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Overall framework for development co-operation
Legal and political orientations
An approach grounded in experience
Japan has an impressive history as a leading international donor. The philosophy behind Japanese development co-operation is grounded in the country’s own development experience. Japan’s ODA Charter and Medium Term Policy clearly set out the priorities and principles for Japanese development co-peration. These include supporting partner countries’ “self-help” efforts; the importance of economic growth and market-orientated economies; avoiding the use of development co-operation for military purposes; and avoiding interfering in partners’ political affairs. Japan emphasises economic growth and focuses on major infrastructure projects. The addition of the “human security” perspective has helped to promote a poverty dimension within an otherwise growth-orientated outlook. This has helped Japan to reflect better the Millennium Development Goals (MDGs) and pro-poor growth in its approach.
The overarching vision for Japanese development co-operation is “to contribute to the peace and development of the international community, and thereby help to ensure Japan’s own security and prosperity.” Japan sees international development co-operation as in its own long-term interests and as an important component of its wider foreign policy. Japan considers its development co-operation as an important tool for building friendships with other countries. It also wants its aid to benefit the Japanese economy in the medium term. Despite this, the volume of Japanese development assistance (excluding debt relief) has declined from a peak in 2000. In 2001, Japan lost its prized position as the largest bilateral donor in volume terms. The DAC welcomed the 10% increase in Japan’s development co-operation budget in 2008 compared to 2007 but noted that preliminary figures for 2009 indicate that there has since been a 10% decline, cancelling out gains made the previous year.
An opportunity for renewal
Although there is stability in Japan’s philosophy and approach to development co-operation, there have also been significant positive changes since the 2003 DAC peer review (Annex 1, Part 2). In particular, it has gone some way towards addressing the 2003 peer review’s recommendations on considering debt sustainability, moving towards a country-based rather than instrument-based approach and delegating more responsibility to its implementation agency. However, there has been less progress in other areas, including increasing aid volume and policy coherence for development. So although the Japanese development co-operation system has started to change and continues to evolve, the pace is slower in some areas than in others. The creation of the “New JICA” (Japan International Cooperation Agency) in 2008 was a fundamental organisational change. Furthermore, in 2009 Japan elected a new government which now has an opportunity to build on current progress in improving Japan’s development co-operation system. Japan should grasp this opportunity by renewing the official policy framework for Japanese development co-operation; indeed, the Medium Term Policy is due to be updated. Since the current version does not make specific reference to the aid effectiveness agenda, or policy coherence for development, an update should fill these gaps.
Responding to cross-cutting and new challenges
Japan has made mixed progress in mainstreaming cross-cutting issues. Its good progress and prioritisation of gender issues could provide lessons for making similar in-roads in other areas, such as environment and governance. One obvious lesson from its gender work is the positive impact of a written strategy which has both high-level endorsement and clear operational-level implications. Japan is increasing its engagement in situations of poor governance and in fragile states. Though it has worked to support its staff in peacebuilding, Japan does not have a strategy or policy framework guiding its engagement in fragile situations. Its focus on peacebuilding does not guide staff on how to engage in highly fragile contexts where governance is especially weak, but which are not actually conflict or post-conflict situations. Written strategies that address the challenges and practicalities of working in such situations could be helpful for staff.
The importance of building public support
Japan places a high priority on public backing for development co-operation. The proportion of the public supporting an increase in development assistance has grown since 2004. Despite this progress, building and maintaining public support must remain a priority for Japan and the government will need to take a proactive approach to make further progress. It is therefore surprising that despite acknowledging the importance of public support, the new government has identified the communication and public relations budget for possible cuts. A comprehensive and funded public support strategy, preferably endorsed by the whole-of-government, would help Japan focus its communication activities and therefore build on the gains already made in public awareness while making the best use of available resources. Crucially, any strategy should outline a more pro-active approach to engaging with all relevant stakeholders. In particular, engaging parliamentarians on a strategic or policy level could enhance parliamentary involvement. Currently this involvement consists of highly specific parliamentary questions; ideally there should be more substantive debate and scrutiny – thus creating allies at the same time as reassuring the public on the accountability and effectiveness of Japanese development co-operation.
Policy coherence for development
Distinguishing coherent aid policies from policy coherence for development
Japan endorsed the 2008 OECD Declaration on Policy Coherence for Development. Promoting policy coherence for development means that policies – both domestic and international – should be coherent and mutually supportive of developing countries’ development objectives, or at least not undermine them. Japan has improved the coherence and co-ordination of its development co-operation policies and this is especially important in a context where numerous ministries and agencies finance and implement aid-related activities. However, Japan has not broadened out its efforts to ensure that all relevant policies support internationally-agreed development goals. Agriculture, fisheries, migration and the environment have been widely discussed in the OECD as policy areas that can have an impact on developing countries, and require attention and analysis in Japan. Given its strong basis in promoting coherence in general, Japan is in a good position for building an approach to policy coherence for development.
Laying the foundations for policy coherence for development
Japan lacks the three key building blocks for policy coherence for development. Firstly, it has no explicit policy statement making policy coherence for development a whole-of-government priority. Secondly, although Japan’s cabinet-level Overseas Economic Co-operation Council – chaired by the Prime Minister – plays a policy co-ordination role, it is not specifically tasked to promote coherence in favour of development. Thirdly, systems for monitoring, analysing and reporting coherence issues are limited. There is also very little capacity and awareness within the Japanese system of the need to analyse and monitor the potential impact of its domestic and foreign policies on developing countries. Japan should start to implement its pledge by putting the first building block in place – political commitment and a clear policy statement – and strengthen the other two building blocks. This could also help raise awareness and understanding of the issue. Japan could also use its existing co-ordination systems to achieve better policy coherence for development.
Recommendations
To build on its strong strategic framework for development co-operation Japan should:
Aid volume channels and allocations
The need to increase aid volume and meet commitments
In 2008 Japan increased the net volume of its official development assistance (ODA) by more than 10% in real terms over 2007 levels seemingly bringing an end to an extended period of decline. At USD 9.6 billion, Japan’s ODA budget was the fifth largest amongst DAC donors in 2008. Measured as a proportion of its gross national income (GNI), Japan’s ODA also increased from 0.17% to 0.19% over the period. However, preliminary figures for 2009 indicate that Japan’s ODA has since decreased by around 10% in real terms, cancelling out the gains made in the previous year and bringing ODA as a proportion of GNI down to 0.18% in 2009. This is well below the DAC average of 0.31% and a long way from the United Nations’ 0.7% target. With only one year to go, in 2008 Japan was still USD 4 billion short of its Gleneagles commitment to raise its 2004 volume of aid by a total of USD 10 billion between 2005 and 2009. Japan has made use of its annual supplementary budget to achieve temporary increases in its development co-operation budget. While this approach has been helpful in the short term, it makes future aid flows unpredictable and complicates planning. Japan should aim to increase its development assistance funding based on a clear and strategic forward spending plan, with the short-term target of re-attaining its 1990s ODA/GNI peak of 0.28%. Setting a timeline for achieving this would help Japan move towards its internationally-agreed targets, including the Gleneagles commitment and the UN 0.7% ODA/GNI target. Further, in 2008 Japan slipped below the minimum 86% grant element agreed in the 1978 DAC Recommendation on Terms and Conditions of Aid, attaining an 85.1% average grant element across its ODA portfolio that year. Japan should rectify this non-compliance with this aspect of the Recommendation.
Traditionally, Japan has focused its development co-operation in Asia, particularly East Asia. However, more recently it has made a series of commitments to increase the volume of its aid to Africa. Japan’s promise to double aid to Africa by 2007 was met, in large part, by exceptional levels of debt relief. It then made a second “doubling” commitment in 2008, which excluded debt relief. This target was based on a doubling from 2003-2007 average disbursements, and was already nearly met in 2008. In actual terms it will involve a small increase between 2008 and 2012. Japan is encouraged to continue to scale up its support to Africa, whilst also retaining its strong and greatly-appreciated presence in East Asia. This would also enable it to achieve its Gleneagles commitment, although later than originally planned. This will mean increasing its overall development assistance envelope.
Japan’s preference for bilateral channels
Japan has a strong preference for bilateral aid, which accounted for 84% of its aid in 2008. This preference reflects concerns about the visibility of Japanese aid and its importance for political leverage and as a foreign policy instrument. Japan uses three main channels or “schemes” for its bilateral development assistance: (i) loans, which accounted for 47% of Japan’s gross bilateral ODA in 2008; (ii) grants (40%); and (iii) technical co-operation (13%). The relatively high use of loans reflects the fact that Japan finds it easier to mobilise resources for loans than for grants. Japan also believes that the requirement to repay encourages recipients to be fiscally more responsible and to allocate scarce resources more efficiently, which links with its emphasis on building partners’ self-reliance. However, the gross volume of loans has not grown significantly in recent years, since Japan has re-scheduled and forgiven some debts and become more conscious of partners’ ability to repay when agreeing new loans.
Limited but complex support to non-governmental organisations
Development assistance which is channelled to or through non-governmental organisations (NGOs) is a small component of the Japanese bilateral aid budget, representing around 3% in 2008. Japan tends not to make use of either Japanese or local NGOs as implementing partners. Where it provides support to NGOs, it is generally earmarked for specific and small-scale projects. At present, despite the relatively small volumes involved, there are many different NGO funding schemes, some run by the Ministry of Foreign Affairs and some by JICA. Each of these schemes is managed differently, involving very detailed and time-consuming procedures. Only small sums are available for NGOs in partner countries. The new government has expressed an interest in increasing NGO involvement in Japanese development co-operation, acknowledging their comparative advantage in some circumstances. To get the most out of these plans, Japan should agree a written strategy that harmonises and simplifies the numerous funding schemes, and sets out how Japan will continue to increase its dialogue and engagement with both Japanese and partner country NGOs.
Making multilateral support more strategic
On average, around 17% of Japan’s total gross official development assistance was allocated through multilateral institutions between 2004 and 2008, reaching USD 2.4 billion in 2008. The World Bank group was the largest beneficiary, receiving about 42% of Japan’s multilateral ODA between 2004 and 2008 on average. Over the same period, Japan reduced the volume of its multilateral funding to UN agencies by 54%. It plans to reduce further its voluntary contributions to UN agencies in 2010. Japan is encouraged to resume its support to UN agencies in ways that would strengthen their efficiency and effectiveness. The DAC encourages Japan to agree a written strategy to guide all government departments involved in multilateral financing on:
Recommendations
To ensure it meets its commitments and gets the most out of its ODA, Japan should:
Organisation and management
Although Japan’s development co-operation set-up involves over 13 ministries and agencies, the system is co-ordinated and has a central hub. The ODA Charter explicitly gives the Ministry of Foreign Affairs (MoFA) the co-ordination role for development co-operation, and around two-thirds of Japanese ODA is managed through this ministry and the new JICA. The other major player in the system is the Ministry of Finance (MoF) which is responsible for Japan’s contributions to the World Bank, International Monetary Fund and regional development banks.
Major reform at the core of the system
Against this background, there has been major organisational reform to Japan’s development co operation system since the last peer review. The new JICA was established in October 2008. It brings together parts of the former Japan Bank for International Co-operation (JBIC), which managed Japan’s ODA loans, with responsibilities for some grants previously managed by MoFA. JICA has been transformed from an agency focused on implementing technical co-operation to one which now co ordinates all three of Japan’s previously disconnected development assistance channels or “schemes” – loans, grants and technical co-operation. The merger puts Japan in a better position to improve both the efficiency and effectiveness of its development co-operation system, particularly by linking up these three schemes. There is no doubt that the merger is in its infancy and that the two different organisational cultures are still adjusting. An organisational reform of this scale will take time to reap benefits and is bound to face challenges in the early years which will need to be managed closely. However, the process and progress to date constitute a significant achievement.
MoFA’s International Co-operation Bureau was also restructured in 2009 – it is now divided by region rather than by loans, grants and technical co-operation. This encourages officials to look more holistically at Japan’s development co-operation activities in each country. Although very recent, this re-organisation, in addition to changes at JICA, is helping Japan to move away from an instrument-based towards a country-based approach.
Building on organisational reforms to make further progress
Japan should consolidate and build on its reforms to date in two main areas. Firstly, it could further increase the efficiency of its development co-operation system by stepping up existing efforts to find “synergies” between the three schemes. This could include further harmonisation of the different schemes’ procedures; streamlining the most time-consuming procedures; and reducing the layers and levels of approval in some cases. Japan’s grant aid includes many different sub-schemes, each involving different procedures. For example, the variety of procedures involved in Japan’s support to NGOs should be consolidated and streamlined. This would make Japan a more reliable, nimble and responsive development partner. To realise this potential it will also need to give staff sufficient training and support in using the new schemes.
Secondly, Japan could re-visit both the horizontal and vertical division of labour in its development co-operation system. The horizontal division of labour – i.e. between MoFA and JICA – has become clearer. Generally, MoFA sets the policies and JICA implements them. However, despite handing over some grant management to JICA in 2008, MoFA still manages around 30% of ODA grants. Japan should consider delegating more implementation responsibilities to JICA, leaving MoFA to focus on policy, co-ordination and overall accountability. The vertical division of labour – i.e. between headquarters and the field – should also be re-visited. Partners perceive that the bottlenecks in project approval occur in headquarters rather than in the field. While field offices have some delegated authority for some schemes, headquarters is still involved at numerous stages for others. Delegating more authority to the field would improve the responsiveness, efficiency and effectiveness of Japanese development co-operation and is in line with JICA’s long-standing objective to become a more field-orientated organisation. Decentralising experienced people to the field and continuing to increase the role of its high quality local staff – while investing in the capacity of all staff to make use of delegated authority – would help make this happen.
Accountability, evaluation and results-based management
Japan places a high priority on domestic reporting and accountability. It has a comprehensive system of internal evaluation for Japanese development co-operation. An important and distinctive feature of Japan’s project evaluations is the high degree to which they are conducted jointly with partner country officials. MoFA and JICA are responsible for the majority of aid-related evaluations and their respective roles are clear. However, there are 11 other ministries and agencies involved in Japanese development co operation, many of which conduct their own evaluations. This makes co-ordination challenging and MoFA needs the tools and authority to ensure appropriate coverage and standards in all aid-related evaluations, including those led by other ministries. Within MoFA the evaluation function is located in the Office for Evaluation and Public Relations, which reports to the Aid Policy and Management Division. This raises questions about the independence and professional oversight of the evaluation function.
At project level, Japan has some of the building blocks for results-based management (RBM) in place and seeks to ensure they are applied in practice. However, at programme level, RBM is still in the early stages. Japan could build on its project level experience to ensure its overall country programmes are designed and managed for results and to contribute to a greater whole. The inclusion of clear overall objectives in more recent Country Assistance Plans (CAPs) is an indication that Japan is moving in this direction and Japan should ensure that all of its new CAPs have clear and measurable objectives that are aligned to partners’ objectives and to which individual projects are designed to contribute. Performance and research information should also be collated and analysed in order to inform high-level policy, decision makers, and working-level staff. For both groups, learning from failures as well as successes is important.
Recommendations
To build on the progress achieved in its major organisational change Japan should:
Practices for better impact
Implementing aid effectively
Japan has endorsed both the Paris Declaration on Aid Effectiveness and the Accra Agenda for Action. Japan is at the forefront of donor efforts in some aspects of the aid effectiveness agenda, such as capacity development and triangular co-operation. However, with other aspects it is more cautious, such as harmonisation and co-ordinated funding mechanisms. Japan is eager to ensure that while making its aid more effective and achieving development results, it is still able to retain the distinctiveness of Japanese development co-operation. Japan has expressed concern that harmonisation may lead to “homogenisation” and a reduction in “choice” for partners. The DAC reminds Japan that co-ordination led by the partner country should increase partner control, allowing them to draw on the comparative strengths of each donor and thereby reducing gaps and duplication. Japan should support its staff to build on the progress already made in some partner countries in increasing the harmonisation and alignment of Japanese development co-operation. When Japan has been able to take a programmatic approach – where it has separate projects but they are well situated within a partner’s overall programme - this has worked well. Making this approach more systematic would help to improve Japan’s aid effectiveness and make it a better international partner, particularly in those countries in which a large number of donors are active.
Japan more than doubled its use of partners’ public financial management and procurement systems between 2005 and 2007. This is commendable. Japan can continue to improve against this aid effectiveness measure by ensuring both its grants and loans – and both its small and large projects – all make use of country systems. Japan is increasingly aligning its support to partners’ nationally-defined priorities, but with less than half of its support provided directly to partner budgets in 2007, it needs to make greater efforts to meet the Paris Declaration’s 85% target for this indicator.
Development partners see Japan’s involvement in aid co-ordination mechanisms as extremely important and beneficial, especially where it takes a leading role. However, some noted that its leadership could be strengthened by closer engagement at the policy level – including in regulatory reform or governance issues – in the sectors in which it plays a major role. Japan could have greater impact and share its very relevant experience and perspectives by exercising its voice more robustly in all the aid co ordination forums in which it participates.
Japan has started to take on an important bridge-building role within the international development community. It has sought to engage emerging Asian donors in policy debates and in aid co ordination forums both at headquarters and field level. In addition, Japan’s experience in and use of triangular co-operation provides lessons for other donors in encouraging and supporting South-South co operation. The DAC welcomes Japan’s continued leadership role in these areas.
The need for further progress on untying aid
Japan has made some progress in untying its ODA, but the issue is complex. The DAC 2001 Recommendation on Untying Official Development Assistance commits members to untie aid to the least developed countries (LDCs) and, more recently, to the heavily indebted poor countries (HIPCs). Japan reported that 84% of its ODA was untied in 2008; this was above the DAC average of 81% that year and was an increase of 4% on the figures it reported in 2007. However, Japan did not report the tying status of 13% of its aid in 2008 (an improvement on the 15% unreported in 2007). Secondly, Japan considers a project to be untied even if it requires the primary contractor to be Japanese. It justifies this on the grounds that the primary contractor is the project manager and is able to sub-contract freely. However, where primary contractors have to be Japanese and can act as both agents and suppliers of goods or services (including management) Japan should report such aid as tied. In addition, Japan’s tied loan programme – Special Terms for Economic Partnership (STEP) – has grown in recent years. Although this programme is not used in LDCs, and therefore does not violate the 2001 recommendation, its use is not aligned with the Accra Agenda for Action’s emphasis that signatories need to seek to untie "further".
Learning from special topics
Capacity development: from projects to systemic capacity development
Capacity development is central to Japan’s development co-operation philosophy. The ODA Charter explains that supporting partner countries’ efforts to become self-reliant is the most important objective of Japanese development co-operation. The main way in which Japan seeks to support capacity development is through using Japanese experts, i.e. technical co-operation. In principle, Japanese experts are not deployed to “fill a gap”. Instead they are expected to impart knowledge and good practice to support partner countries in enhancing their own capacity. However, in practice – like many other DAC members – Japan still has some way to go to address broader and systemic capacity-related challenges comprehensively. In some cases, Japan’s staff are more concerned with developing capacity to implement specific projects than with tackling organisational and systemic issues that can undermine or influence development more broadly. Japan should seek to improve the practical application of its capacity concept and close the gap between policy and practice. It should also seek to align its support with the capacity priorities identified by its partners, which may be different in fragile states and for non-governmental partners. Japan has nevertheless been an important supporter of capacity development in the crucial area of disaster risk reduction. Japan is encouraged to share lessons on these and its broader experiences in capacity development, as many other donors are also seeking to close the gap between policy and practice.
Environment and climate change: strong commitment and new initiatives
The Government of Japan has identified global environmental issues as a top strategic priority. This is an area in which Japan has significant experience. Japan’s strong commitment to enhancing environmental co-operation is also anchored in its ODA Charter, which emphasises the importance of sustainable development and environmental conservation. Overall, Japan’s “aid in support of the environment” (i.e. not necessarily an environmental project but one in which environmental concerns are one of the objectives) increased by over 6% in 2008 from 2007, reaching about USD 4.2 billion. Japan’s spending within the environment sector itself was around one-tenth of this volume – at USD 452 million in 2008 – although it has also increased in recent years.
Mainstreaming environmental considerations into all of its work should be a priority for Japan since while its spending on environmental projects is limited, it is high in sectors with potentially major environmental impacts – notably large infrastructure projects. Japan has introduced an environmental screening process to help ensure that environmental issues are considered across all types of projects, but it is not always clear how identified opportunities and risks are followed up. Japan also uses partners’ own environmental impact assessments (EIAs). Elements of strategic environmental assessment (SEA) appear to be partially integrated, but Japan’s guidelines are not clear on how to support the application of these assessments at sector and national levels. The Committee was informed that JICA approved, in 2010, new guidelines on environmental and social considerations, which incorporate strategic environmental assessment.
Japan has significant high-level commitment for climate change. The new government has launched the Hatoyama Initiative, which builds on and supersedes the Cool Earth Partnership announced at the 2008 G8 Summit in Japan. Under this new initiative, Japan will provide USD 11 billion in public finance (of which USD 7.2 billion as ODA and USD 3.8 billion as Other Official Flows) and another USD 4 billion in private funds by 2012 to support developing countries’ efforts to address climate change problems. This financial commitment is very welcome, but caution is needed to ensure it is well co ordinated with other climate finance mechanisms and that it is not met by counting funds already deployed under other commitments. Furthermore, to get the best value for money and to ensure Japanese and other environmental technology can be accessed through open bidding procedures, funds that are counted as ODA should not be tied.
Recommendations
Japan has increased the effectiveness of its aid since the last peer review. In order to build on this progress, it should:
Japan and the good humanitarian donorship principles
Putting a comprehensive framework in place
Japan endorsed the Principles and Good Practices of Humanitarian Donorship (GHD) in 2003 and in 2010 became a full member of the GHD group. Japan has not, however, developed a national GHD implementation plan. The broader legal and policy framework governing Japanese development co operation lays the foundations for a principled and coherent policy for humanitarian action. However, Japan’s policy approach differentiates between humanitarian action in the context of natural disasters and humanitarian action in the context of conflict or “complex emergencies”. A policy statement on the objectives of humanitarian action in the latter context would complement the Initiative for Disaster Reduction. This would clarify the distinctive goals of humanitarian action – as opposed to peacebuilding assistance, which is linked to longer term development – and offset the risk of compromising the GHD principles of impartiality and independence. In recent years Japan’s Self Defence Force has played a growing role in complex emergencies. This, and the increased emphasis on conflict and security issues in Japanese development co-operation policy, means that Japan needs to promote further dialogue among relevant humanitarian and defence actors. The Committee commended Japan for its participation in the International Network on Conflict and Fragility.
Becoming a reliable and flexible humanitarian donor
Japan disbursed USD 228 million (net) as humanitarian aid in 2008. At 1.6%, the proportion of bilateral ODA allocated for humanitarian assistance was well below the DAC average of 7% for that year. Even when including an estimated USD 21 million in core contributions to multilateral humanitarian agencies, Japan ranked only 18th among DAC members in terms of overall volume of humanitarian aid that year. However, Japanese allocations for humanitarian action are subject to significant annual fluctuations because Japan responds to major crises using its supplementary budget. For example, it disbursed USD 657 million and USD 527 million in 2004 and 2005 largely in response to the Indian Ocean tsunami and the Kashmir earthquake. In addition, Japan’s support to disaster risk reduction initiatives should be acknowledged. These were in the order of USD 479 million in 2008. This is an area in which Japan has valuable experience, particularly in Asia.
Japan’s support to the multilateral humanitarian system prioritises appeals from the United Nations Consolidated Inter-Agency and International Committee of the Red Cross/Crescent. Japan provides the bulk of its humanitarian support to multilateral agencies as earmarked allocations. Japanese NGOs state that the timeliness of the government’s response has improved since the introduction of the “Japan Platform”, which co-ordinates public and private funding to 32 member NGOs. However, the volume of funding channelled in this way is still relatively small, at about USD 10 million per year and there does seem to be capacity to deploy greater funding through this mechanism. Multilateral agencies and NGOs receiving Japanese humanitarian funding find some of the procedures complex and time consuming, an issue which Japan should seek to address on the basis of good humanitarian donorship principles.
Recommendations
In order to consolidate its approach to humanitarian assistance, Japan should:
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