figures correspond to domestic increases in demand, it should be noted that a significant spillover effect is also likely to spread to other domestic industrial sectors as the size of the market for each of these sectors grows through the overseas development of infrastructure.

## (ii) Contributing to partner countries and the international community

The text in (i) above sets forth the significance of development for the seller, in other words Japan. However, the abundant lives of people in partner countries through the realization of stock effects by developed infrastructure is also exceedingly important.

As indicated in Figure 3-1-3, both the human development index (HDI) and GDP relate proportionally to the stock of infrastructure.

Figure 3-1-3 Correlations between infrastructure and social development/economic development

Infrastructure stock $ ^{1} $ and human development index $ ^{2} $

Relationship between per capita GDP and infrastructure stock

(Notes) 1 Per-capita infrastructure stock is calculated by multiplying the amount of infrastructure stock related to electricity, roads, railways, water supply and sewerage systems, landline telephones, and mobile telephones in each country in 2000 by average prices divided by population.

2 HDI minus income components: Sum of three measures: average life expectancy (number of years), adult literacy rate (15 years of age and older) (%), and combined primary, secondary and tertiary gross enrolment ratio (%). With 0.67 constituting the highest attainable value, the higher this value the better. Equal to HDI minus income components.

3 Source: UNDP (2002), Human Development Report, M. Fay & T. Yepes (2003)

Source) Japan International Cooperation Agency (JICA)

Infrastructure fundamentally belongs to the location where it is situated. Proposals for optimal infrastructure systems based on needs that reflect the climate and culture of the partner countries are required.

In addition to generating win-win outcomes in terms of growth for Japan and our partner countries, we believe that the act of contributing to the formulation of solutions to problems on a global scale—including those that concern urban issues, the environment, and disaster prevention—through the overseas development of quality infrastructure will also help to raise the profile of Japan on the global stage.

## (Overseas infrastructure project risks)

Even as overseas infrastructure projects are meaningful as explained above, they also carry specific risks.

First, as outlined in the left-side illustration in Figure 3-1-4, infrastructure projects—both domestic and overseas—require huge amounts of investments, the return on which may correspond to a very long timeline. Additionally, as outlined in the right-side illustration in Figure 3-1-4, risks can be broadly divided as follows: political risks, commercial risks, and natural disaster risks. For example, many infrastructure projects involve a significant contribution on the part of the government of the partner country. In emerging countries, contractual violations by the government and unilateral rule changes made once the project is underway occur frequently (breach-of-obligation risk and systematic (revision) risk). There is also a demand risk in that we might not know whether users will increase in number over time as expected.