East Asian Experience andAfrican DevelopmentHow to Assist Growth in Africa & Elsewhere

Policy Formulation in Developing CountriesGRIPS Development Forum

Cashew nut seller in Mozambique Copper Belt in Zambia Garment workers in Ethiopia

Topics1. The meaning of East Asian lessons2. Desirability vs. feasibility (interaction of

economics and politics)3. Features of Japanese FDI and ODA4. Policy entry points—how the Eastern method

should be transferred to other regions5. Mindset and absorptive capacity of developing

country governments

EAST (esp. Japan) WEST

Goal Dynamism--national pride, industrialization, compete for excellence, graduate from aid

Altruism—poverty reduction, equity & rights; rich must help poor to alleviate pain

Approach Pragmatism--obsession with concrete details & progress; JICA goes to factories & farms

Rule-based--install proper & general framework; leave details to consultants

Time scope

Long-term--some projects take decades to bear fruits; trials & errors are acceptable

Short-term--every project must produce visible results for evaluation after 2-3 years

Democracy

Democracy & markets need time to grow and mature

Democracy as pre-condition of growth at any income level

Typical programs

Infrastructure, industrial HR, SMEs, TVET, industrial master plans, FDI-local firm linkage, productivity, creation of new industry, one-stop service…

General budget support, law, governance, PPP, export marketing, trade negotiation skill, green manufacturing, business matching funds…

Developmental Vision: East & WestAt the risk of oversimplification

Even though PSD and industrial policy have come to be widely accepted, East and West have different views on how growth should be supported.

1. The Meaning of East Asian Lessons It is NOT copying some policies adopted in some

East Asian countries to Africa (or any other place) without critical examination of local context—all countries are different.

Lessons should be about mindset (heart) and methodology (tools) of development policies

What should be learned: Leadership Popular mindset, national movements Policy procedure, organization, documentation General capability to create your own policy

by selecting and modifying other countries’ diverse experiences

Fact Learning & Creative Thinking Must Go Together Confucius (551-479BC), Chapter on Politics, Lun-yu “Learning without thinking is useless; thinking without

learning is insecure.”　　「学びて思わざるは罔（くら）し、思いて学ばざるはすなわち殆

（あやう）し」

Friedrich W. Nietzsche, Thus Spoke Zarathustra (1883) Three transformations of the spirit:

1. Camel – “Put a heavy load on me” (learning the world knowledge)

2. Lion – kill a dragon whose name is “Thou Shalt” (emancipation from authority & tradition)

3. Child – A spontaneous actor who has absorbed knowledge but freed oneself from imposed ways

“The child is a self-propelling wheel.”

2. Desirability vs. Feasibility

Development is both a political process and an economic process.

What should be doneHRD & technology

InfrastructureIntegration & competition

Institution building, etc

What can be doneLeadership

politics, foreign relationspopular mindset

administrative capacity

Each country is unique in what needs to be done as well as what can actually be done.

Any policy maker must work simultaneously with economic and political space (content vs. doability).

(mainly economics) (mainly politics)

Desirability vs. Feasibility (cont.)

We need to figure out a policy sequence which is both desirable & feasible in each country’s context.

Policy advice without political or local feasibility cannot be implemented regardless of whether proposed actions are a few or many, common or tailor-made. Examples: IMF’s big-bang liberalization, privatization &

integration WB’s good governance & “international best practices” Growth diagnostics (Harvard economists incl. Rodrik) Recommending a Japanese or Korean model to all

countries

3. Features of Japanese FDIAfrica asks: “China, India, Turkey, Brazil, etc. are already here. Why do Japanese firms not come to Africa?”

The Japanese business model is unique:Manufacturing-centered—investments in property, trade and

mining are relatively small compared with othersMonozukuri (manufacturing) spirit—proud of factory floor;

endless pursuit of quality & customer satisfactionLong-term orientation—last in coming to frontier countries

but once invested, will stay long against difficultiesPartner assistance—providing training to local firms and

engineers because long-term relation & trust are importantLegal compliance—observance of local labor, tax,

environment laws

Japanese manufacturing firms are slow but sincere; developing countries will eventually realize their virtue (cf. Southeast Asia; but not yet in Africa).

Features of Japanese ODA Unlike WB or UN, Japan’s aid policy has been constant since

the 1950s: infrastructure & human resource are two pillars. “ALL JAPAN”—officials, academics, experts and businesses

cooperate to design and implement projects (cf. contract-based consultancy in USAID, Korea’s KSP…)

Institution building and training locals—sustainability after JICA experts leave; graduation from aid is the ultimate goal.

Gemba orientation—working in factories & farms; however, communicative ability (English, report writing) is inferior.

Linkage between FDI and ODA. Some projects are very long-term: Thailand’s King Mongkut

University, Indonesia’s Brantas River Basin development Vietnam’s Cho Ray Hospital, Chile’s salmon industry…

Preference of productive sector projects over general budget support or like-minded donor coordination.

Marketing Japan’s FDI & ODA in Africa Quality, not quantity or speed, should be promoted and

promised in Japanese manufacturing FDI or ODA. Publicize merits of Japanese FDI & ODA to “frontier”

countries; differentiate from China. Enter Africa with small-scale but high-quality:

Add value to exports by safety & quality guarantee, packaging, logistics, etc. (eg. coffee, sesame…)

Produce highly-priced “champion products” by branding and strategic marketing

Manufacturing FDI that uses high-quality local materials (eg. leather products, gems & jewelry…)

Japan is unlikely to create a large export base for electronics or auto in Africa (production base is shifting from China to Thailand, Vietnam, Indonesia, Cambodia, Myanmar… and Ethiopia?)

4. Japan’s Entry Points for Industrial Assistance in Frontier Countries GRIPS Dev. Forum, Proposal for a New African Growth

Support Initiative, Aug.2008.

(1) If the government already has a good strategy, mobilize standard assistance tools to support that strategy.

(2) Engage in policy dialogue (preferably followed by specific aid projects and other assistance).

(3) Build a core infrastructure with additional aid and investments around it for comprehensive regional development.

(4) Provide missing elements (infrastructure, technology, skills, etc.) to entice (Japanese) firms to invest under open access and non-exclusivity principle.

(1) Mobilizing Standard Aid Tools to Support Existing National Vision

Industrial policy menu is common. What is not common is each country’s capability to execute standard policies effectively in the local context.

Japan has many industrial aid tools which are widely practiced in East Asia. Kaizen (quality and productivity improvement) Shindan (SME management consultant system) Engineering universities and colleges TVET-industry linkage Industrial estates & strategic FDI marketing SME assistance package Integrated export promotion (Korea) Strategic creation of new industry through industry-

government-university cooperation Comprehensive regional development with core

infrastructure

(2) Japan’s Policy Dialogue with Developing Countries If policy is weak or if a nation wants to learn the Eastern way,

Japan can engage in policy dialogue for improving policies, building mutual trust & understanding, and targeting aid:

Argentina – Okita Mission, 1985-87; follow-up 1994-96 Vietnam – Ishikawa Project, 1995-2001 Thailand – Mizutani Report for upgrading SMEs and

supporting industries, 1999 Indonesia – Urata Report for SMEs, 2000; Prof. Shiraishi &

Asanuma for financial crises, 2002-04 Mongolia – Ueno, Hashimoto, 1998-2001 Myanmar – Prof. Odaka, 1999 (not successful), 2012- Laos – Prof. Hara for overall dev. strategy, 2000-05 Ethiopia – GRIPS-JICA, 2009- kaizen & policy dialogue Vietnam – Joint Initiative 2003- (investment climate);

supporting industries 2008-10; industrialization strategy 2011-13; Local government industrial support 2015-?

Africa Taskforce Meeting Jul. 2008

Official launch Jun. 2009

Preparation

Industrial Policy Dialogue

Final session May 2011

Kaizen Phase 1(30 pilot companies)

(With Germany)

JICA’s Industrial

CooperationMetal industry

survey

Kaizen Phase 2（ Institution & human resource)

Start 　　Jan. 2012

Note: Black boxes indicate three-level policy dialogue in Addis Ababa (PM, ministers, operational level).

Phase 1 (2009-11) Phase 2 (2012-15)

Champion Products

PM Meles PM Hailemariam

Final session Aug. or Oct. 2015

Kaizen Phase 3(Advanced level)

Branding &promotion

2008 20102009 201320122011 2014 2015

PM Abe visit

2016

Malaysia mission

TICAD V

Ethiopia-Japan Industrial Policy Dialogue

With Former PM Meles at PM Office

Senior Economic Advisor NewaiPresenting JICA’s Kaizen Report

High Level Forum (Aug. 2014)

Lecture at Civil Service University (Economic Development of Japan)

At MOFED

(3) Japanese Assistance for Regional Development around Core Infrastructure Greater Mekong – East-West and North-South

Corridors for development of Indochina Region Thailand - Eastern Seaboard: industrial cities

around port infrastructure (Ms. Shimamura) Indonesia - Brantas River Basin Development Vietnam - Highway No.5 and FDI attraction Cambodia - Port, industrial park, FDI attraction El Salvador - La Union Port and comprehensive

regional development (Dr. Hosono) India - Delhi-Mumbai Industrial Corridor Mozambique - Nacala Port and Nacala Corridor,

agriculture and industrial parks

Pacific Ocean

Road (US aid) Bridge

(Japanese aid)

(Japanese aid)Regional development (Japanese aid)

Honduras

Components of Japan’s ODA in El Salvador

- Construction of La Union Port- Rebuilding an old bridge (Honduras border)- Digital map technology for efficient planning- Urban development planning for La Union City

KEY INFRASTRUCTURE

- MEGATEC La Union (training center)- Primary schools & math- Clean water- Rural electrification- Solid waste control

Social & Human RD

- SME promotion- Aquaculture- Small-scale agriculture- Reservoirs & irrigation- Small-scale livestock

- La Union Port- Plan Puebla Panama- CAFTA & other FTAs- Cent. Amer. integration- M/P for Eastern Region

Support forProductive Sectors

Eastern Region Development

Source: Summarized from Prof. Hosono’s presentation

(Map source: JBIC)

- Mozambique is Japan’s target country in Africa for regional development approach: Nacala Corridor, Nacala City planning, Pro Savanna agriculture (with Brazil), etc.

- However, Japan has not built effective policy channels with Mozambican Gov’t.

- WB supports implementation of multiple corridors development.

(Map source: World Bank)

- Brazil, India, etc. interested in Mozambican resources (coal, natural gas).

5. Mindset & Absorptive Capacity of Developing Country GovernmentsEven though Japan teaches & transfers the same skills & technology in a similar way, developing country governments are all different.Example: productivity movement

Singapore—fully mastered it and started teaching to other countries

Thailand—MOI & private NPO have made great effort to learn kaizen & shindan for partial success

Indonesia, Vietnam & India—Japan & private sector make effort, but gov’t does not promote productivity

Mauritius & Burkina Faso—kaizen was once learned but now nearly forgotten.

How should Japan teach different governments?

Willingness to learn

Policy ownership

Current industrial

knowledge

Stability of leader &

government

Capability of top

leader(s) & ministers

Capability of mid/low

officials

Thailand High Moderate High Low Moderate Moderate

Vietnam Low High Low High Low Low

Indonesia Low High Low Moderate Moderate Low

Cambodia High?Low to

moderate?Low High

Moderate to high?

Low

Mauritius High High High High High High?

Rwanda High High Moderate High? High ?

Ethiopia Very high Very high Moderate High High Low

Mozambique Low Low Low High? Low Low

Comparing Mindset & Absorptive CapacityFor the purpose of transferring industrial skills & knowledge

(preliminary grading, subject to revision)

1/ Japan’s resource is limited while industrialization is difficult; support should be given to most promising students.2/ Patience is required if Japan has to teach an important country with low mindset & capacity.3/ Willingness to learn is more important than current knowledge or political stability.