It is indispensable that the economies of developing countries must steadily grow in order to ensure the healthy expansion of the global economy; furthermore, well-developed infrastructure is a key to stable economic growth in developing countries. Demand for infrastructure development is high among developing countries, particularly in Asia, and expectations for cooperation from Japan are equally high. Generally speaking, infrastructure projects should be implemented by the government of a country on its own initiative for the benefit of its citizens. In reality, however, many of the developing countries have fiscal troubles that severely limit the funds available for such projects.
As a result, developing countries have turned to private-sector capital and are actively pursuing privately funded infrastructure projects, which are also likely to be more efficiently implemented than their public-sector counterparts. For the promotion of privately funded infrastructure projects to proceed smoothly, as developing countries would like, it is essential not only that their governments sufficiently listen to ideas of the private-sector (specifically those of the enterprises primarily conducting the projects), but also more extensive public assistance should be provided by the Government of Japan through various means in consideration of the public nature of the projects and higher risks of the projects.
In April of 1997, Keidanren published a policy proposal entitled, Reforming Official Development Assistance (ODA) in Japan, which called for an integration and simplification of government ministries and implementing organizations involved in planning and proposing ODA. The proposal contained a section asking that efficient, high-quality assistance is best obtained by combining ODA and private-sector economic cooperation. Considering the current fiscal environment, which has necessitated ODA budget reductions of over 10% over the next three years, the time has come for Japan's public and private sectors to work together to formulate international cooperation policies that make use of private-sector capital.
The following recommendations concerning the implementation of public assistance (vis-à-vis the Export-Import Bank of Japan and the trade insurance system), and the combined implementation of privately funded infrastructure projects and ODA (as well as other assistance programs), constitute the foundation for policies that will facilitate cooperation on infrastructure projects deemed important by developing countries.
Privately funded infrastructure projects are capital intensive, and their high-profile nature affords complicated and diverse exposure. It is extremely difficult for the private sector alone to proceed with such projects; therefore, public assistance programs implemented by way of the Export-Import Bank of Japan and the trade insurance system are essential. In both cases, positive efforts have been made recently toward establishing a framework for supporting privately funded infrastructure projects. Unfortunately, however, the current framework is still insufficient. Keidanren would like to put forth the following recommendations for improving these programs.
The Government of Japan must ensure that voices of the private sector are reflected in policy dialogue with target developing countries from the outset, in order to effectively implement economic cooperation (including privately funded infrastructure projects) for developing countries where Japan's private-sector companies are primary participants.
Furthermore, project implementation would be effectively promoted if done so in conjunction with ODA and other assistance programs. In other words, providing technology cooperation in the following areas will make comprehensive promotion of such projects possible and improve overall project health and stability: Development surveys and feasibility studies in the initial phase; yen loans and/or Export-Import Bank of Japan financing for basic infrastructure and peripheral infrastructure in the implementation phase; and capital grants for environment-related facilities in the promotion of private-sector-funded infrastructure projects. Furthermore, flexible application on the part of OECF overseas investment financing and cooperation by international organizations such as World Bank guarantees are factors that will contribute to the success of privately funded infrastructure projects.
Additionally, Japanese companies should be unilaterally promoting privately funded infrastructure projects in areas where Japan's technology advantage and prowess are best utilized, and in this regard, companies should be actively proceeding with transfers of management expertise and technology to developing countries. For example, environment-friendly projects built upon clean energy sources such as natural gas turbine to produce electricity represent an area where Japan's superior technology can be best utilized; these types of projects should be actively pursued through combined implementation of ODA and other assistance programs. The various organizations relevant to the combined implementation of public assistance including ODA and privately funded infrastructure projects should establish a forum and formulate privately funded infrastructure project assistance programs.
Furthermore, as a neutral entity jointly established and funded by the public and private sectors, the Japan International Development Organization, Ltd. (JAIDO) should be granted an increasing role in promotion of privately funded infrastructure projects.