Diversity and Complementarity in
Development Aid: East Asian Lessons for
African Growth (Dec2008)< OECD Global Forum on Development>

Diversity and Complementarity
in Development Aid：：
East Asian Lessons for African Growth

December 8, 2008
Izumi Ohno & Kenichi Ohno
GRIPS Development Forum (GDF)
National Graduate Institute for Policy Studies - GRIPS

Background

ODA Policy Report (Feb. 2008), aimed at:Independent research initiative by GDF, in
collaboration with the interested parties in UKServing as the conceptual basis for Japan-UK partnership
Assisting GoJ in formulating key messages in the 2008
events -- TICAD IV, G8 Summit, Accra HLF, new JICA, etc.

Authors: researchers, policymakers and practitioners in UK,
Japan, Asia (Malaysia) and Africa (Uganda)

While focusing on Japan-UK bilateral aid partnership,
this Report intends to serve for the broader donor
community.

1Diversity and Complementarity in
Development Aid: East Asian Lessons for
African Growth (Dec2008)

Topics of Presentation
 Key concept-- Diversity and complementarity as a key principle ofaid partnership What is the East Asian way?
 Entry points for East Asian engagementin Africa

1. Key Concept
Donor collaboration based on the principle of“diversity and complementarity”
 Arguments for strategic and instrumental diversity






Comparative advantages of donors
Non-fungibility of ideas
Inseparability of content and instruments

 We believe that this concept can be extended to theentire donor community.

2Diversity and Complementarity in
Development Aid: East Asian Lessons for
African Growth (Dec2008)

Comparative Advantages ofDonorsIs global convergence to a single idea or approachdesirable? ( large swings in development vision in the past
decades)

Heterogeneity of partner countries, as well as thedonor community
 Each donor has different strengths and weaknesses
relative to others
 Donor diversity likely to increase in the future Importance to seek an inclusive approach toenhance combined aid effectiveness

Distribution of Sector Allocable ODA to
Low Income Countries and Sub-Saharan Africa(commitments, period averages, %, 1990-2004)
Low Income Countries
11%
26%

11%

10%

15%

12%

Sub-Saharan Africa
14%
24%

26%

12%
19%

29%

33%

1990-1994

10%

15%
26%

34%

29%

12%

52%

39%

1995-1999

50%

47%
33%

2000-2004

Multisector
Production
Inf rastructure
Social sectors

1990-1994

1995-1999

2000-2004

Multisector
Production
Inf rastructure
Social sectors

Source: IDA (2007) Aid Architecture: An overview of the main trends in official development
assistance flows. p.11, Chart 7.

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Diversity and Complementarity in
Development Aid: East Asian Lessons for
African Growth (Dec2008)

Non-fungibility of Ideas
Policy ideas are often non-fungible even underharmonized procedures.
 In light of diversity of donors and partner countries,
we should be open to various possibilities andexplore ways most suitable for each case.
 Importance of providing alternatives
 Country ownership, based on policy multiplicity.
If all donors’ advices are the same, how can partnercountries choose and combine ideas?

Non-fungibility of Ideas(Examples)“Infrastructure”
Innovation in infrastructure financing (UK) -- local
currency guarantee, project development facility for
privately-financed infrastructure, reaching the poor, etc.
 Building roads & bridges (Japan) -- location, design &technology, etc.
“Industrial promotion”
Challenge funds (UK) -- matching grants for innovative
business models, designing architecture for publicprivate partnerships, etc.
 Concrete industrial support (Japan) -- Master Plan for
specific industries, factory diagnosis, industrial humanresource training, etc.
4Diversity and Complementarity in
Development Aid: East Asian Lessons for
African Growth (Dec2008)

How Different?: Japan’s Bottom-up Approachto Quality Improvement (Eg. Tunisia)
JICA Projects

EU Projects

Project
Objectives

Strengthening international competitiveness of

Main
Activities

Quality improvement

Tunisian industries
Assistance for firms to

guidance at the production acquire ISO certification
floor of model firms(int’l standards)

Features of Different approach forCommon approach for all
Assistance each firm (order made)firms (ready made)Instructors required toInstructors not required tohave practical experiences have practical experienceson the production floor
Focus on quality
Formulation of M/Pmanagement & document
through the bottom-up
management systems
approach, deriving from
Source: T. Kikuchi, Ch.7(GRIPS 2008)
the production floor

Inseparability of Content andInstruments
Content (= ideas) and instruments (= approaches)
are hardly separable
 In development aid, different content / ideas call fordiverse aid instruments
 Need to match aid modalities with development
priorities of each country Conflict with the need for instrumental
harmonization?

Cf. Different degree of specificity and transaction intensiveness inpublic sector activities [Pritchett and Woolcock (2002); Fukuyama(2004)]

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Diversity and Complementarity in
Development Aid: East Asian Lessons for
African Growth (Dec2008)

Inseparability of Content andInstruments
It is important to match country needs, instruments, andcomparative advantages of donors
Projects

Budget Support
Providing large resource
transfers (incl. recurrent
expenditures), generating
multiple policy andinstitutional reforms in asynergic manner

Instruments

Addressing specificproblems, seeking policy
innovation, implementing
pilot activities (for welldefined objectives)

DonorsPreferred by donors who
Preferred by donors who
excel in policy dialogue andemphasize field-based
process support, as an entry administrative reformpoint

2. What is the East Asian Way?
No standard “East Asian model” exists
 It should be the methodology (in a broad sense) to
design and implement policies unique to eachcountry Japan could complement the current international
growth support, by incorporating East Asian
perspectives and approaches:Continuous policy dialogue for joint strategy formulation
Goal orientation with concrete thinking, building on yourstrengths

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Diversity and Complementarity in
Development Aid: East Asian Lessons for
African Growth (Dec2008)

Policy Design:
Desirability vs. Feasibility


Development is both a political process and an economic
process.

What should be done

What can be done

HRD & technology
Infrastructure
Integration & competition
Systemic transition, etc

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

Each country is unique in what needs to be done as well as
what can actually be done.
 Any policy maker must work with economic and politicalspace simultaneously.
Growth Diagnostics (HRV
Model)? Hausmann, Rodrik and Velasco (2005)
Discover a small number of most binding constraints togrowth in each country.
HRV Tree—private investment is key to growth; inquiry starts
with low return or high cost of finance, and the causes ofeach.
Harvard, WB, DFID, AsDB,IDB etc. are conducting
GD in many countries.

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Diversity and Complementarity in
Development Aid: East Asian Lessons for
African Growth (Dec2008)

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


How to Cope with EconomicsPolitics Nexus
 Policy-capability matching (WDR97 WB) :“Matching the state’s role to its capability”?

Improve institutions/governance before attempting
difficult policies (such as selective industrial policy)“The path to a more effective state, although not linear, is likely to bea two-stage process. First, the state must focus what capability it
has on those tasks that it can and should undertake. As it does this,it can then focus on building additional capability.” (p.3, Box 1)

Too broad without focus; difficult to put into practiceor mobilize political support

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Diversity and Complementarity in
Development Aid: East Asian Lessons for
African Growth (Dec2008)

Economic-Politics Nexus (cont.) Dynamic capacity development:

Improve ability
through selective hands-on experience

Goal orientation: long-term vision  phased
strategies  concrete action plans.
 Direct most effort to perfecting your strengths rather
than correcting your general weaknesses.
 Stop abstract thinking and start concrete action


No—Is industrial policy useful? What is the role of state?
Yes—Let’s build this port & industrial zone successfully, etc.
Achieve successes one by one, and be proud.

3. Entry Points for East AsianEngagement in Africa(1) If the country already has valid national vision,
strategies and action plans, mobilize aid to realize
the existing vision.
(2) If not, engage in continuous policy dialogue forself-discovery and strategy formulation (preferably
followed by specific ODA and other assistance).
(3) Build core infrastructure and align aid andinvestments around it through donor coordinationand private-public partnership (e.g., development
corridors, OSBP, OVOP).

9

Diversity and Complementarity in
Development Aid: East Asian Lessons for
African Growth (Dec2008)(1) Mobilize Aid to Realize the
Existing National Vision
Ethiopia’s industrial vision (ADLI, Ind. Dev. Strategy)
and strategies (Leather M/P, etc) are largely valid
and clear.
 Donors should support Ethiopia’s vision rather thancreating a new one.
 Japan has many aid tools for industrial support:- Production and technology management- Industrial human resource training- Efficient logistics and marketing- Infrastructure (esp. transport and power)- Regional development planning- Creating necessary laws, standards, institutions- Removing negative impacts of industrialization

Eg. Japan’s ODA: Standard Policy Menu forEnhancing Industrial Capability in East Asia
Policy area

Measures

1. Capacity building (for- Shindanshi (enterprise evaluation) system

specific firms)- TA for management and technology- Mobilization of current or retired Japanese engineers- Intensive support for limited sectors (e.g., die & mold)- Awards, PR and intense support for excellent local companies

2. Human resource- Management/technical centers and programs(general or institutional)- Mobilization of current or retired Japanese engineers- Alliance between FDI firms and local universities/centers- Monozukuri school (to be upgraded to university)- Meister certification system

3. Finance- Credit guarantee- SME finance institutions- Two-step loans

4. Incentives- Exemption or reduction of taxes and custom duties- Grants or loans for specified actions

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Diversity and Complementarity in
Development Aid: East Asian Lessons for
African Growth (Dec2008)

Standard Policy Menu (cont.)
5. FDI-local linkage- Database and matching service- FDI-vendor linkage program- Parts Industry Association and Business Study Meetings- Trade fairs and reverse trade fairs- Improving logistics

6. FDI marketing- Creation of strategic industrial clusters- Industrial parks and rental factories- Efficient logistics and infrastructure- FDI marketing targeted to specific sectors or companies

7. Policy framework- Supporting industry master plan
- SME law
- SME ministry- Business associations and industry-specific institutes- Quality standards and testing centers

Note: This table summarizes Japan’s assistance measures to East Asian countries
contained in the New Aid Plan for ASEAN (late 1980s to early 1990s), the Mizutani
Report for Thailand (1999), the Urata Report for Indonesia (2000), and ongoing
discussion for strengthening Vietnam’s supporting industries (Ohno, 2008b).

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

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Diversity and Complementarity in
Development Aid: East Asian Lessons for
African Growth (Dec2008)

Ishikawa Project in Vietnam
1995-2001










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

Ishikawa Project in Vietnam
Vietnam = Transition economy+ Underdevelopment

Advise on the drafting
process of the 6th FiveYear Plan

Phase 1 (95.8-96.6)
Macro-economy
Fiscal and monetary
policyIndustrial policy
Agricultural and ruraldevelopment

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

Advice on theimplementation issues of
the 6th Five-Year Plan,
including participation in
AFTA/APEC/WTO andindustrial policy
Phase 2 (96.7-98.3)
Fiscal and monetary
policyParticipation in AFTA/
APEC/ WTO andindustrial policy
Agricultural and ruraldevelopment
SOE reform

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

Advice on theformulation of the 7th
Five-Year Plan

Follow-up Phase(98.7-99.7)
General commentary
Fiscal and monetary
matters
Industry and trade
Agricultural and ruraldevelopment

Phase 3 (99.9-01.3)
General commentary
Fiscal and financial
Follow
reformup
Trade and industry
Agricultural and ruraldevelopment
SOE reform and private
sector development

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

Monetary policy under partial dollarization

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

Trade and industrial policies in the age of integration(NEU-JICA joint research program GRIPS-VDF)

Fiscal policy (introduction of personal income tax)

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Diversity and Complementarity in
Development Aid: East Asian Lessons for
African Growth (Dec2008)

Continuous Policy Dialogue in
the Partnership Context
The case of Zambia (South-South cooperation)
JICA is conducting “Triangle of Hope” Project 2006-09(improving investment climate), mobilizing a Malaysian
expert (ex-MIDA official).
 Task forces organized within GoZ, with the involvementof President
 Investment promotion initiatives – targeted at Malaysia
and India
 JICA support to the development of Multi-facility
Economic Zone (MFEZ).
 As a next step, Zambia wants Japan to help formulate along-term industrial strategy.
(3) Japanese Assistance for Core
Infrastructure
Greater Mekong Subregion – East-West andNorth-South Corridors for development of Indochina
 Thailand – Eastern Seaboard: creation of industrial
zones around a port infrastructure Vietnam – Highway No.5 (Hanoi – Haiphong Port)
for FDI attraction (industrial clusters) Cambodia – Sihanoukville Port, power and telecom
networks, special economic zone
 El Salvador – La Union Port + regional development Mozambique (planned) – Nacala Port and Corridor
for regional development13

Diversity and Complementarity in
Development Aid: East Asian Lessons for
African Growth (Dec2008)

El Salvador: Growth Diagnostics
vs. Japan’s ODA

Hausmann-Rodrik Growth Diagnostics 2003: The largest
constraint in El Salvador is the lack of self-discovery caused
by market failure (low appropriability). Infrastructure is not abinding constraint.
Local Report 2008 (FUSADES): Our infrastructure is best inCentral America and we are already a regional hub, but wecan do even better by handling trade more efficiently. This willraise our productivity and competitiveness. For this purpose,
infrastructure, especially La Union Port, is essential.
Japanese ODA in El Salvador: Upgrade La Union Port as
key infrastructure. Additional support for social & HRD,
productive sectors, Eastern Region development, andregional integration.

Build Core Infrastructure and Align
Development Programs
Nacala Development Corridor
(Source: CPI, Govt. of Mozambique)a

The Case of Mozambique (planned)
Regional development around Nacala port
and corridor

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Diversity and Complementarity in
Development Aid: East Asian Lessons for
African Growth (Dec2008)

Conclusion:
East Asian Policy Engagement
Building new competitiveness from the country’s
strengths, not correcting general weaknesses.
 Goal-oriented approach—vision, phased strategies,
concrete action plans.
 Focus effort strategically—don’t waste time ingeneral improvement without clear goals.
 Donor-recipient policy dialogue for trust, knowledgetransfer, and strategy formulation.
 Long-term open-ended engagement rather thanoutcome-based approach with frequent reviews.
More Books from GRIPS
http://www.grips.ac.jp/forum-e/index.htm
Ohno, Kenichi, and Izumi Ohno, eds (1998), Japanese Views on
Economic Development: Diverse Paths to the Market, Routledge.
Ohno, Izumi and Yumiko Niiya (2004), Good Donorship and Aid
Modality: Matching Country Needs with Aid Modality, GRIPS
Development Forum.
Ohno, Kenichi, ed (2006), Industrial Policy Formulation in
Thailand, Malaysia and Japan: Lessons for Vietnamese Policy
Makers, Vietnam Development Forum/Publishing House of Social
Labour, Hanoi.
Ohno, Kenichi (2006), The Economic Development of Japan: The
Path Traveled by Japan as a Developing Country, GRIPS
Development Forum. Also available in Japanese, Chinese, Vietnamese, Arabic.
GRIPS Development Forum (2008), “Proposal for a New African
Growth Support Initiative”, Policy Note No.5

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