East Asian Experience and African Development How to

East Asian Experience and African Development How to Assist Growth in Africa & Elsewhere Cashew nut seller in Mozambique Copper Belt in Zambia Garment workers in Ethiopia Policy Formulation in Developing Countries GRIPS Development Forum

Topics 1. The meaning of East Asian lessons 2. Desirability vs. feasibility (interaction of economics and politics) 3. Features of Japanese FDI and ODA 4. Policy entry points—how the Eastern method should be transferred to other regions 5. Mindset and absorptive capacity of developing country governments

Developmental Vision: East & West At 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. Goal EAST (esp. Japan) WEST 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 Democra cy Democracy & markets need time to grow and mature Democracy as pre-condition of growth at any income level Typical Infrastructure, industrial HR, programs 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…

1. The Meaning of East Asian Lessons p p p 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: n Leadership n Popular mindset, national movements n Policy procedure, organization, documentation n General capability to create your own policy by selecting and modifying other countries’ diverse experiences

Fact Learning & Creative Thinking Must Go Together Confucius (551 -479 BC), 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」 p p 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 p p p Development is both a political process and an economic process. What should be done What can be done HRD & technology Infrastructure Integration & competition Institution building, etc Leadership politics, foreign relations popular mindset administrative capacity (mainly economics) (mainly politics) 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).

Desirability vs. Feasibility (cont. ) p p 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: n IMF’s big-bang liberalization, privatization & integration n WB’s good governance & “international best practices” n Growth diagnostics (Harvard economists incl. Rodrik) n Recommending a Japanese or Korean model to all countries

3. Features of Japanese FDI Africa asks: “China, India, Turkey, Brazil, etc. are already here. Why do Japanese firms not come to Africa? ” The Japanese business model is unique: n Manufacturing-centered—investments in property, trade and mining are relatively small compared with others n Monozukuri (manufacturing) spirit—proud of factory floor; endless pursuit of quality & customer satisfaction n Long-term orientation—last in coming to frontier countries but once invested, will stay long against difficulties n Partner assistance—providing training to local firms and engineers because long-term relation & trust are important n Legal 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 p p p p Unlike WB or UN, Japan’s aid policy has been constant since the 1950 s: infrastructure & human resource are two pillars. “ALL JAPAN”—officials, academics, experts and businesses cooperate to design and implement projects (cf. contractbased 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 p p 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: n Add value to exports by safety & quality guarantee, packaging, logistics, etc. (eg. coffee, sesame…) n Produce highly-priced “champion products” by branding and strategic marketing n 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 nonexclusivity principle.

(1) Mobilizing Standard Aid Tools to Support Existing National Vision p p 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. n n n n n 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 industrygovernment-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: p Argentina – Okita Mission, 1985 -87; follow-up 1994 -96 p Vietnam – Ishikawa Project, 1995 -2001 p Thailand – Mizutani Report for upgrading SMEs and supporting industries, 1999 p Indonesia – Urata Report for SMEs, 2000; Prof. Shiraishi & Asanuma for financial crises, 2002 -04 p Mongolia – Ueno, Hashimoto, 1998 -2001 p Myanmar – Prof. Odaka, 1999 (not successful), 2012 p Laos – Prof. Hara for overall dev. strategy, 2000 -05 p Ethiopia – GRIPS-JICA, 2009 - kaizen & policy dialogue p Vietnam – Joint Initiative 2003 - (investment climate); supporting industries 2008 -10; industrialization strategy 2011 -13; Local government industrial support 2015 -?

Ethiopia-Japan Industrial Policy Dialogue 2008 2009 2010 2011 2013 2012 2014 2015 2016 PM Hailemariam PM Meles Industrial Policy Dialogue Preparation Africa Taskforce Meeting Jul. 2008 JICA’s Industrial Cooperation Phase 1 (2009 -11) Official launch Jun. 2009 Phase 2 (2012 -15) Final session May 2011 TICAD V Start　　 Jan. 2012 PM Abe visit Final session Aug. or Oct. 2015 Malaysia mission Kaizen Phase 1 Kaizen Phase 3 (30 pilot companies) (Advanced level) Kaizen Phase 2 （Institution & human resource) Metal industry survey Champion Products Branding & promotion (With Germany) Note: Black boxes indicate three-level policy dialogue in Addis Ababa (PM, ministers, operational level).

With Former PM Meles at PM Office Senior Economic Advisor Newai Presenting JICA’s Kaizen Report

High Level Forum (Aug. 2014) At MOFED Lecture at Civil Service University (Economic Development of Japan)

(3) Japanese Assistance for Regional Development around Core Infrastructure p p p p 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

Honduras Road (US aid) Pacific Ocean Regional development (Japanese aid) Bridge (Japanese aid)

Components of Japan’s ODA in El Salvador Source: Summarized from Prof. Hosono’s presentation KEY INFRASTRUCTURE - Construction of La Union Port - Rebuilding an old bridge (Honduras border) - Digital map technology for efficient planning - Urban development planning for La Union City Social & Human RD - MEGATEC La Union (training center) - Primary schools & math - Clean water - Rural electrification - Solid waste control Support for Productive Sectors Eastern Region Development - 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

(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 Governments Even though Japan teaches & transfers the same skills & technology in a similar way, developing country governments are all different. Example: productivity movement n Singapore—fully mastered it and started teaching to other countries n Thailand—MOI & private NPO have made great effort to learn kaizen & shindan for partial success n Indonesia, Vietnam & India—Japan & private sector make effort, but gov’t does not promote productivity n Mauritius & Burkina Faso—kaizen was once learned but now nearly forgotten. How should Japan teach different governments?

Comparing Mindset & Absorptive Capacity For the purpose of transferring industrial skills & knowledge (preliminary grading, subject to revision) Stability of leader & government Capability of top leader(s) & ministers Capability of mid/low officials Willingness to learn Policy ownership Current industrial knowledge Thailand High Moderate High Low Moderate Vietnam Low High Low Indonesia Low High Low Moderate Low Cambodia High? Low to moderate? Low High Moderate to high? Low Mauritius High High? Rwanda High Moderate High? High ? Ethiopia Very high Moderate High Low Low High? Low Mozambique 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.