Project finance made in Japan boosts Asian infrastructure investment

Japanese government arranged overall policies on infrastructure export to reinforce competitiveness of Corporate Japan from June to August, this year. Recently, it appeared that most important policy was utilizing public financial support made by government funded financial entities such as Japan Bank for International Cooperation (formerly The Export-Import Bank of Japan) and Nippon Export and Investment Insurance.

Apparently, building infrastructure is the key for sustainable economic growth of global economy. Especially in Asia that has more than half of the world population, if planned infrastructures will make numerous “short cuts” of regional networked economy, the result will be huge. Report from Asian Development Bank and Asian Development Bank Institute said Asian countries need $750 billion annually for infrastructure building (Infrastructure for a Seamless Asia).

This is a magnificent opportunity for Corporate Japan as well as excellent companies in other countries. Historically, Japanese companies did fairly good job in large individual projects such seen in Mori Building’s development of Shanghai World Financial Center. But most of their activities were rather separated or not organized from long term infrastructure investment viewpoint. In most cases, Japanese companies joined in projects just as a constructor or as an equipment vendor. Winning overall project of “Design-Build-Finance-Operate and Maintenance” is rarely heard. This might be partly because Japanese companies hesitate to take necessary risks of infrastructure development project and partly because domestic financial capability of international infrastructure project isn’t sufficient. Newly arranged financial scheme of infrastructure export policy solves this issue.

Following bullet points are from “Overall strategy for overseas deployment of Japanese infrastructure industries” made by Ministry of Economy, Trade and Industry on August 5th 2010 (written in Japanese, インフラ関連産業の海外展開のための総合戦略) to present to government leaders.

1. Reinforcing global competitiveness of Japanese infrastructure industries
2. Enhancing public financial services to support infrastructure export
3. Cooperating with foreign countries in the upstream planning and making strategic matching functionality
4. Packaging supporting measures and accelerating diplomatic negotiations by top political leaders
5. Arranging policies to have consistency with international rules
6. Making organized supporting functionality throughout relevant ministries

Of all, the 2nd policy may attract interests from international infrastructure investors. This policy consists of three measures.

1. If private companies in Japan will join in infrastructure investment project overseas, government funded venture capital Innovation Network Corporation of Japan having approximately $1 billion may work as an infrastructure investor (to buy some portion of equity of concessionaire).
2. If private companies in Japan will join in infrastructure investment project overseas, government funded international lending arm Japan Bank for International Cooperation may work as a project finance arranger.
3. If infrastructure investment fund associated in Japan will invest in infrastructure investment project overseas, government funded insurance company Nippon Export and Investment Insurance may ensure specific risks that private companies would have difficulties to cover. Also the insurance company has enlarged coverage on infrastructure investment area including functionality to make new infrastructure investment fund by public pension capital.

These measures will greatly mitigate risks attached to large infrastructure investment that cannot be handled by ordinary companies. They will be welcomed by infrastructure owners in Asia as well as in other regions. Measures above can be applied to global infrastructure projects.   

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The author of this arcitcle, Daisuke Imaizumi, is an independent researcher and a journalist previously working for the largest network equipment company of US as a consulting researcher for seven years. Originally, IT oriented journalist having experience on electronic commerce, retail financial service and asset management system for electric power company. Also he has some experiences on Internet centric new business incubation.
Regarding infrastructure investment, he became interested in this area after studying Smart Grid and Smart City which are included in infrastructure investment in a broader sense.
email address: dimaizum(at)gmail.com