Evolution of Government’s Role on Economic Development

Evolution of Government’s Role on Economic Development 23rd January, 2009 J I C A Masaki Miyaji

Japan Today • Small Islands surrounded by sea ( Land area : 338 Sq Km, less than 1/2of Zambia, Its 70% is mountainous) • Population : 127 Million (X 12 of Zambia) • GDP : over 4 Trillion US$ ( 2nd largest in the world) • No mineral resources ( Coal mines were closed 30 years ago) • 60% of Japan’s Food consumption is based on import • Japan’s only but the most important resource is “Human Capital Resources” • Japanese Economy stands on Manufacturing with Technologies and highly controlled Skills

The Importance of Human Capital Resources Development Experiences and Instructions of FDI （Foreign Direct Investment） “Mozal Project” in Mozambique Japanese experiences in developing Investment by the Private Sector (Large enterprises and MSMEs)

Japanese experiences in developing Investments by the private Sector (Large Enterprises and MSMEs)

Impacts of micro, small & medium-sized manufacturing firms (2004/2005） Notes : MSMEs are companies with <300 regular employees (<100 in wholesaling & services, <50 in retailing, eating & drinking places) or with capital stock of < \300 million (US$ 2.7 mill) (< \100mill in wholesaling, < \50 mill in services, retailing, eating & drinking places) Small enterprises are companies with <20 regular employees (<5 in wholesaling, retailing & services)

Japan’s Policy fostering Economic Development and Changing Business Climate 1945～54 Reconstruction Era 1955～72 High Growth Era 1973～84 Stable Growth Era 1985～ Transition Era

1945～54 Reconstruction Era ●The War destroyed production & distribution facilities & systems ●The economy was democratized such as: ① Land Reform② “Anti-Monopoly Law” established ③“Trade Unions” allowed④ “Conglomerates” resolved ● “Priority Production Systems” as a core industry ①Iron-Steel manufacturing ② Shipbuilding ③ Coal Mining ●Fostered SME’s (established SME’s Agency) ●Improved diverse infrastructure, such as Laws, Systems & Institutions and Electricity, Railway, Port, & Road ●Established Financial Institutions to supply ample Funds

RECONSTRUCTION DAYS（1945-1954） ～Establishment of Institutional Framework～ Small & Medium Enterprise Agency (1948) Laws/ Regulations Banks Insurance Schemes Financial Schemes Small & Medium Enterprise Credit Insurance Law MSMEs Default Small Business Finance Corporation People’s Finance Corporation Credit Guarantee Association Law Corporative Union Law Credit Guarantee Association Medium-sized Enterprises Micro, Small Enterprises

Promoting modernization and upgrading in hardware • “Pyramid structure” was developed • Adverse effects of expanded sub-contracting system (i.e.; pressure from parent company) became problematic. • Tackled to solve “Dual Economy” : Gaps (productivity, wages, technology, funding, etc.) between large and small enterprises widened • Annual GDP growth was over 10% until 1973 • Japan became the World No.2 in terms of GNP in 1968 1955～72 High Growth Era

HIGH GROWTH DAYS（1955-1972） How to Tackle “Dual Economy” ～Coping with “Dual Economy”～ Productivity ◎ Some Prescriptions ~STRONG～ LARGE FIRMS Wages ◎ Modernization of Equipments or MSMEs Technology ◎ Funding ◎ Lower Corporate Tax for MSMEs Exemption of MSMEs from Anti- Monopoly Law Adverse Effects Productivity × Revitalization of MSMEs Nationwide Wages × Technology × Sub-contracting Systems Funding × ～WEAK～ MSMEs

Phase Two: Stable Growth Era ~ 1973～84 Stable Growth Era • Promotedmodernization & upgrading in software • “Core” business structural shifts of enterprise was inevitable by business climate change due to oil crises • Subsidies in place to industrial structural shifts, in designated areas • Stronger Yen currency damaged industries and regional economy • Energy-saving measures taken by enterprises • (led to international competitiveness)

Business Climate Change Human Recourses Development Small & Medium Enterprise College Oil Crisis Oil Crisis Hard Structural Changes Soft ・Information Soft ・Human Capital Hard ・Technology Upgrading Dissemination ・Modernization of Equipments ・Government Financial Institutions Small & Medium Information Centers ・Tax Regimes ・Legal Institutional Framework STABLE GROWTH DAYS（1973-1984）～Paradigm Shift～ Towards Knowledge Intensification

Strong Yen encouraged enterprises to invest overseas • Low interest rate policy led to economic boom • “Bubble economy” burst in 1991: “lost decade” • -Globalization led to enterprise restructuring • -De-regulation led to change in human resource • management & subcontracting systems • Recovery since 2002 due to export to emerging markets 1985～ Transitional Era

Virtuous Trajectory of Industrial Clusters ~TowardPoverty Alleviation~ Infinite Business Opportunities JUMP STEP HOP “Qualitative Improvement” Phase Limited Job Creation “Quantitative Expansion” Phase Geographical Concentration of Enterprises Increasing Employment Opportunity Agriculture-based Society Industrial Clusters Africa ChinaIndia Japan

Industrial Cluster Industrial Park

Industrial Cluster Industrial Park Anchor Firm

Major Industrial Clusters, led by the Government Tsubame Sanjo-City,Niigata Higashi-Osaka City Ohta-ku,Tokyo Suwa-City, Nagano 22

Ohta-ku, Tokyo(Population 667 Thousand) ・Industrial cluster for mechanical metalworking Less than 5 Employees occupy almost 60%. Bird’s Eye View. Kamijima Heat Treatment Industry （42 Employees）・Heat treatment which makes stiffness of the cutting utensils (brooch, hob, drill.) . Azuma Manufacturing Factory （2 Employees）・Slotter (the machine to process the groove inside the gear) is processed. ・Precise processing to the curved surface are possible. Sources： Ministry of Public Management, Home Affairs, Posts and Telecommunications　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　「A Statistical Table for Companies」 23

Higashi-Osaka City(Population 513 Thousand) Tokai Factory (18 Employees) ・Industrial cluster for machinery plastics ・Philosophy is “ Only One“ ・”Niche Top” MSMEsare 61/ 548 in Japan. ・ Plastic formation and the quality control aspect 3 dimensional measurement equipment of computer control. ・ Interior part ( for high accuracy formation technology of the micro unit ). ”Special Economic Zone for Manufacturing”. Bird’s Eye view Asahi Manufacturing (121 Employees) ・Part product enterprise (worldwide share 80%), concerning the cylinder head which is the heart of the VTR from compilation to casting. ・ Various aluminum materials.

Suwa-City, Nagano（ Population53 Thousand ) ・Industrial cluster for precision instrument industry ・De facto “Oriental Switzerland" ・Aiming toward “Manufacturing Kingdom Suwa” Bird’s Eye View Takashima Industry ( 250 Employees) Production of the clock part, other than precise part processing.

Tsubame-Sanjo City, Niigata （ Population44 Thousand) ・Industrial cluster for the metal house wear Ezawa Manufacturing（17 Employees） Stainless steel, aluminum, iron, brass and titanium.

Experiences and Instructions of FDI （Foreign Direct Investment）“Mozal Project” in Mozambique

Mozal S.A.R.L. Photograph from

Mozambique at a Glance GDP: US$2.897 billion GDP: US$7.839 billion GDPPC: US$180 GDPPC: US$382 Photograph taken before 2005 After (2007) Before (1996) Namibia Virgin Bush Cutting Edge Facility Data Source: IMF World Economic Outlook IMF staff estimation for 2007

Mozal General Overview

MOZAL Project Scheme Mozal Project Mitsubishi Corp 25% Mitsubishi Corp BHP-Billiton 47% Offtake IDC 24% BHP-Billiton Mozambican Govt 4% Dividend Project Finance DEG COFACE JBIC DBSA IFC CDC PROPARCO EIB CGIC EDC

Key Drivers for Investment • Competitiveness of production cost • Governments’ strong commitment and supports (both Mozambique & SA GVMT) • Participation of Reputable Policy lending institution (IFC, JBIC, IDC, DBSA, DEG, CDC, COFACE, EIB, PROPARCO, CGIC, EDC) • Reliable Partner (BHP-Billiton & IDC)

Key Drivers for Investment • Competitiveness of production cost • Governments’ strong commitment and supports (both Mozambique & SA GVMT) • Participation of Reputable Policy lending institution (IFC, JBIC, IDC, DBSA, DEG, CDC, COFACE, EIB, PROPARCO, CGIC, EDC) • Reliable Partner (BHP-Billiton & IDC) The production cost is the cheapest in the world. This project is strong against depression through special purchasing contract of 2 major cost factors, electricity and alumina.

Key Drivers for Investment • Competitiveness of production cost • Governments’ strong commitment and supports (both Mozambique & SA GVMT) • Participation of Reputable Policy lending institution (IFC, JBIC, IDC, DBSA, DEG, CDC, COFACE, EIB, PROPARCO, CGIC, EDC) • Reliable Partner (BHP-Billiton & IDC) DEG COFACE JBIC DBSA IFC CDC PROPARCO EIB CGIC EDC

Why Mozambique? Q: No bauxite - Alumina, in Mozambique. Electricity coming from SA. Why Mozambique? A: 1)Potential charm point: Cahora Bassadam – future Hydroelectric-power generation Full production would fully cover the electrical demand in whole Africa of today. 2)Port capability in Maputo

MOZAL CSR Activity Mozal Community Development Trust (MCDT) • Mozal Community Development Trust (MCDT), as a None Profitable Organization,started its operation in January 2001 and its main aim is to share the success of Mozalwith local community via various programs. • It has a very transparent activity by disclosing budget and audit each year and also report to Mozal the progress of each activity on monthly basis. • Mozal donates approximately US$5Million each year. Mozal S.A.R.L In Mozal Board, amount and menu of activity of MCDT is checked and discussed. MCDT has close communication with Mozal every month. Financial and Know- How support Mozal Board IFC, Government, NGO Local Community, Private Company MCDT

MCDT Activity • Policy“Together we make a difference” (Mozal CSR policy aims for the sustainable development in harmony with Local Community.) • Principal of Activity • ・Align development initiatives with those of National, Provincial and Local • Government to fight poverty within the framework of the action plan to Reduce • Absolute Poverty (PARPA) • ・Act as catalyst by creating pilot projects in other areas • ・Establish partnerships with various organization to achieve sustainable results • Involve all relevant stakeholders, including government, NGOs, community • structures and the private sector. • Main Development • ・Small Business Development • ・Education & Training • ・Health & Environment • ・Sports & Culture • ・Community Infrastructures

MCDT Support to the Chicken Farm Agricultural Development Program Production of the Carpets Teacher’s training and capacity building Donation of the computers to the University Support to the Primary Schools Donation of the equipment to the Hospital Support to the National Park Total Control of the Epidemic

MCDT Sponsoring of the art exhibition Uniforms distribution to the teams Community Sports Tournament Construction of the Clinic Classroom Building School Project

Development The Importance of Human Capital Resources Development

Innovation Marketing Branding Strategy Collaborating with Research Institutes Stable Operational Financing Go for a “Niche” Markets Challenge the “Status Quo” Product Differentiation Human Capitals Not NecessarilyHighly-Academic Ambition Willingness Curiosity Passion Craftsmanship Aspiration Kaizen Backbone of the Economic Requirement

1.Compulsory Educational System （Since 1947） -A Key “Driver” for Significant Literacy Improvement- Drastic Increase in High School Attendance Almost 100% Enrollment Ratio Within 50 years Almost double Basic Literacy Improvement Students Pursuing Higher Degree Sky-rocketed Source： Ministry of Education, Culture, Sports, Science and Technology ”Basic Report on Schools”2004

Domestic Resource Mobilization Efforts for AFRICA ～”Sequencing” IS THE KEY WORD～ Efforts ・Appropriate Tax regimes ・Proper Legal/Institionary Framework －Export Credit －Insurance ・Technology Transfer From Abroad ・EPZs(Export Processing Zones) Efforts ・Enactment of basic SME laws －Dispatch Exports ・Primary Industry Development －TA for Farmers －Initiation of fishers Program ・Basic Infrastructure Development －Road, Bridge, Ports etc. Ⅳ. INDUSTROAL AGGLOMERATION Ⅲ. REGIONAL INDUSTRIES Ⅱ.PRODUCT SERVICES Efforts ・New Product Development －Dispatch Export ・「One Taw ban, One Products」Initiative ・Rural Credit Scheme for SMES ・Credit rationing by the Governments ・Collaboration via Cooperative in Local Communities Efforts ・Mapping Exercise －Identification of Market Needs (ex) African Food Show Case ・Rural Credit Scheme for Individuals (ex）Gramean Bank Model Ⅰ. NEED × SEEDS

Evolution of Government’s Role on Economic Development