Small and midsize Kyushu firms look to Africa for growth

More small and midsize companies in the Kyushu region are moving to do business in African countries as they actively seek opportunities in a market with growth potential as well as an increasing population.

Some firms have already been making profits in Africa.

However, most of the Japanese companies doing business on the continent are major trading firms and manufacturers, and the number is small compared with those operating in Asian and Western countries.

Smaller firms face hurdles such as a lack of information on the region and difficulty securing financing.

When the lights were turned on for the first time in a dark classroom, children at an elementary school in a rural area of Benin, in West Africa, clapped their hands.

“They get very excited just to see the lights turned on,” Nobuhiro Kawaguchi, president of Kawaguchi Steel Industry Co. from Tosu, Saga Prefecture, said with a smile as he showed a video of when he visited the school.

The company develops and sells solar power generation devices, and Kawaguchi has been visiting Africa for about a decade to support the electrification of the region.

In Tokyo in 2019, he set up the association Good on Roofs, which works to electrify schools in five African countries including Benin and Kenya with the motto “Let’s do something good on the roof.”

About 80% of the rural areas in sub-Saharan Africa are yet to be electrified, with that rate being exceptionally high compared with the rest of the world.

Good on Roofs install solar sheets on the roofs of schools, which provide the electricity used to light up classrooms as well as charge portable lanterns for children to take home.

The Beninese government plans to electrify some 700 schools by the end of the year, and Kawaguchi and his firm’s subsidiary in the country are expected to take part in the plan by supplying equipment.

Business in Africa currently makes up about 20% of the company group’s sales, but it is forecast to expand to more than 60% next year.

“I feel there are many places where the technologies of Japanese small and midsize firms can be utilized,” Kawaguchi said.

According to estimates by the United Nations, the population of the African continent is expected to grow from the current 1.3 billion to 2.5 billion in 2050, accounting for one-fourth of the world’s population.

With growing demand for infrastructure and expectations of increased consumption, the region is dubbed the world’s “last blue ocean” — an untapped market.

Meanwhile, trade industry data shows that the number of Japanese firms with offices in Africa was only about 800 as of 2019, far fewer than 30,000 in China and 5,000 in India. Most of them are major companies such as carmakers and trading houses.

According to the Kyushu Economic Research Center, 1,323 firms from Kyushu, Okinawa and Yamaguchi prefectures had set up offices overseas by 2020, out of which only five had done so in Africa.

Shinji Koyanagi, a researcher at the center, said there are issues that hamper companies from doing business in Africa, pointing to political instability in some countries and regions.

“Information on the areas is insufficient, making it unclear to what extent they can establish business there,” Koyanagi said. “But that also means the region has future potential.”

As a matter of fact, more Japanese small and midsize firms are considering entering Africa to pursue business opportunities.

The Organization for Small & Medium Enterprises and Regional Innovation, which helps companies expand sales channels abroad or set up a business overseas, said the organization only received a few inquiries related to Africa from companies across Japan five years ago, but the number grew more than 10 times in the fiscal year through March.

The Kyushu office of the Japan International Cooperation Agency, which works as a mediator linking developing countries facing challenges and private companies with related technologies and products, has so far organized 11 field surveys for companies aiming to do business in Africa, including eight firms from Kyushu.

One of those firms is Big Wave Kawasaki, a company from the city of Oita that dismantles vehicles and sells used car parts.

The firm is looking to start a car recycling business in the Cameroonian capital of Yaounde after conducting a market research and negotiating with the Cameroon government.

It has hired two students at its headquarters in Oita and is offering them technological training so that they can become the heads of its overseas offices in the future.

However, Kazunori Kai, the firm’s president, doesn’t look all that happy.

While the Cameroonian authorities will provide the firm with a building for a factory, the firm has to prepare the necessary equipment, such as press machines, by itself.

“We haven’t been able to raise the about ¥150 million” needed for capital investment, Kai said. “Financing is our biggest challenge.”

For small and midsize firms to start business in Africa, they also need local currency to pay salaries and cover operational costs, but they lack sufficient creditworthiness to get loans there.

Tamami Ota, a senior researcher at Daiwa Institute of Research, said, “It is necessary to make persistent efforts to build a support network for small and midsize firms, such as by having regional banks which have ties with the firms form a business partnership with financial institutions in Africa.”

This section features topics and issues from the Kyushu region covered by the Nishinippon Shimbun, the largest daily newspaper in Kyushu. The original article was published March 25.