Japan awakens

As Japan awakens from years of economic slumber, the Japan Bank for International Cooperation (JBIC) is determined to pursue opportunities globally in the interests of its exporters. Helen Castell reports.

As Japan slowly rouses from a decade of economic slumber, its manufacturers, trading companies and energy majors are waking up to a new world order. China is on the rise, trade rules have been rewritten and the race for energy resources has ratcheted up a notch.

In today’s changed landscape then, where are the best opportunities for Japanese firms and what kind of help do they need to exploit them

  • And if their needs are different now, how does this impact on the organisations that have traditionally held their hand

    Ensuring energy security and improving the competitiveness of Japanese companies are the two main aims of the Japan Bank for International Cooperation (JBIC) and to achieve these requires an increasingly innovative approach, says Toyoda Kohei, JBIC’s representative in London.

    As with many ECAs, small and medium-sized enterprises are the way forward for JBIC, and to achieve this it is working more closely with local financiers. “Instead of providing financing to Japanese companies, which can borrow money from private financial institutions, we provide financing to the supporting companies. That will enhance the competitiveness of Japanese companies in the market.”

    “Our strategy is to collaborate with domestic financial institutions – they have the skill and experience to provide financing to small and medium-sized enterprises, and we have the capacity to provide large amounts of money at relatively competitive terms to these financial institutions.

    “Then utilising this money, domestic financial institutions provide financing to SMEs,” he adds, noting that JBIC has applied this new approach in Thailand, Malaysia and India so far.

    All in it together
    Cooperating with other ECAs has also become more pivotal to JBIC’s work and again a fresh approach is being taken here, says Toyoda. “Almost all Asian ECAs are our partners,” he says.

    In an effort to safeguard the region’s financial markets from the fall-out seen during the Asian financial crisis, ECAs are working on the Asian Bond Market Initiative proposed by Japan in 2002.

    Under the initiative, JBIC provided a secondary guarantee in March to Indonesian corporate bonds worth Rp1tn that were used to finance the purchase of Japanese motorcycles.

    Asian ECAs are discussing securitising their assets as a group and issuing a joint collateralised bond obligation (CBO) and JBIC’s particular contribution could lie in guaranteeing the bond, he says.

    In terms of energy security, one area that is becoming ever more important is central Asia, where rich oil, gas and mining resources are attracting Japanese investors. And although private sector banks are zooming in on the region for the same reasons, JBIC still has an important role to play, he argues.

    “There is a lot of room for us to contribute to the successful realisation of projects,” he says. “Japanese energy-related companies need to work with national energy companies, which can expose them to political risk, he adds. “Our mission is to support their business in terms of financing and in terms of political risk mitigation.”

    In April this year, JBIC signed a US$198.8mn loan to develop uranium deposits in Kazakhstan. The loan will finance a uranium mine development and production project in Kyzlorda province, which is being undertaken by state-run Kazatomprom and Japan’s Marubeni Corp, Tokyo Electric Power and Chubu Electric Power Co.

    Uranium security is vitally important for Japan, which relies on nuclear power for more than 30% of its total electricity generation but is having to pay ever higher prices for the fuel as international demand climbs.

    In June, JBIC signed a US$20mn loan agreement for an export credit line with the International Bank of Azerbaijian. The loan will finance Azeri firms’s imports of machinery and equipment from Japanese firms and was co-financed with Sumitomo Mitsui Banking Corporation. This was the first export credit line that JBIC has offered to a financial institution in Azerbaijian.

    Unlevel field
    Competition for the energy resources that Japan needs is however hotting up, and not always on a level playing field.

    “With regard to energy security, China is, in a sense, a big competitor to Japan. And especially in Africa, China’s presence is very big,” Toyoda says. “We’d like to support Japanese companies to secure natural resources in Africa as well, but it’s not an easy task, especially given the current energy boom in Africa.”

    Unlike China, JBIC has to operate within OECD guidelines and must honour international agreements that take human rights and environmental considerations into account when financing African countries, he notes. “China’s activity is so aggressive that sometimes OECD countries cannot directly compete with them.”

    In Asia, where JBIC has long-standing relationships with many of the public and private-sector players, Japan already has enough muscle to compete with the rising power, he notes. However, “in Africa we are far behind China”.

    To support Japanese firms therefore it has focused on building the kinds of relationships it already has in Asia, particularly in South Africa where it already has experience.

    In June it co-financed with commercial banks an untied loan of US$200mn to the Development Bank of Southern Africa and in the same month co-financed another untied loan, this time of up to ¥17bn for electricity generator, transmitter and distributor Eskom Holdings. That loan will finance the power grid development in the KwaZulu-Natal and Limpopo provinces.

    Japanese manufacturers, especially in the automobile sector, have been paying more attention to South Africa in recent years as it becomes an export hub for Europe and the Middle East. The country also exports to Japan large volumes of metals, including platinum, nickel and chrome ore.

    “By building a relationship with these key players we’d like to create a good business environment for Japanese companies,” Toyoda says.

    Within China itself, Japanese manufacturers are already making good money, although opportunities for their involvement in the power and infrastructure sector remain slim, he notes.

    In India it is a different story, but here JBIC takes another approach, funding the creation of the conditions Japanese firms need to thrive, rather than the firms’s projects themselves. “There are many Japanese companies operating in India, but they are suffering from the lack of infrastructure,” for example dependable electricity networks and loading ports with sufficient capacity, he says. “So we are supporting these projects in India, utilising our several financial tools.”

    JBIC’s most recent involvement in India was a Framework for Collaboration deal it signed in May with the United States Agency for International Development (USAid). The two parties agreed to work together to provide financial and technical assistance to India’s power sector. Just two months earlier it provided Japanese ODA loans for energy saving projects in the Bangalore Distribution Upgradation Project.

    Facing problems from a fresh angle is obviously what JBIC does best. The next few years will show whether Japan’s corporates can start to achieve the same.