Japan’s Development Cooperationin the Era of “New Partnership”: Challenges and Opportunities
March 16, 2017

Yasutami Shimomura (Hosei University)

Objective of this presentation• This presentation examines the effects on the traditional
donors of the shift to “New Partnership” between thetraditional and “emerging” donors• More specifically, it deals with:a) the challenges facing the OECD-DACb) opportunities as well as challenges for Japan’s
development cooperation

A new landscapein the era of “New Partnership”• Changes in the needs for development cooperation, in particular from aid to FDI,
and from social to economic infrastructure• Rise of new actors: larger roles of ‘emerging donors’, private financial flows, and NGOs
Wider range of options for developing/recipient countries• Blurred frontier between public and commercial financial flows• Challenges for the prevailing development norm/paradigm

Challenges for
the OECD-DAC members• The prevailing rules of the game of development cooperation are notsuited to the new reality, in which the emerging donors got influential• The DAC members began to change some of the mainstream norms
and principles, in order to adapt to the new situation• The shift from the Paris Declaration to the Busan Declaration• The shift from the MDGs to the SDGs

Traditional and new actors
OECD-DAC
in cooperation with the World Bank
• Charity and humanitarian motive• Poverty reduction as a paramountaim of aid• Emphasis on social sector• Program aid and aid harmonization• Political tying and economic
untying with policy conditionality• Dissociation from private sector
activities‘Emerging donors’: China & India• Principle: mutual respect, equality,and solidarity• Objective: attaining self-reliance• Emphasis on real sector andinfrastructure• Non-interference, no conditionality• Close linkage between aid, direct
investment, and trade• ‘Win-win’ approach

Diversity of ‘Emerging Donors’• DAC-friendly emerging donors
Arab donors: Saudi Arabia, UAE, Kuwait etc.
Mexico, Turkey, [Korea](until 2009)• DAC-unfriendly emerging donors: challengers to the mainstream
China, India, Brazil, South Africa, Venezuela, [Russia]• The description of ‘emerging’ is misleading, as many of them, in particular Chinaand India, has long history of aid giving since the early 1950s.

Shift from Paris and Busan Declarations: Changes in the OECD-DAC’s position• Paris Declaration (2005)• Busan Declaration (2011)• Key actors: (traditional) donors
and ‘partner countries’ (new donors
were not mentioned)• Key issues: recipients’ ownership,
aid harmonization, alignment withrecipients’ strategies• No emphasis on human rights,
democratization, and good
governance• ‘New partnership’ between thetraditional and emerging donors• Broaden support for South-South andtriangular cooperation• Common goals and differentialcommitments• Emphasis on human rights, democracy,and good governanceShift from the MDGs to SDGs
: reflecting the injected voices of the South• The Millennium DevelopmentGoals (2000)• The Sustainable
Development Goals (2015)• Eradicate extreme poverty and hunger(Goal 1)• Achieve universal primary education(Goal 2)
• Reduce child mortality (Goal 4)• Ensure environmental sustainability(Goal 7)

• Decent work and economic growth(Goal 8)• Industry, innovation and infrastructure(Goal 9)• The principle of common but
differentiated responsibilities (CBDR)New definition of ODA (2014)• Rethinking the criterion of ‘what is concessional’: purpose is to secure moreconcessional loans for least developed countries (LDCs)• Lower ‘discount rate’, which means ‘commercial’ interest rate, in comparison withconcessional rate: for LDCs/LICs from 10% to 9%, for LMICs from 10% to 7%• Higher ‘grant element’ required for ODA for LDCs/LICs 45% (previously 25%)
• ODA amount calculation based on ‘gross cash-flow’ instead of previously used‘net cash-flow’• Effect: the introduction of new definition would
Demonstrate that the rules of the game are in the hands of traditional donors
Increase Japan’s ODA amount due to the change from net to gross basis
Decrease China’s de fact ODA amount due to higher grant element required

New opportunities forJapan’s development cooperation• Renaissance of economic infrastructure

Assisting infrastructure construction, in conjunction with rural development
assistance, has been the lynchpin of Japan’s cooperation for developing
countries’ endeavor of attaining self-reliance
While, the MDGs neglected economic infrastructure, the World Bank viewed
infrastructure as a ‘sunset’ sector in the 1990s, and public and private
infrastructure investment to developing countries had fallen significantly.

• Japan’s comparative advantage in the seamless cooperation between
public and private actors
The model of “aid, investment and trade synthesis” or “trinity developmentcooperation” is shared also by China’s foreign aid

Figure 7-2 Concerted activities between public and private sectors: the case of the Eastern Seaboard

Infrastructure
construction

Institutional reform

Public sectors
ThaiJapanese
Ports
Industrial estates
Dam and water pipeline
Railways and roads

Thai

Other foregin

Industrial estates*

One Stop Service

Direct investmentAnchor firms(Automobile industry)

Industrial cluster

Macroeconomic
impacts

Private sectors
JapaneseParts and material suppliers
Economic growth
Employment increase
Export increase*Amata Group, Hamaarji Land Group(Source) Prepared by the author

Production, job creation, and export
Technical transfer

Challenges facing
Japan’s development cooperation• Japan is urged to reverse its recent shift to narrowly scoped nationalinterest, which is the result of post-bubble stagnation and the rise ofChina• Otherwise, it is difficult for Japan to take advantage of the newopportunities. Also, it is not easy to differentiate Japan’s cooperationfrom China’s.

Two undesirable changes in Japan’s modeof development cooperation• Tied aid loans have increased persistently since the introduction ofSTEP* in 2002, although the ratio of untied loans was 100% in 1996.
*The Special Terms of Economic Partnership• The objective of Infrastructure System Export Strategy of theJapanese government is to support Japanese firms. In contrast, themission of the New AID Plan of 1987 was to develop local (Asian)
export industries.