Japan ploughs billions into Africa’s electricity sector

Japan is to invest $30 billion in Africa’s critical infrastructure over the next three years.
Published: Mon 05 Sep 2016

This year, Japan will make a $10 billion investment in Africa’s infrastructure development, focusing on electrical power, urban transport systems, roads and ports. Japan's private sector is to pay an additional $20 billion in investment during the same period.

The Prime Minister, Shinzo Abe, said of the investment plans: "We have a feeling in our gut that in Africa, where possibilities abound, Japan can grow vigorously. This is an investment that has faith in Africa's future." 

Japan’s need for energy imports from Africa

Japan currently relies on Australia to supply about 60% of its thermal coal and the government is keen to widen its supply base as the national dependence on thermal power increases in the wake of the nuclear crisis in 2011.

Japan’s interest in African natural resources intensified after the nuclear disaster prompted the government to shut down the country’s entire fleet of nuclear reactors. Some have been brought back on stream but nuclear energy will contribute significantly less to the country’s power generation.

Increased imports of coal and liquefied natural gas (LNG) will make up the shortfall, much of which will be sourced from Africa. With most global LNG output tied up in long-term supply contracts, Tokyo is particularly interested in new sources of production. Mozambique is on the verge of becoming an LNG and coal supplier of global importance, making it a highly attractive country for Japan. In fact, the governments of Japan and Mozambique signed a wide ranging memorandum of understanding on the production and export of both commodities back in 2012.

The Minister of Economy, Trade and Industry, Isao Matsumiya, says that Mozambique could be one of the most important suppliers of mineral resources for our country.”

Nippon Steel & Sumitomo Metal already buys coking coal from Vale’s Moatize project and holds a 33.3% stake in the Revuboè mine project in the same area, which contains both thermal and coking coal. The Revuboè consortium is currently in talks with the government of Mozambique over a likely development plan. Mitsui already holds a stake in the planned LNG project in the far north of Mozambique and much of the plant’s output is expected to be shipped to Japan.

Coal projects are also planned in Zimbabwe and Tanzania to export coal across the Indian Ocean. Zimbabwe’s long-running political and economic crisis has deterred investment in that country but Harare announced in 2013 that it is in talks with Japan Oil Gas and Metals National Corporation over mine development to supply the Japanese firm with 15 million tonnes of coal a year. The Deputy Minister of Mines and Mining Development, Gift Chimanikire, said: “Obviously, we are going to have a big challenge but they are prepared to work with us on the production side and also enhancing the railway system to have the product move faster to the port of Beira in Mozambique.”

Japanese and other Asian companies are also likely to buy the lion’s share of LNG production from Mozambique. Anadarko’s vice president of LNG, Steve Hoyle, said: “We’re hopeful that the policy uncertainty around nuclear power and US exports does not cause them to miss out.” The Japanese government has asked that any LNG contracts not be linked to oil prices because high global oil prices have pushed up the cost of LNG imports on existing contracts. The Minister of Economy, Trade and Industry said: “We hope the resource will be supplied to Japan in a stable manner and at a fair price.” 

China and Japan: the race for Africa’s resources

Japan is not the only Asian country interested in what Africa has to offer. In fact, China has been investing billions into the continent over a number of years now. While China has enjoyed the lion’s share more recently, Japan is becoming a strong contender for those much-needed resources.

The competition between the two countries is growing in intensity. Both countries are hungrier than ever for resources and energy to handle new development challenges. Prospering trade and investment relations with Africa will be an important factor behind Japan’s economic growth.  China’s booming economy and high rate of growth, on the other hand, require a massive amount of resources and energy, and both the public and private sector in China are keen to engage with Africa.

Over the years, African countries have raised concerns that some states simply take raw materials from Africa to enrich themselves. China’s aggressive engagement with Africa has aroused criticism around the world and has been labelled a ‘new colonialism’. Yet many African countries have become so dependent on China that they can’t be without it. Japan, on the other hand, generally enjoys a more positive image for its largely development-oriented aid but it will need to work harder to win the hearts of Africa. While money does talk, Africa’s leaders should not be shouting ‘foul play!’, they should be shaking hands on sustainable investments-ones that support the long term growth of local economies and skills. 

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