Eastern and Western Ideasfor African Growth: Ingredients vs. Framework Approaches to Industrial Development

October 18, 2012, LondonIzumi OhnoNational Graduate Institute for Policy Studies (GRIPS)

Private Investment and Development in Africa for British and Japanese Private Sectors

Background Resurgence of growth agenda in the international aid

community Shifting from “charity” to “growth and development investment”

(Saidi and Wolf 2011) Private business becoming a major player in development (e.g.,

inclusive/BoP biz) Japan has been practicing public-private partnership

(PPP) for decades, supporting Asian development “ODA Trinity” hypothesis (Japan ODA Model, METI 2005) Japanese aid as a vanguard of FDI (Kimura and Todo 2010)

The point of debates is no longer the choice between poverty reduction and growth

Greater attention should be paid to different approaches to growth support among donor countries, to fully utilize respective comparative advantages

Main Points

1. Key features of Japanese approach to growth support

Dynamic capacity development

2. Comparison of the Western and Japanese (East Asian) approaches

Framework vs. ingredients approaches

3. Examples and entry points for Japan’s engagement in African growth

Key Features of Japanese 　Approach to Growth Support

Goal orientation—striving for concrete vision, targets, roadmaps, and actions instead of general capability improvements.

Field (gemba) orientation—working on factory floor or crop field to solve concrete problems.

Joint work—transferring skills and knowledge to developing countries by working together (OJT); no parallel mechanisms.

Dynamic capacity development—step-by-step learning through concrete, hands-on-experience; and expectation of graduation from aid (Ohno & Ohno 2012).

Pragmatism with real sector concern

There are two contrasting ways of understanding and analyzing economic development.

In the “framework approach,” the central task of policy and institutional reforms is correcting distortions in the incentive scheme, defined by the policy environment and institutional arrangements.

By contrast, in the “ingredients approach,” policies and institutions are viewed as tangible inputs, like conventional factors of production, that shape the process of economic change.

Toru Yanagihara“Framework” vs. “Ingredients” Approaches

Source: Toru Yanagihara (1998). Development and Dynamic Efficiency: “Framework Approach versus“Ingredients Approach”, Chapter 4, Ohno & Ohno (1998).

Western vs. Eastern Approaches ： “Framework vs. Ingredients”

Framework-oriented(West)

Ingredients-oriented（ Japan and East Asia ）

Emphasis on the framework of an economic system and its management Rules of the game according to which economic agents make decisions and take action in a given economy

【 Examples 】 Functions of the market mechanism; the principles of government intervention, budgets and public investment; monitoring and evaluation; administrative efficiency and accountability, etc.

Emphasis on an economy as the sum of component parts Tangible organizational units such as firms, official bureaus, industrial projects and their aggregations such as industries, sectors and regions

【 Examples 】 Technologies; factors of production; demand of trends, products and commodities; industrial structures; marketing and logistics efficiency in individual industries and regions, etc.

Source: Toru Yanagihara (1998). Development and Dynamic Efficiency: “Framework Approach versus“Ingredients Approach”, Chapter 4, Ohno & Ohno (1998). 　　

(Examples) UK vs. Japan

“Infrastructure” Innovation in infrastructure financing (UK) -- local

currency guarantee, project development facility for privately-financed infrastructure, reaching the poor, etc.

Building roads & bridges (Japan) -- location, design & technology, durability, etc.

“Industrial promotion” Challenge funds (UK) -- matching grants for innovative

business models, designing architecture for public-private partnerships, etc.

Concrete industrial support (Japan) -- Master Plan for specific industries, factory diagnosis, industrial human resource training, etc.

JICA-JBIC Report (May 2008)Econ. Dev. in Africa and the Asian Growth Experience

Establish　“Industrialization　Strategy”　as　a　process,　not　just　a　document. Identify desired vision, economic structure, and

positioning in global value chain. Through public-private dialogue, discover growth-

leading industries for future. Identify their constraints (infra, HRD, etc). Devise measures to remove constraints and promote

targeted industries.

Measures must be consistent with the country’s institutional capability and executed under discipline and competition.

Japan’s Entry Points in Africa(and Elsewhere)

GRIPS Dev. Forum, Proposal for a New African Growth Support Initiative, Aug.2008.

Japan, a small investor and donor in Africa, but withEast Asian perspectives, can offer the following:

(1) For a country with reasonable visions and plans, standard policy tools (training, QC, kaizen, SME promotion, etc.) can be provided.

(2) Policy dialogue for making and strengthening visions and strategies (preferably followed by specific aid projects and other assistance).

(3) Comprehensive regional development with core infrastructure, supported by HRD, regional planning, industrial support, rural development, etc.

(4) Creating enabling environment for Japanese investment under the principle of open access and non-excludability.

(1) Mobilizing Aid to Support Existing National Vision

Menu for industrial support is common. But, selectivity and

adjustment are needed to adapt to unique conditions of

each country. Japan has many aid tools for industrial

support:

Production and technology management (e.g., kaizen, QC) Industrial human resource training Efficient logistics and marketing Infrastructure (esp. transport and power) Regional development planning Creating necessary laws, standards, institutions Removing negative impacts of industrialization

(2) Policy Dialogue with a View to Future Actions

If the national vision is still weak or unclear, Japan canengage in policy dialogue for formulating a proper visionand building mutual trust and understanding

Argentina – Okita Mission 1985-87; 1994-96 (follow up) Vietnam – Continuous government-business policy dialogue (e.g.,

Japan-Vietnam Joint Initiative); Ishikawa Project 1995-2001 Thailand – Mizutani Report for upgrading SMEs and supporting

industries, 1999 Indonesia – Continuous government-business policy dialogue; Urata

Report for SMEs, 2000; Prof. Shiraishi & Asanuma, 2002-04 (post-Asian crisis)

Laos – Prof. Hara for overall development strategy, 2000-05 Mongolia – Ueno, Hashimoto, 1998-2001 Ethiopia – JICA-GRIPS, 2009- (ongoing) for policy methods & Kaizen

Japan-Ethiopia Industrial Policy Dialogue, coupledJapan-Ethiopia Industrial Policy Dialogue, coupled with Technical Cooperation Project with Technical Cooperation Project (now, phase 2 ongoing) (now, phase 2 ongoing)

Policy Dialogue (phase 1: Jun.09-2011)Policy Dialogue (phase 1: Jun.09-2011)1.1. 　　 Policy VisionsPolicy VisionsDemocratic Developmentalism, Agriculture Development-led Industrialization (ADLI)2.2. 　　 Five Year Development PlansFive Year Development Plans PASDEP(05/06-09/10), GTP (10/11-14/15) 3.3. 　　 Sector PoliciesSector Policies Basic Metal & Engineering Industry Industrial Development Strategy MSE Development Strategy4.4. 　　 Cross-cutting IssuesCross-cutting Issues Policy Making Process and OrganizationsPolicy Making Process and Organizations National Movement of ProductivityNational Movement of Productivity

Study Project on KAIZENStudy Project on KAIZEN(Oct.09-Jun.2011)(Oct.09-Jun.2011)

Supplementary Firm-Level Study of Basic Metal and

Engineering Industry(2010)

Three Layers of Dialogue with Ethiopia

Japan

Dialogue with Prime Minister

High Level Forum with Ministers and

State Ministers

Operational Level MoFED, MoARD,

MoE, MoI, MoUDC, etc.

PASDEP: Plan for Accelerated and Sustained Development to End Poverty, GTP: Growth and Transformation Plan, IDS: Industrial Development Strategy, MoFED: Ministry of Finance and Economic Development, MoARD: Ministry of Agriculture and Rural Development, MoE: Ministry of Education, MoI: Ministry of Industry, MoUDC: Ministry of Urban Development and Construction

EOJ

J I CA

G R I PS

JICA

JICAMoI, KAIZEN Unit

MoI, Metal ProductsDevelopment Center

Professors Kenichi Ohno & Izumi Ohno

IPD conference July 2008

Official launch June 2009

Preparation Industrial policy dialogue

Final sessionMay 2011

Kaizen pilot project (30 firms)

(With ECBP)

Industrial support projects

Basic metal &engineering study

Institutionalization of kaizen:second phase

JICA-GRIPS Industrial Policy Dialogue and Industrial Support Projects with Ethiopia (2009- )

Secondphase

LaunchJan. 2012

Note: Black squares indicate policy dialogue sessions in Addis Ababa with the prime minister, concerned ministers and state ministers, and officials and experts at operational levels. IPD stands for the Initiative for Policy Dialogue, policy oriented meetings on various topics hosted by J. Stiglitz of Columbia University. ECBP stands for the Engineering Capacity Building Program, a large-scale program run jointly by Ethiopia and Germany.

Malaysia-Zambia Cooperation: Triangle of Hope (TOH)

JICA implemented “Triangle of Hope” Project during 2006-09 to support the improvement of business environment in Zambia

Dato Jegathesan was Deputy DG of the Malaysia Industrial Development Authority (MIDA), under ex-Prime Minister Mahathir.

TOH project formulated 12 concrete policy recommendations, and catalyzed Malaysian investment in Zambia (a cedular company).

Currently, JICA is supporting capacity development of Zambia Development Authority (ZDA).

(3) Regional Development with Core Infrastructure

Large infrastructure such as roads, ports and power has broad effects.

Policies and aid should be organized around core infrastructure for maximum impact.

Largecity

EPZ

Rural　development

Tourism

IZ

New　HighwayPort　improve-ment

Truck　terminal

One　stop　serviceFDI　marketingTraffic　safetyFeeder　roadsHousing

Remote　area　or　another　country

Service　deliveryMicro　financeTraining

Commerce

Regional Development with Core Infrastructure (Examples) Greater Mekong Subregion – East-West and

North-South Corridors for development of Indochina Thailand – Eastern Seaboard: creation of industrial

zones around a port infrastructure Indonesia – Brantas River Basin development Vietnam – Highway No.5 (Hanoi – Haiphong Port)

for FDI attraction (industrial clusters) Cambodia – Sihanoukville Port, power and telecom

networks, special economic zone El Salvador – La Union Port + regional development India – Delhi-Mumbai Industrial Corridor for FDI

attraction (industrial zone, PPP infrastructure) Mozambique – Nacala Corridor for regional

development

a

Nacala Development Corridor The Case of Mozambique (Ongoing)

Mozambique is JICA’s target country in Africa for regional development approach: Nacala Corridor, agriculture development (with Brazil), productive sector support, road maintenance, etc.

Nacala Development Corridor (Source: CPI, Govt. of

Mozambique)

Source: Ministry of Foreign Affairs, TICAD IV Annual Progress Report 2010

(4) Mobilize ODA to Provide Conditions for Concrete FDI

Using ODA to mitigate risks for private sector investments in Africa (e.g., infrastructure, HRD)

New initiative, based on TICAD IV commitment to promote public-private partnerships (PPP) in Africa

Public-private joint missions to promote trade & investment in Africa; efforts are underway by MOFA, METI, JICA, JETRO, etc. to concretize PPP support

JICA (Office for Private Sector Partnership), supporting PPP infrastructure, inclusive/BoP biz, local SME development (with the involvement of Japanese firms)

UK-Japan Partnership for African Growth Based on Diversity and Complementarity

There are differences btw. the Western and the East Asian approaches to development.

Good potential exists for UK-Japan partnership, based on respective comparative advantages. Guided by the principle of diversity and complementarity

UK’s strengths: Policy framework; designing international & financial

architecture; communication strategy and stakeholder engagement; knowledge and experiences in Africa, etc.

Japan’s strengths: Concrete, process-oriented support; field-based expertise;

infrastructure development; knowledge and experiences in Asia (incl. a possibility of engaging emerging donors), etc.

GRIPS Development Forum (2008). Diversity and Complementarity in Development aid: East Asian Lessons for African Growth.

GRIPS Development Forum (2008). “Proposal for a New African Growth Support Initiative”, Policy Note No.5.

JICA and JBIC (2008). Report of the Stocktaking Work in the Economic Development in Africa and the Asian Experience.

Ministry of Economy, Trade and Industry (2005). “Promotion of ‘Japan ODA Model’ based on Its Experience of Successful Economic Cooperation.”

Ohno, Izumi and Kenichi Ohno (2012). “Dynamic Capacity Development: What Africa Can Learn from Industrial Policy Formulation in East Asia”, Ch. 7, in Good Growth and Governance in Africa: Rethinking Development Strategies, eds. Norman and Stigliz et al., Oxford University Press.

Ohno, Kenichi, and Izumi Ohno, eds. (1998). Japanese Views on Economic Development: Diverse Paths to the Market, Routledge.

Saidi, Myriam Dahman and Cristina Wolf (2011) “Recalibrating Development Co-operation: How Can African Countries Benefit from Emerging Partners?” OECD Development Centre Working Paper, no. 302.

Todo and Kimura (2010), “Is Foreign Aid a Vanguard of Foreign Direct Investment? A Gravity-Equation Approach”, World Development, Vol.38 Issue 4, April 2010.

Yanagihara, Toru (1998). “Development and Dynamic Efficiency: ‘Framework Approach versus Ingredients Approach’”, Ch. 4, in Ohno & Ohno (1998).

References