Mr. Seiichi Tanaka, a Senior Volunteer (SV) teaching a student at a vocational training school in Zambia on how to use a computer (Photo: Ikuko Niizeki/JICA)

In addition to the assistance that Japan has extended to date centered on ODA, Japan’s development cooperation must further contribute to solving global issues based on the philosophy of human security. In order to implement such programs, not only the Government and JICA, but also diverse actors such as large companies, small and medium-sized enterprises, local governments, universities and civil society, including NGOs, need to work together, leveraging their respective strengths. In doing so, the Government of Japan will utilize ODA for small and medium-sized enterprises, as well as large companies, so that they can contribute globally. Furthermore, Japan must assist diverse actors in performing their roles in the field of development cooperation world-wide, as well as maximize the power of NGOs and civil society.

Moreover, it is essential to commit to outcomes when implementing ODA, as it is financed by tax revenues from the public. To that end, it is necessary to establish a sound governance system at JICA, which is the main implementing body of ODA, as well as to exert efforts to make sure that the development cooperation is appropriate, such as by ensuring healthy competition in its implementation. Furthermore, Japan will continue to make efforts to strengthen public relations and information dissemination in order to promote a deeper understanding of Japan’s development cooperation domestically and internationally.

1 Efforts for Strengthening Partnerships

Japan’s development cooperation is carried out in partnership with diverse actors. For development cooperation implemented by the Government and its associated agencies, it is important to strengthen collaboration between JICA and other agencies responsible for handling official funds such as Japan Bank for International Cooperation (JBIC), Nippon Export and Investment Insurance (NEXI), the Japan Overseas Infrastructure Investment Corporation for Transport and Urban Development (JOIN), and the Fund Corporation for the Overseas Development of Japan’s ICT and Postal Services (Japan ICT Fund) as well as to enhance mutually beneficial partnerships with various actors so as to serve as a catalyst for mobilizing and assembling a wide range of resources, including the private sector.

(1) Public-Private Partnership

With the globalization of the economy, the inflow of private finance into developing countries currently exceeds the total amount of ODA. Therefore, it is increasingly important to promote the contribution of private finance to development in order to address the financial needs for the development of developing countries.

Various projects conducted by Japanese private companies in developing countries can yield a range of benefits to these countries such as creating local employment opportunities, augmenting tax revenue, expanding trade and investment, contributing to the acquisition of foreign currency, and transferring Japan’s high-standard technology. The Government of Japan carries out various assistance aiming at generating efficient and effective development outcome through such collaboration with private companies.

For example, the Government of Japan carries out Public-Private Partnership (PPP) utilizing ODA, which aims to implement projects of a highly public nature more efficiently and effectively through public-private cooperation. Japan also provides assistance from the planning stage to the implementation of a project, such as institutional development and human resources development through technical cooperation, as well as utilizing Private-Sector Investment Finance (PSIF) and ODA loans. In addition, the Government of Japan assists Japanese companies to collect information and conduct pilot activities to strategize business models for the resolution of various development challenges.

In addition, international organizations, such as UNDP and UNICEF, promote inclusive businesses* by Japanese companies, utilizing the organizations’ extensive experience and expertise in developing countries.

A. Public-Private Partnership (PPP) utilizing ODA

PPP is a form of public-private cooperation in which governmental ODA projects are conducted in collaboration with private investment projects. Opinions from private companies are incorporated from the stage of ODA project formation. Roles of ODA are divided between the public and private sectors. For example, basic infrastructure is covered by ODA, while investment, operation, maintenance and management are conducted by the private sector. This aims to utilize the technologies, knowledge, experience, and funds of the private sector in an effort to implement more efficient and effective projects as well as to improve development efficiency. Typical cases for PPP projects include fields of water supply and sewerage systems, airports, highways and railways, among others.

B. Preparatory surveys for PPP infrastructure projects

In recent years, there has been a growing global trend to improve infrastructure through public-private partnership (PPP) aiming at further enhancing effectiveness and efficiency not only in the construction phase, but also in post-construction operation and maintenance in emerging and developing countries. For such PPP infrastructure projects, it is important for public and private sectors to collaborate and engage in PPP from the initial stages of project formulation in order to appropriately divide roles between the public and private sectors. As such, JICA supports feasibility surveys (F/S)* for the formulation of business plans by calling for proposals widely from private companies that are planning to participate in infrastructure projects aiming at utilizing PSIF or ODA loans.

C. SDGs Business Supporting Surveys

Ms. Mariko Nagae, a Japan Overseas Cooperation Volunteer (JOCV) carrying out various child support activities at “Comedor”, a support facility for families in poverty run by an NGO, in the northern suburb of Santiago, Dominican Republic. (Photo: Maximo Navas)

Developing countries struggle with various global issues (development challenges) including poverty, infectious diseases, conflicts, natural disasters and climate change, which have become increasingly difficult and complex in recent years. Thus, it is necessary to incorporate ideas coming from the out-of-the-box thinking of private-sector companies, and to solve problems in the field through business and collaboration with a wide range of partners.

The program is intended to assist in matching the needs of developing countries with the advanced products and technologies, etc., possessed by private-sector companies, and to support the development of businesses that contribute to solving problems in these countries (SDGs business). The program provides opportunities for commissioned surveys for information collection (Small and Medium-sized Enterprise (SME) Partnership promotion survey and SDGs Business Model Formulation Survey with the Private Sector) and for the development of business plans based on the verification activities of proposed products or technologies (SDGs Business Verification Survey with the Private Sector). The program has two categories: “SME support type” and “SDGs business support type”. The former is also expected to invigorate the Japanese economy and regions, through supporting the expansion of SMEs’ businesses abroad, within the aforementioned objectives.

Furthermore, MOFA provides grant aid (including provision of equipment using SMEs’ products) to support the overseas expansion of SMEs and other entities. By providing Japanese SMEs’ products based on the requests and development needs of developing country governments, MOFA supports not only the socio-economic development of developing countries, but also the overseas business expansion of Japanese SMEs by raising the profile of the SMEs’ products and creating sustained demand for them.

In addition, in order to assist in developing global human resources required by SMEs and other entities, the Government of Japan established the “Private-Sector Partnership Volunteer”* program in 2012, in which employees from companies are dispatched to developing countries as Japan Overseas Cooperation Volunteers (JOCV) or Senior Volunteers (SV) while keeping their affiliation with their companies. Through this program, Japan proactively supports companies to train their human resources to gain experience of working globally. Since Autumn 2018, the name of the system has been changed to “JICA Overseas Cooperation Volunteer (Private Partnership)”, due to a systematic review of the JICA volunteer program.

D. Grant aid for business/management rights

Since FY2014, the Government of Japan introduced grant aid for business/management rights. As such, this grant aid aims to facilitate the acquisition of business and management rights by Japanese companies and utilize Japan’s advanced technologies and know-how for the development of developing countries, by providing grant aid to public work projects that comprehensively carry out a continuum of activities from facility construction to operation, maintenance and management, with the participation of private companies. Since FY 2016, this grant aid has been provided for five projects; a project to address water leakages in Myanmar, a project to address medical waste in Kenya, a project to expand water supply systems in Cambodia, a project to address waste management in the Philippines, and a project to build water supply systems in Myanmar.

E. Improving Japan’s ODA loans

In recent years, it is expected that Japan provide advanced technologies and know-how to developing countries, and thereby improve people’s living standards. At the same time, Japan seeks to tap into the growth in emerging economies including BOP businesses* in Asia, which have particularly close relationships with Japan, and to contribute to the vitalization of the Japanese economy. In this regard, it is necessary for Japan to carry out further improvement of Japan’s ODA loans to make them even more attractive to both developing countries and Japanese companies.

Up until now, the Government of Japan has introduced the Special Terms for Economic Partnership (STEP) (Note 1) scheme to promote “Visible Japanese Development Cooperation” through promoting the transfer of Japan’s advanced technologies and know-how to developing countries, and improved the scheme by expanding the scope of application and lowering interest rates. Also, Japan has taken additional measures, such as the establishment of the Stand-by Emergency Credit for Urgent Recovery (SECURE) (Note 2). Furthermore, it has introduced the Equity Back Finance (EBF) (Note 3) loan and the Viability Gap Funding (VGF) loan (Note 4). These instruments are designed to support the improvement and application of various measures of recipient governments as needed, to promote the steady formulation and implementation of PPP infrastructure projects.

In addition, as follow-up measures for “Partnerships for Quality Infrastructure” (Note 5), the Government of Japan has been making efforts to improve its ODA loan and Private- Sector Investment Finance (PSIF) by accelerating Japan’s ODA loan procedures and creating new ODA loan options. Specifically, the following measures are included: reducing the period necessary for Government-related procedures for Japan’s ODA loans that normally require three years to approximately one and a half years for especially important projects, introducing ODA loans with currency conversion option to middle-income countries or higher on the condition that JICA’s financial grounds are ensured, and the establishment of dollar-denominated forms of Japan’s ODA loans, Preferential Terms for High Specification and Japan’s ODA loans for business/management rights. Furthermore, in the “Expanded Partnership for Quality Infrastructure,” (Note 6) Japan is committed to the further acceleration of ODA loan procedures, and decided to streamline the period between the initiation of the feasibility study (F/S) and commencement of the construction work to one and a half years at the fastest, and aim for increased “visibility” of the project period, as well as other efforts necessary to accelerate the procedures for project development, and will continue to strive to do so.

F. Private-Sector Investment Finance (PSIF)

Private financial institutions are often reluctant to finance projects by private companies in developing countries for reasons including the high risk involved. In such situations, Japan uses JICA’s PSIF to directly invest in and provide loans for, and thereby assist the implementation of development projects by private companies in developing countries.

PSIF refers to a type of ODA financing scheme implemented by JICA, and is provided to private companies carrying out projects in developing countries as investments and loans for its necessary funds. Although such projects create jobs and revitalize the economy of hosting countries, it entails various risks, and high return cannot often be expected. Thus, existing financial institutions are often reluctant to provide these companies with sufficient loans. PSIF provides loans and investment for projects that are considered highly effective from a development perspective, but may be difficult to be sufficiently funded by existing financial institutions only. PSIF assists in the following fields for funding: i. infrastructure development and accelerating growth, ii. SDGs (Sustainable Development Goals) and poverty reduction and iii. measures against climate change. JICA has signed 22 loan and investment contracts in total by the end of FY2017.

Also, in order to reduce the exchange rate risk of Japanese companies participating in infrastructure projects overseas, the Government of Japan announced in succession the introduction of local currency-denominated PSIF (2014) and U.S. dollar-denominated PSIF (2015) to supplement the existing yen-denominated PSIF. In 2015, Japan announced the acceleration of PSIF, expansion of the targets of PSIF, and strengthening collaboration between JICA and other organizations as follow-up measures for the “Partnership for Quality Infrastructure.” Specifically, measures were set out that JICA would start its appraisal process, in principle, within one month after an application is filed by private companies or others, while the standard period for JBIC to respond to inquiries on projects was set at two weeks. Other measures include enabling JICA to co-finance with private financial institutions, reviewing the requirement of the “no-precedent policy” and allowing loans to be provided in cases where non-concessional loans by existing Japanese private financial institutions are impossible.

In 2016, the Government of Japan decided to examine the possibility of flexible operation of JICA’s PSIF by relaxing the upper limit of investment ratio from 25% to 50% (but less than the percentage that would make JICA the largest shareholder) and to introduce PSIF in Euro in the “Expanded Partnership for Quality Infrastructure” and determined that these are operable and can be introduced.

1. Note 1: STEP: Special Terms for Economic Partnership
2. Note 2: The system allows developing countries that have a high chance of encountering natural disasters, to quickly accommodate funds for post-disaster recovery activities, by having the ODA loan signed in advance.
3. Note 3: EBF (Equity Back Finance) loan provides a loan to the developing country’s part of the investment of the Special Purpose Company (SPC), which takes the lead in public projects in the developing country. It is restricted to PPP infrastructure projects, wherein the recipient country governments or their nationally-owned companies and others make the investment, and the Japanese companies participate as a business operating body.
4. Note 4: Viability Gap Funding (VGF) loan is the loan against VGF which the developing country provides to the SPC in order to secure profitability expected by SPC in case that in principle Japanese companies invest in the PPP infrastructure projects by the developing country.
5. Note 5: “Partnership for Quality Infrastructure” has the following pillars: 1 Expansion and acceleration of assistance through the full mobilization of Japan’s economic cooperation tools, 2 Collaboration between Japan and ADB, 3 Expansion of the supply of funding for projects with relatively high risk profiles by such means as enhancement of the function of JBIC, 4 Promoting “Quality Infrastructure Investment” as an international standard.
6. Note 6: “Expanded Partnerships for Quality Infrastructure” was introduced by Prime Minister Abe at G7 Ise-Shima Summit, held in May 2016. It includes Japan’s commitment to provide approximately USD 200 billion funds in the next 5 years for infrastructure projects in the world including Asia. At the same time, it includes further system reforms, strengthening the structure of related institutions including JICA, as well as securing financial foundation.
7. Note 7: The income bracket with an annual income per capita of $3,000 or less in purchasing power parity (PPP). PPP is determined by removing differences between price levels to make purchasing power between different currencies equivalent.

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