Japan's Private-Sector Initiative for the Regional Economic Development in Asia and Africa

Hiromasa YONEKURA (President & CEO, Sumitomo Chemical Co., Ltd.)

Just half a century ago, the first Asia-Africa Conference was held at Bandung in Java Island, Indonesia. At this epoch-making conference, one of the principal appeals unanimously supported by the delegates from 29 Asian and African countries was to recognize the importance of looking ahead beyond the hard experiences of the past and become free from fear and poverty.

I believe that this message, spoken in inspiring language, still holds true today. As evidence of that, poverty reduction was singled out to be the No.1 priority issue on the global agenda at the recent World Economic Forum in Davos. And, as we all recognize, many corners on the globe are still not free from fear.

Asia and Africa are vast and vital regions of the world and have enormous potential for economic development in the 21st Century. Both regions must meet enormous challenges to achieve their developmental objectives, including sustained economic growth, reduction of poverty and social progress, as proclaimed in the United Nations Millennium Development Goals.

At this Asia-Africa Business Summit, I would like to present - - from a private-sector perspective - - a brief overview of Japan's current economic relationships with the Asian and African regions, focusing, in particular, on some of the important challenges these regions must meet to enhance economic development through cooperative partnerships.

I would like to begin with the Asian region. For the past few decades, Asia has been the fastest growing economic region of the world. Even occasional economic turbulence, such as the monetary crisis in the late 1990s, the economic downturn sparked by the sharp drop in demand for IT products in the United States in 2001, and the SARS epidemic in early 2003, has not impeded Asia's vigorous expansion.

The growth of trade and investment, both inter-regional and intra-regional, has been phenomenal. For example, Japan's trade with other Asian nations more than doubled during the past decade. Prior to 2002, the United States was Japan's No.1 trade partner, but since 2002, Asia has become her larger customer than the United States and Europe. This trend will continue in the coming years.

Japan's overseas direct investment in Asia has also significantly increased, and amounts today to 133 billion U.S. dollars, accounting for 17% of the total. Japanese corporations operating in the Asian region have been working closely with host governments and local partners.

With a view to further strengthening economic ties with Asian countries, Japan's business community has made a policy recommendation that the government of Japan conclude with the other Asian countries economic partnership agreements, or EPAs which would eventually lead to an East Asia Free Trade Zone. EPAs would cover broader areas of cooperation, including not only liberalization of trade and investment but also protection of intellectual property rights, movement of people across national borders and training of human resources, and more importantly fostering small-and medium-sized downstream ventures, and would be more mutually beneficial than FTAs.

Needless to say, the EPAs should be consistent with the WTO. Nippon Keidanren has been urging the Japanese government to accelerate its structural reform that would lead to further opening Japanese markets. At the same time, with a view to helping Asian partners improve their climate for investments, we have also been asking the Japanese government to make the most effective use of Japan's ODA for building the kind of infrastructure needed to facilitate vigorous trade and investment activity.

Now, let me turn to African countries. In 2003, Japan's trade with African countries accounted for slightly less than 2% of Japan's total international trade. Japan's direct investment in Africa was a modest 1.2% of its total overseas direct investment, or 7.1 billion U.S. dollars. Obviously, there is much room to do more.

One reason for this low level of investment was the perception in Japan that Africa is geographically remote. Also, Japanese private-sector companies lacked sufficient information on African countries that would enable them to locate business opportunities. This situation is improving. To overcome those problems, Nippon Keidanren's Sub-Saharan Regional Committee has been sponsoring joint business forums with Africa's business community on a periodic basis. We hope to help Japanese companies become more familiar with the region, the investment climate and business opportunities.

We believe that, in carrying out the challenging task of cultivating a favorable investment climate in the African region, the experience of both Japan's government and private-sector companies in promoting economic partnerships in Asia would be very useful.

Based on Japan's experience, I would like to mention two important ingredients which played a critical role in the modernization and economic development of Japan. One is an adequate infrastructure and the other is a human resources build-up through education and training.

In the early stages of the industrialization process of Japan, the government played an important role in establishing national goals and building an infrastructure by ensuring the proper allocation of resources in accordance with its priorities and taking various policy measures designed to support efforts in the private sector.

Japan and other Asian countries have trod the following economic growth path: strengthening the industrial and educational infrastructure; increasing of trade and foreign direct investment; achieving healthy economic development, which in turn reduced poverty and enhanced the living standards of the people.

We can say that nothing is more important than education and technical training. Indeed, the spread of education and technical training programs designed to improve overall productivity changed the fate of Japan. This is why Japan's industrial institutions have been conducting a number of training programs. Strategic use of such technical training programs can be an effective tool to foster business alliance between Asia and Africa. In connection with A & A alliance, we believe that other Asian countries could play a pivotal role in imparting to African countries the technical knowledge and skills that they have accumulated.

Private-sector companies tend to seek out regions or countries that have political stability, security, a solid infrastructure, as well as trained and enthusiastic human resources. We hope that the African nations and the Japanese government agencies, with the support of international institutions, will be able to address such issues by utilizing funds available from Japan's ODA.

In this context, Nippon Keidanren believes that it would be extremely useful to implement realistic and substantive regional free trade zones within the African region in order to provide the minimum market size to capture foreign investment. Commercial networks in intraregional business activities are also essential.

We applaud the establishment of the East African Community (EAC) and the Southern African Custom Union (SACU), and the efforts of the Southern African Development Community (SADC) to build a free trade zone by 2008 and a customs union by 2010. We believe that these efforts are moving in the right direction and hope that African countries will work together to realize these goals.

Nippon Keidanren looks forward to continuing our dialogue with the host government agencies to identify optimal ways to cooperate, particularly in terms of fostering good organizational management and governance as well as responsible economic and social stewardship.

Since the economic activities of all countries are becoming increasingly intertwined, "a comprehensive developmental framework" created through cooperative partnership between the private-sector companies and public institutions, e.g., the World Bank would be very effective to sustain the developmental momentum, especially at a time of rapid technological innovation. The fundamental issue is no longer "whether or not" to enhance the activities of the partnership with the private-sector companies but "how" public institutions and private-sector companies can cooperate to effectively achieve the United Nations Development Goals.

To illustrate my point, I would like to report to you that my company, Sumitomo Chemical, has joined the "Roll Back Malaria Campaign" which was initiated by the World Health Organization (WHO) in 1998, and has been working closely in this area with the World Bank, UNICEF, and a number of NGOs.

The Roll Back Malaria Campaign is extremely important because the continuing scourge of malaria has presented serious obstacles to growth and development in Africa and Asia. It is estimated that some 300 million people are infected with malaria every year, and over one million die annually. Sadly, most of the victims are children under the age of five. The primary objective of this campaign is ambitious, namely, to reduce the burden of this dreadful epidemic by 50 % by 2010.

As a research & development-oriented company, Sumitomo Chemical has continuously worked to provide effective solutions to cope with the enormous dangers posed by insect pests around the world, and Sumitomo's researchers invented an innovative long-lasting mosquito netting called "Olyset net."

The most distinctive feature of Sumitomo's Olyset net technology is the know-how for embedding insecticide into the plastic fiber material itself. This innovative technology was cited in the Time magazine as one of the coolest inventions of 2004. Olyset nets made of such plastic fiber remain effective for a minimum of 5 years, even after multiple washings.

In light of the great potential of this innovation in helping to control malaria, we felt it was very important to ensure production and distribution at an affordable cost, using local producers. Sumitomo Chemical provided a private-sector partner in Tanzania called "A to Z Textile Mills Ltd." with necessary manufacturing technology and know-how free of any licensing fees. This A to Z Textile Mills has successfully started the Olyset net manufacturing operation, and all the nets produced by this company are distributed to the people living in the malaria-stricken areas in Africa.

While the project is very modest in scale, it has all the essential elements necessary for successful implementation of this type of pilot industrial project, namely: the construction of a production facility, the transfer of technical information and know-how to the local partner, the employment and training of local technicians and workers, and a host of quality control procedures. This first phase of the Olyset net manufacturing operation has provided local community with about 1,000 jobs, and additional employment is foreseen along with a series of production capacity expansions in the future.

At the request of the United Nations and other international organizations, my company is increasing this long-lasting mosquito net production capacity. The present annual production capacity will be roughly quadrupled to 20 million sets by the end of this year.

Sumitomo Chemical also intends to replicate this Olyset net manufacturing project in various countries in Africa and Asia. In Kenya, moreover, we have a research project designed to investigate the possibility of utilizing natural pyrethrum extracted from chrysanthemum flowers in the Olyset netting.

Since we started working on this campaign, we have often been asked why a private-sector company like Sumitomo Chemical would be involved in this sort of public health activity. My response is that it is a matter of business philosophy. In fact, each successive generation of Sumitomo leadership has adhered, for more than three hundred years since the inception of the company, to the fundamental principle that our activities should contribute - - not just to Sumitomo - - but also to the welfare of our country and its people. Today, in the era of globalization, we have expanded this idea and now seek to contribute to the well-being of the world community as part of our corporate social responsibility.

I am contemplating that if any financial benefits will be generated as the result of scaling up of the Olyset net production capacities, my company will contribute part of such rewards to setting up education and training facilities in the host countries. It is my personal wish that Japanese private-sector companies which have been operating in Africa will also join my company in contributing to building up infrastructure in host countries.

As all the economies are increasingly intertwined, Asia and Africa are able to communicate and collaborate on a much broader basis. We need to strengthen our ability to work together. I believe that building a bridge between the private-sector companies and public-sector institutions is becoming more and more important. Both regions stand to gain a great deal through such cooperation and partnerships.

With renewed faith in its mission of sustainable economic development, Nippon Keidanren is willing to contribute to transforming developing nations in Asia and Africa into sustainable economies, enhancing living standards and bringing freedom and opportunity for a great many people in the regions.