How Should the Issue of ODA for Africa Be Addressed?

(From Journal of Japanese Trade & Industry (JJTI))

Byline: Hatakeyama Noboru

The G8 summit in Gleneagles, the United Kingdom, emphasized the importance of a drastic increase in Official Development Assistance (ODA) to Africa. Asia and Africa are two major ODA recipients and the cumulative amounts of ODA that the two areas have received are almost equal (around $310 billion during the period from 1960 to 2003). However, the Asian economy has flourished whereas the African economy has stalled. One of the reasons for this difference might be attributed to Japan's ODA for Asia.

Japan is the major donor in Asia and Europe is the major donor in Africa's ODA. During the period mentioned above, 71% of Japan's ODA went to Asia while Europe contributed 55% of its ODA to Africa. The characteristics of Japan's ODA are as follows.

(1) The fundamental philosophy is to donate fishing rods, rather than fish, so that the recipients can manage their daily lives by catching fish with the fishing rod. This allows the recipients to stand on their own feet instead of just being aided continuously.

(2) ODA can be divided into four categories, namely grants, loans, technology cooperation and contributions to international organizations. Low interest rate loans, or soft loans, are an important part of Japan's ODA. Of these four categories, Japan's ODA is topped by loans which make up 38% of the total, while grants top Europe's ODA, accounting for 34%. The reason why Japan's ODA tends to take the form of loans is not necessarily to save money but to avoid spoiling the recipient countries by giving away funds. The obligation of the recipient countries to repay those loans imposes discipline on their fiscal and economic policies in general. On the other hand, the management of soft loans requires donor countries to watch the recipient countries' economic growth and productivity improvement, which are closely related to the repayment of debts.

(3) Japan's ODA is often used to develop the economic infrastructure such as electricity power generation or port facilities which are indispensable for private sector participation, including foreign direct investments. Nowadays most developed countries, including Japan, are suffering from fiscal deficits, and securing adequate budgets for ODA is difficult. Combining ODA with foreign direct investments in developing countries, for example, is therefore the most efficient way to help the recipient ...