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.

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.

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.

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.

Looking to Africa and its potential can help offset some of these pressures.

Data dreams

Beyond seeing the potential in expanding to Africa, one shift has allowed Japanese firms to take advantage and dive in: having better data.

Firms used to find it difficult to assess investment risk in Africa because of a lack of formal data. Now, Japanese companies are harnessing AI, machine learning, and big data tools to make informed decisions.

This is now possible because the rise of big data ecosystems across African economies – thanks to sectors like mobile money, ecommerce, and agriculture going digital – is creating massive datasets. AI and machine learning tools also allow companies to analyze this data to build reliable models that can assess market risk.

This is allowing Japanese firms to make data-backed, real-time decisions in markets once viewed as opaque.

One example is Space Shift, a Japanese company using AI-powered satellite imagery to track agricultural land in Nigeria. By looking at how farmers used land in the past, the company helps generate credit scores for small loans. It also helps farmers know how much they might harvest and when to plant crops.

The lesson for entrepreneurs elsewhere is to combine curiosity with capability, by leaning on local partners, harnessing real-time data, and embracing tech not as a silver bullet but as a tool to reduce uncertainty in new markets.

More than tech

That said, it’s important to avoid romanticizing the role of technology.

Africa has genuine risks for foreign investors. Political instability or sudden currency depreciations are two factors, for example, that investors need to watch out for.

In Africa, and indeed everywhere, technology alone can’t predict “black swan” events. The most recent US presidential election is one example.

Yet what’s changing is the ability to use technology to make more confident, data-informed decisions in the face of uncertainty. This helps entrepreneurs make moves without taking unnecessary risks.

The mindset toward Africa is changing, mostly thanks to private-sector conferences and other organized events that bring decision makers together.

The Japan-Africa Business Forum is one example, as is The Tokyo International Conference on African Development, where my firm is a partner.For founders and firms in Southeast Asia, the takeaway is clear: Don’t underestimate the value of curated events. These platforms can serve as soft landings into new markets, offering critical context, connections, and credibility.No quick winsSo what should Japanese and Southeast Asian investors and firms look for when seeking partners in markets like Africa?The clear answer is to find those with strong data skills. This means those with reliable financial records, who track key performance metrics, and are able to articulate the risks and opportunities of their business model.Japan has not rushed into Africa in the same way as, say, China. But it is inching ever closer, driven not by hype but by data-backed, strategic thinking.Southeast Asian businesses can learn from this approach. Japanese firms are not chasing quick wins. Instead, they are looking for stable, scalable engagement and use AI-powered data to offset the uncertainties.This is an important lesson for all those seeking to engage with Africa, a region full of promise but with substantial challenges.

Bernard Laurendeau is the founder of advisory firm Enkopa Lab.

The views expressed in this article are those of the writer and do not necessarily reflect the views of Tech in Asia.