Japan's Official Development Assistance White Paper 2011
Section 4 The Usefulness of Growth through the Development of Infrastructure
1. Why is the development of infrastructure beneficial to the economic growth of developing countries?
The revitalization of regional economic activity and generation of stable employment is an effective way to reduce poverty. Attracting investment from outside the region and revitalizing trade within the region are possible methods of revitalizing economic activity. What is necessary to accelerate the implementation of such measures is the development of infrastructure that supports economic activity (the socio-economic infrastructure), such as a network for the transportation of raw materials and products, and the electrical power supply needed for operation.
"Deployment of Integrated Infrastructure Systems"* has been adopted as a national strategy project for New Growth Strategy,* and Japan is strengthening its efforts, but in addition to boosting Japan's recovery and growth, it greatly helps in the economic growth and reduction of poverty in developing countries as well.
2. Stimulating the economy by promoting investment from outside the region
Promotion of investment in developing countries has a variety of effects, including the creation of new industry, the transfer of technology, and the promotion of employment. A variety of elements are required from both the equipment and facilities standpoint and the knowledge and expertise standpoint to enable a company to conduct activities. One of the most important of these elements is the development of infrastructure to support economic activity.
In addition to providing assistance in the development of roads, bridges, railways, ports, airports, and other aspects of the transportation network in regions that are increasingly expected to be the target of investment by Japanese companies, the Japanese government is utilizing Japan's superior technology, such as renewable energy and smart grids (next-generation electric power grids), to provide aid directed toward ensuring stable electric power, etc.
The "Project for the Improvement of the National Road No.1" in Cambodia widened roads, thereby relieving traffic jams (Photo: Koji Sato/JICA)
3. Revitalizing trade within the region by promoting regional economic integration
When trade is conducted between two regions, logistics costs are generated in proportion to the geographical distance. In general, the volume of trade decreases with distance, but development of transportation infrastructure makes it possible to aim for shorter transportation time and increased transportation volume, decreasing shipping costs and enabling more active trade. Linking the transportation infrastructures of physically separated economic zones allows new integration of those economic zones, making it possible to expect the revitalization of trade in those regions. In addition, such economic integration is also useful in eliminating gaps within the region.
Japan provides assistance for the development of economic corridors (See "Terminology" on page 20) and other extensive infrastructure in each area around the world, and is striving to achieve economic growth in developing countries through the revitalization of trade within the region. In FY2010 as well, at a Japan ASEAN Summit, it was announced that preparations had been made to contribute to implementation of the "Master Plan on ASEAN Connectivity." (See the figure on page 19) In addition, at the TICAD-IV (the Fourth Tokyo International Conference on African Development) Follow-up Meeting, it was announced that continued aid would be provided, including development of the infrastructure to accelerate growth in Africa.
4. Systems and programs to promote development of the infrastructure in developing countries
In the past, Japan has utilized ODA in a variety of forms to assist in the development of infrastructure in developing countries. "Deployment of Integrated Infrastructure Systems" has been adopted as a national strategy project for New Growth Strategy, and deployment and effective utilization of that strategy is being considered for the systems required to support the development of infrastructure in developing countries.
In addition to utilizing the knowledge, experience, funds, and technology, etc., of private businesses, JICA launched a system in FY2010 to call for proposals from the private sector for preparatory survey for public-private partnership (PPP) infrastructure projects and to outsource those studies to the companies that proposed them, in order to give a boost to the overseas deployment of private businesses. Further, JICA Private Sector Investment Finance* was officially re-launched to provide direct investment and financing to private businesses that contribute to the development in developing countries, and preparations are underway for investment and financing of trial projects.
Moreover, in August 2011, discussions in Ministerial Meeting on Deployment of Integrated Infrastructure Systems and ODA Review (Note 7) in Ministry of Foreign Affairs resulted in the decision to utilize ODA loans strategically and in exceptional cases, depending on the project, for upper-middle-income countries and developing countries with an income level that exceeds that of upper-middle-income countries, if it is possible to confirm that it will be directly effective for receiving concrete orders for integrated infrastructure projects and acquisition of resources, etc.
Japan will utilize a variety of such systems to continue providing support for the development of infrastructure in developing countries.
Terminology
* New Growth Strategy
A policy to grow Japan's economy. The Strategy stipulates 21 National Strategic Projects under seven strategic categories: (i) Green Innovation, (ii) Life Innovation, (iii) Asia, (iv) Tourism-oriented nation and local revitalization, (v) Science- and technology-IT oriented nation, (vi) employment and human resources, and (vii) financial sector.
* Deployment of Integrated Infrastructure Systems
In New Growth Strategy, Japan promotes the deployment of infrastructure business through public-private partnership as "Deployment of Integrated Infrastructure Systems." The concept involves supporting the efforts of private businesses related to infrastructure demand, particularly in Asia, with an entire package, not only for the construction of facilities and as part of the equipment and facilities infrastructure, including the development of electric power, railways, water, road projects, and other infrastructure overseas by Japanese companies, but also for the knowledge and experiences required for those business operations, transfer of technology, development of the human resources required for management and operation, and other aspects of the knowledge and expertise.
* JICA Private Sector Investment Finance
Utilization of JICA's loan aid to provide the funds and financing required for development business implemented by private Japanese companies in developing countries. The projects of private businesses in developing countries create employment and lead to the revitalization of the economy, but in many cases there are a variety of risks and no outlook for high gains, so it is difficult to obtain sufficient funds from private financial institutions. Overseas investment and loans by JICA are used to support development in developing regions by providing funds and financing for such businesses. The aid targets (i) MDGs and the reduction of poverty, (ii) acceleration of infrastructure development and growth, and (iii) measures against climate change. Unlike yen loans, which consist of economic cooperation provided to the governments of developing countries, overseas investment loans contributes to development by supporting the activities of private Japanese businesses that are conducted with non-governmental private businesses in developing countries.
Notes:
(7) "ODA Review Final Report" June 29, 2010; http://www.mofa.go.jp/policy/oda/reform/pdfs/review1006_report.pdf
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