of coca-growing farmers and leader of the Movement for Socialism
Party, was elected in December 2005 as the first president of Bolivia from anindigenous group.
As one of the poorest countries in Latin America, Bolivia is considered to
be an important aid recipient by many donors who are keen to coordinate
their activities. Considering the serious poverty, a community of Japaneseemigrants and their descendants, and Bolivia’s traditional affinity to Japan,
the Japanese government has been providing substantial aid to the country.
(2) JICA’s action
In Bolivia the concept of human security has not only become the basic principle of Japanese government aid but also one of the pillars of the country’s
draft national development strategy. This is extremely noteworthy and probably the first in the world. The fact that human security is systematicallyreflected ― from aid strategy to projects in the field ― should be highly
praised as a best practice in the pursuit of human security.
This move originated with JICA’s 2004 study, “Country Study for Japan’s
Official Development Assistance to the Republic of Bolivia.” The study teamlooked extensively at human security as a core concept, and their presentation at a local workshop had a tremendous impact on government officials.
Subsequently, active encouragement by the Japanese convinced the Bolivian
government to draft a new national development strategy in which humansecurity is positioned as one of its core principles. The new strategy wasannounced by then-President Mesa in May 2005. The government, which
had been suffering from serious problems of social unrest that stemmed
from issues of indigenous people, felt an affinity for the concept of humansecurity that focuses on downside risks and systematically addresses theissues of both fears and deficiency (poverty).
In an economic cooperation policy consultation meeting in August 2005,
the government of Bolivia, the Embassy of Japan, and JICA agreed to try
achieving the MDGs through aid based on human security. This agreement
positions human security as an overriding vision, and identifies “social development,” “support for productivity improvement,” and “support for institu204

Human Security and Aid from the Perspective of an Aid Practitioner

tions and governance” as three aid priorities. Under this aid strategy, various
projects that strongly reflect the concept of human security are being
planned and implemented. One example is the Support for Achacachi Rural
Development project, which focuses on the indigenous people who sufferfrom long-standing discrimination and poverty, and aims to promote development with initiatives from the residents. Other examples include the Water Is
Vital project that aims to empower communities by supplying drinking water
to poor areas, and assistance for development of small- and medium-sizedenterprises that lead to increased employment and economic stability.
Also, JICA has agreed to collaborate on the dissemination and realizationof human security and signed a Minutes of Understanding with the WorldBank Bolivia Office. JICA is actively pursuing coordination with other donors
and international organizations (UNDP, UNICEF, etc.).
Thus, in Bolivia, JICA is working with the government and other donors
to promote the realization of human security systematically, from the macrolevel of policies to the micro level of projects.
7-5-2 Myanmar ― Project to eradicate opium poppy cultivation andreduce poverty in Kokang Special Region3(1) Background
The Kokang Special Region in Myanmar is located on the border with China
where the Chinese language and culture are dominant and even renminbi
yuan are circulated. The region is inhabited by ethnic minorities, primarily
the Kokang people. More than 100 years ago poppy cultivation was brought
to this area, which has been known as part of the Golden Triangle since then.
Due to environmental conditions such as precipitous terrain, cold climate,lean soil, and lack of water, the area is not suitable for production of any agricultural products other than poppies, and there are no distinguishing industries. Armed ethnic minority groups in the Kokang Special Region were in
conflict with the government of Myanmar until the peace agreement of 1989,
so the basic social infrastructure and public services such as education andhealthcare were not well developed.
Under such circumstances, 130,000 farmers depended on poppy cultivation for their livelihood. However, in 2003 when the Special Region decided
to ban poppy cultivation that had accounted for 70 percent of farmer income,3. Quoted from JICA’s website

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these farmers suddenly lost their means to earn cash. The rapidly deteriorating economic conditions put the livelihoods of poor farmers in turmoil. In
addition to a serious food shortage, malaria broke out in 2003, affecting morethan 4,000 people, of whom more than 270 died, leading to the closure of onethird of the primary schools. This was a serious threat to human security.
(2) JICA’s action
The response was a project that targets farmers who suddenly fell into
extreme poverty and provides assistance to help them find a way out of lifethreatening situations in the areas of agriculture, health and medical care,
improved livelihood, and education. Particularly at the initial stage, the focus
was placed on emergency assistance to directly alleviate poverty, such as
supplying seeds and fertilizer and distributing mosquito nets soaked in insecticide. JICA also promotes human resource development and livelihood
improvement from the mid- and long-term perspectives.
Moreover, as part of efforts to address the global issue of illicit drugs,
JICA will seek ways to spur regional development after eradication of opium
poppy cultivation while fostering mutual trust between the central government and the Special Region, which once had a hostile relationship.
(3) Viewpoint of human security
Emergency assistance to respond to critical conditions (downside risk) aftertermination of poppy cultivation became the entry point. JICA is also addressing structural issues of the Special Region through activities in various sectors with the involvement of both the central government and the Special
Region, and with a focus on communities.
7-5-3 Afghanistan ― project on women’s economic empowerment in
Balkh, Bamiyan, and Kandahar provinces4(1) Background
After the Taliban regime took power in 1996, cruel constraints were imposedon Afghan women. They were deprived of freedom of speech and movement,
and had to wear burqua, which covered them from head to toe. In addition,
there were educational and employment constraints.
Even today, it is difficult for women to find employment as men do, and4. Quoted from JICA’s website

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Human Security and Aid from the Perspective of an Aid Practitioner

those who lost their husbands in internal conflicts or are very poor continue
to have few opportunities to acquire the means to sustain their livelihood.
After the establishment of the interim government headed by Hamid Karzai,
the Ministry of Women’s Affairs was created to reclaim women’s rights andupgrade the status of women.
(2) JICA’s action
Immediately after the creation of the Ministry, JICA supported capacity
development of its officers and organizations and policy formulation. In 2005,
a new project focusing on economic empowerment of poor rural women was
launched. The purpose of this project is to bring the opinions of women inrural areas to the Ministry of Women’s Affairs through the provincial
women’s bureaus (regional offices of the Ministry) so that the Ministry can
submit proposals to other ministries and organizations for policies and measures that meet the needs of women.
To that end, in addition to strengthening the capacity of the Ministry to
formulate and implement economic policies, small-scale model projects
aimed at the economic empowerment of women in Balkh, Bamiyan, andKandahar provinces are being implemented in cooperation with the provincial women’s bureaus, as well as local and international NGOs. The provincial
women’s bureaus are able to understand the needs of rural women more
effectively through the monitoring process of these model projects.
There are wide varieties of model projects ― skills training for handicrafts, kitchen gardens, livestock husbandry and food processing, vocational
training incorporating literacy education, support for training of women’sgroups, and information sharing on education, healthcare, law, and economy.
Workshops will help provincial women’s bureaus understand current situations and challenges of economic activities for rural women through thesemodel projects, and can share information and lessons learned with the
Ministry of Women’s Affairs and other provincial women’s bureaus.
(3) Viewpoint of human security
JICA is taking a direct approach to women who will play a leading role infuture development, focusing on poor rural women who are in socially disadvantaged positions, in cooperation with NGOs and other actors. JICA is supporting capacity development of the local and central governments to operationalize policies that lead to women’s empowerment.

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References
Japanese
Edokoro, H. (1997) Kaihatsu no Seiji Keizaigaku, [Political Economy ofDevelopment], Nihon Hyouronsha.
JICA IFIC (2005) Hinkon Sakugen to Ningen no Anzenhoshou Kenkyuukai
Houkokusho, [JICA Research Report on Poverty Reduction and Human
Security].
JICA (2004a) Ningen no Anzenhoshou ni muketa JICA Jigyou no Torikumi,[JICA Approaches to Human Security], Planning and Coordination
Department.
＿＿＿＿ (2004b) Hinkon Sakugen Jitsumu Manual, [Poverty Reduction
Practical Manual], JICA Poverty Reduction Task Force.
Kurosaki, T. (1998) “Hinkon to Risk – Micro Keizaigakuteki Shiten,” [Riskand Poverty - Microeconomic Perspective], in Edokoro and Yamazaki
eds., Kaihatsu to Hinkon: Hinkon no Keizaibunseki ni Mukete,[Development and Poverty: In Search for Economic Analysis of Poverty],
Institute of Developing Economics.
Makino, K. (2003) “Souron: Kaihatsu wo meguru Sakkon no Enjo Doukou,”[Overview: Trends in Development Assistance], Enjo no Chouryuu ga
Wakaru Hon, [Manual for Understanding Trends in Development
Assistance], Kokusai Kyouryoku Shuppankai.
Mine, Y. (2005) “Ningen no Anzenhoshou to Downside Risk,” [Human
Security and Downside Risk], in JICA IFIC (2005) Hinkon Sakugen to
Ningen no Anzenhoshou Kenkyuukai Houkokusho, [Studyteam Report on
Poverty Reduction and Human Security] Appendix.
Takahashi, M. (2005) “Sahara Inan no Africa ni okeru Hinkonsakugen to
Ningen no Anzenhoshou,” [Poverty Reduction and Human Security in
Sub-Sahara Africa], in JICA IFIC (2005) Hinkon Sakugen to Ningen no
Anzenhoshou Kenkyuukai Houkokusho, [Studyteam Report on Poverty
Reduction and Human Security] Chapter 6.

EnglishChronic Poverty Research Centre (2004) The Chronic Poverty Report 200405, UK.
Commission on Human Security (2003) Human Security Now.
King, G. and C. J. L. Murray (2001-2002) “Rethinking Human Security,”
Political Science Quarterly, Vol.116 No.4.
Hulme, D. and A. Shepherd (2003) “Conceptualizing Chronic Poverty,” World
208

Human Security and Aid from the Perspective of an Aid Practitioner

Development, Vol.31, No. 3, pp.403-423.
Meier, G. and J. E. Stiglitz (2001) Frontiers of Development Economics: The
Future in Perspective, The World Bank and Oxford University Press.
Narayan, D., R. Chambers, M. K. Shah, & P. Petesh (2000) Voices of the Poor:
Crying Out for Change, Oxford University Press.
Narayan, D., R. Patel, K. Schafft, A. Radamacher & S. Koch-Schule (2000)
Voices of the Poor: Can Anyone Hear Us? Oxford University Press.
Narayan, D. and P. Petesch (2002) Voices of the Poor: From Many Lands,
Oxford University Press.
UNDP (1994) Human Development Report 1994, Oxford University Press.
＿＿＿＿ (1997) Capacity Development, Technical Advisory Paper II,
Management Development and Governance Division, Bureau forDevelopment Policy.
World Bank (2001) World Development Report 2000/01: Attacking Poverty,
Oxford University Press.
＿＿＿＿ (2005) “Social Development Department 2004,” Social Development
in World Bank Operations: Results and Way Forward. (Discussion
Draft).

209

8
The Private Sector and Development
A Review of the Development Role ofDeveloped Country Private Enterprise
Mizuho Kuga 1, Keitaro Aoyagi 2, Takamasa Akiyama 38-1. Introduction
8-1-1 Why international development needs the private sector
There has been mounting concern within the development assistance community about how to increase both the quantity of development funding andthe quantity of assistance. The search for additional sources of quality effort
has drawn attention to the private sector and to the development potential of
its activities.
At the Monterrey Mexico Financing for Development (FfD) Conference(2002), an aid funding increase in the amount of $50 billion was calculated tobe necessary for attainment of the Millennium Development Goals (MDGs).
Major donors, such as the U.K., responded to this by pledging dramaticincreases in their ODA volume. But when the necessary underlying infrastructure is factored in, it is doubtful that official assistance from donor countries can realistically provide sufficient money. There is a growing recognition that private sources should be mobilized. And the resources are there.
According to Organization for Economic Cooperation and Development(OECD) data , enormous amounts of private money already are flowing intodeveloping countries, to the degree that money from the private sector now
surpasses official funds (e.g., ODA), accounting for almost 90% of the total
flow in 2004 .
At the same time that the development community has been searching
1. FASID: International Development Research Institute, Junior Program Officer
2. FASID: International Development Research Institute
3. FASID: International Development Research Institute, Senior Advisor

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The Private Sector and Development

for additional financial resources, there has been heated debate on how to
improve aid quality. One way is through increased aid efficiency; that is,reducing waste and duplication by harmonizing and aligning to deliver
expanded services to the poor more consistently. To this end, assistancemethodologies are being sought that will incorporate the private enterpriseand transmit its qualities of financial strength, technical expertise, and management skills.
For these two reasons ― quantity of financial resources and quality of
economic know-how, integrating the private sector into development-related
programs has become a pressing concern.
This Chapter describes the role in development that can be played bydonor country private sectors. It explores two types of private sector activities ― government-related activity and independent private activity ― tounderstand how best to encourage the implementation of developmentfriendly projects by private enterprise. Particular attention is given to a mechanism known as PPP ― public-private-partnership.
A presentation of the broad context in Section 1 is followed by moredetailed analysis and explanation of the concepts and their implications in
Section 2. After this comes a fuller discussion of PPP in Section 3. This
includes thoughts on how it might intersect with FDI (foreign direct investment), how it is currently being used in development assistance. Section 3
also discusses PPP in Japan. Finally, Section 4 broadly analyzes the material
and more narrowly summarizes the implications for PPP in the Japanese government’ ODA strategy.
8-1-2 Flow of foreign capital into developing countries
The importance of private funds is undeniable, particularly when there areinsufficient development funds. Figure 8-1 shows the transition of the net official and private fund flows into developing countries, as noted above, private
funding being considerably greater than official funding. Until the 1980s, official funds from developed country governments or international institutions
constituted a large share of capital flows. However, in the early 90s, theabsolute amount of private funds increased dramatically so that in 2004, official funds accounted for only 11.8% of all capital inflows, and private ones
accounted for almost 90% (see Figure 8-2).
As seen in Figure 8-1, this surge in private funds is largely attributable toincreased FDI. While the FDI inflow is considerable, the amount from private nonprofit organizations also is non-negligible. The role of FDI and trade211

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Figure 8-1. Net flow into developing countries(one billion
dollars)
350

Official net flow

300

Private net flow
FDI

250

total Net flow

200
150
100
50
0
1980

1983

1986

1989

1992

1995

1998

2001

Source: World Bank (2005)

2004(year)

Figure 8-2. Net flow into developing countries
(%)
100
80
60
40
20
0
1980

1983

1986

1989

Official net flow

1992

1995

1998

2001

2004
(year)

Private net flow

Source: World Bank (2005)

is important, not only for their funding volume, but also because they havesignificant impact on the development of poor countries regardless of private
enterprise intent.
The inflow of Japanese private funds compared to other developed
nations is small and stagnating, contrary to the total ODA amount (seeFigure 8-4). Private funds from Japan were on the increase until 1997 but
have been on the decline since the Asian economic crisis of that year (seeFigure 8-3). Contributions from nonprofit foundations remain at a lower leveland bilateral securities investment has decreased. Japanese FDI, however,has been continuing steadily, which matches the trend of other developed
nations.

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The Private Sector and Development

Figure 8-3. Fund inflow breakdown from JAPAN into developing countries(one million
dollars)
30,00025,00020,00015,00010,0005,000
01992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
-5,000(year)-10,000
ODA

OOF

PF

Private donations

FDI

Source: JBIC institute

Figure 8-4. Private funds to developing countries and international organizations(one million
dollars)
70,000Japan
U.K.
France60,00050,000U.S.
Germany

40,00030,00020,00010,000-10,000

1990~
91

1996

1997

1998

1999

2000

2001
(year)

Source: JBIC institute8-1-3 Background and concepts
The private sector under discussion here is that of developed countries, notdeveloping ones. This is not to suggest that the private sectors of developing
countries are not vitally important. They are, and that importance is emphasized by the Private Sector Development (PSD) programs of the World Bank
involving donors and NGOs. But their role, which will be touched on below
in relation to the World Bank, is tangential to the main topic of this chapter.
By its nature, the private sector is not monolithic so that with respect todevelopment impact, a number of distinctions can be discerned about it and213

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Table 8-1. Involvements of private enterprises into the developments
Development
expectations forprivate enterprises

Incentive for private enterprise to be involved in development
Profitoriented motivation

Unprofitoriented motivation

Volume of fund

1 FDI

2 Donation through corporate
foundation

Technique . know-how

3 BOP business

4 Development-related activities
such as poverty redoction throughthe establishment of CSR

its motivations. The broadest distinction is between government-related private sector involvement and non-government-related private sector involvement. Government-related private sector involvement commonly takes theform of “public-private partnership,” or PPP.
Four types of independent, non-government-related private sector
involvement are considered in this chapter, all of which can impact on thedevelopment process. They are foreign direct investment (FDI), corporatesocial responsibility (CSR), bottom-of-the-pyramid (BOP), anddonation/grant. These four can be cross-categorized into four patterns basedon motive (two motive categories) and content (two content categories). The
motive categories are 1) profit-making and 2) other-than-profit-making; thecontent categories are 1) money and 2) technology/expertise. The four possibilities yielded are shown in Table 8-1.
8-1-4 Government link: PPP and development
Companies will expand their overseas business even into poor countries of
low level economic development if profitability seems feasible. Often, however, investment in developing countries and commercial pursuit carry somuch uncertainty and high risk that business engagement will be deterred.
Obstacles such as incomplete information, inadequate legal systems andinfrastructure, and weak protection of intellectual property rights may be too
daunting to face without strong support. Supportive mechanisms become
necessary to insure against risk and create an investment climate sufficiently
favorable that profit is not only considered possible, but also probable. PPP issuch a mechanism.
Public and private enterprises have separate comparative advantages androles to play in smoothing the way for development. There is, however, apotential for synergy between them that can be triggered by cooperation.
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The Private Sector and Development

Governments can signal private enterprise to intensify commitment to development by compensating for risks or by creating attractive business opportunities. The private sector can respond to these inducements by restructuringbusiness-driven projects to complement public ones. PPP embodies this synergy.
Profit motivation need not exclude business activity from contributing topositive development outcomes if it is pursued within a carefully designed
system supporting development-friendly business activities. PPP is in placein developing countries and some Japanese projects use this mechanism.
Though the term is widely used, PPP does not have a universally accepted definition. The most general definition is government and private enterprise cooperatively engaged in development efforts. A more pedantic definition is “every involvement between the public and private sectors where allor part of traditional public sector activities are transferred to the private sector.” For the purposes of this Chapter, a working definition of PPP is fromthe Japanese Ministry of Economy, Trade and Industry (METI): “cooperative
partnership where both public and private sectors share the purpose of realizing favorable public services”. This interpretation of PPP was manifested by
the government of Junichiro Koizumi in its drive toward privatization of public services.
PPP was conceptualized in the 1990 in the wake of New Public
Management (NPM) in U.K., following the Blair government’s administrativereforms. PPP has had significant influence on administrative efficiency inwestern countries and has been studied in Japan, including at METI sincearound 2001. A parallel move toward administrative reform in developed
countries complemented a global trend toward PPP in development assistance, a field which traditionally was strictly limited to the public sector.
Among donors, the World Bank and the United States (USAID) were
early adopters of the PPP concept. They introduced PPP initially to extend
donor country PPP to private trade and technical assistance, whereby thegovernment offers subsidies to provide the support system for private projects already planned. Eventually PPP came to involve all parties capable ofengaging as service providers in development, not only private enterprise,
but also NGOs, foundations, universities, etc.
One reason why PPP is not yet definitively defined is because there areseveral permutations and combinations involved: various combinations ofdeveloped country and developing country governments, and developed
country and developing country private sectors. The focus here is on partner215

CHAPTER 8

ship between the donor government and private enterprise in the donor
country.

8-2. Private funding and developmental financing
There are four main categories of independent (non-government linked) private sector activities that affect the economic development of poor countries:
FDI, CSR, BOP and donation/grant. Profit motives apply to FDI and BOPbusiness; non-profit motives are applied to CSR and donation/grant. : the former is the purely economic pursuit of profit; and the latter incorporates also a
purposeful contribution to development. The motivation of the first is the normal business goal of achieving a healthy bottom-line. The approach of thesecond is seen in business activities that are deliberately designed to have asocial contribution and development component.
8–2–1 FDI
FDI by multinational companies of developed countries represents thelargest source of private funding into developing countries. The importanceof FDI is well documented in analyses of the economic growth of East andSouth East Asia. However, FDI is not a development tool and the primary
purpose of FDI is not the development of target countries. Private firms
invest in foreign countries, even poor countries, for cost reduction and profit
maximization in the target company.
The East Asian situation clearly illustrates the contribution of direct
investment to economic development. That region’s high economic growth
was almost certainly achieved by organically linking FDI and trade, which isoften called the Japanese development model. The development of the private sector, along with ODA, activated the latent mutual dependence ofinvestment and trade (Urata (2004)).
East Asian countries and South Asian countries have actively been inviting foreign direct investment since the late 80s and the early 90s due to theexternalities carried. The following two externalities have been identified byeconomic theory. First, the high technology, knowledge, and management
resources of developed countries have spill-over effects (technical externalities) on companies in developing countries. Second, the purchase by investing companies of intermediate materials from companies in developing countries leads to increased demand for industries (monetary externalities).
Direct investment helps to transfer the capital investment funds, tech216

The Private Sector and Development

nologies, and management skills severely lacking in most developing countries. Furthermore, countries receiving FDI can utilize the sales and procurement network of foreign companies, expanding trade (both imports andexports) to acquire foreign currency. This allows them to import technologies, intermediate materials (semi manufactures) and capital goods necessary for their economic development. The increase in exports attracts direct
investment and further helps exports. It is this symbiotic, mutually dependent relationship between direct investment and trade that led to the economic development. of the East Asian countries.
In addition to external effects, there is a considerable effect of job creation expected from greenfield investments. In Malaysia in the late 1980s, forexample, the number of employees hired by foreign companies rose by 20%
each year. However, this type of job creation effect is limited and in general acomprehensive effect has not been documented.
However, FDI can also have unfavorable consequences for target countries. Firstly, there is the issue of transfer pricing. It is possible to transfer
earnings by rigging the transaction prices among affiliated companies andlowering the tax paid on site. This intentional price rigging often distorts
international resource allocation. Secondly, when multinational companies do
not offer much learning potential, direct investment may delay change in the
dynamic comparative advantage, thereby worsening economic growth.
Thirdly, increases in imports and capital repatriation can destabilize the balance of payments. Also, some countries fear that foreign companies might
gain political control over their economy by driving out local firms.
8-2-2 CSR
Even while doing business, some companies also pursue activities that reinforce corporate social responsibility (CSR), demonstrating that doing business and making social contributions are not mutually exclusive. While theirscale and impact is relatively small, such CSR activities can be positive forthe development of poor countries and for the development assistance framework as a whole.
The CSR business activities discussed here are limited to those that
acknowledge the support of developing countries as an objective. These business activities differ from activities by foundations whose financial contributions embody an aspect of development assistance as discussed in 8-2-4. CSR
activities are intended to provide the poor with services with each project.
CSR is likely to contribute to development at a more micro level than FDI.
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CHAPTER 8

It was not until in the 1990s that CSR drew international attention. CSR ischaracterized as a major structural change in corporate management.
Previously, corporate social contributions meant the allocation back to society of some of the profit gained through business, arguably somewhat similar
to assistance by foundations. However, the CSR which attracted attention in
the 1990s is a new corporate strategy, a management shift to the attitude thatin all business processes environmental and social aspect should be considered along with profitable ones. CSR strategies are aimed at 1) improving
risk management, 2) enhancing brand value, 3) attracting quality employees,
and 4) improving evaluation by the market.
CSR is a very broad concept, including such business activities as law
compliance and consumer protection as well as development in poor countries. CSR began to be discussed in conjunction with development in the late
1990s. In 1998, World Bank President James D. Wolfensohn proposed a plan,
Business Partnership for Development (BPD), with a British internationalNGO, the Prince of Wales International Business Leaders Forum. Soon after,
at the 1990 World Economic Forum in Davos, U.N. Secretary-General Kofi
Annan introduced a business principle called the Global Compact which was
officially inaugurated in July, 2000. The Global Compact is aimed at spreading responsible corporate activities internationally while solving the problems caused by globalization.
An example of CSR by a western company is offered by the UK-based
Cadbury Schweppes. Cadbury Schweppes took the international initiative ofaddressing child labor on cacao beans. It built a partnership with an NGO topromote cacao plantations in Ghana and to conduct a pilot business for ecotourism. Another example is offered by TPG, an international transportationcompany in the Netherlands. Since December 2002 TPG has worked in cooperation with the World Food Programme (WFP) to apply its specialized skillsin transportation and distribution to food assistance for African farms.
Some companies view their trade structure as a CSR activity and practice
Fairtrade in cooperation with NGOs. Starbucks Coffee has a partnership with
Conservation International, an international environment NGO with activities
in over 30 countries. Starbucks Coffee is cooperatively developing high quality standards for buying coffee, taking into consideration environmental,social, and economic aspects, so that the coffee farmers at the top of the supply chain can produce high quality coffee consistently. Preferences, such as
financial incentives and preferential purchases, also are provided to farmers
meeting the standards. In addition, Starbucks Coffee is contributing to the218The Private Sector and Development

coffee farms by selling Fairtrade coffee in its outlets.
Some Japanese private enterprises have opened departments specializing
in CSR and are engaged in overseas assistance. The Ajinomoto Group , for
one example, set up the Ajinomoto international cooperation network on foodand health in 1999 as a global activity on the principle of making social contributions in the fields of food, health and healthcare, mainly in South East Asia
and South American countries. It works to clarify and solve the food problems that these countries have. In doing so, the Ajinomoto Group cooperates
with NGOs, international organizations, official institutions, education andresearch institutions, local communities, etc. It has thus far completed 10
projects in the Philippines, Indonesia, Cambodia, and Peru, and in 2005 had
six new projects underway.
In most cases, contributions by Japanese companies are made throughdonations which tend to be automatically channeled through businessgroups into well-known assistance organizations. Following a round of supportive assistance after the major 2004 earthquake off Sumatra, however,Japanese companies started to change their attitudes toward assistance. Not
only do they now offer funds, but they have built supportive styles into theirown businesses. For example, in 2006 the Sumitomo Group offered ¥40 million for school constructions and repairs in Africa, choosing World Vision
Japan as the implementing organization. It is becoming more common to findan NGO that fits the need rather than as a means for making support more
publicly evident.
8-2-3 Bottom-of-the-Pyramid (BOP)The concept known as ”bottom of the pyramid” (BOP) finds compatibility
between profitability and poverty reduction by viewing poor people as consumers, that is, as business opportunities. It is a business pattern that considers the poor as clients. It is designed to strengthen poverty reduction whilepursuing business profit. The interest of private enterprises, typified by multinational companies, in the markets of developing countries has generally
been limited to newly emerging markets with a rising middle class. Profit
motivated businesses generally do not touch the poverty issue. By contrast,
BOP oriented businesses seek profits even while contributing to poverty
reduction. Their strategy is to serve the poor profitably by treating poor people in poor countries ― the biggest population in the world ― as customers.
The bottom of the pyramid referred to by the term BOP is, in fact, the poor
who have been given this distinction because they are at the bottom of the219

CHAPTER 8

economic pile. Many of the companies in BOP businesses operate in cooperation with official institutions such as governments or international organizations. These can be categorized as PPP. However, in most cases, BOP companies conduct their business without official support.
Companies motivated by profit recognize the poor to be a new market but
they need incentives to venture into that market. Two sources of incentive
have been indicated in earlier business administration studies. The first isaccess to a market with the world’s biggest population. The BOP market
covers business activities of four billion people, two thirds of global population. If companies can attract these as customers and create acceptable business models, they will have access to a huge population and associated profit.
The second incentive is acquisition of knowledge. By applying the knowledge gained in the BOP market elsewhere in developed or emerging markets, they can learn more about bringing innovations to conventional business styles.
The entry of private enterprise into the BOP market allows the poor
access to a variety of goods and services that otherwise would be difficult toobtain. But in transforming the poor into consumers, more can be provided
through market activity, for example, raising awareness of healthcare andsanitation, than can be provided simply by goods and services. Furthermore,with the active involvement of consumers themselves in business activities, awin-win relationship between companies and the poor can be built, making it
possible to improve their standard of living. BOP demonstrates businessknow-how to developing private enterprises and consequently can contributeto fostering them.
8-2-4 Donations/grants
While they do not seem to be as significant as business sources, private foundations have enormous amounts of money at their disposal which they dispense as donations and grants. They are a major, if sometimes low-profile,source of money for development, especially in the United States. According
to OECD data, funds from that source account for 1.5% of U.S. development
assistance.
As of 2003, there were 66,398 private grant-making foundations in the
United States, with total assets amounting to as much as $476.7 billion andannual assistance funds amounting to $30.3 billion. One of the most prominent is the Bill & Melinda Gates Foundation, founded in 2000. The amount of
its assistance is approximately $1.2 billion, currently ranked first in the world
220

The Private Sector and Development

Table 8-2. Breakdown of development finance in the U.S.
US$(one billion dollars)

Percentage
(%)

ODA

9.9

18

Other official funds
Private funds

12.7
33.6
1.5

22
60

Foundations
Enterprises
Private and voluntary organizations (PVOs)*

2.8

Universities

1.3
3.4

Religlous organizations
Individual remmittance
Total

6.6

18.0
56.2

100

Source: USAID (2003)* In U.S., NGO is useally called as PVO.

in annual private foundation assistance. The Gates Foundation puts particularemphasis and spends large amounts of money on assistance to healthcare
and sanitation projects, closely related to poor country development. In 2005
it donated $750 million (60% of all funds) to support the activities of the
Global Alliance for Vaccines and Immunization (GAVI).
The American social climate in support of developing countries has beenfavorable, with a contribution culture based on religious values, and a social
system that promotes the involvement of private enterprises by establishingpreferential taxation. As can be seen in Table 8-2, private funds in the U.S.
are sponsored by a variety of organizations ― foundations and private enterprises, private and voluntary organizations (PVOs), higher educational organizations (e.g., universities), religious organizations, etc.
Data for Japan in the OECD category of contributions by private nonprofit
organizations show a leveling-off over the past ten years at around $200 million per year. In the United States, on the other hand, as of 2001 such contributions reached as much as $4.5 billion.
There is a huge gap in private grant-making foundations between the U.S.
and Japan. According to the Japan Foundation Center, as of 2004 there were
1,105 such groups in Japan with total assets of some ¥1.5 trillion and project
expenses of about ¥49.5 billion. Of these, only 98 are groups with international programs. Foundations with a focus on international cooperation do exist,
such as the Sasakawa Peace Foundation,. but the contribution of international programs is relatively small in terms of funds flow.

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CHAPTER 8

8-2-5 Section summaryThus far, patterns have been reviewed where companies engage in development. As explained, there are two types of motivation: profit motivation andnonprofit motivation. It is clear that the companies play an indispensable rolein the development of poor countries whether for profit or not. Contributions
through FDI and by foundations are important in terms of their scale. FDI
especially has role in the developments of target countries for jobs creation,
export expansion and acquisition of foreign currency. Attention to CSR has
come not only in western countries but also in Japan. Methods for contributing to development have been shifting from simple donation to practical projects in cooperation with NGOs which are more tailored to development support. BOP business that facilitates development is effective as a starting pointand can be expected to contribute to poverty reduction, although only a few
such examples can yet be seen.
Theses corporate activities may vary depending on the nature of the business involved. It is important, however, to connect these corporate patterns
with effectiveness in developing countries. One way to draw more private
enterprises into development is PPP. As its name suggests, public (i.e. government) private (i.e., business) partnership (i.e., collaborating) is a logicalmechanism for magnifying the positive effects of each.

8-3. Role of PPP
One characteristic of FDI is that it tends to focus on only a few countries.
Figure 8-5 shows the regional breakdown of countries receiving foreign
direct investment. Private funds tend to flow into developing countries thatare expected to have high growth. They flow little into African countries,
which continue to depend on official funds. To further increase investment
and trade, the environment of private business activities should be improved,
but efforts in this area have been limited. One way to address this problem
might be to utilize ODA to mobilize private funds in developing countries andto support the business activities of advanced private enterprises in regionsthat lack satisfactory investment environments; in effect, PPP. In this regard,
the idea that PPP should be strengthened is being well received.
Figure 8-6 shows a diagram of the relationship between public projects(with official funds) and private ones. The horizontal axis represents thesource of funds; the vertical axis represents the commercialism of the project. Low value commercial projects are located in the ODA field covered by
222

The Private Sector and Development

Figure 8-5. Regional breakdown of foreign direct Investment recipient countries(one billion
dollars)
100
East Asia . Oceania
Europe . Central Asia
Latin America . the Caribbean sea
Middle East North Africa
South Asia
Sub-Sahala Africa

80
60
40
20
0

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2000 2004
(year)
Source: World Bank (2005)

Figure 8-6. Image of PPP
commercial viability is highProjects byprivateenterprises
PPP
Official funds

Private funds

ODA

commercial viability is low

official funds whereas high value commercial projects are in the private
enterprise field. The activity field located in the middle between ODA andprivate projects is noteworthy because it allows private enterprise to function
if the public and private sectors cooperate. The PPP approaches of the World
Bank, USAID and Japan below show some of the variations being used.
8-3-1 World Bank approach(1) Business Partnership for Development
To improve the efficiency of development funds, the World Bank works with223

CHAPTER 8

private enterprises under the framework of Business Partnership for
Development (BPD). BPD is thought to be a turning point to promote CSR,
as mentioned in 8-2-2, but it also has an aspect of promoting partnership. To
further development assistance, BPD projects regard three parties, private
firms, governments, and NGOs, as World Bank partners in implementing
cooperative programs. With the tri-sector partnership, the BPD aims to maximize both the profit of each party and the developmental effect, bringing
such advantages as cost reduction and new markets while promoting CSR.
BPD projects also bring momentum and financial merits to NGO activities. It
allows bilateral donors and multinational developmental institutions to cooperate with NGOs in understanding the needs of local parties and to benefit
from private funds as new assistance money. BPD projects, -- often in 1) natural resources (oil, gas, and mining companies), 2) water and sanitation, 3)
human resource development, and 4) traffic safety -- have been conducted by
30 partnerships with 120 organizations in 20 countries between 1998 and2001, using the Development Grant Facility.
World Bank BOP projects attempt to give private enterprise the responsibility for development, involving all its staff and making full use of its
strengths (i.e., expertise and funds). This method was created by a British
NGO and by World Bank President James Wolfensohn so that it contributes
to the spreading of CSR. For this reason, BOP projects often adhere to theconcept of corporate responsibilities at the expense of profitability.

(2) Private sector development strategy
In 2002, the private sector development (PSD) strategy was introduced torealize poverty reduction while taking advantage of private funds. The private
sector is typically considered to be a service provider for the poor. PSD
focuses on two points ― improvement of fundamental service access for thepoor and improvement of investment environments.
①
The improvement of fundamental service access for the poor
In the past, the role of the private sector was the production and delivery of
goods and/or services. PSD changes this by extending the role of its business activities to the final outcome. It is seldom economically feasible to provide the poor with basic services. However, if the associated deficits areborne by development fund subsidies, then private enterprise participation
can be promoted. Subsidies are paid only when the result of the project has
been satisfactorily confirmed, that is, when service has reached the end user(e.g., teachers at work in schools; public phones connected; water flowing
224

The Private Sector and Developmentfrom taps). With this private sector perspective, PSD allows companies todraw highly efficient road maps that insure accountability because the subsidy funds are disbursed only when output has been confirmed, and this canbe factored into the plans from the design stage.
②
The improvement of the investment environment
Another important focus of the PSD strategy is to diagnose and evaluate theinvestment environment properly so as to promote direct investment intodeveloping countries. There are two ways to diagnose: one is “Doing
Business,” the other is “Investment Climate Assessment.” The World Bank’s“Doing Business” ranks 155 countries around the world with respect to rules
and reforms related to business climate indicators such as companies,
employment/unemployment, contracts, taxes, and registration of capital.
“Investment Climate Assessment” was discussed in World Development
Report 2005, “A Better Investment Climate for Everyone.: That report presents results from a survey of 26,000 companies in 53 countries and offers
valuable information not only for development professionals but also for thegeneral business person. The World Bank recognizes the key role that private enterprise plays in the pursuit of growth and poverty reduction. It also
recognizes that earlier reform regarding investment climate has not borne
fruit. Applying objective analysis, it proposes concrete measures to improve
the situation.
The World Bank only recently began to emphasize improved investment
climate in developing countries. It may be correct to say that discussion of
PPP is being shifted away from partnership on projects toward investment
climate improvement.

(3) Security function and political risks
Since the World Bank now focuses on investment climate, the risk guarantee
concerning World Bank investment will be touched upon. The most serious
risk hindering private investment in developing countries is related to government policies, including inconsistent policies and unstable macro-economic conditions. With the call for improved investment climate, the importance of guarantees against these political risks is increasingly being recognized. The Multilateral Investment Guarantee Agency (MIGA), part of theWorld Bank Group, guarantees against political risks associated with direct
investment in developing countries. Even business people who fulfill theircontractural responsibilities may be unable to cope with accidents, natural
disasters, government confiscation, infringements of rights, insurrections,
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Table 8-3. The World Bank group aid scheme for private sectors

1

Investment guarantee to

IBRD / IDA : Finance the developing country government

private investors, financeand strengthen its guarantee capability. The government

for project enterprises

guarantees investors indirectly though the payment
guarantee to the third party guarantee organization.
IFC : Finance 5 to 15% of issued stocks.

2

Debt guarantee to bankloans, syndicate loan to

IBRD / IDA : Support the guarantee business of GuarantCo
through the contributions to PIDG trust fund.

project enterprises

IFC : Lending the project loan not exceeding 25% of thetotal costs. form two-step loan to financial mediators, andSyndicate loan by private banks.

3

4

Funding assistance to

IFC : Give necessary advice to project formulation oradvisory services ofprivate procurement

project restructure. Give grant aid for feasibility study by
private enterprises through the project development facility.

Political risk guarantee

MIGA : Give political (non-commercial) risk guarantee
directly to investors.

Source: IFIC in JICA (2005)

riots, acts of terrors, or civil disturbances. Unanticipated political risks makeit difficult to stipulate responsibility for losses contingent on the risks associated with contracts between private enterprises in developed countries andgovernments in developing countries. They also are likely to inhibit the
progress of FDI itself. MIGA compensates directly loses caused by such
events. Other organizations in the World Bank Group, such as IFC, haveother schemes but it is MIGA which provides insurance against politicalrisks (Table 8 – 3).
8-3-2 USAID Approaches
In the United States, the government has designed a system that supports
active involvement by private enterprise in development. This is an advanced
example of PPP assistance where effective developmental support associatedwith private funds is needed.
In the US the involvement of private enterprise in development assistanceis relatively high. Official funds account for 40% of all assistance from the U.S.
while private funds accounts for 60%. Private funds come from foundations,
PVOs, religious groups, and universities. With this magnitude of private
enterprise involvement, USAID has been promoting partnerships with private enterprise. In the U.S., the form of PPP used is referred to as PublicPrivate Alliance (PPA), “a new business model of USAID in the 21st century.”
PPA aims to address development problems beyond the scope of USAID byintegrating through alliances of more than two parties. PPA’s main character226

The Private Sector and Development

istics are 1) shared developmental problems that cannot be solved individually, 2) sharing resources, risks, and outcomes for a common purpose or problem, 3) comparative preferences of each party, and 4) promotion of private
enterprises involvement in assistance with both funds and materials.
In 2001, the Global Development Alliance (GDA) was founded as adepartment under the direct control of the Administrator to control USAID
PPA strategies. GDA’s role is to find partners and to be sure that they clearly
understand USAID policies. Partners submit proposals, called Annual
Program Statement (APS). A main role of USAID is to manage the GDA
Incentive Fund, a foundation used as seed money to encourage PPA projects
and promote relationships with private enterprise. USAID also carries out
evaluations of the partner candidates, ranks supporting programs, and monitors project reports and surveys.
PPA builds a variety of partnerships, including with foundations, NGOs,
governments, research institutes and private enterprise in developed anddeveloping countries. As of 2004, 290 PPAs had been concluded with 339
companies and 89 foundations, and the number is increasing annually. The
amount of money supplied to GDA also is increasing. The amount of private
funds supplied to the program is larger than that supplied by USAID itself. In
2002 more than $1 billion out of $1.2 billion was from the private sector andin 2003 more than $1.2 billion out of $1.5 billion came from that source. PPA
projects cover a range of sectors: education, healthcare, environment, occupational training for young people, information technology, small- and medium-size business development among others, and many of them targeted at
African countries.
The GDA approach is conceptually similar to the Development
Partnership pursued by the World Bank in the sense that it focuses on theimportance of involving various staff and typically focuses on visible outcomes for individual sectors.
8-3-3 Partnership example ― the GAVI case
The Global Alliance for Vaccines and Immunization (GAVI), which notably
includes the United Nations and the Bill & Melinda Gates Foundation, is therepresentative case of PPA under USAID. The GAVI initiative began in 2000
to tackle the problem that more than two million unimmunized people dieannually in poor countries from diseases for which immunizations are available. GAVI has worked to improve the intake rate of fundamental vaccines,
promote the introduction of new vaccines, and strengthen the vaccine distrib227

CHAPTER 8

Table 8-4. Breakdown of GAVI funds (as of March, 2005)
Disbursement(one million dollars)
Pleadged amount

Canada12.67

149.44

Denmark
France

4.49
6.03

0
12.06

Ireland

1.78

0Neatherland
Norway71.26
101.94

17.33
282

Sweden

12.52

14

EU
Luxembourg

1.26
0.61

17.28
0

U.K.
U.S.

50.78
218.73

13.58
64.48

Donor gavernments sub total

482.07570.17

Bill&Melinda Gates Foundation

758.5

750

Other privates
tatal

4.23
1244.801320.17

Source: GAVI Website

ution system in the poorest 72 countries, thereby saving 670,000 infants born
between 2001 and 2003.
GAVI partners include the international organization (United Nations,
UNICEF, WHO, World Bank), foundations (Bill & Melinda Gates
Foundation), NGOs (International Pediatric Association: IPA), vaccine makers (Merck Vaccines and Bio-Manguinhos/Fiocruz), developing country governments (Benin, Cambodia, Ghana, Bangladesh), technology and healthcare institutes (Health Canada), research institutes (University ofGothenburg in Sweden), and developed country governments. The breakdown of these funds is seen in Table 8-4. As can be seen, the amount fromthe Gates Foundation is the largest, surpassing those of developed countries.
8-3-4 PPP in Japan
As noted above, in Japanese PPP refers to the partnership between theJapanese government and Japanese private enterprise. The Japanese version
of PPP has three notable characteristics. First, it has been oriented towardbuilding an environment that allows the development effect of private enterprise to flourish by encouraging FDI endeavors by Japanese companies inthe economies of developing countries. Second, it creates commercialism
while intervening in the market to induce the development impact of private
sector involvement. In this, it differs from the western PPP approach of con228

The Private Sector and Development

necting governments with existing private business activities. Third, PPP
projects are centered on the construction of infrastructure demanded indeveloping countries. The Japanese government might subsidize or compensate private companies to enter public projects previously financed by ODA.
One reason that such infrastructure projects receive attention is that METI,
responsible for infrastructure projects, has taken initiative in PPP.

(1) Characteristic of PPP in JapanMETI and JICA have released their respective research reports on PPP. Bothreports discuss how to promote PPP in Asia. The METI report summarizes
September 2004 discussions by the PPP study group of the Trade andEconomic Cooperation Bureau. It examines PPP with respect to the development of infrastructures and under the assumption that Japanese companies
will participate in the projects. Analysis in the JICA report ranges from infrastructure to education and healthcare sectors.
(2) From Japanese version PPP to Asian version PPP
As a preliminary step in its discussion of development assistance and PPP,
METI has been working toward a Japanese version of PPP, pursing the privatization of public services to induce new service industries that would easefinancial deficits, improve the quality of public services, reduce costs and create new jobs. In Asian countries there is a high demand for improvements ininfrastructure and administrative services. METI addressed the problem of
how to build a system that could make infrastructure building and maintenance more efficient in Asian nations by promoting PPP across Asian countries. As the best means of dealing with these issues, METI proposes that theJapanese government and companies work on them cooperatively.
Specifically, the government would convert areas where a lack of commercial
interest discourages private enterprise into ones which offer acceptable commercial return thereby encouraging the establishment of private businesses
searching for profit.
PPP as proposed by METI pursues efficient assistance through the entry
of private enterprise. It does not entail blurring the line between the government and private companies, but it concretely specifies collaboration amongfour parties: the Japanese government, Asian governments, Asian private
enterprise, and Japanese private enterprise. The aim is to realize efficient service through increased competitiveness resulting both from administrative
efficiency reform at the government level and management efficiency reform
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Table 8-5. Japan's PPP cases (designed public & managed by private)
Main construction
Laem Chahang Port
(Thai land)
Port and Colombo Portharber(SriLanka)
Constanta Port
(Romania)

O&M

loan

Marubeni-Kamigumi, NYK

loan

P&O

loan

Dubai Ports Autholity
Thai leading civil engineering company

Railway

Water

Bangkok Subway
Manila Water(Philipeans)
Beijing CapitalInternational Airport

Airport(China)Viru-Viru Airport
Terminal(Bolivia)

loan

loan

accepted the siemens participated in thevehicle system
Ayala (Philipean local company)
Mitsubishi Corporation

loan
Paris Airport Authority
Chinese enterprices

loan

U.S. AGI

Source: METI (2005a)

at the level of the firm. There is basic recognition behind this promotion of
PPP in Asia that Japan will be strongly involved in the export of Japanesebrands and Japanese infrastructural services. There is no question thatJapanese economic assistance, focusing on infrastructure, has a role in theactivation of private production, trade, and investment.

(3) PPP cases
Generally PPP is active in such areas as ports, trains, water systems and airports, which private enterprise cannot afford to develop as public projects butwhere private enterprise is involved in operations and maintenance (O & M)
(Table 8 -5). However, PPP also covers some administrative service information technology (IT) fields, such as electric procurement systems, wirelessinternet protocol (IP) phone systems, and electronic passports.
8-3-5 Issues in introducing of PPP in Japan
It is important to promote PPP in Japan expeditiously but there are three
related issues: risk reduction, funding cooperation, and strategic business.

(1) Risk reduction
The biggest issue in promoting the participation of Japanese private enter230

The Private Sector and Development

prise in PPP is how to share the risks. It is important to keep in mind management of the risks ― the way the risks can be reduced. METI proposes
solutions for two types of risk: project finance risk (e.g., contracts and compensations for loss) where recovery is possible through market mechanisms;
the other is the political commitment risk associated with PPP in developing
countries.
①
The establishment of business platform and information provision
The risk in projects currently implemented is handled by private enterprise.
The concrete solution is to improve the capacity as total service provider (theability to supply general services). Although Japanese companies are highly
capable in the infrastructure area, they have lacked international competence
in structuring the industry as a system and coordinating each field as a total
service. Asian Public Private Partnership was founded in January 2006 to create a business platform for discussing corporate capability on PPP activities.
This partnership allows private enterprise to discuss and exchange information on ways to promote Asian PPP. Asian PPP will activate a system whereby information from the government is sent to each company through thebusiness platform. For this partnership, it is important to have access to
information on business environments, such as that which is collected by theWorld Bank. A system is required that will translate objective data like Doing
Business into Japanese so that private enterprise will have insight into international discussions and information necessary for decision making.
②
Dialogue between governments
It is an absolutely necessary condition for PPP that the partner governmentis involved because the government and private enterprises have complementary roles. Ensuring the partner government’s commitment is important.
For this reason, it is important also to discuss a system for the partner government to enhance the reliability of that commitment (such as legal infrastructure development including information disclosure and penalties) rather
than to engage in bilateral political dialogue. METI is promoting the establishment of a bilateral PPP working group with each Asian country to provide
a platform for the partner government to discuss proposals as well as to promote discussion with the Japanese government. In March, 2005, a PPP forum
was held in Bangkok followed by another one in Jakarta.

(2) Cooperation with private funds
Attention has been given to cooperation with private funds to realize PPP
business. One reason for this is that the financial system vulnerability which
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CHAPTER 8

caused the 1997 Asian currency crisis has not been fully resolved. This vulnerability should be addressed because such crisis adversely affects the private sector in the financing of infrastructure building and maintenance①
Project finance
METI is proposing a financial package of Asian PPP combined with various
project finance sources. Specifically, it is proposing a project finance revenue
bond in fields where private enterprise already is involved. However, further
research must be conducted as there is not yet sufficient analysis to support
the plan. An alternative is to use sector loans and grant aid to implement market enhancement for the purpose of extending the fields suitable for the
future entrance of private enterprises.
②
Review of developmental finance including ODA
Developmental finance including ODA is also being reviewed. Some specificplans are being mentioned: introducing more flexibility into ODA, making it
possible to provide ODA to sub-sovereign partner governments, providing
ODA for O&M, and enhancing market mechanisms in cooperation withother international institutions. In this regard, it is important to examine institutionally the Nippon Export and Investment Insurance (NEXI) system, especially in terms of the needs of Japanese firms.

(3) Strategic infrastructure development
The third major issue is to tackle infrastructure development more strategically. It is important for both the government and private enterprise to be
involved in each step of the project (plan, proposal, implementation, and evaluation). The condition of infrastructure development in developing countries
already illustrates the difficulty for government to establish an optimum private investment environment that will produce a PPP investment climate. For
this purpose the following should be considered: 1) form partnerships withprivate enterprises that are familiar with the economy of the country in which
PPP is to be implemented, 2) make policy proposals for legislation related to
privatization and develop the business environment through partnerships,
and 3) implement specific privatization projects in developing countries aspilots where policies and environments have already been devised. It is also
important to involve private enterprise in revenue bond feasibility studies.

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The Private Sector and Development

8-4. Conclusion – Contributions to Development byprivate enterprise
Economic development as a recognized process is relatively recent (since
the post-World War II era), and social development is even more recent.
Within this short historical timeframe, FDI and trade have predominated,
contributing significantly to the development of target countries. The dramatic economic growth of South-East and East Asian countries after the late1980s offers a clear example of FDI and trade activity impact. The role played
by Japanese private enterprise in this process illustrates the vital contributions that the private sector can make to sustainable development.
The growth of Asian countries, including India, and the stagnation of subSaharan African countries indicate that private enterprise plays an essential
role in the economic growth necessary for development. Since the fall of theSoviet Union, the government-led socialistic approach to development has
been refuted. Nonetheless, in some African countries where the private sector is almost non-existent, making consistent progress in poverty reduction
and attainment of the Millennium Development goals (MDGs) difficult. In
recent years, the major donors, including the World Bank, have reaffirmed
the importance of the private sector.
Japanese private enterprise and ODA have played a major role in thedevelopment of East and South East Asia. The apparent impact of FDI andprivate enterprise on development has given Japan a sense of comparativeadvantage for a development strategy based on private enterprise. The current ongoing recovery of the Japanese economy is quite likely to create interest among Japanese companies in the problems (e.g., poverty) of developing
countries. As mentioned earlier in this chapter, compared to western countries, Japanese companies have made surprisingly little contribution in thisfield, due perhaps to differences in culture and history, and possibly tax
regimes. However, as mentioned in Chapter 1, it unrealistic for Japanese private enterprise to remain indifferent to the issues of developing countries.
The Japanese government should provide incentives to the private sector,
including PPP discussed here, so that they can increase their contribution toeconomic development. Based on the above analyses, some of the ramification of optimal involvement by Japanese companies are suggested, especiallyas related to the role of PPP.

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Table 8-6. Involvements of private enterprises into development and PPP
Profit oriented motivation
Japan's PPP(promcted by METI)

Non-profit oriented motivation

1 FDI

2 Donation throughcorporate
foundation

3 BOP business

4 Development-related activities
such as poverty redoction throughthe establishment of CSR

definition by PPP the World Bank and USAID

8-4-1 PPP and contributions by private enterprise to development
FDI is development financing by private enterprise which contributes to job
creation and technology transfer in developing countries while pursuing profit. Firms that provide FDI, regardless of their intentions, carry indirect development effects. Supportive activities are provided through CSR for companies willing to be more directly involved in development result. The development impact of CRS is not as great as that of the companies’ own businessactivities but its effect is more direct because CSR focuses at the projectlevel. Whatever the motivation, PPP functions to involve private enterprise indevelopment. In the West, not only private enterprise but NGOs and foundations are considered to be PPP development partners, maintaining their partnership to support corporate CSR activities and BOP business. In Japan, PPP
measures being addressed include sharing with the government the cost andthe risk associated with corporate involvement and promoting private enterprise participation. These are issues relevant to the promotion of direct
investment based on corporate profitability. The difference between theJapanese and western approaches, therefore, seems to be, as shown in Table
8-6, that in Japan PPP is viewed mainly as enhancement of partnerships that
promotes FDI while in the West it has multiple purposes.
8-4-2 Implications for development by the Japanese private sector
The realization of a business based PPP in which Japanese companies can be
expected to make contributions to development will require consistent effort.
In the future it will be important to structure alliances so that all private sector interests are engaged as development players.
To achieve that objective, there are some issues to be clarified both in theprivate sector and in governments. In the West all stakeholders in private
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The Private Sector and Development

enterprise may be involved in development. It can be assumed, therefore,that this style of PPP rests on a high CSR familiarity among companies and awider social atmosphere for tackling developing country assistance. At thesame time, as shown in section 8-3, new movements among private enterprise are visible, for example, rising interest in CSR and implementation bycompanies themselves directly through NGOs. To accelerate these movements in this globalized age, such companies will increase their CSR participation, implying that more research on CSR and corporate development isneeded.
One area government should consider to enhance the active involvementof private firms in CSR is preferential tax treatment. Simplifying procedures
for NGO development assistance will facilitate private sector involvement.
With an eye toward constructing partnerships so that more Japanese private sector interests can be incorporated in development, PPP issues should
be addressed to promote private enterprise participation. The Japanese ODA
system is now undergoing drastic, change, making it necessary to develop
new developmental strategies that involve private enterprise or other private
sector interests rather than simply implementing traditional activities at the
government level.

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238

9
Africa’s Poverty Reduction Strategy

Yuichi Sasaoka1

The goal of reducing poverty in Africa is attracting more attention than everbefore in Japan and the international community.2 Since many African countries gained their independence in the 1960s, it has repeatedly been said thatdevelopment has failed in Africa. The 1970s was the era of ‘big government’in which government projects and public enterprises expanded enormously.
This development methodology collapsed, and with rising primary commodity prices, Africa faced inflation, budget deficits, and political instability. From1980 through the early 1990s, the World Bank and the International
Monetary Fund (IMF) implemented Structural Adjustment Programs (SAP)in over 30 African countries that included market liberalization and promoting macroeconomic growth. Until the end of the 1980s, aid competition
between the East and West blocs under the cold war excessively increased
the volume of Official Development Assistance (ODA) to Africa.
During the cold war, the ‘quality’ of democracy and political and social
governance were not an issue if a new African state belonged to either Eastor West bloc. Serious problems seen in the Mobutu dictatorship in former
Zaire, human rights abuses in Nigeria, and apartheid in South Africa were all
overlooked in the early stages. In the early 1990s, Europe and the UnitedStates decreased their ODA to Africa, the continent made little progress, andgovernance remained weak. Among donors, a phenomenon called ‘aid
1. Sasaoka is a visiting senior advisor on development policy, Institue for International Cooperation(IFIC), JICA and a former professor at the National Graduate Institute for Policy Studies (GRIPS).
2. In this paper, Africa refers to sub-Saharan Africa (SSA). However, the African continent as a whole isalso a frequent topic of discussion; it is a ground for research and the creation of organizations andmovements focusing on development. The African Union (AU) and New Partnership for African
Development (NEPAD) are organizations that cover the entire continent.

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fatigue’ set in and economic assistance shifted to regions with emerging
demand such as Eastern Europe. Skepticism spread among donors,
researchers, and civil society about hopes for African development.3
On the other hand, a framework for a new world order was being developed that included low-income countries marginalized under globalization. A
declaration of the 1990 Houston Summit was intended to promote democracy
worldwide during the 10 remaining years of the 20th century. For African
states facing declining financial aid, political liberalization (democracy) was
not an option, but an obligation (Young, 1991). A new era began where additional aid would be granted provided that good governance and democracy
were promoted, however, aid would be cut immediately if progress seemed
minimal. At the same time, a new development strategy was introduced that
focused on aid to low-income countries using the World Bank’sComprehensive Development Framework (CDF) and the Poverty Reduction
Strategy Paper (PRSP) as a core approach.
Funds of ODA from the Development Assistance Committee (DAC)
dropped from $14 billion in 1994 to $10 billion in 2001, however, Africa again
became a concern to European countries around 1999 when leaders at the
Cologne Summit agreed on an enhanced Heavily Indebted Poor Countries(HIPC) initiative. Following this action was approval by an IMF-World Bank
Joint Development Committee of the Poverty Reduction Strategy Paper(PRSP) in 1999, and adoption of the Millennium Development Goals (MDGs)
in 2000. Following the terrorist attacks in 2001, the United States has madeambitious efforts in poverty reduction, linking it to counter terrorism measures. In the same year the New Partnership for African Development(NEPAD) was enacted, in 2002 the African Union (AU) was established, andin 2003 the Evian Summit set forth an African agenda and the Third Tokyo
International Conference on African Development (TICAD III) was organized. Promoting aid to Africa has gained international momentum and is
growing.
With these preceding actions, 2005 was designated as the Year of Africa
and the international community has committed to support the continent’s
3. Several researchers examined the causes of Africa’s slow development. Fukunishi and Yamagata(2002) pointed out prime factors such as natural conditions and ethnic diversity, and also referred topolicy-related factors such as premature opening of markets and low-quality education. Sachs-Warner(1995) said low rates of life expectancy and closed markets are major factors. Easterly-Levine (1997)
explained that heterogeneity in society (such as ethnicity) was a factor behind government economic
policies that hinder growth. According to DfID (2001), armed conflict has become one of the mostimportant causes of poverty in Africa.

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rebirth. The UN (UNDP) Millennium Project and the Commission for Africa(CfA) issued a report explaining the severity of Africa’s problems such as
poverty, HIV/AIDS, and conflicts; and the importance of international cooperation to solve these problems. A considerable number of African countries
have successfully improved their governance and achieved sustainable development, and through AU and NEPAD, Africa is undertaking positive politicalaction toward regional integration and good governance by its people.
Alongside these international campaigns, the Gleneagles Summit in July andthe United Nations World Summit (High-Level Plenary Meeting of the 60th
Session of the General Assembly) in September reached significant agreements. Industrialized nations pledged to double their aid for Africa.
Cooperation between industrialized countries and Africa has advanced.
Although African development has not been successful, it will see a massive
increase in new aid and enter a new phase (see the subsequent section by
Sugano for details on Africa’s current development strategies and their policy
implications).
This chapter will examine some of the significant development approaches for Africa and also make suggestions for Japanese aid. The first section
will review the concept of a Poverty Reduction Strategy (PRS) as a national
strategy, while the second will observe the core sectors presented in the PRS― primary education, agriculture and rural development, and infrastructure.
The third section will discuss aid modalities, which are also relevant to these
sectors. The fourth section will examine the future course of Japan’s development with specifics for implementation, and the last section will summarize
the entire chapter.

9-1. PRS as a national development strategy
The PRS ― which has been widely accepted in the development community
with the start of this century ― is not simply a framework for low-income
countries such as those in Africa to accept loans from the International
Development Association (IDA) and IMF. It has a major impact on the overall policymaking that determines a country’s development strategy.4 As ofJune 2005, 49 countries have prepared a PRS. More than one-half are fromAfrica and more than one-half are HIPCs (World Bank and IMF, 2005:1).
Under a partnership principle, governments in collaboration with develop4. For details on the political significance of the PRS, see the subsequent section by Sugano.

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ment stakeholders plan, implement, and monitor the PRS, hoping that thispartnership will increase the scale of operations, reduce government transaction costs, and improve accountability.
In connection with a series of institutional reforms, development activities
show progress in countries that have already engaged in the PRS process.
Contributing to the progress are various reform initiatives introduced within
the last 10 years such as public sector reform, Sector Programs (SP), Public
Financial Management (PFM), and decentralization. Institutional reforms are
implemented for various reasons, for example, in Uganda a public service
delivery reform was adopted in response to a Public Expenditure Tracking
Survey (PETS) that made it apparent that aid was not reaching final service
points (Reinikka and Svensson, 2002). However, many reform programs continue to be donor-led because they are linked to policy conditions and governments are unable to take full ownership.
The PRS needs to address the appropriate role of the government andmarkets to meet each individual country’s development and identify which
sectors should be given priority for government resources. Each African
state should make this decision, however, this also becomes a difficult problem for donors when holding policy dialogues with the recipient country. If
the PRS requires global integration of free competitive markets and is only
an extension of the “Washington Consensus” in which structural adjustments
policies are promoted, the PRS may not be able to seek a proactive role forthe government (Rodick, 2001). Conversely, if the PRS is looked upon as
incorporating a new social policy perspective ― the attainment of MDGs ― itthen functions as a strategy of ‘inclusive’ liberalism (Craig and Porter, 2003).
In the past policy interventions to improve living conditions for the poor
took contrasting approaches (Ahluwalia, 1990; Bhagwati, 1988; Dreze andSen, 1989). On one hand was an indirect strategy, in which economic growth
was emphasized and the benefits of growth would trickle down to the poor.
Dreze and Sen refer to this approach as ‘growth-mediated security.’ On theother hand was the direct strategy, in which income would be diffused in amanner favorable to the poor, creating a more desirable state of consumption
for the poor, and leading to poverty alleviation. This approach is referred toas ‘support-led security.’ Shigeru Ishikawa (2002), while emphasizing therole of the developing country government, contrasted these approaches as
the ‘broad-based growth’ approach and the ‘pro-poor targets’ approach. The
former takes growth promoting measures through building infrastructure
and introducing industrial policies and aims to sustainably reduce poverty by242

Africa’s Poverty Reduction Strategy

redistributing the benefits of growth. The latter takes measures to expand
basic services such as those of the social sector and focuses on immediate
action in saving the poor from harsh living conditions.
When the first round of PRSs were prepared in each country, a ‘pro-poor
targets’ approach were emphasized. The PRS is a set of aid programs withpoverty reduction as its overarching goal, along with sector programs in boththe social sectors and productive sectors (such as agriculture and roads).
The PRS and sector programs share factors such as inclusiveness, a resultsorientation, and participation and do not contradict each other theoretically,
however, the final outcome of a poverty reduction approach needs to be confirmed by monitoring and an Annual Progress Review (APR). The sector program is effective at achieving development goals by sharing policies andstrategies among donor partners. Moreover, it also has an objective torestructure the government’s recurrent budget to meet the volume of aid,
reduce the recipient country’s transaction costs imposed by the various
donor systems, and promote coordination on specifications (of tools andmachinery) for future maintenance purposes.
When compared to other regions, Africa’s low-income countries apparently improved their human development index between 1998 and 2002, indicated by measures such as primary education completion rates, measles vaccination rates, and access to safe water (World Bank and IMF, 2005:6).
Nonetheless, sector programs are criticized because their basic principles
appear uniform,5 but the similarity of African sector programs is a result of
their European origins and ideology developed after the colonial period.6
Emphasis on the ‘broad-based growth’ approach is gradually growing in
the PRS process of each individual country. Although budget limitations
make it difficult to pursue these two approaches simultaneously or combine
them to develop the most appropriate strategy, there is significance in theseactions. Growth promotion was not disregarded when the PRSP was still in
its planning stage in Washington (IMF-WB, 1999). At that time the social sector attracted attention due to external factors such as the HIPCs initiative andadoption of the MDGs and an internal factor, commitment to democraticelections. There was also recognition that in order to reduce poverty, it was
5. Other criticisms argue that uniform programs are forced on several countries and participation frompeople of all levels is not achieved (McGinn, Samoff), and that donors who are the majority actually
gain more power than the recipient government, creating a hierarchy of power among donors (Klees).
See also Chapter 3.
6. Policies that guarantee a minimum quality of service to be received by its people (National MinimumStandards) come from a social ideology.

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CHAPTER 9essential to establish industries that generate employment.
The major donors’ plan to expand aid to Africa in preparation for the 2005
Gleneagles Summit accelerated the move to integrate the two
approaches/strategies (hereafter referred to as the ‘mixed strategy’).
Furthermore, the Sachs report and the Commission for Africa report pointed
out that with increases in the amount of aid to Africa, strengthening governance and promoting infrastructure investments would be significant in addition to improving the social sector.7 NEPAD shares this position and theWorld Bank in its Africa Action Plan presented the importance of shared
growth through private sector promotion, exports, and infrastructure investments (WB, 2005).
With an increase in the volume of aid, the current international tone of
the PRS generally accepts the ‘mixed strategy’. In Tanzania, it appears thatoveremphasis on a certain sector will not only raise political opposition, butwill also diminish incentives if it becomes part of the structure. Hence in 2005
a second round of PRS was prepared that is more flexible but also more complex compared to the first. With the exception of post-conflict countries, thetime has come to specifically develop a strategy that integrates the social sector and productive sector. Concrete methodology of PRS in each country has
not yet provided a clear outline of sector planning especially in the productive sector and is expected to make significant progress.
In recent years African nations have come to focus on their weak governance.8 The Commission for Africa has stated the importance of promoting
democracy and improving governance because these institutions are necessary for poverty reduction (CfA, 2005). Weak governance allows ethnic conflicts to emerge and patron-client relationships to exist. Progress is necessary
in governance and democracy, but the European and American model cannot
simply be applied. African states face challenges posed by the contemporary
world and many are still in the process of becoming modern states. The
development mechanism that is supported by a system of people sharing
benefits with the community is generally weak.

7. Killick’s (2005) view is that increases in investment should be performed cautiously and should not bemade in haste.
8. In NEPAD’s framework document (October 2001), one of the factors for Africa’s stagnant economic
growth is attributed to “poor leadership, corruption and bad governance in many countries” (Article No.
22).

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9-2. Core sectors and their future direction
This section will discuss three core sectors presented in the PRS ― primaryeducation, agriculture and rural development, and infrastructure. Priority setting of these sectors differs depending on the individual country and timing,
however, these sectors help to understand the significance of an ‘mixed strategy’. Every sector has the characteristics to apply itself to the mixed strategy,
for example, in the field of water resources, water used for drinking purposes
will fall under the social sector, however, water used for agricultural purposes will fall under the productive sector. Resource allocation is not only an
issue that affects the combination of different sectors, but is also an issue
within each sector.
9-2-1 Primary education
In the PRS, the social sector generally includes primary education, healthcare, HIV/AIDS, and infrastructure (such as providing water and developing
roads in rural areas). With the influence of MDGs, these pro-poor public
expenditures are increasing in countries implementing their PRS. According
to the 2005 IMF/World Bank review, among the countries that qualified forassistance as HIPCs, annual expenditures by 27 countries on poverty reduction as a share of GDP increased from 5.5 percent in 1999 to 7.8 in 2004 (theentire developing country rate was 6.4 percent in 1999 and 8.3 percent in2004). Educational spending, along with healthcare expenditures, dominate amajor proportion of the pro-poor expenditure, however, the proportion of
public expenditures on education in Africa is not particularly high.
Educational spending as a percentage of GNP in developing countries was
4.0 percent in 1998 and 4.2 percent in 2001, whereas in Africa, it was 3.8 percent in 1998 and 3.4 percent in 2001 (UNESCO, 2005:368).9 Considering
Africa’s exceptionally high fertility rate, educational spending per child would
be even lower.
Until the 1980s, developing countries had a positive view about the relationship among educational spending, education indicators, and economic
growth. However, cross-country analysis conducted during the 1990s foundno correlation between educational spending and school enrollment.
Likewise, no correlation was found between public spending on healthcare
and the mortality rate of children below five years old. Pritchett (2001) point9. The major cause for the increase and decrease observed in each group is considered to be the result of alist of the countries which were surveyed in time.

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ed out that the effects of investments in education were diminishing due toproblems in educational systems and governance. In rural areas, systems
that deliver public services to the least privileged are extremely weak and thequality of public services is exceptionally low. The effects of public spendingon the social sector in low-income countries were ambiguous according to
the 2000 World Development Report (WB, 2000a). Although there was evidence that improved education and healthcare contribute to accelerating economic growth, for a number reasons, the report remains skeptical about theeffects of public expenditures in low-income countries.
Sector programs that center on education and healthcare are associatedwith a number of policy reforms. The Universal Primary Education (UPE)policy exempts primary education school fees in an effort to provide every
child with an opportunity to attend school. Uganda’s primary education is an
excellent example of quantitative expansion ― school enrollment increased
from 2.8 million in 1996 to 7.6 million in 2004. This increased the opportunities for girls from poor households to enroll in school (Deininger, 2003;
Nishimura, Yamano and Sasaoka, 2006). In 2003, Kenya implemented a similar policy and school enrollment increased from 5.9 million to 7.7 million.
However, a sudden increase in school enrollment has lowered the quality ofeducation and made the problem of efficiency such as increase of theabsolute number of dropouts and repeaters.
Following institutional reforms and economic growth during the latter
half of the 1990s, statistical surveys conducted by individual countries
revealed the positive effects of investments in education. A survey in
Tanzania showed that households with a parent with some secondary education or higher had over four times more income than that of a householdwith a parent with no education (TNBS, 2002). For an accurate assessment of
this association, it would be necessary to know the income level of the household in which each parent was raised, yet the survey serves to promote
enthusiasm for education in Africa.10 Reasons why Africa has not been able
to demonstrate the positive assessment of education, in addition to
Pritchett’s remarks on governance, can be attributed to the low quality of statistical data and the biased distribution of resources (which are concentrated
in urban areas).
Per capita educational spending and gross enrollment rate both reached
10. Educational spending is not the main determinant of educational outcome. Household characteristics,
particularly income, parents’ educational background, and literacy are considered to be more significant(ODI, 2003).

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their lowest levels in 1990, however, in recent years they showed moderate
improvements, thus forming a U-shaped curve. The decline stemmed fromlack of funds due to growing external debt and the collection of school fees
conducted under structural adjustment policies (the introduction of costsharing) (WDR, 2000:57). Per capita educational spending and gross enrollment rate showed a positive correlation from 1980 to 1985, but despite
increased per capita educational spending, enrollment did not increase
because enrollment of girls reached a plateau. The UPE policy of each individual country under the current PRS is making the trend of increasing
school enrollment of girls more apparent.
Besides economic development, another hypothetical effect of educational investment is progress in the area of population control. Past arguments
about the relationship between educational spending and population growth
took place within each country, and insufficient data have raised contrasting
views. Ainsworth et al. (1996) conducted research on years of girls’ schoolingand fertility rates in 14 countries and found that when girls received primaryschooling for more than three years, the fertility rate dropped in one-half ofthe countries. Moreover, if they moved on to secondary school, the fertility
rate dropped in all the countries surveyed. This research calls for further
examination on the assumption that basic education has a positive effect oncontrolling population growth. On the other hand, opposing views were presented by Garenne and Joseph (2002). After an analysis of more than 20
countries, they said that urbanization, decrease in mortality rate, and wider
acceptance of contraceptive uses were the determinants for decline in fertility
rates, and that the effect of girls’ education was uncertain. In an attempt to fillin the gender gap, however, there is no opposition from stakeholders against
public policies that prioritize education for girls.
If the enrollment of more girls in school can have positive effects on
future demographic stabilization in Africa, it would be advantageous toincrease investments in primary education, provided that girls’ reproductive
health rights are respected. Educating girls can have other effects such as
delaying marriage and childbearing, improving the mother’s knowledge ofhygiene, enhancing the mother’s ability to plan rationally and her environmental management skills. Education may also enhance confidence, and thus
mothers may gain a greater voice within the household. Africa’s high fertility
rate is related to factors such as high mortality rates, slow development of
the monetary economy, children being valued as a source of labor, and risk
management for women with weak property rights. Looking at fertility
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CHAPTER 9changes between 1980 and 2000, there is a noticeable fact. The fertility rate
in Africa was not that much higher than that of other regions in 1980(Africa
was 6.8 and the average of developing countries was 6.1). In the following 20
years, however, other regions have almost cut their fertility rates in half,whereas Africa’s reduction remains at 16 percent (UN, 2002). Apparently further measures are necessary to control Africa’s population growth.
In addition to these arguments and assessments, some believe that post
primary education is important to determine the requirements for future economic growth. The same applies to higher education and advanced scienceand technology education as well as R&D. However, it would be impossible
to make immediate increases in resources for all sub-sectors. Emphasis on
primary education can be justified for several reasons. One is the international goals like MDGs and Education for All (EFA). The second is the argumentthat a policy should be given time to reveal its outcome. The third is the prerequisite for the next level of education. With these arguments in mind, it isimportant to assess educational spending in a medium- to long-term timeframe using an ‘mixed strategy’ perspective, which should also be developed
to exploit the synergy from investments in education and other sectors.
9-2-2 Agriculture and rural development
Land productivity in African countries compared to other developing countries has shown little increase since 1961. According to the Food andAgriculture Organization of the United Nations (FAO), it took Africa 40 years
to increase yields from 700 kilograms to 1 metric ton per hectare, while Asiaand Latin America increased yields from more than 1 metric ton to more than
3 metric tons per hectare (FAOSTAT). With the exception of Africa, otherregions experienced the Green Revolution with the introduction of highyielding varieties and fertilizers.11 Africa has about twice the quantity ofarable land per farmer compared to Asia, however, the continent generally
has a huge disadvantage. It receives little rainfall, and many soils lack fertility. There are Oxisolos soil strata which are too old and weathered.
11. In East Asia, progress in human development and the development of a relatively stable agricultural
production system were the base for economic growth. Countries such as South Korea, Singapore,
China, and Taiwan had achieved UPE by 1965, and then moved on to experience high economic
growth through export-oriented industrialization. On the other hand, Africa’s political framework was
unstable after independence, its public services were limited, and its people were only able to receive
public education for about three years under severe living conditions. Africa lacks the “abundant highquality labor force” on which East Asian development was based. For this reason, within the PRS, agriculture and rural development, together with the social sector, can be looked upon as the remaining
options for development.

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Cultivation depletes the soils in only a few years, which must then remain fallow for more years to regain some fertility.12 Cereal grains and root crops are
the major sources of calories, however, the calorie intake level in Africa is far
lower than that of other regions. Currently, there are 23 countries in Africa
that are requesting food aid from the international community (FAO Liaison
Office in Japan, 2003:1).
Africa’s high fertility rate leads to a decrease in per capita agricultural
acreage. Past increases in agricultural productivity were a result of growth inagricultural acreage, but as farm acreage decreases over generations, yield
increases per unit area become extremely important. With the exception ofSouth Africa, 70 percent of Africans are farmers. Although farmers need toincrease land productivity, they lack capital for investments and technological improvements. Moreover, because cash cropping is vulnerable to pricefluctuations, farmers are at risk when an abundant harvest leads to lower
prices. There is need to diversify cash crops and produce value-added products by developing agro-industries.
In the agriculture sector, the PRS does not support ‘big government,’ butemphasizes a market economy. If the obstacles to producing agricultural
products were removed, farmers would gain from free competition in themarket, improving incomes and reducing poverty. However, introducing amarket economy will not enable all farmers to make a stable profit. Smallscale farmers who do not possess the resources, skills, technology, and information to survive in an increasingly competitive market economy may
become impoverished. It is necessary, therefore, to include safeguards forsmall-scale farmers in the PRS and agriculture sector programs.
The agriculture sector also needs a ‘mixed strategy’ that is aiming at ‘propoor’ and productivity (or profitability).13 Small-scale farmers in general lackknowledge and information, and their main concern is subsistence farming.
In this regard, agriculture sector needs to be promoted through food-security
policy. In order to lessen the risk for each individual farmer, agricultural
cooperatives or informal organizations that promote collective activities
should be established. Moreover, it is necessary to develop a solid foundation of agriculture that does not depend on food aid and monitor agricultural
production forecasts. Contrastingly, it is important to develop commercial
12. Sachs (2005) also focused on soil depletion as a waste of capital and this was one of the bases for
proposing his ‘big push’ theory.
13. When focusing on production, attention should also be paid to the Public Private Partnership (PPP) discussed in Chapter 8.

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agriculture and high value-added agriculture. Programs should be developedthat encourage voluntary investments from wealthy farmers, entrepreneurs,
and cooperatives for commercial crops that will satisfy the growing demand
from urban areas and domestic markets. Expanding exports and import substitution also need attention.
Aid programs are not only required to focus on production, but also todevelop processing, storage, transportation, and distribution to help smallscale farmers overcome barriers to entering the market economy. Irrigation
is effective at improving agricultural productivity, but because the PRS nolonger promotes large irrigation facilities, the focus has shifted to community-based, small-scale irrigation facilities. Improvements in production technology should be introduced in line with development of local skills. It isessential to encourage small-scale farmers to sell their surplus, provide themwith market information, and improve their access to markets. There is alsoa need to organize farmers to support a complete flow of goods from production through distribution.
The government’s responsibility in supporting access to inputs is unclear.
In the past government-affiliated officials would visit farms to provide guidance on farming. Although this method was promoted, it ended in the 1980s
with the introduction of structural adjustment policies and a shortage of government funds. In some areas, donors and NGOs have employed facilitators
to provide technical guidance directly to farmers, however targeted areas
were limited. Recent aid programs have tried to reduce unit costs and widen
the range of targeted areas. Moreover, in Uganda and Tanzania where theagriculture sector program and decentralization are in progress, agricultural
support services have been privatized. Farmer organizations develop plans
through a participatory process and submit them to the local government toreceive grants. If approved, they can request farming guidance from extension workers and research institutions on a contract basis, which is anattempt to provide technical assistance using a market supply approach. The
success of these methods will depend on the degree of market development
and progress of human development in rural areas.
In rural areas there are many small-scale farmers and the majority arepoor. An agricultural revolution is important, however, for human security,and production and labor opportunities need to be diversified. In this context,
the Rural Development Strategy (RDS) is significant because the strategy
applies beyond the agriculture sector.14 An RDS encourages farmers toengage in non-farm activities and stabilize their cash income through region250

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ally-specific businesses. Tanzania’s RDS (2001) included approaches to balance and make progress in productivity, human development, and governance. Past PRS and sector programs in other countries, however, did not
explore the extent to which agriculture and rural development and the social
sector could mutually promote each other. A region with high productivity
potential may achieve positive effects for development through support fromonly an agriculture project. However, in a region with low productivity, it isnecessary to extend support beyond the agriculture sector and develop closer links with non-farm activities, the social sector, and the informal sector.
In addition, it is essential to have a prospering provincial/district city thatcan be the core of the agricultural community. Professor Amani, who prepared the RDS for Tanzania, also emphasizes this point. A site where urban
residents could purchase rural products would boost trade and reduce poverty in the agricultural community by creating jobs and commercial activity. In
a provincial/district city, it is important to effectively integrate the productive
sector, social sector, and governance. If the PRS, which is central to the government, employs an ‘mixed strategy,’ the RDS is the regional version that
embodies it.
9-2-3 Developing infrastructure
East Asia’s experience demonstrates that developing infrastructure has contributed to economic growth and export promotion. It could be said that thiswas primarily due to its strong links with growth strategy. When consideringthe ‘mixed strategy’ for Africa, infrastructure development has multiple functions in addition to its connection to economic growth ― different scales andtypes of infrastructure are expected to meet a wide variety of needs for social
development. They will also contribute to promoting social justice, distributing resources, and reducing vulnerability of the poor, in addition to economic
growth. In the Sachs report (2005), infrastructure development is encouraged to overcome Africa’s problems, however, before preparing a plan, it isimportant to accurately assess demand because Africa is sparsely populated.
The purpose of infrastructure development lies more in supporting local
economies and social activities than in leading economic growth.

(1) Building roads
As a basis for rural development, rural roads are necessary. These roads are
14. The World Bank’s RDS is structured as follows: (i) promoting widely shared growth, (ii) increasing
opportunities and access to services, (iii) reducing risks and vulnerabilities, and (iv) good governance.

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CHAPTER 9essential not only for production and distribution of agricultural goods, butalso for transporting patients and receiving disaster relief. For food security,
rural roads need to be developed to deliver food and relief supplies to areasof food shortages during the rainy season, and to transport disaster victims
to safe locations. Planning and development of road networks must be decided using a transparent process, however, it is also necessary to examine andmake decisions from a perspective that understands the multiple effects onpoverty reduction. Moreover, a road maintenance system should be established locally and donors should support capital formation through a plandeveloped to make the government ― the central or local government, or
agency, whichever is more appropriate ― financially and technicallyautonomous. Partnerships among donors are important, as is support that
focuses on how rural roads are maintained within the government’s recurrent budget and the necessary revenue structure.

(2) Transportation infrastructure
Large-scale infrastructure facilities for transportation-related activities areimportant for maintaining relationships not only with coastal countries (thatalready possess basic facilities), but also with neighboring landlocked countries. Landlocked countries and the inland regions of large countries that are
difficult to access tend to have a gloomy picture of their development.
Transportation cost is expensive, and industrial products (processed goods
for export made from imported raw materials) are not internationally competitive. Imported inputs for agriculture and imported basic necessities are
expensive, yet in order to lower the costs, it is necessary to develop ports,
storage facilities, and trunk roads in coastal countries.15 The Kenyan port ofMombasa is the main port of entry for imported goods transported to landlocked countries such as Uganda, Rwanda, and potentially, Ethiopia. Thereare expectations that developing a distribution system from Mombasa to
Ethiopia will contribute to conflict prevention by mitigating the confrontation
between Ethiopia and its neighboring countries. As for air transportation,
despite the substantial role it displays in the export of flowers, frozen vegetables, and fish, its role for imports is limited.
(3) Small-scale infrastructure
Small-scale infrastructure needs to be developed for provincial/district cities
15. One study reported that the price of urea at $90 dollars per ton in Europe rose to $120 when it reached
Kenya’s port, and soared to $500 in Uganda and $770 in Malawi (FAO Liaison Office in Japan).

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to prosper, as explained in 9-2-2. Besides road networks, providing market
information and developing a wide range of facilities that store and process
agricultural products will create an environment where intermediary agents(middlemen/brokers) will be forced to compete for a price to producers. The
government, however, should not intervene in areas where the private sector
can manage on its own and should respect the approaches set forth in the
RDS and the agriculture sector program. Additionally, infrastructure to support provincial/district city residents is needed and tasks remain in areas
such as water supplies and electrification. In particular, waste has become amore serious problem within the past few years.

9-3. Aid modalities
Aid modalities and the challenges to an ‘mixed strategy’ are discussed in thissection. Following changes in the international environment and the mainstreaming of poverty reduction, recent issues of aid modality need to consider the following four points.
9-3-1 Sector programs
The sector program was developed in a number of sectors from the ‘pro-poor
targets’ approach that values fair distribution and equality, and is usuallyfinanced by the government and with budget support from donors. Aid funds
are required to increase predictability and to be on-budget.16 Questions arise
about whether projects comply with a sector program. Donors that promote
projects should take active measures to make a harmonious and efficient linkwith the program-based approach. In Tanzania where aid coordination has
made significant progress, there are sectors where donors will find it difficult
to implement a stand-alone project of their own. Various types of budget support and a pooled fund for technical cooperation are responsible for sector
planning. Even if projects are implemented, prior notification of budget plans
and conditions to enhance aid effectiveness such as aligning with government systems of disbursement and procurement may be required.
The social and agriculture sectors of low-income countries have a tenden-

16. ‘Through-budget’ refers to donor funds deposited in the government’s national treasury as revenue,
such as funds provided to a program-based approach (similar to the budget support explained in
Chapter 5). ‘On-budget’ has a broader meaning, and even if funds are not deposited in the national treasury, donors are required to provide information to the government (such as details about budgetedfunds and the amount of disbursed funds).

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cy to seek uniformity as government programs. In these sectors it is difficult
to legitimize interventions that only target a specific area for pilot implementation. An intervention, including projects, should therefore target a broad
range of poor people rather than focusing on a specific site. If Japan implements a major project through its own development assistance, other donors
that support the government’s programs through financial contributions to
the recurrent budget may look upon Japan as a free rider.
The degree of difficulty in implementing projects differs from country tocountry, and thus, it would be wrong to say that complete program-based
approach is the single aid instrument promoted in Africa. Countries with thepossibility for this kind of support include Tanzania, Uganda, Ethiopia,
Mozambique, Zambia, Malawi, and Ghana. In these countries, donors that
promote projects will be required ― from a partnership framework ― to participate in budget support and conduct only a limited number of wide-ranging
target projects that are on-budget. Even in other countries, when implementing a project donor countries will need to align their support with the government’s overarching policy framework and programs and share information
on planning, funds, procurement, and assessment with all partners (government, donors and civil society, etc).
9-3-2 Specific targets
Projects that target a specific site can be legitimized from a broad-based
growth approach because the output and outcome will have spillover effects
to the broader public. A prime example would be projects dealing with infrastructure and the industrial sector. When implementing these projects, it isvital that they comply with the government’s overarching policies and strategies and that a clear scenario is presented that explains the contribution of
the targeted area’s development to poverty reduction. Before implementing asmall target project, it would be better for donors to establish a program of
their own through technical assistance, hold discussions to confirm whichgovernment policies and programs the established program aligns with, andpublicize it. To make the connection between economic growth and poverty
alleviation, it is necessary to demonstrate the simultaneous decrease of bothincome poverty and social sector poverty. When designing a growth-promoting project, it is necessary to make projections about economic growth withattention to employment, new demands, and the income redistribution system. The plan should be well-balanced and flexible, because the poor is vulnerable to any kind of shocks. Resilience to shocks is necessary from the254

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standpoint of human security.
9-3-3 Rural development strategy
Rural projects that cross sectors sometimes cannot easily comply with the
PRS-SP. In such cases, the RDS settles the project under the government’s
policy system and within the society. The RDS focuses on ‘rural’ ― a spatial
theme ― and attempts to display a wide range of activities such as primaryeducation, healthcare, infrastructure, governance, non-farm activities and soforth by replacing the traditional concept of agricultural development. The
RDS will become an important option when the ‘mixed strategy’ takes formin rural areas. In line with this framework, the World Bank is emphasizing
the Community-Driven Development (CDD) approach (World Bank, 2000b).
CDD is a set of projects, and does not simply apply to projects taking place inrural areas, but also includes an approach that aims to enhance community
empowerment through a participatory process. The basic methodology originated from “Area-based approach” initiated in the 1980s by the Nordic countries. Additional elements in this methodology include private sector involvement to improve the investment climate and distribute the benefits of economic growth.
The RDS, due to its comprehensive nature, has close links with various
development strategies. For example, the environment conservation and natural resource management field overlaps with the Sustainable Livelihoods(SL) approach (DFID, 1998), a kind of RDS versions. When more than one
sector is involved, coordination among administration and finance is important with SP. Coordination with local governments and service-provider organizations is necessary, where decentralization process devolves the power
and responsibility from central bureaucracy. The main donors that emphasize the RDS are the World Bank, International Fund for Agriculture
Development (IFAD), and Germany’s GTZ. In the past, the Nordic countries
promoted the RDS, however, with a focus on fair distribution and respect for
the government ownership, they have shifted to more program-based
approach and budget support.
On the other hand, the RDSs carried out by African governments are still
evolving. Strong conflicts among ministries and poor coordination have madeit difficult to make use of these plans. The plans are not so convincingly systematic and in case they just provide some voices to modify neo-liberal pointsof views in the agricultural SP. Beginning in 2000, several countries havemade tremendous efforts to develop and implement the PRS and agriculture255

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sector program, thus the RDS has been overshadowed between them. The
RDS, however, is an essential strategic framework for donors that promote
projects because the ‘mixed strategy’ can be carried out in rural areas, andbecause experience can be accumulated through a steady, practical learning
process.
9-3-4 Decentralization
With a goal of democratizing rural communities and strengthening deliveryof public services that help reduce poverty, decentralization has attracted
increasing attention. In countries where decentralization has progressed,
funds for grants to local governments are pooled by the central government,
and sector grants are allocated to the local government within the PRS-SP
framework with the aim to reach the poorest of the poor. Nordic countries,
the United Kingdom, and the World Bank are trying to strengthen thisframework through budget support and coordinated program aid. The poorest of the poor have a voice as citizens and are in a position to exercise theirclient power as service recipients to service-providing institutions (World
Bank, 2004). In order to establish their rights politically, public services need
to be provided through local grant-based projects.
With the exception of technical assistance, donor-promoted projects are
not actively implemented in rural areas.17 In promoting decentralization, budget support schemes have advantages over projects because projects havedifficulty supporting grants to local governments (Sasaoka, 2005). Current
decentralization plans are criticized because the discretionary powers granted to local governments are limited and there are several constraints toempowerment. Past projects carried out by the central government anddonors were only able to provide support to a specific area, however, they
were able to devolve more power to the local government and organizations
through trial and error. Although plans are implemented fairly in regions
where decentralization has progressed, it is important to direct attention to
the risks of pursuing uniformity and mechanical equality.18

17. In cases where RDS support to local governments is provided on a project basis, grants from the central
government are reduced in accordance with the ‘off-set scheme,’ which has been adopted in Uganda
and Ethiopia.
18. Interviews conducted in Kenya in 2006 revealed that in decentralized cities, municipalities, towns andcounties, political pressure to construct identical hospitals increased in each election district, making it
more complicated to develop referral systems among hospitals and to supply personnel for service
delivery.

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9-3-5 Summary
Following the evolution of diverse aid modalities, Japanese aid, with its main
aid modality of a project approach, now must comply with the government’s
overarching plans and strategies. Four issues face this aid modality: (i) budget support to PRS-SP, (ii) harmonization of sector programs and projects,(iii) harmonization of RDS and projects, and (iv) harmonization of RDS, sector programs, and projects. Overall, Japanese aid should not be implemented
under an isolated, sporadic scheme. Japan’s aid system should be a packaged
program, embedded explicitly in the government’s policy program.
Exceptions would only apply to emergency humanitarian assistance andsmall-scale support to NGOs.
For (iii), harmonization of the RDS and projects, Japan initiated the “grant
aid for community empowerment” under a village initiative beginning in 2006
and is planning to implement an untied, small-scale infrastructure project in arural area. If these projects were randomly implemented without any alignment to higher-level policies and strategies, it would only replicate the limitations of project aid argued by the sector program approach (Harrold, 1995;
Foster, 2000). On the other hand, if projects were to cross a broad range ofsectors, it would be difficult to incorporate them under the sector program.
For the project scheme to receive support from the government’s RDS andthe rural community’s participatory planning and implementation framework,
Japan will need to execute a well-planned communication strategy from anearly stage.
To promote development that responds to distinct regional issues andenhances governance in a local community, and for the community to be
involved in agriculture development, local infrastructure, and environmental
protection, it is important to employ projects with various institution-building
measures. Government-based development activities will shift toward programs, however, and non-government development activities need to be promoted through projects. There is a need for higher-level planning and strategies such as the RDS to flexibly coordinate the entire process, in stead of SPwith a high degree of standardization. In general, the RDS is very significant
for governments of low-income countries and for donors like Japan. In countries where the RDS is slow to progress, Japan should be at the forefront ofefforts to promote it.
For (iv), harmonizing the RDS, sector programs, and projects, the RDS
has a function ― in the context of a macro development strategy ― to balance the sector program (which focuses on the social sector) and project aid
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CHAPTER 9(which includes the productive sectors, governance, and environment conservation). The RDS can balance projects managed locally and projects
directed by the central government with grants under standardized conditions. It can also promote financial coordination between the development
budget and the recurrent budget, and between local grants and locally-generated revenues and funds. It has a role to entrench the overall impact of the
PRS in the local community. This formulating process may seem roundabout
to those working in the field, however, the RDS is necessary because it systematically introduces knowledge that is locally-based and concrete to thecentrally-based policy framework of PRS-SP, and because it coordinates overall activities belonging to both government and non-government institutions.

9-4. Japan’s strategy and specifics for implementation
Based on the discussions presented in the previous sections, this section will
examine the desirable future course of Japanese aid for Africa. The PRS has
the potential to have great impact through interactions with various public
policies and governance reforms. In some sectors, however, strategies will
have qualitative differences and the slow development of markets and governance can hamper the planning and implementation process. Japan is presented with a challenge to coordinate sectors, reforms, and local communities through the RDS as it aligns with the government’s overarching policy
framework represented by the PRS-SP. Japanese aid needs to change substantially as aid to Africa draws greater attention.
Within this context and with a focus on strengthening the recipient government’s governance, this section will focus on three factors ― participation, monitoring, and financial strategy.
9-4-1 Participation
Participation is regarded an important principle for planning and implementation over a wide field from PRS-SP to rural development projects. This does
not necessarily mean that using participatory tools will automatically promoteparticipation or improve it. Participation includes the development process,including the decision-making process within the community, and in the longterm it means strengthening governance. Development schemes that only
function when donors provide resources are not true forms of participation.
Even if there is a little improvement, it is necessary to create lasting changes
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aid. Participation tools should be used with full understanding of this requirement.
The critical issue is that it is almost impossible not to step into the political realm of the government and society.
・To investigate the actual situation of participation, it is important toacknowledge how much participation is achieved by the poor throughthe planning, implementation, and evaluation process, and to clarify if
the poor are being empowered through participation. If clients of services, including the poor, gain a political voice, the government will
have clear accountability for the quality and quantity of services it provides.
・If government projects/programs and aid are delivered fairly through aparticipatory method, then beneficiaries will support a particular system. This is one of the intentions of the PRS. By becoming service
recipients, people will be able to have faith in governance and democracy, which will strengthen cooperative activities among people andencourage development of institutions in general.
・The governance of the PRS will be affected by the incentives that support institutions and by sociocultural factors. When dealing with incentives, it is important to focus not only on the citizens (clients of services), but also on government staff and to improve salaries and payment schedules.19 In each country preconditions for supporting the
PRS included receiving stable financing for the recurrent budget which
helped develop institutions. Moreover, government staff need to be
educated and trained so they are accountable for the services they provide, including to the poor.
9-4-2 Monitoring
As a donor, it is necessary to actively monitor the PRS. The PRS process is a
joint action promoted through a ownership with the recipient country and apartnership among various stakeholders. Poverty monitoring and productionof the APR are final confirmation of this effort. By sharing poverty data andits analyses, partners can construct more effective and interdependent strategies. The critical issue is the relationship between development activities andan evaluation of outcomes and macro-impacts.
19. In Uganda’s education sector program, aid will cover not only other charges (OCs), but also personnel
emolument (PE) for teachers including its arrears, under the condition that teachers participate inretraining programs and ghost teachers are removed from the payroll.

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CHAPTER 9・Making progress toward objectives set by development strategies
through a results-oriented approach and monitoring on a partnershipbasis will reduce the transaction costs for African governments andimprove their accountability. Participating in such an aid coordination
helps understand the relationships of partial contributions from individual donors and the entire development achievements. This cannot be
achieved by individual donors alone.
・By monitoring the PRS process, the progress of each policy, strategy,
and reform process can be confirmed. This will help capture the problems and challenges of the entire development strategy. However, the
PRS and MDGs face challenges in harmonizing monitoring mechanisms (indicators and data collection systems) and in developing local
monitoring systems. The actual implementation of these mechanisms
and systems is not easy.
・Identifying the final destination of government expenditures throughpublic expenditure management, information disclosure, and the public
expenditure tracking survey (PETS) will improve the accountability of
African governments.20 Verifying government spending with the monitoring outputs and outcomes at each level will allow for a more precise
understanding of the present situation.
9-4-3 Financial strategy
African governments need to strengthen their financial strategies. The social
sector, including primary education, has a huge share of the recurrent budget. Salaries for service providers and administrative and maintenance costs
are so large.21 Supporting the recurrent budget with foreign aid, however,raises the problem of aid dependency. An increase in the volume of aid in aneffort to meet the MDGs is making this problem more serious. There may bevoices that suggest pursuing pro-poor growth, but the problem is not that
simple if government spending is necessary to carry out this strategy. Hence,the proposition here would be to build revenue institutions with a minimal
increase in the government budget. The government will need to increase its
own revenue.
・A foundation for revenue with a focus on efficiency is necessary, which
20. A Public Expenditure Tracking Survey (PETS) in Tanzania, unlike in Uganda, revealed no significant
improvements observed in the implementation system with the exception of a few districts.
21. To the question of whether poor countries can afford to implement social sector programs, Sen (2002)
replied that labor costs are relatively low in poor countries as a supportive evidence.

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in other words is an increase in tax revenue. A tax system that will nothamper economic growth is needed. The desired system is one thatwould have an automatic increase in tax revenue as a result of expanded economic activities through import duty reduction under trade liberalization. The central and local governments should decide the key
areas of taxation and strengthen the tax collection system to work efficiently and fairly.
・The viability of development strategies would improve by developing a
scenario where increases in government revenue in the long term willallow governments to liquidate their budgets instead of relying on foreign aid. For low-income countries to establish a foundation for revenue by 2015, the MDG target year, is generally considered difficult.
However, each government is required to maintain or increase the level of revenue in line with the MDGs at its earliest possible time after
2015 and lower its degree of aid dependency. Each donor needs to initiate discussions that set international objectives beyond 2015 with afocus on increasing government revenue, though achieving MDGs targets is considered very difficult in the African region.
・Cooperative activities mentioned earlier include tax payments and user
fees as part of a financial strategy. It is necessary to provide information and education that can foster social capital and create a culturethat understands the necessity to pay taxes in return for receiving public services. It is necessary to expand people-to-people cooperation andextend it to the local government. Moreover, the government should
be required to ensure transparency of revenue flows.

9-5. Conclusion
The PRS is a national framework that includes medium-term sector planning,
local (government) development planning, and the national budget process,all with the goal of alleviating poverty by revamping policies and programs.
In general, Africa is a poor continent on various indicators and has a highpopulation growth rate. Initial conditions for development were not favorable,
and it faces various problems of governance. Theoretically, it is possible tocreate a plan in which the government, with cooperation from partners suchas civil society organizations, prepares and implements a PRS and works on
institutional reforms and gains public support through delivery of public services. Further advancement of outcomes and institutional reforms are mutu261

CHAPTER 9

ally facilitating, according to the plan.
However, the capability of African governments, social institutions, andorganizations are strictly limited. Even when projects are implemented, theoutputs and outcomes do not extend to other regions and there is no guarantee about the budget support that the flow of funds will be managed properly
and monitored smoothly. There are a number of limitations to the projectmodality, whereas budget support involves some risks, including recipients
becoming aid dependent. Under these circumstances, Japan is expected tohave an aid system where different instruments can be applied jointly andfreely as an aid modality. The development ‘menu’ will need to be prepared ina specific context to meet a country’s development tasks and progress in its
sectors, however, it is essential to have the necessary tools to be able torespond to many different situations.
As explained earlier, the three significant factors of Japan’s development
strategy are participation, monitoring, and financial (revenue) strategy.
Despite their significance, my perception is that in the past, Japanese aid did
not make enough efforts in these areas. Through more work in these areas,
there is a need for Japanese aid to connect with African governments andsocieties at a more profound level. Japan should become a more committed
donor to help bring prosperity and justice to Africa. The ‘mixed strategy’applied to the core sectors is not simply an eclectic mix. Africa is faced withsevere conditions, its market forces and governance are weak, and thus a balanced strategy with an emphasis on stability is desirable. This strategy
applies to the balance between sectors with a ‘pro-poor targets’ approach andthe ‘broad-based growth’ approach, and to the balance of resource allocation
by central and local governments. Even if economic growth is emphasized,
the development scenario is incomplete if sufficient revenue cannot be generated to support future social sector activities. It is important to tackle poverty
through the RDS and decentralization, both of which are attempts to restructure the central government with an emphasis on local needs and characteristics.
It is not easy for the Japanese community to have an accurate view of thepresent state of Africa and African poverty. Japan does not receive many
immigrants from Africa and does not have a clear image of what the society
is like. Media coverage of Africa may have increased recently with the WhiteBand movement22. The Japanese are known for their long life expectancy,
however, its population started decreasing last year. It is projected that the
population will drop to 70 million in 100 years if it continues to decrease at262

Africa’s Poverty Reduction Strategy

the same pace. Africa has a population of 700 million, with many people dying
from HIV/AIDS and malaria and the average life expectancy dropping. Japanand Africa, as an industrialized country and a developing country, stand in
sharp contrast to each other in many ways. For development aid to be effective in Africa, donors will need to have field experiences and a plenty of imagination.

22. The Global Call to Action against Poverty is a world-wide alliance committed to suggesting world
leaders to come up to their promises, and to make a breakthrough on poverty in 2005.
[http://www.whiteband.org,
http://www.pia.co.jp/whiteband, http://www.hottokenai.jp]263

9Complementary Discussions to Chapter
Perspectives on African Development
Strategies and their Policy Implications
Yukio Sugano1

9-1. Introduction
The year 2005 marked a new horizon on African development. Renewed
financial commitments by donors at the G8 Summit at Gleneagles and the
UN World Summit on Millennium Development Goals (MDGs) focused theinternational development agenda throughout 2005. In the climate of mounting interest in African development, research projects and other initiatives
yielded a considerable number of official reports and research papers. This
chapter will review strategic perspectives and trends from these reports,
examine their policy implications for African development, and explore
future prospects.
The report of the UN Millennium Project Task Force, an independent
advisory body to the Secretary-General, offers a diagnosis of why progress
toward the MDGs is so mixed across regions and goals, and presents recommendations to be implemented at the country level and those to guide international agencies at the country level. Sub-Saharan Africa, the only region
where most countries are far from achieving most or all of the goals, is the
major focus of the report. Similarly significant is a report from theCommission for Africa, organized under the initiative of U.K. government,
which analyzes the development challenges facing African countries, scrutinizes strategies, and offers recommendations. Both reports advocate theurgency of African development to the international community and call for
1. Professor, National Graduate Institute for Policy Studies.

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immediate actions.
Poverty Reduction Strategies (PRSs) have been in place for six years, providing a basic framework to organize international endeavors for African
development,2 and second-generation PRSs have been prepared by several
countries. In 2005, the World Bank and other institutions submitted evaluation reports on the progress and results of the PRS process in low-income
countries. The reports show how PRSs have unfolded at the country level
over the last five years, and offer policy implications.
The evaluation reports also articulate the gravity of, among others, two
aspects of the PRS process. First, the capacity of the public sector is increasingly recognized as critical to enable development. Recent World Bank
reports on capacity development in African countries underscore that capacity development is the centerpiece of development challenges. Second, recent
studies highlight the intrinsically political context of the PRS process andhow the political economy determines how the PRS process unfolds.
With a significant financial commitment attained at the G8 Summit andUN World Summit, strategies for scaling-up endeavors for African development with expanded resources have gained attention. Donor initiatives will
facilitate international responses to the call for expanded assistance for
Africa. Among them, the World Bank group has compiled an Africa Action
Plan to support policy and public actions by African countries to achieve welldefined goals such as the MDGs. Other reports deal with various issues
relating to scaling-up development efforts.

9-2. Development challenges and recommendations for
Africa9-2-1 Two reports
Two important reports that were made public during 2005 described urgent
development challenges facing Africa. The report of the UN Millennium
Project led by Jeffrey Sachs (Sachs Report) outlines ways how to achieve the
MDGs. It covers all low-income countries with a major focus on African countries, while the Africa Commission Report deals with development strategies
specifically for African development.
Both reports have much in common, particularly in these areas:
2. While Japan is considered to have a comparative advantage in building infrastructure, Japan’s 2003
ODA Charter is aligned to the mainstream discourse on development by adopting poverty alleviationand good governance among its principles.

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CHAPTER 9・Raise awareness among the international community to augment assistance to support African countries.
・The drafting process uses multiple resources, including researchers,
practitioners, and official documents.
・Advocate the urgency of African development and attainment of the
MDGs, drawing attention to the tremendous costs that will be incurred
if prompt actions are not taken.
・Identify good governance to be placed at the heart of African resurgence.
・Call for, among others, a rapid increase of ODA for Africa.
・Identify a ‘big push’ of basic investments in public administration,
human capital, and basic infrastructure as the key to escape the poverty trap, upon which rapid expansion of ODA is based.
・Underline the belief that successful growth will be led by a strong private sector, and that policies and governance should be focused on creating the conditions where growth can flourish.
・Reconfirm the essential role of infrastructure.
‘Big push’
The two reports, however, present somewhat different explanations on how a‘big push’ of basic investment is required for Africa. The Sachs Report
explains it in the context of a poverty trap in low-income countries, where
capital stock is too low, the economy is unproductive, and households are
impoverished. In addition, Sub-Saharan Africa is further burdened byadverse conditions, including:・Transport (for example, landlocked economies, inland populations far
from coast and navigable rivers, and very low population density).
・Agriculture (low and highly variable rainfall, lack of suitable conditions
for irrigation, nutrient-poor or nutrient-depleted soils, and vulnerability
to pests).
・Health ― malaria and other tropical diseases, high HIV/AIDS prevalence, and others.
These conditions reinforce and amplify poverty, and the situation continues to degenerate. The report goes on to say that a big push is required toraise the economy’s capital stock to the point where the downward spiralends and self-sustaining economic growth takes over.
The report of the Commission for Africa says that a big push is required
because of the interlocking nature of problems. Countries confront many
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Perspectives on African Development Strategies and their Policy Implications

development challenges such as building an effective state, peace and security, human development including education and health, and a strong private
sector. These areas are interrelated, and success or failure in one area may
reinforce or constrain the others. The legacy of Africa’s difficult history andits current circumstances mean that Africa will have to break out of a set ofvicious cycles that reinforce each other and shackle the continent. If the
problems facing Africa are interlocking, so are the recommendations andactions to overcome them. The report concludes that the big push approachis the only one that can address Africa’s challenges with the required
urgency and effectiveness.
Country-level processes for development
Both reports try to convince us that a big push approach, which means a
prompt expansion of ODA, is indispensable to reverse the interlocking problems of African countries and help them maintain a sound development
track. Conversely, it is an open question whether a rapid increase of ODA
would effectively help these countries achieve sustainable development. Vast
resources were deployed to Sub-Saharan Africa until the 1990s, far larger
than those to Asia on per capita basis, resources that have not left any meaningful agricultural or industrial assets. It cannot be ruled out that anothermassive investment would once again be wasted.
While advocating a big push as the key requirement, both reports
address important aspects of development. The Sachs Report presents country-level processes for development, including an action plan for countries
and the international system. Likewise, the Africa Commission Report proposes an action plan.
The significant financial commitment by donors in 2005 has left an agenda in the next stage ― how to advance African development with expanded
resources. It will be addressed in the latter part of this chapter.
9-2-2 The ‘effect of aid’ issue
In June 2006, the two research papers by two IMF economists on the effectsof aid on economic growth attracted the attention of the public (Rajan and
Subramanian, 2005a). Their comprehensive econometric analysis considered
preceding studies. In the cross-section analysis, the coefficient representing
the effect of aid was very small, which means that aid contributions to growth
are minimal, while the panel data analysis shows that the effect of aid is veryfragile or obscure. Given the policy implications of this research, the study
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9-2-3 The aftermath
The campaign that advocates expanded assistance for Africa helped add tothe momentum for increased focus on the continent. The 2005 G8 Summit at
Gleneagles and UN World Summit have renewed the commitment of theinternational community to support African development beyond the 2002
Monterrey pledges for additional development assistance and debt relief.
Among the moves to strengthen assistance to Africa, the initiatives by the
U.K. government to launch an international campaign stood out. The government in recent years consistently advocated the urgency of expanded support to Africa. In 2005, Prime Minister Blair organized the Commission for
Africa that compiled a voluminous report. The government designated theAfrican development issue as one of the major agenda items of the G8
Summit at Gleneagles, where Chairman Blair declared that an agreement
had been reached on doubling ODA to Africa.
Likewise, the French government demonstrated a positive stance toward
Africa. On the occasion of a G8 Finance Ministers Meeting, the government
floated a plan of ‘front loading’ aid to Africa, with the establishment of aninternational financing institution which would procure a critical mass ofmoney by issuing bonds.
During the G8 Summit, Japan pledged to double its ODA to Africa overthe next three years. Japan will strive to realize a strategic expansion of ODA,
intending to increase its ODA volume by US$ 10 billion in aggregate over the
next five years.3

9-3. Progress of poverty reduction strategies at thecountry level9-3-1 Review of poverty reduction strategies
In 2005, World Bank, IMF, and the World Bank Operations Evaluation
Department reports reviewed the Poverty Reduction Strategy process after
its five years of implementation in low-income countries. During the previous
year the Overseas Development Institute also compiled a monitoring reporton PRSs. While the PRS process in every country is unique, we observed
overall trends through the reports, how the process has unfolded over time,
3. The UNDP Human Development Report (2005) criticized Japan for “no meaningful commitment on
overall aid to GNI levels”.

268Perspectives on African Development Strategies and their Policy Implications

what has worked, what has not worked, and priorities for the future.
(1) Internal review of PRSs by World Bank and IMF
An official internal full-scale evaluation conducted by the World Bank and
IMF after 2002 (2005 Review) delivers basic facts on implementation of PRSs
at the country level, including:・While countries have been encouraged to start setting concrete targets
connected to policy goals, 16 percent of them put the target largely inplace, 65 percent are taking action, and 22 percent have not begun any
action.
・For a country to achieve its development goals, a medium-term development program needs to be linked to those goals. The report says,
however, that “Overall progress on this front is mixed, and many PRSs
would benefit from a more explicit link between goals and targets andthe policies needed to achieve them.” In linking goals and targets toclear public actions, countries need to ascertain causal links, decide on
the degree of specificity in their PRSPs, and make important choices
about prioritization and sequencing. The report concludes that suchwork is a very challenging task, particularly in countries facing severe
technical and institutional constraints.
・Policies and public actions are often inadequately prioritized.
・In line with increased attention to production sectors, countries are
increasingly making growth a central element of their Poverty
Reduction Strategies. However, there has been considerable variationin the quality of PRS growth strategies. Much of the discussion related
to growth pillars has remained qualitative, with less specificity on policy and institutional reforms.
・Medium-term expenditure framework (MTEF) was introduced in 28
countries, but they require political commitment and deep institutional
reforms and are constrained by weak institutional and technical capacity.
・An effective national monitoring system requires statistical capacity forwhich substantial improvements are needed in most IDA countries.
Most countries continue to have difficulties tracking and measuring theeffectiveness of pro-poor spending.
・Overall progress on improving aid through alignment, harmonization,and better coordination has been mixed. While donors often cite problems with the PRS or weaknesses of country systems as constraints,
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they are making progress in focusing their support on priority areas
specified by countries, starting to use simplified procedures and practices, and collaborating in joint analytic work and sector-wide approaches.
(2) ODI report
Drawing upon a range of formal and informal information on the PRS
process, including selected interviews with DFID staff and others, ODI conducted a survey to review progress to date, identify key challenges, and draw
practical implications for those engaged in PRSs at the country level, particularly donors. Gains achieved to date are described below.
What has been achieved to date・Poverty plans are more comprehensive than ever before.
・‘Poverty-oriented’ expenditures and inputs have increased.
・Prospects for linking poverty planning and budgeting have improved.
・Interest in poverty monitoring has increased.
・New opportunities for poverty policy debates, including some permanent ones, have been created.
・Civil society has been mobilized on an unprecedented scale.
・The principle of donor alignment and harmonization has been established internationally. There have been initial moves among donors
toward alignment and harmonization by, among others, moving to sector and general budget support.
What is still missing
・Line ministries and sub-national levels of government have not been
actively engaged in many PRS processes.
・Operational links between the PRS and budget and outcomes, especially at the sector level, remain extremely weak in many countries.
・Most PRSs have yet to deliver a fully integrated strategy in which thequality of production sector plans match those of social sectors.
・Existing institutions for government accountability such as parliament,
audit offices, and media have been largely bypassed in the PRS process
in favor of introducing new mechanisms for participation such as focus
groups, consultative workshops, and PPAs.
・Poor people and organizations representing their interests have notbeen adequately represented in most PRS processes to date.
・Donors continue to spread their assistance across too many sectors
and deliver aid through fragmented projects and programs that carry
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heavy transaction costs for governments.
・Large amounts of aid continue to flow into poor countries almost entirely outside of national PRSs and budget processes.
9-3-2 Progress in implementation of the PRS process
The 2005 Review and the ODI monitoring report convey significant information about several aspects of the PRS process ― what has worked and what
had not, and how the process unfolded over time. While it is a little too early
for a conclusive evaluation after only five years of implementation, it may be
worthwhile at this stage to examine to what extent the basic procedures arebeing implemented and basic goals met, and to explore prospects for its
future development.
(1) Overall results of PRS implementation
Only a few people may disagree with the observation that overall implementation of the PRS process to date shows that it has not delivered what was initially expected. As the review conducted by the World Bank and IMF in 2002
has already suggested, it was increasingly clear in the 2005 Review that the
PRS process is generally a major challenge for low-income countries.
The 2005 Review suggests that inadequate capacity for analysis and organization, which is the crucial element for the PRS process, prevails in thesecountries. The process requires assembling integrated medium-term goals
and monitoring the PRS, complete with short- and long-term goals and monitoring systems ― “a set of tasks that few industrial countries could systematically do well.” In fact, low-income countries are obliged to create them withlimited technical and institutional capacity, and simultaneously reinforce
national institutions, processes, and governance systems. Given the situation
in low-income countries, and appreciating the magnitude of endeavors bysome governments, we must be realistic and recognize that progress will be
gradual, and therefore there is less possibility that this vital prerequisite will
be fulfilled in the medium term. Recent evaluations thus reveal one of theroot causes of problems and underline the gravity of capacity building for the
public sector in the PRS process.
The policy implications of evaluations are enormous. Now that the PRS
approach has become widespread, particularly in African countries, and has
become the basic framework of country ownership and donor alignment, theproper implementation of the PRS approach is crucial for African development. Although the PRS approach will proceed in medium- to long-term per271

CHAPTER 9

spectives with only gradual improvement, enough time is not left for Africancountries. Scaling-up development efforts with expanded resources will soon
start. Improved functioning of the PRS process, including establishing effective growth strategies and production sector strategies, is urgently required.
(2) The most unsatisfactory aspect of implementation — country
ownership
The foremost core principle of the PRS approach is that it must be countrydriven and owned as a broad-based participatory process. Country ownershipis important in terms of evidence-based decision making. Deficient in many
countries, however, is a focus on the need to frame clear development goals
and targets, link these to budgets and effect public financial management,
and monitor implementation to facilitate adjustment of policies and programs.
On the other hand, donor alignment and harmonization have progressedconsiderably, catalyzed by the PRS approach, although it is still below thelevel of what it should be. It is common that new or more closely coordinateddonor groups have been created, and donors are moving away from projectand programs toward more upstream modalities such as sector and generalbudget support.
Unsatisfactory implementation is diverse. First, when PRSs lack operational details and fail to reach prioritization and specificity for such reasons
as a lack of analysis and capacity, unwillingness to make tough policy choices
across competing demands, or an inadequate medium-term plan, the notionof donor alignment becomes illusory. Second, the lack of specificity in PRSs
gives rise to ‘derivative products’ such as a performance assessment framework (PAF), which is designed to help facilitate PRS operations and donor
alignment. Third, interventions by external stakeholders to fill analytical gaps
often outweigh country ownership of that analysis or capacity, and tend todiminish country ownership in the PRS process.
(3) Missing key function of a PRS — to promote changes
The 2005 Review touched upon the important characteristics of a PRS. The
approach comprises a set of principles and actions that affect the environment in which policy is formulated, and promotes changes in many areas
rather than constituting a clearly defined set of activities.
To promote change in many areas may, in our view, be the key functionof the PRS approach. As Booth (2005) is cited in the latter part of this chap272

Perspectives on African Development Strategies and their Policy Implications

ter, proper functioning of the PRS to allocate resources and to provide incentives to government is facilitated by an enabling environment with areformed trustworthy budget process, presence of sector working groups,
incentives in the public service, and other measures. The other side of thecoin, is that when the PRS begins in a low-income country where such anenvironment is largely not in place, it stimulates changes toward fosteringsuch an environment.
In this respect, the 2005 Review also confirms various connections
between processes that constitute the PRS. More precisely, countries thathave close links between their PRS cycles and their budget process makefaster progress in prioritization. Linking the PRS to the budget and mid-term
expenditure framework (MTEF) has been more successful where planning
processes already existed and budget reforms were underway. Further,
MTEFs and sector strategies can be mutually reinforcing.
One key question is to what extent relevant reforms that promote change
have been successful in countries where a PRS is underway. While the question is closely related to the political economy in each country, the answer isgenerally not positive.
(4) Limited success in involving an entire government in the PRS
process
Earlier reports from the World Bank and IMF (2003) describe a not unusual
story that a PRS unit was isolated from other government departments andoperating as an enclave. As noted in the ODI report, it is widely held that inmany countries line ministries and local governments have not been actively
engaged in the PRS process. In typical cases, limited departments of the government such as the PRS unit and Ministry of Finance, along with some line
ministries such as the Ministry of Health and Ministry of Education mainly
deal with the PRS.
Some involvement of the entire government, however, is clearly essential
for successful implementation as well as improving the PRS quality. Without
cooperation of line ministries, analytical and organizational work required forthe process cannot be pursued adequately. For example, it is difficult to set
goals and targets, link goals and targets to clear public actions, and formulate
growth strategies and productive sector strategies.
The causes of the failure referred to above appear to be structural. ODI
reports that incentives for line ministry engagement in the PRS process areoften negative, because both officials and ministers fear loss of control over273

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sector priorities, targets, and indicators, as well as a reduced share of donor
funding if they move project and programs to the national budget. Moreover,donors themselves reinforce these disincentives to national ownership bymaintaining large sections of their portfolios off the national budget.
The prevailing practice in donor coordination suggests that many donors
may find advantages in participating in a sector-wide approach only in limited
sectors such as education, health, local roads, and in some cases, agriculture.
In other sectors they may wish to continue traditional type of cooperation. In
other words, many of the host governments and donors may take it for granted that the PRS process focuses on social sectors rather than rural issues orinfrastructure, not to mention production sectors.
If host governments and donors maintain their mindset, the PRS
approach will continue with substantive organizational weakness.
(5) Prevailing incompetence in growth strategies and production
sector strategies
Results of the review indicate that growth strategies and production sector
strategies are extremely weak in PRSs. The ODI Report attributed relative
neglect of the production sectors to a number of factors ― important analytical gaps remain in defining how development interventions can best contribute to pro-poor growth, and underlying policy processes in the production
sectors are often particularly weak. The 2005 Review also states that while
many PRSs were intended to incorporate production sectors, most havefound it challenging to do so, and treatment has tended to be less detailed
than for social sectors.
Strategies for pro-poor growth, along with social development, are two pillars of PRSs. Against this background, particularly at an early stage, not somuch attention was paid to growth strategies as to social sectors. According
to the 2005 Review, it is only in recent years that countries are increasingly
making growth a central element of their PRS. However, the quality of PRS
growth strategies varies considerably from country to country, and much of
the discussion related to growth pillars has remained qualitative, with lessspecificity about policy and institutional reforms. The 2005 Review concluded
that improved growth analytics are needed at the country level.
Incompetent growth strategies and production sector strategies areamong the typical weaknesses observable in the PRS approach.

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9-4. PRS approach and politics
Development strategies are fundamentally a political agenda. Core principlesof the PRS, such as ownership, medium- to long-term perspective, comprehensiveness and partnership orientation are closely linked to state effectiveness. Recent international development trends have recognized the importance of political systems as a key factor in the success or failure of poverty
reduction.
9-4-1 PRS is accepted locally: An example
Because of its link to the HIPC initiative and IDA concessional lending, many
countries perceived the PRS approach as an externally imposed requirement.
Its origin also tends to be viewed as largely technocratic. Under this circumstance, it was totally unclear whether political leaders and constituents would
be interested in supporting it. The 2005 Review refers to Zambia, where the
PRS process that was initially viewed as externally imposed gained domestic
currency, with wide participation by civil society and the general public.
Understanding the political economy that determines how the PRS processunfolds is important, according to the 2005 Review.
9-4-2 Politics and the PRS approach
The Overseas Development Institute, London (ODI) and Department forInternational Development (DFID) are jointly undertaking an in-depth study
about the PRS and political processes. How well the PRS functions to allocate
resources and provide incentives within government is influenced by several
factors (Booth, 2005). These include presence of sector working groups thatset priorities and guidelines; a reformed budget process that is trustworthy,
based on policy objectives, and linked to the PRS by definite criteria and procedures; and appropriate incentives in the public service and local government that enable capacity to develop in a positive way. Booth also said that
any improvements in these areas help a PRS to give new direction to country
efforts, and existence of a PRS, in turn, motivates better sectoral policy thinking and reform of public financial management. However, lack of politicalbuy-in affects all of these processes negatively, and the reforms needed togive real life to the PRS may suffer.
9-4-3 Case studies on politics and PRS approach
ODI also conducted four country case studies on politics and the PRS
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approach (Piron, 2004). As background to the research, she cites two contrasting visions behind the PRS approach. One perspective is that the PRS isviewed as offering a potentially transformative agenda of pro-poor reform,
and providing opportunities for national governments to become more committed to pro-poor policies and for donors to work more in line with countryowned priorities and processes. In the alternative perspective, the very factthat the PRS approach is being led by donors is seen as predisposing it tohave a negative effect on national political development.
The two visions are not so opposite and many would agree that incremental progress is possible through the PRS approach but at the same time areaware of the challenges involved in the consistent implementation of propoor policies (Piron, 2004).
Case studies in four countries (including Uganda) suggest that pro-poorchange is possible but that change is largely incremental. Examples of incremental progress include improved policy making through more intra-governmental coordination, and a gradual opening of the policy making process ineach of the country. Piron concludes by emphasizing the overwhelming
importance of context, and that historical considerations play an importantrole in shaping the possible reach of the PRS process and determining what
can reasonably be expected. It is essential to understand both the ‘political
momentum’ and the medium- to long-term ‘drivers of change’.
It is worth noting that the case study finds pro-poor changes are largely
incremental. This may represent a potentially negative aspect of the politicalcontext in which the PRS process operates.
9-4-4 ‘Drivers of change’ approach
Endeavors of DFID and ODI to explore the PRS and its political context have
led to research defined as the ‘drivers of change’ approach.
If donors are serious about working to support poverty reduction, theymust increase their understanding of the political context in countries where
they work. The drivers of change (DoC) approach is intended to be an innovative attempt to address this challenge. The starting point of the DoC
approach is that donors know what is necessary to realize MDGs and widespread poverty reduction, but they don’t know ‘how’ to bring about the necessary changes. The DoC approach therefore advocates close examination andanalysis of country context with a specific focus on how change is occurring
within the country, in other words, what is driving change.
The DoC approach has been developed over the past few years, and more276

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than 20 offices of DFID and ODI have carried out DoC work. Although theeffects of this work on poverty reduction are yet to be ascertained, engagement with a political economy approach is bringing insights for programming and internal work methods in DFID.
It is interesting to note that the DoC approach is interpreted by ODI as apart of recent trends in development assistance in seeking the reason for failure in development assistance in historical context. Aid donors have been
moving ‘upstream’ in their approach to aid and poverty reduction. In the
1990s the predominant form of aid was projects, which has now progressively
changed to programs, policies, institutions, and most recently, to a focus onpolitics.
At this stage, the DoC approach has just started. We will continue to see
how it will develop.

9-5. Capacity development of the public sector in Africancountries
Earlier in this chapter we discussed the inadequate capacity for analysis andorganization that prevails in low-income countries and is a constraint toadvance the PRS process effectively, and to scale up development efforts by
expanding assistance. The underlying reality is that “capacity is a critical element in addressing Africa’s problems” (World Bank, 2005b). This recognition may stimulate our interest in two respects — how capacity developmentof the public sector is proceeding in African countries, and how capacity isdeveloped effectively. Directly relevant to these questions are two reports
from World Bank that were made public in 2005.
9-5-1 A report on assistance for capacity development in Africa
A World Bank document has reported on capacity building interventions in
Africa (World Bank, 2005c). Between 1995 and 2004, the Bank provided $10
billion, mainly loans to support a wide range of capacity building interventions in Africa. Most of the loans were directed to public sector capacity
building. In 2005 the Bank’s Operations and Evaluation Department (OED)
independently assessed the relevance and effectiveness of Bank support for
public sector capacity building in Africa during this period. The major findings include:
・The international development community, including the World Bank,
has traditionally treated public sector capacity building as a collateral
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objective ― a by-product or instrumental measure to advance nearterm project outcomes rather than as a core goal.
・The Bank has not yet established a knowledge base and guidance forcapacity development.
・Most support for capacity building in country programs remains fragmented and is designed and managed project by project.
・Where technical assistance formerly filled gaps in skills needed to manage Bank-funded projects, it has had little impact on strengthening
capacity.
・The Bank’s success in enhancing the performance of the public sector
varies across sectors as well as countries. Support for capacity buildingin the roads sector has been most successful. The health and education
sectors face greater challenges because they are labor intensive anddecentralized, and rely on numerous dispersed frontline service
providers.
・While strengthening public financial management has been a centerpiece of national economic reform agendas throughout Africa, theBank’s support for capacity building in this area has encountered considerable difficulty.
These conclusions underscore the importance of approaching capacity
building in Africa as a core objective ensuring that support is country-owned,
result-oriented, and evidence-based. The challenges in improving public sector performance in Africa necessitate a priority focus and processes thatencourage long-term, systemic efforts.
Recommendations
The report recommends that the World Bank, among others, strengthen its
knowledge base and amplify its framework for public sector capacity building
to help countries better:・prioritize capacity-building activities and donor support;
・link institutional, organizational, and human capacity development
together; and・transform traditional capacity-building tools to improve results.
The review suggests that capacity development, particularly in complex
areas, should produce better outcomes. Especially astonishing is unsatisfactory interventions in public financial management because it is accorded thehighest priority in national economic reform agendas throughout Africa.

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9-5-2 World Bank task force report on capacity development in
Africa
The World Bank Task Force on Capacity Development in Africa, after comprehensive review of more than four decades of evidence, submitted adetailed report on this subject (Word Bank, 2005b).
The major thrust of the report is a new model for capacity development
for Africa (Fig. 9.1). The new model emphasizes the dual objectives of building effective states and forging engaged societies. Capacity development is along process of country-centered action that builds on strong leadership withclear visions and strategies. African ownership, commitment, and strong
leadership are seen in this model as essential to develop sustainable capacity.
Capacity takes root and develops where incentives are favorable, and dwindles when conditions are adverse. The policy environment is fundamental tocapacity development, and successful development moves with causal links
from processes to outcomes and finally to goals. The processes entail interventions to address weaknesses in human skills, organizational and institutional performance, and overall governance.
Figure 9-1. Capacity development goals, outcomes and processes

Goals
Growth, poverty
reduction, peace,
empowerment
Capacity outcomes↑↑

Effective states
Public goods& services

Engaged society
Participation,accountability⇔

Capacity development processes↑
Skills, Professionalism
Performance, incentives
Good governance↑⇔⇔Capable social actors
Information/access
Open policy/space
Source: World Bank (2005b)

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Shared vision of effective capacity development
The report calls for establishment of a “shared vision of effective capacity
development.” The shared vision provides a conceptual and operational
underpinning for a common implementation platform for development stakeholders. Key lessons toward a shared vision for capacity development
include:・Governance matters for successful and sustained capacity development.
・Capacity development requires an effective state and an engaged society.
・Africans must lead in capacity development and aid management.
・Capacity development should be a core area of country-led development strategies.
・Unleashing, nurturing, and retaining existing capacity is paramount, as
is better use of local resource and the diaspora.
・Priority must be placed on country ability to build capacity.
・External stakeholders must avoid capacity-depleting practices such as
project implementation units and excessive use of external consultants.
Country development strategies and capacity development
The report reaffirms that capacity development should be a core of country
development strategies, however, quite astonishingly, prevailing practiceruns counter to this imperative. The 2005 Review on implementation saysthat the PRS approach has the potential to help countries to better prioritize
capacity-building activities and guide support from donors, but this dimension deserves considerably more attention. Some PRSs discuss the adverse
impact of capacity constraints on implementation, but PRSs of the vast majority of countries have thus far failed to address this issue in a comprehensive
manner.
While capacity is the centerpiece of challenges for Africa, the reality isthat it is not properly addressed in country development strategies.

9-6. Strategies to scale-up African development withexpanded assistanceWith significant financial commitment by donors at the G8 Summit and UN
World Summit, donors are taking initiatives to play a role in facilitating aninternational response to the call for expanded assistance for Africa. Among
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them, the World Bank Group has compiled an Africa Action Plan to support
policy and public actions led by African countries to achieve well-definedgoals such as the MDGs.
Commitments to rapidly scale-up aid also call for its effective use. The
2005 Review deals with a variety of issues relating to scaling-up aid. Somecountries in Africa are already heavily dependent on aid, so the issues ofabsorptive capacity and macroeconomic implications of aid have likewise
raised renewed interest among academics and practitioners, and are coveredby research papers and reports.
9-6-1 Africa Action Plan
The Africa Action Plan (AAP) intends to provide a result-oriented framework
to support African countries in several ways, including building honest andcapable states through governance reforms, raising the rate of growth, andenabling the poor and women to participate in and benefit from growth. In
addressing Africa’s needs in these areas, prerequisites are partnerships at
the country, regional, and global levels; greater country and sector selectivity
in the design and targeting of interventions; better harmonization and alignment of development partner actions to support country-led strategies; andthe establishment of sound monitoring and evaluation systems.
In AAP, the World Bank Group has broadly grouped African countries
into four categories, using three criteria: (a) economic performance measured by GDP growth and CPIA governance indicators, (b) progress towardmeeting the MDGs, and (c) prospects for effective harmonization of development partners:
・Group A ― “countries capable of using more aid quickly across a wide
range of interventions” includes Burkina Faso, Ghana, and Tanzania.
Outcome orientation is high, donors are well aligned, and moreresources can be used effectively and immediately.
・Group B ― “countries where selective scaling-up is possible” includes
Ethiopia, Mali, and Nigeria. Outcome orientation is moderate. Partners
are partly aligned, and additional resources can be used selectively toscale-up programs.
・Group C ― “fragile states, where additional aid is likely to be focusedon targeted programs” includes Burundi, Chad, and DRC. Challenges
include strengthening state capacity, fostering ownership, etc. Scalingup will be limited to specific targeted programs such as malaria, education, HIV/AIDS, and some infrastructure.
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CHAPTER 9・Group D ― “states affected by recent conflict” like Liberia. The focus ison stopping and preventing conflict, and recreating the rudiment of astate.
The selection of countries considered effective use of aid and also reflects
the need for donors to respond to constituents who call for effective use of
aid or the combination of increased aid and its more effective use. While only
a limited number of donors, including the USA and the Netherlands, areexplicitly selective, many donors implicitly apply similar policies.
9-6-2 Scaling-up aid
The AAP says that in the face of increasing resources, one major task forcountries is to strengthen the analytical foundation for scaling-up results.
The PRS process has drawn attention to the strong links between policies
and programs and poverty-related outcomes, including growth. It has underscored the need for more country-specific analysis of these issues, including
poverty analysis and growth diagnostics that put more emphasis on production sectors. The AAP also recommends that development partners should
continue to help countries to address analytical gaps, but recognizing thatpriorities vary from country to country.
The 2005 Review considers several factors to be considered when scalingup with expanded assistance using findings from the the PRS process. It suggests that the PRS approach can be used effectively as a framework for scaling-up aid because there is tension to be resolved between the PRS that provides a realistic framework for day-to-day policy implementation and one thatmaps out efforts and financing required to achieve more ambitious longerterm goals like the MDGs.4
9-6-3 Absorptive capacity
Among issues relating to scaling-up aid, absorptive capacity has been considered by the 2005 Review, an ODI report, and other research papers. A highproportion of aid is already noticeable in the GDP of many African countries.
Scaling-up aid and increasing its concentration on a limited number of recipients will necessarily accelerate this trend. The effects of aid on macroeconomics was considered by IMF economists Rajan and Subramanian (2005b),
who conclude that inflow of aid may bring negative effects on the competitiveness of a country through appreciation of its currency exchange rate.
4. The Sachs Report states that PRSs should be revised so that they are ambitious enough to achieve
MDGs.

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This was also considered in the 2005 Review and the ODI report.
In summary, scaling-up endeavors for African development with expanded resources involves multiple issues ― most central is how to strengthen
the analytical foundation for scaling-up results. Strong links between policies
and programs and poverty-related outcomes including growth are important
processes that should be pursued through effective implementation of the
PRS process.

9-7. Summary
9-7-1 New stage of African development
International development for Africa has entered into a new phase, and as aid
levels to Sub-Saharan Africa increase substantially, countries are going toincrease efforts to scale-up results.
The Sachs Report and African Commission Report advocated that a ‘big
push’ was required to achieve self-sustaining economic growth in Africancountries and called for expansion of aid. The international community
responded positively to this recommendation by making a commitment todouble ODA. The prerequisite of financial resources is going to be largely
fulfilled.
While there will be more external resources available than ever before fordevelopment over the medium term, the benefits will not be distributed evenly to all countries. There will be explicit and implicit selectivity to be applied
more rigorously, and possible implications for aid dependency in countries
that receive more aid. On the other hand, development partners are called on
to ensure that pledged resources materialize in ways that are flexible andpredictable.
At this new stage of African development, several considerations reflect
view in the preceding part of this chapter:・Countries and their development partners are required to increasingly
focus on defining, measuring, and managing development to maximize
effectiveness.
・With more resources available, the PRS should provide a framework toscale-up country-level efforts to reach the MDGs.
・Development partners will support critical national policies and public
actions to achieve well-defined goals such as the MDGs. The principalmeans to achieve these goals include governance reform and raising
the rate of growth with greater emphasis on production sectors.
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Growth strategies, production sector strategies, and infrastructuredevelopment need to be more intensively pursued while striking anappropriate balance with social development.
・The PRS needs to address capacity constraints, help countries to better
prioritize capacity development, and guide in receiving support fromdonors.
9-7-2 Roles of the PRS and its limit
This chapter has discussed the role of the PRS in African development andhow it has been implemented at the country level. The PRS is also closely
related to the political context of a country and its ability to build capacity.
Success of the PRS approach is limited. It has not delivered what was initially expected. Reviews show that country ownership, the core principle of
the PRS, proved to be most deficient in the process, a concern that was also
heard from Driscol and Booth. Driscol (2004) said that “The risk of disillusionment is real, as the (PRS) approach uncovers but cannot immediatelytransform the enormous legacy of failed aid and poverty reduction efforts
over the past half a century.” Booth (2005) said that “To sum up there aresound reasons for wanting more country ownership of poverty-reduction policies. The PRSP experiment has been the ‘only show in town’ trying toaddress this need for the last five years. It cannot yet to be said that theexperiment has failed, if only because no better idea has yet been articulatedby anyone. On the other hand, it is clear that PRSPs have not delivered what
was hoped for.”The fundamental cause of the limited success, in our view, is that the PRS
approach apparently has grown into a system that is too large and too sophisticated for low-income countries to manage effectively.
Too large
The PRS approach comprehensively covers the broad area of almost all government activities. It includes numerous complicated procedures, many ofwhich require a massive amount of work. Procedures function as a set, andbecause they are linked, any delay, failure, or absence of one procedure may
affect others. For example, when poverty monitoring is not set in operation,
there is no feedback to planning and policy formation. Most of its procedures, including PRSP, progress reports, PER, MTEF, and poverty monitoring are in addition to the existing system and practice. It is not a one time
heavy workload, but a daily routine that continues perpetually. It is very chal284

Perspectives on African Development Strategies and their Policy Implications

lenging for low-income countries to deal with the whole range of such procedures using a limited workforce. Even countries such as Burkina Faso,
Ghana, and Tanzania that are making best efforts to advance the PRS process
in good faith cannot adequately deal with many of the procedures.
Too sophisticatedImplementing the PRS process requires a high level of analysis and organization. The 2005 Review admits that requirements of the process such as
putting together integrated medium- term goals and monitoring a PRS, complete with short- and long-term goals and monitoring systems are “a set oftasks that few industrial countries could systematically do well.” It is therefore very natural for countries to make only slow progress in the PRS
process.
Real challenge begins at the planning stage. The 2005 Review suggests
examples of sub-standard PRSs that don’t support evidence-based decision
making. Many of the countries apparently face challenges at the threshold of
the PRS process in terms of setting concrete targets to policy goals, linking
development programs to these goals, prioritizing policies and public actions,etc. A higher level of procedures such as effective national monitoring evidently looks out of reach for most of the countries.
In an overwhelming majority of countries, ownership of the PRS process― the first and foremost principle ― is fragile, and the concept of donor
alignment is illusory.
Capacity and a development agenda are dilemmas facing developing
countries. Normally countries must address both issues simultaneously
because they don’t have time to wait for their capacity to improve in the faceof outstanding development challenges. The PRS process, however, exposes
the vulnerability of countries.
9-7-3 Future prospects for the PRS approach
If the present situation continues, it will take a long time for low-income
countries to develop the capacity to effectively advance the PRS process.
Studies on capacity development show that only consistent and long-term
endeavors will improve chances for success, but they also show that capacity
development is not yet properly addressed in country development strategies.
The situation is grim because the PRS approach is designed to provide a
basic framework of country ownership and donor alignment for low-income285CHAPTER 9

countries in Africa. The situation is all the more embarrassing at a time when
scaling-up development efforts with increased resources is going to begin.
What will be the fate of the PRS approach? Virtually no effective alternative has been floated in international development discussion. Accordingly, atleast for the time being, one possibility is that efforts will be made to compensate for what has not been working in the PRS process. One example is thecreation of derivative products such as performance assessment framework(PAF) to complement lack of specificity in the PRS process. Another example
is donor intervention, for example, to fill analytical gaps such as drawing sector strategies, monitoring, etc. Such intervention, however, can be a risky
venture. Unless carefully designed and supervised by the host government, it
may undermine country ownership.

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Final Chapter
Transition to Strategic Aid
Takamasa Akiyama, Yuichi Sasaoka
As Akiyama discussed in detail in Chapter 1, in recent years there have beensignificant structural changes in the global political economy and in international aid trends. Amidst these changes, Japan as a major donor country is
standing at an important crossroads. At the time of this writing, the Japanese
government is about to embark on an ODA reform based on a February 2006
report submitted by the Overseas Economic Cooperation Study Group1.
According to the plan advocated, planning will be handled by a newly createdOverseas Economic Cooperation Council (tentative name) which will report
directly to the Prime Minister. The Ministry of Foreign Affairs has the main
responsibility for general policies and all implementing agencies will be consolidated into the Japan International Cooperation Agency (JICA). The
authors of the present analysis welcome the opportunity to consider directions for ODA policies and strategies and to discuss priorities at the perfecttime, as ODA reform is being considered.
The authors of this book met in November 2005 to discuss editorial policies. In recognizing the movement toward ODA reform, they agreed that it
would be appropriate to make bold and strongly reform-oriented recommendations. They decided that each of them, in his/her specific chapter, would
insist that Japan continue to play a leading role in the new aid trends, andthat Japan should implement bold reform while taking advantage of and reinforcing its traditional strengths and addressing its weaknesses. These issues
are connected to a series of changes including clarification of the main objectives in overall strategy, moving away from aid based on modalities (andorganizations) and reconsideration of relationships between policies andimplementing agencies. A critical look at past Japanese ODA reveals that its
implementation tended to be inward-looking, emphasizing accountability to
1. Mainichi Shimbun (Newspaper) March 2, 2006 morning edition.

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the Japanese people along with acquisition and maintenance of budgetary
resources. Evaluations tended to center on monitoring processes and minimizing criticism. If these conditions are retained, Japan may be unable toobtain strategic advantage in the field of international development aid which
poses increasingly complex challenges. All the authors share this impression
and regard this reform crossroads as an occasion to take a fresh look at ODA
policies.
A simple perusal might prompt some readers to think that this book is
structured to provide discussion of different aid modalities. Admittedly, thestructure is based on the current aid system. However, a careful reading will
reveal that each chapter proposes a perspective extending beyond modalities. Poverty reduction strategies in Africa (Chapter 9), the private sector(Chapter 8) and human security (Chapter 7) are discussed as important topics. Among these, the central role is currently played by poverty reduction
strategy (PRS). The private sector role emphasized is as an axis for higher
income regions, for lower income regions human security is emphasized2.
Aid modalities and topics are related to each other, and they are supportedby the basic principles at the core of PRS such as ownership, partnership(Chapter 3), participatory development and results orientation.
What are the common threads that run through the book? Six are articulated. First, each author proposes to reform modality-based schemes andimplement aid unfettered by them. Miyoshi (Chapter 6) states that JICA’s
Regional Departments and theme-oriented organization offers a foundation
for building a cross-scheme system. If yen loans and grant aid are incorporated into JICA, this will entail huge organizational changes but it will also provide a perfect opportunity to give substance to program assistance, turnschemes into means, and promote local initiatives, partnerships and aid coordination. Moreover, with regard to aid modalities, as Sasaoka and Nishimura(Chapter 3) and Ohno (Chapter 5) suggest, restrictions on the donor sideshould be reduced and a system built that can provide more demand-drivenaid.
On this point, the authors would emphasize the importance of future
regional or country-based budgeting and the promotion of country-specificand thematic approaches based on that budgeting. Traditionally, operational
budgets are first divided into the three modalities of yen loans, grant aid andtechnical cooperation; then regional and country distribution is determined
2. Of course, these areas overlap with and complement each other.

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within each modality. The total amount of aid for a country is determined byaggregating the amounts of aid per modality. In the future, after some trial
and error, the system should be modified so that regional and country planning comes first and selection of aid modalities and modality-based distribution take place within that framework. This will clarify the policy system ofdevelopment aid and bring a totally different process to the government andimplementing agencies.
The second common thread is the importance of having a clear development strategy scenario for both the whole of ODA and the development scenarios of recipient countries. Traditionally, regional and/or country aid policies are formulated first, followed by the selection of sectors, programs andprojects. In the future, there must be well thought-out development strategies at the regional or country level which will be followed up by priority sectors and program selection. In order to analyze these development strategy
scenarios, research functions within the government and implementing agencies should be strengthened and collaboration with universities, think tanks,
research institutes and consultants should be enhanced. With regard todevelopment assistance activities in recipient countries, the programapproach must be an essential feature and comprehensive capacity building
for existing organizations and technologies must be emphasized (Chapters 5,
6 and 9).
In their attempt to implement the PRS as the central objective of today’s
ODA, the economic growth school emphasizes the private sector while the
BHN (basic human needs) school emphasizes human security. With regard
to bi-directionality between these two views, Sasaoka and Sugano (Chapter9) talk about the significance of a “mixed strategy” that combines broadbased growth and pro-poor targets. Of course, the actual mix would varydepending on the country and sector. What to emphasize in the best mix
would be decided on a case-by-case basis. For this reason, each donor should
work with the recipient government and civil society to create a country
assistance plan based on policy dialogue and penetrating analysis of current
conditions. For its part, Japan needs a system for examining its comparativeadvantage and demand and supply conditions to determine aid amount, sectoral distribution and governance guidelines, etc.
Ohno’s “argument for bisecting ODA” (Chapter 5) charts future directionof ODA from a regional/global perspective. This argument is not about creating two aid systems that act as fundamental pillars as is the case in the US,
rather it presupposes two concepts as criteria for clarifying the thinking and292

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as a reference framework. Of course, the categories of middle income andlow income countries are not simply congruent with Asia and Africa, respectively, and needs-based categorization is not simple. However, it would be
important for Japan to have a regional criterion for regional contribution to
East Asia, and a global criterion for support of the poorest countries wherever they are. The authors suspect that sorting out the problems of developing
countries based on their growth stages and important issues will help clarify
the strategies as well as the roles of infrastructure (Chapter 4) and the private sector (Chapter 8).
The third common thread is the demarcation (sorting out of corresponding relations) between policy ministries and implementing agencies. As theoutlook for cross-scheme aid has become brighter, there is now a possibility
that implementing agencies can fully handle the planning and implementation of program-based aid activities. While not discussed directly in thisbook, this has something in common with Shimomura’s (Chapter 2) perspective of local initiatives and respect for those in the field as well as Sasaoka
and Nishimura’s (Chapter 3) perspective on Organization Theory. Under across-scheme policy environment, implementing agencies and people in thefield will be able to make more suggestions about the progress of programassistance and how to improve aid modalities. Local ODA task forces will begiven larger roles to play and become more active. For their part, policy ministries would focus on genuine policy areas and on establishing objective
evaluation and monitoring systems. They would also discuss among themselves how to address the issue of policy coherence which is required of
DAC member countries as part of a broader development policy that extends
beyond aid.
To sort out the relationship between policy and implementation, objectives and missions must be clarified. Instead of having multiple and parallel
objectives, once an overarching objective has been established within a consolidated organization, lesser or subordinate objectives should be alignedwith it and stressed within the evaluation system and organizational communication structure. If links among different objectives are not stressed sufficiently, a subordinate objective may interpret itself as the overarching objective or as an independent objective and begin to function independently. Thisis discussed by Miyoshi (Chapter 6) from a policy systems perspective andby Ojima (Chapter 4) from an aid effectiveness perspective.
The fourth thread is the importance of active participation in the aid coordination regime built around the PRS, and of having simultaneously a self293

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identity. This is related to the contrast in the manner of discussion between
Shimomura (Chapter 2) and Sasaoka and Nishimura (Chapter 3). Based onunderstanding among the authors, consideration of the “dark side” of the
PRS regime in Chapter 2 and promotion of partnerships in Chapter 3 intentionally illuminate the same subject from opposite directions. The dark side
aims to reconstruct an aid stance unique to Japan; the promotion of partnerships aims to expand the existing aid philosophy. By integrating these, theauthors are establishing a rationale for an aid stance on the basis of which
Japan would actively participate in the PRS regime and partnerships while
cognizant of its dark side.
The fifth thread is the formation of donors’ viewpoints on aid strategies
and programs. Makino (Chapter 7) and Ojima (Chapter 4) are trying toreconstruct them from the perspectives of human security and infrastructure,
respectively. The former recognizes that as the aid emphasis shifts to PRS
and human security, the perspective from the bottom gains importance, andit attempts to formulate a solution for the poor in three time-based stages.
The latter offers a scenario wherein private funds, loans and grant aid arephased in and out depending on the growth stage of each country and where
programs and modality-based activities at any given time are changing. A
perspective that positions projects within the program regime of the recipient
country is of course important to a shift to a program approach. This is related to the development scenario mentioned above in discussion of the second
common thread.
The sixth thread is working with private resources discussed by Kuga,
Aoyagi and Akiyama in Chapter 8. This is especially relevant for the infrastructure building discussed in Chapter 4, and is also related to regional contributions mentioned in Chapter 5. The experience of East Asia suggests thatdevelopment by ODA has clear limitations and that success depends largely
on how well the private sector is engaged. This is true also for regions otherthan East Asia, including Africa. However, current conditions in Africa andsome other regions are not conducive to private sector activities. Thought
will have to be given to the building of an environment in which donors andthe private sector of the recipient country can cooperate.
The essence of the strategic stance to be inferred from this book, andwhich takes into consideration the comparative advantages of Japanese aid,
is to provide aid that contributes to long-term self-help efforts of developing
countries. This is a stance that Japan has long emphasized and it means thatdeveloping countries promote poverty reduction through true ownership and294

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achieve long-term economic growth. Ultimately, Japan’s contributions may
be limited to supporting a few least developed countries over the long termso that they will be able to sustain themselves economically. In such cases, itwill be necessary to analyze institutional issues including political systems
and factors of poverty reduction and economic growth in these countries,
and to work with governments to construct long-term development strategies
under an “all-Japan” system that includes the private sector. This, it must be
understood, will take years, and decades.
Under the new system to be formulated, comprehensive aid with policy
coherence may become possible. In general, a new development strategy
presented to the world must be backed-up with world-class theories andanalyses. Also it will be desirable to engage actively in discussions with other
donors. Japan has never been in complete accord with international aid
trends, but has acceded to them in principle because the theoretical and analytical grounds for its counterarguments have been weak. Under the new aid
system, it will be important to strengthen the theoretical base and to participate seriously in debate over international development strategies. The
authors would be highly gratified if their book could contribute to thisprocess.
Finally, it is important that a secretariat charged with strategizing ODA
report directly to the Prime Minister. As Akiyama stated in Chapter 1 andaccording to lessons learned during the Cold War era, it is unwise to allow
aid to become subservient to other objectives and to lose sight of its true
objectives. ODA should not be considered in the context of a “clash of civilizations” but in the context of a global development strategy. Its overarching
objective must be clearly expressed in the mission statements of governments and aid agencies. Japanese ODA, along with other policy tools, should
be used effectively in line with the Japanese government’s diplomacy toensure peace and prosperity in the world. This belief is shared by all theauthors of this book.

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