Japan's Official Development Assistance White Paper 2006
Main Text > Part II ODA DISBURSEMENTS IN FISCAL YEAR 2005 > Chapter 2 Details about Japan's ODA > Section 2. Measures for Each of the Priority Issues > 2. Sustainable Growth > (6) Cooperation with OOF and the Private Sector
(6) Cooperation with OOF and the Private Sector
When looking at the worldwide flow of resources to developing countries, ODA accounted for 24.6% of the total (DAC account, provisional value in 2004), while other resources, such as OOF and private capital, accounted for 75% of the total amount. As this shows, coordinating with public and private resources other than ODA is as important as ODA itself to development. There is a massive demand for funds needed to support the development, maintenance, and management of infrastructures, notably in East Asia. But such demand cannot be fully met by the government funds of developing countries and the public resources from donor countries alone. Therefore, there is an increased need to promote infrastructure development through public-private partnerships under the appropriate sharing of roles utilizing private funds and other resources. In fact, in recent years countries have started using private sector resources, technology and initiatives in building economic and social infrastructure.
However, when private companies develop their businesses in developing countries, they face restrictions on currency exchange and remittance, and risks involved such as changes in the legal system, wars, civil conflicts, and political instability. Therefore, it is difficult to actively expand businesses into developing countries, as many private financial institutions tend to be reluctant to provide loans for such purposes. To eliminate this hurdle, public organizations such as JBIC, the Nippon Export and Investment Insurance (NEXI), the ADB, and the World Bank Group20 have been providing support to Japanese companies in their advancements into developing countries by underwriting insurance and offering massive co-financing loans in cooperation with private financial institutions.
Moreover, the use of OOF is beneficial not only because it assists the development of Japanese companies overseas, but also because it develops infrastructure supporting economic growth in the countries receiving the loans. In particular, the fruits of Build-Operate-Transfer (BOT) Projects21 end up belonging to the recipient countries. Therefore, such projects play a role in promoting the inflow of private resources and in developing infrastructure that leads to future economic development for the recipient countries.
In promoting private investment into developing countries, it is important to strengthen the Public-Private Partnership (PPP). Thus, in addition to the commitment through ODA, Japan's public organizations provide public funds to private businesses through investment financing, investment guarantees, and insurance to help reduce the risk of outward investment that could affect those businesses, with a view to support investment from Japan to developing countries. Examples of such commitments include JBIC's investment loans guarantees, project finance, and NEXI's overseas investment insurance, and overseas untied loan insurance.
In FY2005 Japan extended a loan to Brazil for a project to renovate and enhance transportation infrastructure aimed at increasing the production of iron ore. This commitment was made under the Joint Program for Revitalization of Economic Relations between Japan and the Federative Republic of Brazil, which was agreed upon when President Luiz Inácio Lula da Silva of Brazil visited Japan in May 2005. This project is designed to provide the funds needed to renovate and expand railways and port facilities which are owned and operated by iron ore makers in Brazil. The funding was made as a syndicated loan by three Japanese commercial banks and guaranteed by JBIC. Japan relies on imports for almost all of the iron ore it consumes. A stable supply of iron ore is an imminent challenge, given a recent tightening in the iron ore market worldwide. This project can help the international community ensure a stable supply of iron ore by increasing the supply volume through the improvement of transportation infrastructure in a producing country.
Furthermore, to respond to the future electrical power shortages that are expected to occur in line with its economic development, Indonesia has launched a comprehensive electricity sector reform by promoting power resource development through the introduction of private resources, in addition to electricity infrastructure development through public resources. Japan has extended both "software" and "hardware" assistance in a comprehensive manner to Indonesia, including support to the electricity sector reform and to power resource development, using various financial tools. Specifically, Japan has provided broad-based recommendations regarding the electricity sector reform in cooperation with the World Bank and the ADB. At the same time, Japan has been playing a leading role in developing the electrical power generation projects implemented by the private sector in concert with the public export credit agencies of other countries.
Moreover in FY2004, Japan has examined in the Asia Electricity Task Force the promotion of infrastructure development through private resources and their linkage with public resources. For the same objectives, the Asia Public-Private Partnership (PPP) Study Group deliberated on other industrial areas in which surging demand for infrastructure is expected in Asia. Furthermore, the promotion of PPP was proposed at an interim report released in July 2005 by Subcommittee on Economic Cooperation, Trade and Economic Cooperation Committee, and Industrial Structure Council of the Government of Japan. This led to the foundation of the Asia PPP Promotion Conference in January 2006, in which more than 60 private companies and related organizations took part. These initiatives are expected to activate Japan's efforts to help improve the infrastructure of developing countries in Asia and elsewhere by the use of Japan's technology and knowledge in the areas of electricity, urban transportation, water supply and sewage, information and communication technology (ICT), and public services.
Furthermore, progress is being made to enhance ODA's linkage with the private sector. JICA has been advancing the Proposal Type Technical Cooperation Project (PROTECO)22 projects to further utilize the vitality, creativity, and know-how of the private sector in the technical cooperation projects implemented in developing countries. In FY2005 newly started projects included: the Agricultural and Rural Development for Rehabilitation and Reconstruction through Community Approach in Trincomalee District, Sri Lanka; the Project for Sustainable Arsenic Mitigation under the Integrated Local Government System in Bangladesh; and the Project for Improvement of Lives of Women in Marginalized Communities in Urban Zone of Chiapass, Mexico. In addition, in the Technical Cooperation Projects Based on Operation Implementation Contracts, under which work is subcontracted to the private sector, the vitality of the private sector is actively utilized through 56 new contracts (22 new contracts in FY2004). In some recent cases, non-governmental organizations (NGOs) and universities are entrusted for implementing those Technical Cooperation Project Based on Operation Implementation Contracts, further expanding the use of the know-how of various types of organizations.
Job training for women in Chiapass State, Mexico (Photo: JICA)
Also in yen loan programs, there has been an increase in coordination with the private sector, such as universities and industry. An example is the Higher Education Loan Fund Project III (HELP III) in Malaysia, designed to train human resources that can fully utilize their expertise in the local private sector, including Japanese affiliated companies. The local education programs in this project employ educational modules of Japanese universities for developing and operating curriculums. Further, by coordinating with Malaysian industry and thus developing human resources that meet the industry's needs, the project is expected to enhance its effect in assistance for human resource development.
Since FY2001 JBIC has introduced proposal studies and pilot studies as means to understand precisely the diversifying assistance needs among the developing countries. The proposal studies aim to accumulate knowledge and information useful for yen loan projects based on proposals submitted by organizations within Japan, while pilot studies are used to discover and formulate specific projects for the future. In FY2005, Japan implemented 16 proposal studies, with themes such as NGOs' Technical Training for Assisting Women's Self-Reliance in Sri Lanka; and 10 pilot studies, including Brazilian Program of Agroenergy.