Japan’s Africa playbook has lessons for SEA founders

Historically, Japanese companies have shown extreme caution when approaching the African market. While other Asian powerhouses like China and India have ramped up investments across the continent, Japan’s engagement was at less than 1% of its total global foreign direct investment last year.

But that’s changing.

Image credit: Timmy Loen

Economic pressures and better tech are pushing Japanese companies and investors to rethink Africa. The narrative is now not about risk but on smart and quick ways to manage these challenges.

By studying this approach, startups elsewhere, including Southeast Asia, can learn how to expand to frontier markets.

Shifting sands

There are reasons why Japanese firms are wary of investing in Africa. In 2016, the country’s largest food company, Ajinomoto, tried to buy Promasidor, a major African food manufacturer with operations in 36 countries.

While the US$531 million deal was finalized, there were many delays due to issues with regulations in certain jurisdictions, foreign exchange restrictions, and operational risks in key markets. The deal became a case study in the challenges of executing cross-border M&As in Africa.

For years, such caution was reflective of a broader sentiment: Africa is too complex, too fragmented, or too risky for large-scale Japanese investment.

Now, Japanese firms see the continent’s potential. A 2024 survey of 223 Japanese companies in 20 African countries found that 84.2% of Japanese firms in Africa saw future market potential in the continent. This, they said, was the reason they maintained or set up a base in the area.

See also: Japanese startups haven’t gone global yet, but the ingredients are there

Africa’s demographics and digital economy are a compelling counterpoint to Japan’s sluggish economy and aging population. The continent is projected to account for a quarter of the global population by 2050 and has growing fintech, healthtech, and agritech sectors.

A street in Cairo, Egypt / Photo credit: aaelrahman89 / 123RF

While Southeast Asian nations don’t necessarily face the same demographic challenges as Japan, they do have other hurdles. There’s heated competition in the region, as key verticals become saturated by dominant local and regional players.

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