Japan's Official Development Assistance White Paper 2007
Next PageMain Text > Part II ODA RECORD FOR FY2006 > Chapter 2 Details about Japan's Official Development Assistance > Section 2. Measures for Each of the Priority Issues > 1. Sustainable Growth > (6) Cooperation with OOF and the Private Sector
(6) Cooperation with OOF and the Private Sector
<Current Status>
When looking at the worldwide flow of resources to developing countries, ODA accounts for 35% of the total, while other resources, such as OOF and private capital, accounts for 60% of the total amount (DAC statistics). As this shows, utilizing 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. There is an increased need to advance public-private partnerships (PPP) and to promote infrastructure development through it 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 developing economic and social infrastructure.
<Role of OOF>
When Japanese private companies try to develop their businesses in developing countries, they face restrictions on currency exchange and remittance, as well as 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 Group15 have been providing support to Japanese companies in their advancements into developing countries by providing loans for the investment, underwriting insurance and offering massive co-financing loans in cooperation with private financial institutions. Such funding has lower concessionality than ODA, and is referred to as Other Official Flows (OOF) which falls outside the category of ODA.
The use of OOF assists the development of Japanese companies overseas, and at the same time proves to be as effective as official assistance in promoting infrastructure development for economic growth in the countries receiving the loans. In particular, the fruits of Build-Operate-Transfer (BOT)16 Projects 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.
The Asia PPP Promotion Conference was established in January 2006, in which more than 60 private companies and related organizations took part. Accordingly, Japan has been working to help improve the infrastructure of developing countries in Asia and elsewhere through 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. In March 2007 Japan held public and private sector combined policy dialogues (PPP forums) in both Indonesia and Viet Nam through the joint sponsorship of the Japanese Government and the Asia PPP Promotion Conference. The forums were successful in both countries alike, and a high level of interest was shown. Amongst their achievements were the exchange of memorandums of understanding on cooperation between the Japanese Government and the governments of each country.
Conclusion of a memorandum between the Government of Japan and the Government of Viet Nam
<Collaborations with the Private Sector and Universities>
Progress is being made to enhance ODA's linkage with the private sector. At the policy level, MOFA exchanges opinions with economic organizations, businesses, consulting companies, and others in the economic sphere when the occasion warrants. Examinations of methods for effective collaboration between official aid and the activities of private sector companies are also promoted.
In implementing development assistance, JICA has been advancing the Proposal Type Technical Cooperation Project (PROTECO)17 projects to further utilize the vitality, creativity, and know-how of the private sector in the technical cooperation projects implemented in developing countries. In FY2006 newly started projects included: the Project for Developing the Information System of Small Area Statistics, in Indonesia, and the Project on Rural Livelihood Improvement in Hambantota District (SouthCap), in Sri Lanka. 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 69 new contracts (56 new contracts in FY2005). In some recent cases, 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.
Also in loan aid programs, there has been an increase in cooperation with the private sector, such as universities and so on. An example of this is the Ningxia Water Environmental Improvement Project in China. For this project, Shimane University provided intellectual support, such as a survey of the current situation and the formulation of a training program for the water sector (water reclamation) in the Ningxia Hui Zu Autonomous Region. Furthermore, training is also scheduled to be carried out in Japan. For this as well, the plan is to conduct training through cooperation with Shimane University, first in Shimane Prefecture and then in other locations like Fukuoka City. In addition, proposals were made by Hokkaido University for the improvement and further promotion of measures to combat infectious diseases through a loan aid project that had already been implemented in Sri Lanka.
Since FY2001 JBIC has introduced proposal studies and pilot studies as means to understand precisely the diversifying needs of assistance among developing countries. The proposal studies aim to accumulate knowledge and information useful for loan aid projects based on proposals submitted by organizations within Japan. Pilot studies are also based on proposals submitted by organizations within Japan and are used to discover and formulate specific projects for the future. In FY2006, Japan adopted five proposal studies, including Establishing a Framework of Assisting the University Students in Poverty in China, that utilizes the knowledge of Toyo Gakuen University; and 14 pilot studies, including the Hydropower Plant Development in Kurdistan Region of Iraq. In addition, for proposal studies, from FY2006 a "free theme" application has been adopted in which the proposing organizations submit the ideas for the themes themselves, including countries and regions as well as sectors.
Participants in training for the Project for Developing the Information Systems of Small Area Statistics in Indonesia (Photo: JICA)