Chapter 2 Specific Initiatives of Japan’s Development Cooperation
Professor Emeritus Hiroji Nakagawa of Kyoto University talks with the students at Jomo Kenyatta University of Agriculture and Technology in Kenya. (Photo: Shinichi Kuno / JICA)
The international community is currently facing various issues and risks associated with globalization, more complex development issues as developing countries diversify and multi-polarize, and the rise of emerging countries in the area of development cooperation. Based on this recognition, the Development Cooperation Charter (decided by the Cabinet in February 2015) clarifies Japan’s policy to promote development cooperation in order to contribute more proactively to the peace, stability, and prosperity of the international community. The Charter states that such cooperation will contribute to Japan’s medium- to long-term national interests such as maintaining its peace and security, achieving further prosperity, realizing an international environment that provides stability, transparency and predictability, and maintaining and protecting an international order based on universal values.
This chapter presents specific development cooperation measures that Japan is implementing around the world. The term “development cooperation” refers to “international cooperation activities that are conducted by the government and its affiliated agencies for the main purpose of development in developing regions,” including ODA and other cooperation conducted in collaboration with public-private financing and activities.
Section 1 “Measures for Each Priority Issue” introduces thematically the efforts Japan is undertaking around the world, focusing on the following three development cooperation themes: “1. ‘Quality growth’ and poverty eradication through such growth”; “2. Sharing universal values and realizing a peaceful and secure society”; and “3. Building a sustainable and resilient international community through efforts to address global challenges.”
Section 2 “Assistance for Each Region” presents specific examples by region as to how Japan is addressing the range of issues facing regions and countries in the world.
Finally, Section 3 “Efforts for Effective and Appropriate Implementation” introduces the measures for improving the effectiveness and efficiency of the government’s development cooperation structure, which is divided into the following four themes: “1. Implementation of effective and efficient development cooperation”; “2. Efforts for securing the appropriateness of development cooperation”; “3. Efforts for strengthening partnerships”; and “4. Efforts for strengthening the foundation of development cooperation implementation.”
Section 1 Measures for Each Priority Issue
This section introduces Japan’s recent efforts related to the three priority issues: “1. ‘Quality growth’ and poverty eradication through such growth”; “2. Sharing universal values and realizing a peaceful and secure society”; and “3. Building a sustainable and resilient international community through efforts to address global challenges.”
1. “Quality Growth” and Poverty Eradication through Such Growth
Across the world, there is still a large number of people suffering from poverty. Eradicating poverty in the world is the most fundamental development challenge. In particular, it is important to provide both assistance from a humanitarian point of view for fragile states that have not been able to grasp the opportunities for development for different reasons, and assistance designed to set the development process in motion and overcome vulnerability. At the same time, in order to resolve the poverty issue in a sustainable manner, it is essential to achieve economic growth through self-reliant development of developing countries.
Such growth is not simply quantitative economic growth. It must be “quality growth” that is: “inclusive” in that the fruits of growth are shared within society as a whole, leaving no one behind; “sustainable” in that growth can be sustained in harmony with society and the environment; and “resilient” against economic crises, natural disasters and other shocks.
These are some of the challenges Japan tackled in its postwar history. Japan takes advantage of its own experience, expertise and technology as well as lessons learned in order to provide assistance to realize “quality growth” and poverty eradication through such growth.
1-1 Assistance Necessary to Secure the Foundations and the Driving Force for Economic Growth
(1) Development of Industrial Infrastructure and Industries, and Economic Policy
To achieve “quality growth,” it is important to improve the socio-economic infrastructure that serves as the foundation for the development of developing countries. In addition, it is key that the private sector plays a central role. In particular, it is essential to boost private sector activities, such as the development of industries and the expansion of trade and investment.
In developing countries beset by a variety of challenges, it can sometimes be difficult to develop capacities or set in place an environment for promoting trade and attracting private investment. Therefore, support from the international community is required.
<Japan’s Efforts>
| Quality infrastructure
Mombasa Port, the largest commercial port in East Africa. It is the sole international trade port in Kenya, and also serves as a critical gateway port for inland countries of Africa such as Uganda and Rwanda. (Photo: Toyo Construction Co., Ltd.)
Japan develops quality infrastructure that leads to quality growth in developing countries and regions, in line with their economic and development strategies, and trains human resources to manage and operate this infrastructure. Japan’s strength lies in developing infrastructure that is truly useful for “quality growth” in developing countries, which includes technology transfers and job creation in partner countries. Specific infrastructure development is carried out on roads, ports, airports, and information and communications technology (ICT). Such infrastructure contributes to the expansion of exchanges between urban and rural areas, ensures security in case of disasters, and promotes trade with and investment from overseas countries. Other important Japanese efforts that lead to “quality growth” in developing countries include the development of social infrastructure, which contributes to ensuring education, health, safe water, hygienic environment, and housing, as well as better access to hospitals and schools, together with the development of agricultural and fishery markets, and fishing ports to revitalize local economies. Additionally, Japanese public and private sectors collaborate to assist with the development of infrastructure systems that include engineering, construction, maintenance, and operation of infrastructure, along with the development of facilities and equipment. These initiatives also contribute to promoting infrastructure system exports.*
The international community’s awareness of the importance of this kind of investment in infrastructure development that is useful for quality growth, known as “quality infrastructure investment,” has been growing in recent years but the basic elements of this kind of investment have not been shared sufficiently. Taking into account this situation, at the G7 Ise-Shima Summit in May 2016 the G7 agreed to the G7 Ise-Shima Principles for Promoting Quality Infrastructure Investment. It confirmed that going forward they would effectively communicate the content of the principles to each country and international organization, and would encourage them to take actions in line with the principles when implementing infrastructure investment and support. The importance of the basic elements of the principles — (i) economic efficiency in view of life-cycle cost as well as safety and resilience against natural disaster, (ii) job creation, capacity building and transfer of expertise and know-how, (iii) addressing social and environmental impacts, and (iv) ensuring alignment with economic and development strategies — was subsequently shared at the G20 Hangzhou Summit, TICAD VI, the East Asia Summit, and the APEC Economic Leaders’ Meeting.
Furthermore, as Japan’s contribution to infrastructure investment in line with the G7 Ise-Shima Principles for Promoting Quality Infrastructure Investment, Prime Minister Shinzo Abe explained to the G7 leaders the Expanded Partnership for Quality Infrastructure, under which Japan would implement quality infrastructure investment totaling approximately $200 billion over the next five years from 2017 across the world. Moreover, in TICAD VI held in Kenya in August 2016, Prime Minister Abe announced that Japan would implement quality infrastructure investment of approximately $10 billion in Africa for period of three years from 2016 to 2018.
Demand for development in emerging countries, namely those in Asia, is still expected to be large, especially with regard to infrastructure development. In this regard, promoting “quality infrastructure investment” that utilizes Japan’s accumulated technology and experience contributes to ensure that Japan continues its growth together with developing countries. Furthermore, this will lead to expanding markets through development of partner countries, to forging international friendships, and to strengthening partnerships.
The Terminal 2 Passenger Building for international flights at Noi Bai International Airport, Viet Nam, which has large capacity for 10 million passengers (Photo: Shinichi Kuno / JICA)
| Improving the Trade and Investment Climate
A JICA expert, Mr. Masaki Okamoto (left), serves as a customs advisor in Vientiane, Laos, with a local official. (Photo: Shinichi Kuno / JICA)
Japan utilizes ODA and Other Official Flows (OOF)* to support the advancement of small and mediumsized enterprises (SMEs), transfer of Japan’s industrial technology, and formulation of economic policies in developing countries. In addition, Japan supports the development of the trade and investment climate and economic infrastructures in order to enhance the export capabilities and competitiveness of developing countries.
More than two-thirds of the members of the World Trade Organization (WTO) are developing countries so the WTO also emphasizes the promotion of development through participation in the multilateral free trading system by developing countries. Japan has contributed to the trust fund set up within the WTO with an aim to improve the capacity of developing countries to engage in trade negotiations and participate in the global market, thereby gaining the ability to implement the WTO agreements.
Regarding access to the Japanese market, Japan has implemented the Generalized System of Preferences (GSP), (Note 1) which applies lower tariff rates, in order to encourage imports of products from developing countries. Specifically, Japan provides duty-free quota-free access* for Least Developed Countries (LDCs)*. In addition, Japan also actively promotes Economic Partnership Agreements (EPAs),* and tries to create an environment for economic growth in developing countries through liberalization of trade and investment.
In recent years, active discussions regarding Aid for Trade (AfT)* have taken place at various international organizations, including the WTO and the OECD as a means of further promoting support by developed countries including Japan. Japan provides funds for the development of transportation networks vital to trade, including ports, roads, and bridges, as well as for projects to construct power plants and power grids, etc. Japan has also provided technical cooperation in trade-related areas including training of customs’ officials and intellectual property rights experts.
Furthermore Japan provides assistance to small-scale production groups and small companies in developing countries for the One Village, One Product Campaign.* In addition, Japan supports developing countries in attracting private sector investment by identifying issues unique to those countries, and recommending measures to promote private investment.
The Trade Facilitation Agreement (TFA)* agreed at the Ninth WTO Ministerial Conference in December 2013 entered into force in February 2017 upon its acceptance by 110 members, equivalent to two-thirds of all WTO members. The implementation of the TFA is expected to improve the issues Japanese companies frequently face at export destinations, such as lack of transparency in trade procedures and arbitrary operations, and to support trade and other economic activities by Japanese companies, which not only export finished goods, but also develop supply chains on a global scale, as well as to help developing countries to promote trade and investment by reducing the trade transaction costs, to prevent illegal imports and to improve the collection of customs duties.
Japan has heretofore assisted developing countries with trade facilitation, and continues to extend proactive support utilizing its expertise and experience.
The theme of the Fifth Global Review of Aid for Trade co-hosted by the WTO and the OECD in July 2015 was “Reducing Trade Costs for Inclusive, Sustainable Growth.” Japan introduced examples of its development cooperation that encouraged trade facilitation, helped build international production and distribution networks, and contributed to the economic growth of developing countries and regions. These examples were appreciated by member states. In 2017 the Sixth Review is planned to be held under the theme of “Promoting connectivity.” Furthermore, as a case of technical cooperation of the Ministry of Economy, Trade and Industry (METI), Japan is working on improving technology levels through support for legal systems and the establishment of market rules and human resources development in developing countries.
| Assistance for Domestic Resource Mobilization
For developing countries to take ownership of their quality growth by resolving various development issues, it is critical that developing countries ensure the necessary development funds in the form of tax revenue collection or others through their own efforts. This is known as “domestic resource mobilization.” Its importance has been noted at the discussion fora of the UN, OECD, G7, G20, International Monetary Fund (IMF), and Multilateral Development Banks (MDBs). This issue was also taken up in the 2030 Agenda for Sustainable Development (2030 Agenda), which was adopted at the UN Sustainable Development Summit in September 2015 and represents the new international development goals from 2016 through 2030.
Japan, together with the international organizations and other entities concerned, contributes to discussions regarding domestic resource mobilization and provides relevant support to developing countries. For example, Japan proactively provides technical cooperation to developing countries for improving their tax administration. In 2016, Japan dispatched National Tax Agency personnel as trainers on topics including international taxation, tax collection, and, tax litigation to Cambodia, Indonesia, Mongolia, Myanmar, Viet Nam, among other countries. In addition, Japan hosts many officials from developing countries for training in Japan that includes lectures regarding Japan’s overall taxation system and tax administration.
As regards programs implemented with international organizations, Japan, for example, has provided assistance for the OECD Global Relations Programme for more than 20 years. This programme dispatches OECD experts in the relevant fields to developing countries to conduct seminars and lectures to deepen the countries’ understanding of taxation systems and tax enforcement, including tax treaties (Note 2) and investigation of the taxes of multinational enterprises. In addition, Japan provides cooperation on the human resources, expertise, and financing fronts for IMF’s technical assistance in the field of taxation. Moreover, Japan is strengthening cooperative systems related to tax in the Asia region, and is advancing the development of an environment in which developing countries in Asia can strengthen their capacities in the tax field more effectively. For example, Japan co-hosted with ADB a seminar aimed at improving the legal and administrative frameworks and practices related to international information exchanges for taxation purposes. Many practitioners from developing countries attended the seminar.
Furthermore, capacity building in the tax field is important from the perspective of the development of the investment environment in developing countries. In recent years, the view of international society has become stricter regarding the involvement of investors and multinational enterprises in tax avoidance. Regarding this point, for example the World Bank and ADB have introduced systems for examining projects that use regions recognized as lacking tax transparency (lacking effective tax information exchanges, etc.) as intermediate investment regions when composing private sector investment projects, including stopping the composition of such projects. Investment through MDBs is one important tool for the development of developing countries, but the importance of support to improve the transparency of taxes in development countries is increasing from the perspective of the provision of development funds as well.
Finally, it should be pointed out that the outcomes of the OECD/G20 BEPS project* compiled in October 2015 are also important for the sustained development of developing countries. Cooperation among countries to implement the outcomes of this project will improve the transparency of companies and appropriate taxation in places where economic activities actually take place. Developing countries will be able to respond to the tax avoidance of multinational enterprises appropriately, and impose and collect tax properly in their own countries, their tax systems and tax administration will be in line with international standards, and a stable, highly predictable, and attractive investment environment will be created for companies and investors.
| Finance
A sound and stable financial system, coupled with smooth financial and capital markets, forms an essential foundation for the sustained economic development of developing countries. As financial globalization advances, it is pivotal that financial systems in emerging countries are properly established and that assistance is provided for the development of sound financial markets.
In March, August and November 2016, the Financial Services Agency (FSA) invited officials in banking, securities, and insurance regulatory authorities from developing countries in Asia. FSA officials and others conducted training regarding Japan’s regulatory and supervision systems, as well as programs for banking, securities, and insurance, respectively.
- * Infrastructure system exports
- Infrastructure system exports refer to the concept of not only exporting equipment for development of infrastructure such as electricity, railways, water, and roads overseas, but also exporting “systems,” which include engineering, construction, operation and maintenance of infrastructure.
At the Ministerial Meeting on Strategy relating to Infrastructure Export and Economic Cooperation, development cooperation efforts are coordinated among the relevant ministries and agencies; relevant organizations such as JICA, the Japan Bank for International Cooperation (JBIC), and the Nippon Export and Investment Insurance (NEXI); companies; and local governments. - * Other Official Flows (OOF)
- OOF refers to flows of funds to developing countries from the governments which are not considered to be ODA because the main purpose is not development. Examples include export credit, direct investment by governmental financial institutions, and financing to international organizations.
- * Least Developed Countries (LDCs)
- LDCs are countries classified by the United Nations to be particularly lagging in development even when compared to other developing countries, based on their income levels. LDCs meet certain criteria, including per capita gross national income (GNI) of $1,035 or less between 2011 and 2013. As of July 2015, there are 48 countries that have been so designated: 7 in Asia; 2 in the Middle East and North Africa; 34 in Sub-Saharan Africa; 1 in Latin America; and 4 in Oceania (see Chart III-37).
- * Duty-free quota-free access
- Duty-free quota-free access generally means measures implemented to make products imported from LDCs tax free in principle and not impose quotas either. Japan has expanded the number of applicable products under these measures, and approximately 98% of products exported by LDCs to Japan can be imported without payment of duties and without quotas (as of October 2016).
- * Economic Partnership Agreement (EPA)
- EPAs are comprehensive economic agreements with specific countries (or regions) that include such areas as movement of people, investment, government procurement, and bilateral cooperation intended to enhance broad economic ties in addition to free trade agreements (FTAs) that stipulate the liberalization of trade in goods and services such as the reduction/elimination of tariffs. These agreements are expected to further vitalize trade and investment between countries and contribute to economic growth.
- * Aid for Trade (AfT)
- AfT is assistance provided to developing countries to improve traderelated capabilities and to develop infrastructure, for the purpose of assisting developing countries in achieving economic growth through the multilateral trading system under the WTO.
- * One Village, One Product Campaign
- One Village, One Product Campaign is an approach that began in Oita Prefecture, Japan, in 1979 and is also utilized abroad. The aim is to create jobs and revitalize the local community by developing unique local products through the utilization of local resources and traditional techniques. Efforts are made to focus on handicrafts, textiles, toys, and other attractive products that display the unique ethnic characteristics of developing countries in Asia and Africa, etc., and reach out to a wider range of people, thereby aiding in the expansion of exports of products from developing countries.
- * Trade Facilitation Agreement (TFA)
- The Trade Facilitation Agreement (TFA) provides for the simplification and enhanced transparency of customs procedures aimed at trade promotion. The protocol to make the TFA a part of the WTO Agreement in February 2017 was adopted at a special meeting of the WTO General Council in November 2014. It entered into force upon its acceptance by 110 WTO members, which corresponds to two-thirds of WTO members. Japan accepted it in June 2016. The TFA is the first multilateral agreement newly created with the participation of all members of the WTO since its founding in 1995. According to the WTO, full implementation of the TFA could decrease the trade costs of members by an average of 14.3%, and increase global export of goods by over $1 trillion annually.
- * OECD/G20 BEPS Project
- Base Erosion and Profit Shifting (BEPS) refers to the issue of multinational enterprises’ excessive tax reduction measures that exploit gaps and loopholes in international tax systems, including tax treaties, in order to intentionally lessen the tax burden for economic activities that should have been taxed. To address this issue, the OECD’s Committee on Fiscal Affairs, led by a Japanese Chair launched the BEPS project in June 2012. The BEPS Action Plan was presented in July 2013, and following two years of discussions, the BEPS Final Reports were released in October 2015. From June 30 to July 1, 2016 the “First Meeting of the Inclusive Framework on BEPS” was held in Kyoto as the kickoff of the implementation phase (“post-BEPS”), and Japan led the discussions in cooperation with the OECD, developing countries, and relevant international organizations to ensure that the outcomes of the BEPS project are shared widely in the international community. Furthermore, Japan has actively participated in negotiations for a Multilateral Convention to efficiently realize measures to oppose BEPS.
- Note 1: This system applies tariff rates lower than the MFN (most favored nation) rates (preferential tariff rates) to designated agricultural and fishery products and industrial products imported from developing countries, in order to increase export income and promote industrialization and economic development in developing countries.
- Note 2: Tax treaties: Bilateral treaties for avoiding the double taxation of and preventing the evasion of taxes on income.
•Ukraine
Economic Reform Development Policy Loan (Ⅱ)
ODA loan (December 2015 – March 2016)
In Ukraine the domestic situation deteriorated in November 2013 when large-scale anti-government demonstrations broke out criticizing then President Victor Yanukovych. Subsequently, following the illegal annexation of Crimea by Russia, military clashes between government troops and separatist armed groups started to flare up in the eastern region of Ukraine.
As a result, the economic situation in Ukraine drastically weakened and foreign currency reserves declined to a critical level. In response to this, Japan extended a budget support-type ODA loan of ¥10 billion to Ukraine in July 2014. However, the situation in Ukraine continued to worsen, and its economy was imperiled.
The Government of Ukraine requested assistance to the international community including Japan and, with the G7 taking the lead, a response was discussed. In January 2015 Japan announced its intention to provide additional support of approximately $300 million for the economic stabilization of Ukraine and in December 2015 the two governments signed an Exchange of Notes to provide an ODA loan up to ¥36.969 billion (the loan was disbursed in March 2016).
The loan aims to support rebuilding the state finances and carrying out a range of institutional reforms. It will support initiatives by the Government of Ukraine including; (i) encouraging good governance and improving transparency and accountability in the public sector, (ii) strengthening the legal framework and cost reductions in business, (iii) reforms of subsidies in inefficient and unfair public areas and economic policy reforms in Ukraine, including measures for the poverty.
Japan’s assistance, such as through budget-support type ODA loans, is valuable in encouraging Ukraine in its endeavor to undertake domestic reforms.
•Honduras
Project on Life Improvement and Livelihood Enhancement of Conditional Cash Transfer Beneficiaries through Financial Inclusion
Technical cooperation project (February 2015 – )
Preparation for a participatory audit for households to receive conditional cash transfer
(Photo: Kaihatsu Management Consulting, Inc.)
The poverty rate*1 in Honduras has fallen slightly from 65.1% in 2003 to 62.8% in 2014*2 but it still remains at a high figure. In this situation, the Government of Honduras has been focusing on implementing a Conditional Cash Transfer (CCT) programme called “Bono Vida Mejor” as support for the poor.
This programme provides cash to poor households that have achieved certain conditions such as a school attendance rate of 80% or above. It is expected to raise the school attendance rate, medical service utilization and other indicators of socio-economic well-being. Meanwhile, there exists a problem that many of the households given money cannot utilize the cash effectively to escape from poverty. Therefore the Government of Honduras made a request to Japan for technical assistance which would enable CCT programs to reduce poverty by strengthening the capabilities of CCT beneficiaries and improving the environment surrounding them.
Under such circumstances, JICA and the Family Allowance Programme of the Under Secretary of Social Integration of Honduras have commenced the Project on Life Improvement and Livelihood Enhancement of Conditional Cash Transfer Beneficiaries through Financial Inclusion (2015-2020). This project develops and implements the techniques and details of the support necessary for CCT beneficiary households in five target cities to improve their quality of life and enhance their livelihood, with assistance from stakeholders including local governments and private financial institutions that support the poor. Outcomes to date include an improvement in the financial knowledge and capabilities of the CCT beneficiaries through training on household accounts and the services of financial institutions. Also, utilization of bank deposit accounts has been increasing.
The project will work on improving the financial and livelihood conditions surrounding the poor by combining a variety of supports including developing financial services which the poor can utilize, and training to strengthen the skills necessary for the activities of production, sales and finding jobs, which will lead to increasing income. Moreover, the project aims to improve the quality of life of CCT beneficiary households and enhance their livelihoods by presenting an approach to the support for the poor, which was developed through the project, as a sustainable and extensive “model” that can be applied across Honduras. (As of August 2016)
*1: The Inter-American Tropical Tuna Commission is a regional fisheries management body established in 1950 in order to protect and manage bonito and tuna species in the Eastern Pacific Ocean. Within the Commission there is an organization that conducts research on the relevant species (bonito, yellowfin tuna, etc.) and implements protective measures such as the issuance of recommendations. With regard to yellowfin tuna, the Commission issues recommendations on regulations for the total catch in the Eastern Pacific Ocean. As of October 2015, there are 21 signatory countries and regions to the treaty concluded for the purpose of strengthening the Commission, including Japan and Panama, as well as four cooperating countries that are not signatories.
*2: World Bank, Country Poverty Rate (Honduras population ratio).