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Evolution of Government’s Role on Economic Development 23rd January, 2009 JICA Masaki Miyaji 1 Japan Today • Small Islands surrounded by sea ( Land area : 338 Sq Km, less than 1/2 of 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 Japanese experiences in developing Investment by the Private Sector (Large enterprises and MSMEs) Experiences and Instructions of FDI (Foreign Direct Investment) “Mozal Project” in Mozambique The Importance of Human Capital Resources Development 4 Japanese experiences in developing Investments by the private Sector (Large Enterprises and MSMEs) 5 Impacts of micro, small & medium-sized manufacturing firms (2004/2005) of which Small Enterprises SMEs Large Enterprises Total No. % of total No. % of total No. % of total No. No. of Enterprises (1,000) 4,326 99.7 3,777 87.1 12 0.3 4,338 No. of Employee (1,000) 28,086 71.0 9,857 24.9 11,466 29.0 39,553 Value added (US$ billion) 524 55.3 98 10.3 423 44.7 947 Capital investment (US$ billion) 39 36.7 - - 67 63.2 106 Notes : 1. 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) 2. Small enterprises are companies with <20 regular employees (<5 in wholesaling, retailing & services) 6 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 7 1945~54 Reconstruction Era ●The War destroyed production & distribution facilities & systems ●The economy was democratized such as: ① Land Reform ② “Anti-Monopoly Law” established ③“Trade Unions” allowed ④ “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 8 RECONSTRUCTION DAYS(1945-1954) ~Establishment of Institutional Framework~ Small & Medium Enterprise Agency (1948) Laws/ Regulations Small & Medium Enterprise Credit Insurance Law Credit Guarantee Association Law Banks Insurance Schemes Financial Schemes Small Business Finance Corporation MSMEs People’s Finance Corporation Corporative Union Law Default Credit Guarantee Association Medium-sized Enterprises Micro, Small Enterprises 9 1955~72 High Growth Era 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 HIGH GROWTH DAYS(1955-1972) How to Tackle “Dual Economy” ~Coping with “Dual Economy”~ ~STRONG~ LARGE FIRMS Productivity ◎ Some Prescriptions Wages ◎ Modernization of Technology ◎ Equipments or MSMEs Funding ◎ Lower Corporate Tax for MSMEs Exemption of MSMEs from Anti- Monopoly Law Adverse Effects Sub-contracting Systems ~WEAK~ MSMEs Productivity × Wages × Technology × Funding × Revitalization of MSMEs Nationwide 11 Phase Two: Stable Growth Era ~ 1973~84 Stable Growth Era Promoted modernization & 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, designated areas in Stronger Yen currency damaged industries and regional economy Energy-saving measures taken by enterprises (led to international competitiveness) 12 STABLE GROWTH DAYS(1973-1984) ~Paradigm Shift~ Towards Knowledge Intensification Business Climate Change Oil Crisis Oil Crisis Structural Changes Hard Human Recourses Development Small & Medium Enterprise College Soft Soft Hard ・Modernization of Equipments ・Government Financial Institutions ・Tax Regimes ・Legal Institutional Framework ・Information Dissemination ・Human Capital ・Technology Upgrading Small & Medium Information Centers 13 1985~ Transitional Era 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 Virtuous Trajectory of Industrial Clusters ~Toward Poverty Alleviation~ Infinite Business Opportunities JUMP STEP “Qualitative Improvement” Phase HOP Limited Job Creation “Quantitative Expansion” Phase Geographical Concentration of Enterprises Agriculture-based Society Increasing Employment Opportunity Industrial Clusters Africa China India Japan 15 Industrial Cluster Industrial Park 16 Industrial Cluster Anchor Firm Industrial Park 17 Industrial Cluster Anchor Firm Industrial Park 18 Industrial Cluster Anchor Firm Industrial Park 19 Industrial Cluster Anchor Firm Industrial Park 20 Industrial Cluster Anchor Firm Industrial Park 21 Major Industrial Clusters, led by the Government Higashi-Osaka City Tsubame Sanjo-City,Niigata Ohta-ku,Tokyo Suwa-City, Nagano 22 Ohta-ku, Tokyo (Population 667 Thousand) ・Industrial cluster for mechanical metalworking Bird’s Eye View. Less than 5 Employees occupy almost 60%. Ota-ku, Tokyo (2001) Number of Employees 1-4 Number of MSMEs 4,145 Kamijima Heat Treatment Industry (42 Employees) ・Heat treatment which makes stiffness of the cutting utensils (brooch, hob, drill.) . Share 58.3% 5-9 10-19 20-29 over 30 1,507 787 292 384 21.2% 11.1% 4.1% 5.4% Total 7,115 100% Sources : Ministry of Public Management, Home Affairs, Posts and Telecommunications 「A Statistical Table for Companies」 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. 23 23 Higashi-Osaka City (Population 513 Thousand) ・Industrial cluster for machinery plastics ・Philosophy is “ Only One“ ・”Niche Top” MSMEs are 61/ 548 in Japan. ”Special Economic Zone for Manufacturing”. Bird’s Eye view ・ 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 ). Higashi-Osaka City(2001) Number of Number of Employees MSMEs 1-4 4,689 5-9 1,977 10-19 1,070 20-29 380 over 30 453 Total 8,959 Tokai Factory (18 Employees) Share 54.7% 23.1% 12.5% 4.4% 5.3% 100.0% 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. 24 Suwa-City, Nagano( Population 53 Thousand ) ・Industrial cluster for precision instrument industry ・De facto “Oriental Switzerland" ・Aiming toward “Manufacturing Kingdom Suwa” Bird’s Eye View Suwa-City,Nagano(2001) Number of 184 MSMEs Number of 5,375 Employees Total Shipment * 1205 Amount Total Value * 487 Added Takashima Industry ( 250 Employees) Production of the clock part, other than precise part processing. * Unit: Hundred Million Yen 25 Tsubame-Sanjo City, Niigata ( Population 44 Thousand) ・Industrial cluster for the metal house wear Ezawa Manufacturing (17 Employees) Stainless steel, aluminum, iron, brass and titanium. 26 Experiences and Instructions of FDI (Foreign Direct Investment) “Mozal Project” in Mozambique 27 Mozal S.A.R.L. Photograph from Mozambique at a Glance Mozambique General Information (Data Source: Economist Intelligence Unit Country Profile 2006) ① Land Area : 799,380 k㎡ ② Population : 19.8 million ③ Capital : Maputo ④ Ethnic : African 99.66% (Makhuwa, Tsonga, Lomwe, Sena, and others), European 0.06%, Euro-Africans 0.2%, Indians 0.08% ⑤ Language : Portuguese (Official), Makua-Lomwe, Tsonga and Sena-Nyanja ⑥ Religions : Catholic 23.8%, Muslim 17.8%, Zionist Christian 17.5%, other 17.8%, none 23.1% ⑧ Others : At independence in 1975, Mozambique was one of the world’s poorest countries. A Brutal civil war from 1977-92 exacerbated the situation. Photograph taken before 2005 After (2007) Before (1996) Namibia Virgin Bush GDP: US$2.897 billion GDPPC: US$180 Cutting Edge Facility GDP: US$7.839 billion GDPPC: US$382 29 Data Source: IMF World Economic Outlook IMF staff estimation for 2007 Mozal General Overview Mozal S.A.R.L Mozal Phase 1 Mozal Phase 2 ① Business Aluminium Ingot Smelter ② Location Maputo/Mozambique ③ Construction start May 1998 June 2001 ④ Operation start June 2000 April 2003 ⑤ Production Capacity 280,000 tons 280,000 tons ⑥ Shareholders & Equity Mitsubishi Corp 25 % BHP Billiton 47 % IDC 24% Mozambican Govt 4% ⑦ Total Cost ⑧ Employee ⑨ Reduction Technology ⑩ Electricity Supply ⑪ Alumina Supply ⑫ Aluminium Ingot Offtake US$1,200 Mil US$710 Mil 1,135 (as of Aug 2006) AP35(Pechiney Technology)---Upgraded in 2006 from AP30 Supplied from South Africa Supplied from Australia Pro-rata basis 30 MOZAL Project Scheme Mitsubishi Corp 25% BHP-Billiton 47% Mitsubishi Corp Mozal Project IDC Offtake 24% BHP-Billiton 4% Mozambican Govt Dividend Project Finance DEG IFC CDC COFACE PROPARCO JBIC EIB DBSA CGIC EDC 31 Key Drivers for Investment 1. Competitiveness of production cost 2. Governments’ strong commitment and supports (both Mozambique & SA GVMT) 3. Participation of Reputable Policy lending institution (IFC, JBIC, IDC, DBSA, DEG, CDC, COFACE, EIB, PROPARCO, CGIC, EDC) 4. Reliable Partner (BHP-Billiton & IDC) 32 Key Drivers for Investment 1. Competitiveness of production cost 2. Governments’ strong commitment and A)The production cost is the cheapest in the supports (both Mozambique & SA GVMT) world. 3. Participation of Reputable Policy lending B)This project is strong against depression institution (IFC, JBIC, IDC, DBSA, DEG, CDC, through special purchasing contract of 2 COFACE, PROPARCO, EDC) and majorEIB,cost factors, CGIC, electricity alumina. 4. Reliable Partner (BHP-Billiton & IDC) 33 Key Drivers for Investment 1. Competitiveness of production cost 2. Governments’ strong commitment and supports (both Mozambique & SA GVMT) 3. Participation of Reputable Policy lending institution (IFC, JBIC, IDC, DBSA, DEG, CDC, COFACE, EIB, PROPARCO, CGIC, EDC) 4. Reliable Partner (BHP-Billiton & IDC) 34 Key Drivers for Investment IFC DEG COFACE JBIC DBSA 1. Competitiveness of production cost CDC PROPARCO EIB CGIC and EDC 2. Governments’ strong commitment supports (both Mozambique & SA GVMT) 3. Participation of Reputable Policy lending institution (IFC, JBIC, IDC, DBSA, DEG, CDC, COFACE, EIB, PROPARCO, CGIC, EDC) 4. Reliable Partner (BHP-Billiton & IDC) 35 Key Drivers for Investment 1. Competitiveness of production cost 2. Governments’ strong commitment and supports (both Mozambique & SA GVMT) 3. Participation of Reputable Policy lending institution (IFC, JBIC, IDC, DBSA, DEG, CDC, COFACE, EIB, PROPARCO, CGIC, EDC) 4. Reliable Partner (BHP-Billiton & IDC) 36 Why Mozambique? Q: No bauxite - Alumina, in Mozambique. Electricity coming from SA. Why Mozambique? A: 1)Potential charm point: Cahora Bassa dam – future Hydroelectric-power generation Full production would fully cover the electrical demand in whole Africa of today. 2)Port capability in Maputo 37 MOZAL CSR Activity Mozal Community Development Trust (MCDT) 1. 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 Mozal with local community via various programs. 2. 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. 3. Mozal donates approximately US$5Million each year. Mozal S.A.R.L Financial and KnowHow support IFC, Government, NGO Local Community, Private Company Mozal Board In Mozal Board, amount and menu of activity of MCDT is checked and discussed. MCDT has close communication with Mozal every month. MCDT 38 MCDT Activity 1. Policy “Together we make a difference” (Mozal CSR policy aims for the sustainable development in harmony with Local Community.) 2. 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. 3. Main Development ・Small Business Development ・Education & Training ・Health & Environment ・Sports & Culture ・Community Infrastructures 39 MCDT Support to the Chicken Farm Teacher’s training and capacity building Agricultural Development Program Production of the Carpets Donation of the computers to the University Support to the Primary Schools Donation of the equipment to the Hospital Total Control of the Epidemic Support to the National Park 40 MCDT Community Sports Tournament Construction of the Clinic Sponsoring of the art exhibition Uniforms distribution to the teams Classroom Building School Project 41 The Importance of Human Capital Resources Development Development Innovation Marketing Branding Strategy Stable Operational Financing Collaborating Go for a with Research Challenge the Product “Niche” “Status Quo” Differentiation Institutes Markets Human Capitals Ambition Curiosity Passion Not Necessarily Highly-Academic Aspiration Willingness Kaizen Craftsmanship Backbone of the Economic Requirement 43 1.Compulsory Educational System (Since 1947) -A Key “Driver” for Significant Literacy ImprovementDrastic Increase in High School Attendance Almost 100% Enrollment Ratio (%) High School Attendance Ratio(%) 120 Within 50 years 100 99.6 99.4 Almost double 80 Basic Literacy Improvement 99.2 99 60 40 98.8 98.6 Primary Enrollment Ratio Secondary Enrollment Ratio Overrall Average Male 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 1972 1970 1968 1966 1964 1962 1960 1958 1956 1954 0 1952 1999 1990 1993 1996 1984 1987 1978 1981 1972 1975 1966 1969 1960 1963 1951 1954 1957 1948 20 1950 100.2 100 99.8 Female University/College Attendance Ratio(%) 60 Students Pursuing Higher Degree Sky-rocketed 50 40 30 Overrall Average Female Male 20 10 ”Basic Report on Schools”2004 0 19 54 19 57 19 60 19 63 19 66 19 69 19 72 19 75 19 78 19 81 19 84 19 87 19 90 19 93 19 96 19 99 20 02 Source: Ministry of Education, Culture, Sports, Science and Technology 44 Domestic Resource Mobilization Efforts for AFRICA Efforts ~”Sequencing” IS THE KEY WORD~ ・Appropriate Tax regimes Ⅳ. INDUSTROAL AGGLOMERATION Efforts ・Proper Legal/Institionary Framework ・Enactment of basic SME laws -Export Credit -Insurance ・Primary Industry Development -Dispatch Exports Ⅲ. REGIONAL INDUSTRIES ・Technology Transfer From Abroad ・EPZs(Export Processing Zones) -TA for Farmers -Initiation of fishers Program ・Basic Infrastructure Development Efforts Ⅱ.PRODUCT SERVICES -Road, Bridge, Ports etc. ・New Product Development Efforts -Dispatch Export ・「One Taw ban, One Products」 Initiative Ⅰ. NEED × SEEDS ・Mapping Exercise -Identification of Market Needs ・Rural Credit Scheme for SMES (ex) African Food Show Case ・Credit rationing by the Governments ・Rural Credit Scheme for Individuals ・Collaboration via Cooperative in Local Communities (ex)Gramean Bank Model 45