Q&A of ODA and ODA Loans. This chapter provides essential information on Japan s official development assistance (ODA) and ODA loans.

Transcription

1 5 Q&A of ODA and ODA Loans This chapter provides essential information on Japan s official development assistance (ODA) and ODA loans. 1. Japan s ODA Q.What is ODA? A. ODA is the assistance to developing countries undertaken by the government sector of the donor countries. Assistance to developing countries is undertaken by various organizations, including multilateral institutions, governments of industrialized countries and private-sector organizations. ODA, as defined by the Development Assistance Committee (DAC) of the Organization of Economic Cooperation and Development (OECD), must meet the following three requirements: ODA Official Development Assistance It should be undertaken by governments or government agencies. The main objective is the promotion of economic development and welfare in developing countries. It has concessional terms, having a grant element of at least 25%. Note: The grant element measures the concessionality, or softness of financial terms, of a loan. The lower the interest rate and the longer the maturity period, the higher the grant element, which means it is more beneficial to the borrower. The grant element for a grant is 100%. Q.How large is Japan s ODA contribution to the international community? A. Japan is the world s second largest provider of ODA, accounting for 13% of the total ODA flows around the world. Net ODA Flows from Major Industrial Countries 18,000 16,000 14,000 12,000 10,000 8,000 6,000 11,151 Japan United States Germany France England 11,259 13,239 14,489 Unit: US$ million Source: Development Co-operation Report 2003, DAC 9,439 9,358 12,162 10,640 13,508 15,791 9,847 9,283 8,911 7,337 6,694 6,166 4,000 2,000 0 CY Notes: 1. Figures do not include assistance to East European countries and the countries that graduated from Part I of the DAC List of Aid Recipients (ODA recipients). Notes: 2. All figures are on a net flow basis. Notes: 3. For 2003, preliminary figures are indicated (derived from a press release of the DAC in May 2004). 43

2 Q.How much ODA does Japan provide per capita? A. Net ODA per capita is US$77, which ranked 15th among 22 countries. Per Capita Net ODA Flows from Industrial Countries GNI to ODA Performance Unit: US$ Source: Development Co-operation Report 2003, DAC Unit: % Source: Development Co-operation Report 2003, DAC th among 22 countries th among 22 countries Holland Luxembourg Norway Denmark Sweden Ireland France Switzerland Germany Australia Belgium Spain Finland England Japan Italy Austria Canada United States New Zealand Greece Portugal 0.0 Norway Denmark Sweden Holland Luxembourg Belgium Ireland France Finland Switzerland England Canada Portugal Germany Spain Australia Austria Japan New Zealand Greece Italy United States Q.Are there different types of ODA? A. ODA may be broken down into bilateral and multilateral assistance based on specific channels of financial flow. Bilateral assistance consists of bilateral grants and ODA loans. Bilateral grants are further divided into grant aid and technical cooperation. Multilateral assistance refers to contributions and subscriptions to multilateral development institutions. Types of ODA ODA Bilateral assistance Cooperation directly aimed at a recipient country Multilateral assistance Cooperation through the UN and other multilateral development institutions Contributions and subscriptions to multilateral development finance institutions are handled by the Ministry of Finance, while the Ministry of Foreign Affairs handles contributions to organizations in the UN family. Grants Assistance without an obligation for repayment, especially targeting poor countries ODA loans Concessional loans to be repaid over an extended period of time JBIC is in charge of undertaking ODA loan operations. Technical cooperation Technology transfers to support developing countries toward self-sustainable economic development by sending Japanese experts or by accepting trainees from developing countries for training in Japan Technical cooperation is undertaken by the Japan International Cooperation Agency (JICA). Grant aid Grant aid is provided primarily in the health and education sectors to finance the recipient countries in building schools and hospitals or importing food, etc. The Ministry of Foreign Affairs is undertaking grant aid operations, receiving cooperation from JICA. 44

3 2. ODA Loans Q.What is an ODA loan? A. An ODA loan is a loan extended to developing countries on soft terms, characterized by a low interest rate and a long maturity. Basic economic and social infrastructure provides indispensable underpinnings for national development. The major objective of ODA loans is to provide financial assistance required for this sector and thereby support self-help efforts of developing countries to achieve self-sustainable economic development. JBIC is an official agency with a statutory mandate to provide Japan s ODA loans. Japan s ODA loans have the following three characteristics. Supporting self-help efforts Japanese ODA presupposes self-help efforts on the part of developing countries. To achieve selfsustainable economic development, it is important that there is awareness in recipient countries that they will use funds efficiently. The significance of ODA loans may be derived from the fact that loans, as opposed to grants, will impose a certain discipline on the part of the borrower in the use of funds. A focus on economic infrastructure development, at the same time addressing poverty reduction and environmental conservation ODA loans are provided primarily for economic infrastructure development projects. While varied economic achievements among individual countries may result from different economic policies and exogenous conditions, one of the main reasons for lagging development in developing countries is inadequate economic infrastructure. In recent years, there have been increasing financial demand for poverty reduction and social development and growing needs to address global environmental conservation and other global issues. Accordingly, facing more diverse development needs, developing countries are looking toward development assistance for more diverse functions and technical sophistication. Able to finance large projects The prospect of repayment enables ODA loans to finance large-scale projects that have a major development impact. Borrowings from the Fiscal Investment and Loan Program ODA loans Japan Capital contributions from the general budget JBIC Recipient countries Repayment Repayment 45

4 Q.How much money is provided as ODA loans? A. ODA loan commitments in fiscal year 2003 amounted to billion. 1,500 ODA Loan Commitments Unit: billion Source: JBIC 1, ,000 1, , , , , FY Q.What percentage of Japan s ODA do ODA loans make up? A. Japan s ODA comprises a significant share of ODA loans compared with ODA offered by other industrialized countries. The main reason for this characteristic is that Japan provides ODA based on the principle of supporting self-help efforts of developing countries. Breakdown of ODA in DAC Members by Type of ODA (net flow in 2002) 13,290 14,000 2,720 12,000 10,000 9,283 Unit: US$ million Source: Development Co-operation Report 2003, DAC Multilateral institutions Loans Technical cooperation Grants 8,000 2,591 6,690 6,000 4,000 2,000 2,320 1,812 2,561 4,561 5,324 1,997 1,781 2,123 4,924 1, , ,486 1,871 1,525 2, ,000 Japan United States Germany England France 46

5 Q.What countries receive ODA loans from Japan? A. Primarily developing countries in Asia. However, 95 countries in the world have received ODA loans to date. Of the ODA loans (accumulated figure), 77% are extended to Asia. ODA Loan Commitments by Region (FY ) Units: Number of commitments and billion Middle East Europe (3.8%) (0.6%) Oceania Latin America and 64.5 the Caribbean (0.3%) 1,326.2 (5.8%) Africa 1,436.9 (6.2%) Total: 2,899 23,019.1 Countries and areas which have received ODA loans Asia 17,746.5 (77.1%) Q.What kinds of projects are targeted by ODA loans? A. ODA loans are provided for projects that aim at developing economic infrastructure and improving the living conditions. ODA loans primarily support the development of economic and social infrastructure including power, gas, transport, communications and agriculture because this basic infrastructure provides indispensable underpinnings for national development. In addition, amid emerging new challenges in global environmental conservation, human resource development and income disparities between the rich and the poor, ODA lending has been growing in social services, including water supply, sewerage systems, insurance, health care and education, and for supporting the poor in rural and peripheral areas. Such support is based on the basic philosophy of Japanese ODA that encourages self-help efforts of developing countries to achieve self-sustainable economic development. ODA Loan Commitments by Sector Unit: billion % FY , Electric power and gas Transportation Telecommunications Irrigation and flood control Agriculture, forestry and fisheries Mining and manufacturing Social services Commodity loans Q.Where does the money come from for ODA lending? A. ODA loans are financed from three major sources. ODA loans and equity investments in overseas economic cooperation operations are financed by (1) contributions to its capital, from the general account of the fiscal budget, which is financed by taxes and government bonds; (2) borrowings from the Fiscal Loan Investment and Loan Program; and (3) internal funds. Funding from the general account of the government budget enables JBIC to extend ODA loans to developing countries at very low interest rates and with long maturity periods. Q.What are loan terms? A. Terms and conditions of ODA loans are soft with a low interest rate and a long-term repayment period. The average interest rate of ODA loans committed during FY2003 was 1.33%. Average maturity was very long, at 33 years and 10 months. This period includes an average grace period of 9 years and 11 months, during which no repayment is made on the principal. Q.Are there any conditions ODA loan projects have to meet in the procurement of goods and services? A. ODA loan projects must meet one of the three different sets of conditions for such procurement. The borrowing country uses the proceeds of an ODA loan to purchase various materials and equipment as well as services for project implementation. These purchases, or procurement, must be made by following one of these three sets of conditions: A general untied loan allows procurement from any country in the world. A partially untied loan allows procurement only from Japan and developing countries. A tied loan allows procurement only from Japan. Procurement is made, in principle, based on competitive bidding. This procedure enables the borrower to purchase high quality goods and services at the minimum cost. 47

6 Q.What is the project cycle of ODA loans? A. The series of steps in providing an ODA loan consists of project preparation, appraisal, signing of a loan agreement, implementation, ex-post evaluation and follow-up activities completion. Lessons learned from ex-post evaluation and monitoring after project completion will be fed back into identification and preparation stages of future projects. The whole sequence of steps is called the project cycle of ODA loans. The Project Cycle of ODA Loans (1) Project Preparation A developing country draws up medium- and long-term development plans, and carries out project identification with due consideration for targets and strategies in these plans. JBIC conducts macroeconomic and sector surveys and Project Preparation examines the urgency and priority of the identified projects through policy dialogue with the government of for Project Special Assistance developing countries. Before moving Sustainability (SAPS) to implementation, the project plan comes under further analysis with respect to economic, social, technical Completion/ and environmental aspects. This feasibility study (F/S) is either carried and Follow-Up Ex-Post Evaluation Loan Request out by the government of the developing country on its own or through Monitoring technical assistance from the Japan International Cooperation Agency Special Assistance for Project (JICA) or other international organizations. Formation (SAPROF) (2) Loan Request The government of developing countries files a loan application to the Japanese government, accompanied by documents produced in the project identification and preparation stage. (3) Examination/Appraisal and Ex-Ante Project Evaluation JBIC examines the loan application documents submitted by the government of developing countries. At this point, the Japanese government may send a mission, if necessary, to consult with the country requesting the loan. Subsequently, JBIC sends an appraisal mission to the requesting country for discussions with officials Special Assistance for Project Implementation (SAPI) Special Assistance for Procurement Management Implementation Exchange of Notes and Loan Agreement Examination/ Appraisal and Ex-Ante Evaluation 48

7 involved in the project and for field visits. The mission studies economic, social, technical and environmental aspects of the project in detail. For all ODA loan projects for which appraisal is carried out after April 1, 2001, JBIC prepares the Ex-Ante Evaluation Report and posts it on its JBIC website soon after the signing of a loan agreement. If it is judged that a supplemental study is required prior to JBIC s examination and appraisal, JBIC may conduct a Special Assistance for Project Formation (SAPROF) study. The additional study through SAPROF helps developing countries in their effort to make adequate preparations for a highly necessary project when the country is constrained by inadequate funds and technical expertise. (4) Exchange of Notes and Loan Agreement Based on the results of the appraisal conducted by JBIC, the Japanese Government makes a decision over loan provision as well as the loan s amount, terms and conditions. Based on the decision of the Cabinet, the Japanese Government signs a diplomatic document, the exchange of notes (E/N) with the recipient government. Thereafter, JBIC and the borrower sign a loan agreement (L/A). (5) Implementation After the signing of the L/A, the project enters the implementation stage. Essential inputs to the project such as materials, equipment and civil works will normally be procured through international competitive bidding, as it is the most economical and efficient method. Disbursements are made upon requests from the borrowing country. In principle, funds are released as their needs actually arise with the progress of the project. The borrowing country is responsible for carrying out the project, while JBIC offers advice as necessary for smooth project implementation. In recent years, this cooperation in the implementation stage has become increasingly important. Therefore, if deemed necessary, JBIC would conduct a Special Assistance for Project Implementation (SAPI) to make a supplementary study aimed at ensuring smooth implementation and attaining the objectives of the project. (6) Project Completion, Ex-Post Evaluation and Follow-Up Monitoring JBIC conducts ex-post evaluation for completed projects in order to draw lessons for future projects. Ex-post evaluation assesses the project implementation, post-completion operation and maintenance of project facilities and development effectiveness of ODA loan-financed projects in comparison with the initial plan. In addition to individual projects, evaluation takes place at the program level, making a comprehensive assessment with respect to the economic and social impact of the project portfolio on a given region or sector. The experience and lessons drawn from ex-post evaluation have been accumulated inside JBIC and effectively fed back into the borrowers and project-executing agencies to increase the effectiveness of development assistance. For detailed results of ex-post evaluation, Ex-Post Evaluation Reports are available on the JBIC website. Furthermore, JBIC may, upon request from the borrowing country, conduct a study under the Special Assistance for Project Sustainability (SAPS) in order to sustain and improve the effects of completed projects. 49

8 Q.What kinds of activities is JBIC doing to make ODA loans more effective? A. We have to keep in mind first that it is the borrowing countries themselves that are in charge of their development projects. JBIC supports their selfowned efforts by providing a broad range of assistance to increase the effectiveness of ODA loans at each stage of the project cycle from submission of a loan request to follow-up after project completion. For example, JBIC s overseas representative offices are in close touch with the project-executing agencies of borrowing countries, monitoring how the projects are progressing and offering advice to make sure that procurement and construction work will proceed on schedule. JBIC also conducts studies under Special Assistance Facilities (SAF), including Special Assistance for Project Formation (SAPROF), Special Assistance for Project Implementation (SAPI) and Special Assistance for Project Sustainability (SAPS) (see p. 48), as well as other studies, and dispatches experts in cooperation with JICA to support borrowing countries to undertake projects. And after project completion, JBIC may conduct various studies to increase and sustain the effectiveness of ODA loan-financed projects or provide grant aid (rehabilitation grants) in cooperation with the Ministry of Foreign Affairs. In monitoring projects and providing advice, JBIC stresses partnerships with multilateral institutions, other Japanese government agencies such as JICA, aid agencies in other countries and grassroots NGOs operating in developing countries. JBIC will also be active in stepping up collaboration with domestic prefectural and municipal governments. The collaboration aims at transferring their unique knowledge and expertise to the developing world at large in order to increase the effectiveness of ODA loans as well as to realize international cooperation that represents Japanese civil society. Furthermore, starting from FY2000, JBIC introduced ex-ante evaluation, thereby laying down the mechanism for assessing the effectiveness of overall ODA operations from the pre-project to completion stage. Specifically, prior to project implementation, JBIC makes public an Ex-Ante Evaluation Report, where quantitative targets are set to measure the impact of the project. Then, after project completion, ex-post evaluation, which includes third-party evaluation, will take place to assess the effectiveness of the project and the appropriateness of the project implementation process by comparing quantitative targets and actual performance. The results of the evaluation will be published as the Ex-Post Evaluation Report for ODA Loan Projects and be fed back to the borrowing countries, which will accumulate experiences and lessons to increase the effectiveness of future projects. Ex-Ante Evaluation Reports and Ex-Post Evaluation Reports for ODA Loan Projects are available at the JBIC website. Collaboration with a Japanese NGO in the Inner Mongolia Afforestation and Vesitation Cover Project 50