A student from the Indian Institute of Technology Hyderabad and a Japanese student having a discussion during a lecture under the Project for Future Researchers at IIT-H to Enhance Network Development with Scholarship of Japan (FRIENDSHIP Project) (Photo: JICA)

Japan’s development cooperation for developing countries, which has been carried out mainly through ODA, must further contribute to solving global issues based on the concept of human security. In order to implement such cooperation, 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 is utilizing ODA for small and medium-sized enterprises as well as for large companies to support their overseas business expansion, 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, since ODA is financed by tax payers’ money, continuous efforts are required to ensure the appropriateness of Japan’s development cooperation so that Japan’s ODA is implemented efficiently and in a lean way. The Government of Japan will also continue to make efforts to strengthen public relations and information dissemination in order to foster a further 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 (JICT) 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 becoming 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 utilizing ODA, which aims to implement projects of a highly public nature more efficiently and effectively through government and private sector cooperation, and institutional development and human resources development through technical cooperation. Japan also provides assistance from the planning stage to the implementation of a project utilizing Private Sector Investment Finance (PSIF) and ODA loans. Moreover, the Government of Japan assists Japanese companies in collecting information and conducting pilot activities to develop 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 utilizing ODA

Public-Private Partnership is a form of public-private cooperation in which governmental ODA projects are conducted in collaboration with private investment projects. Under this scheme, opinions from private companies are incorporated from the stage of ODA project formation and roles are shared between the public and private sectors. For example, basic infrastructure is covered by ODA, while investment, operation, and 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 Public-Private Partnership include cooperation in the fields of water supply and sewerage systems, airports, highways, and railways, among others.

B. Preparatory Surveys for Public-Private Partnership Infrastructure

In recent years, there has been a growing global trend to improve infrastructure through public-private partnership 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 infrastructure projects, it is important for public and private sectors to collaborate and engage with each other 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 Private Sector Investment Finance (PSIF) or ODA loans as part of its “Preparatory Survey” of private sector proposal-based programs.

C. SDGs Business Supporting Surveys

Children of the neighborhood gathering around the clear water provided by the test run of drinking water equipment installed by Tohkemy Corporation in Laos (see page 57, “Master Techniques from Japan to the World” for details) (Photo: Tohkemy Corporation)

Developing countries struggle with various global issues and development challenges including poverty, infectious diseases, conflicts, natural disasters and climate change, which have become increasingly serious and complex in recent years. Thus, it is necessary to incorporate ideas from private companies, based on their creativity and originality, and to solve problems in the field through business and collaboration with a wide range of partners.

The program, which is based on proposals from private companies, 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). It is implemented as commissioned surveys, and is utilized for necessary 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 (see Master Techniques from Japan to the World numbers 1, 2, and 4).

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 the global human resources required by SMEs, the Government of Japan established the “Japan Overseas Cooperation Volunteers (Private Sector Partnership)”* in 2012, in which employees from companies are dispatched to developing countries as members of the Japan Overseas Cooperation Volunteers (JOCVs) while keeping their affiliation with their companies. Through this program, Japan proactively supports the overseas expansion of Japanese companies.

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 FY2016, 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 the near future, it is expected that Japan will 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) scheme to increase the “visibility of Japanese Development Cooperation” through promoting the transfer of Japan’s advanced technologies and know-how to developing countries, and taken actions such as improvement of the scheme by expanding the scope of application and lowering interest rates, as well as additiona measures, such as the establishment of the Stand-by Emergency Credit for Urgent Recovery (SECURE)(Note1). Furthermore, it has introduced the Equity Back Finance (EBF) loan(Note2) and the Viability Gap Funding (VGF) loan(Note3). These instruments are designed to promote the steady formulation and implementation of infrastructure development projects utilizing Public-Private Partnership (PPP) and to support the recipient governments in the improvement and application of various measures depending on their needs.

In addition, as follow-up measures for “Partnerships for Quality Infrastructure,”* the Government of Japan has been making efforts to improve its ODA loan and PSIF by speeding up Japan’s ODA loan procedures and creating new ODA loan options. For example, 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 important projects, introducing ODA loans with currency conversion option to middle-income countries or higher on the condition that JICA’s financial soundness is ensured, and the establishment of dollar-denominated ODA loans and Japan’s ODA loans with Preferential Terms for High Specification(Note4). Furthermore, in the “Expanded Partnership for Quality Infrastructure,”* Japan announced that it will further accelerate ODA loan procedures, and decided to reduce 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 increased “the visibility” of the project period. Japan will further strive to improve the ODA loan so that projects can be formulated and developed in an expeditious manner.

F. Private Sector Investment Finance (PSIF)

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 investments and loans 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 and poverty reduction and (iii) measures against climate change. JICA has signed 26 investment and loan contracts in total by the end of FY2018.

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, and also enabled JICA to co-finance with private financial institutions. Other measures include reviewing the interpretation of the “no-precedent policy” requirement and allowing loans to be provided in cases where non-concessional loans by existing Japanese private financial institutions are impossible, even if loans were provided for similar projects in the past.

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

1. Note 1: 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.
2. Note 2: EBF (Equity Back Finance) loan provides a yen 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.
3. Note 3: 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 when Japanese companies invest in the PPP infrastructure projects by the developing country in principle.
4. Note 4: Concessional loans provided to projects recognized as contributing to the promotion of “Quality Infrastructure” based on the “G7 Ise-Shima Principles for Promoting Quality Infrastructure Investment” compiled at the G7 Ise-Shima Summit in May 2016.
5. Note 5: 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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