Japan’s Yen Loan, Prerequisite to Mass FDI from Japan

Abstract

Japan initiated the TICAD process in 1993. In 2016, it was held for the 6th time in Kenya, where Japan promised to invest USD 30 billion in the African continent by 2019. Examining the relationship between ODA and FDI from Japan for the case of Asia, it was clear that Japanese ODA results in a “vanguard effect” on FDI; yen loan, one of the types of ODA, helped the recipient Asian countries to attract three times larger FDI than the total amount of yen loans. In order to attract increased FDI from Japan, African countries need to win yen loans from Japan if wishing to get more Japanese FDI. Although Japan’s tied aid projects can facilitate Japanese companies’ expansion to the recipient countries, it is crucial for them to take into account the OECD-DAC rules. Specifically, upper middle income countries are not eligible for tied loans. Also it is beneficial to keep in mind Japan’s priorities for yen loan such as Global Environmental Problems and Climate Change, Health/Medical Care and Services, Disaster Prevention and Reduction and Human Resource Development. In addition, Japan’s new national effort to export high quality infrastructure (for example, by the Japan Overseas Infrastructure Investment Corporation for Transport and Urban Development (JOIN)) can benefit African countries that urgently need to upgrade urban infrastructure.