Peer reviews of DAC members

Japan (1999), Development Co-operation Review

 

Summary and Conclusions

Overview

A number of fundamental changes in policy directions and organisation are currently underway in Japan's development co-operation:

  • After continuous expansion through a series of five-year plans starting in 1978, which made Japan the world's largest donor, the aid budget was cut by 10 per cent in the context of an overall fiscal reform announced in 1997. This cut has now been offset by subsequent provisions of new aid, and the further cuts which had been announced have been frozen. A new tied aid loan facility to help Asian countries affected by financial crisis may boost aid volume in the next few years. Nevertheless, the previous expectations of trend growth in the volume of Japan's aid have been replaced by uncertainty, and the difficult medium-term fiscal outlook is not promising for aid levels in the future.

  • Japan has announced a new approach to aid management, based on transparency and efficiency. This will involve the publication of a new medium-term aid policy, expected for the middle of 1999, and the adoption and publication of country assistance strategies, implying a major increase in co-ordination in the Japanese aid system. The new approach reflects both the general administrative reform now being implemented in Japan, and the strong attachment of Japan to the new International Development Strategy (IDS) founded on partnership with developing countries receiving aid.

  • The Asian crisis, to which Japan has responded with major financial resources, is reinforcing a rethinking of the development model underlying the emphasis on economic infrastructure in Japanese aid. A broader concern with social development, poverty and institutional and governance issues is emerging in policy dialogue and aid programming.

  • The two main implementing agencies of Japanese aid are about to undergo significant organisational change. The agency for technical co-operation, Japan International Co-operation Agency (JICA), will be re-organised on a geographical basis rather than its present instrument-based structure. This will facilitate the implementation of the country strategy approach. The agency for providing aid loans, the Overseas Economic Co-operation Fund (OECF), is to be merged with the Export-Import Bank of Japan (JEXIM). This move raises important questions of aid management in the new dual-function organisation.

Japan remained the leading bilateral donor in 1997 with net official development assistance (ODA) disbursements of $9.36 billion. However, its ODA share as a per cent of gross national product (GNP) remained at 0.22 per cent for 1997, which placed Japan at 19th amongst 21 Development Assistance Committee (DAC) donors.


ODA Charter and Japan's philosophy on aid


For Japan, ODA is an integral part of the nation's foreign policy, and is essentially based on economic and diplomatic foundations. To address the many people who are still suffering from poverty in the developing countries, as stated in its ODA Charter (Annex I), Japan supports the "self-help efforts" of the developing countries to enable their "economic take-off". The philosophy of Japan's ODA is largely based on the country's own experience. To rebuild its economy after World War II, Japan obtained loans from the World Bank to develop its core infrastructure and industry, which it punctually repaid. However, at that stage, Japan already had a capacity to use external aid effectively, with a highly literate population, a burgeoning private sector, and a solid national planning system with an effective revenue collection capacity. Unfortunately, these assets are often lacking in today's developing countries, and thus the parallels with Japan's own development after World War II do not apply well in many cases.


Japan considers that developing countries themselves are ultimately responsible for and should take the initiative in their own development. This position is partially attributable to the fact that: Japan strived to develop from the Meiji era by hiring Western advisors while maintaining the ownership over its development; and Japan invaded several Asian countries during this century, an issue which still arises in its diplomatic relations. This sensitiveness towards non-intervention in the domestic affairs of recipient countries largely explains Japan's cautious stance towards conditionality and policy dialogue in its aid programme (see China report ' Annex II).


Japanese thinking has evolved recently, endorsing the ideas that "human-centred development" and the enhancement of individual's welfare should be the key concepts in Japan's ODA, and that economic growth is only a means to achieve them. There has also been a shift from a formal "request basis" stance to a more pro-active approach in proposing projects in areas such as environment, human rights, capacity building, and good governance.


Administrative reform and OECF/JEXIM merger


Japan is going through major changes in its ODA programme. The overall administrative reform, reducing 22 Japanese ministries to 12 and cutting by 20 per cent the number of civil servants, is expected to be carried out by the year 2000. As part of this reform, the current multi-agency ODA administrative system will be consolidated, and the Ministry of Foreign Affairs (MOFA) will be accorded the de jure co-ordinating authority for ODA activities. Japan has hitherto had many actors in its ODA administration, with four main ministries and about 17 other ministries and agencies (see Chart 1). As MOFA assumes a stronger co-ordinating role within the development co-operation system, its capacity will need to be strengthened, particularly in staffing. The Economic Co-operation Bureau is currently staffed primarily by foreign service officers and secondments from other ministries who rotate rather rapidly within MOFA or back to their ministries of origin. These are supplemented by non-career technical and administrative staff, with diplomats and specialists posted in embassies who co-ordinate the country programmes. Japan's programme is thinly-staffed relative to other DAC Members, and more stability and continuity needs to be attained. Equally important would be to determine how additional responsibilities could be delegated to implementing agencies, such as JICA and OECF, in order to enable MOFA to concentrate more on strategic issues and co-ordination.


As part of the administrative reform, the merger of OECF and JEXIM is proceeding with a target date of October 1999. Plans call for ODA and non-ODA activities to have separate accounts, with the ODA contributions to be transparent. After the merger, however, technical staff will be shared, which raises questions as to how the integrity of ODA will be preserved.


IDS and country strategy approach


Japan assumed a leading role in formulating the International Development Strategy embodied in the 1996 DAC Report, Shaping the 21st Century: The Contribution of Development Co-operation. Japan has subsequently selected seven pilot countries for implementing the strategy in its bilateral programme (see Ghana report ' Annex III). The Japanese Government has now decided to prepare and make public a medium-term aid policy statement and country-by-country strategies, initially for 11 major recipient countries. Country strategy planning will improve coherence and support for the IDS and provide a framework for improving the co-ordination of all elements of Japan's aid system. It will also be reflected in the new organisation of the ODA administration, with JICA in particular to be re-organised on a regional basis, rather than in terms of its various instruments of technical co-operation.


In field implementation, however, one of the difficulties in effective co-ordination with recipient counterparts and other donors is the shortage of staff. JICA carries out technical co-operation with about 1 200 staff, of which about 330 are posted in 55 overseas offices, covering 151 countries. OECF, which handles ODA loans, operates with an extremely low staff establishment, as there are a total of 339 staff members. In FY1997, of these, 54 staff were posted in 13 developing country offices and three developed country offices, administering commitments amounting to Yen 1.0 trillion (about $8.3 billion) and disbursements totalling Yen 650 billion (about $5.4 billion) for 21 countries. The ability to make quick and appropriate decisions in co-ordinating programmes at the field level should be enhanced by expanding delegation of responsibilities. In light of the partnership strategy, an increased field presence and more delegation of responsibility would help maximise collaboration with other development partners (see China report ' Annex II and Ghana report ' Annex III).


Improvement in quality, transparency, and efficiency


An ODA Reform Council for the 21st Century produced a report in January 1998 to provide guidelines on how to shift the focus of the ODA programme from quantity to quality (see Annex IV). The report stresses the need for heightened public understanding of and participation in the ODA process and calls for more effective strategies. Concerning the priority sectors of ODA, it recommends: an emphasis on efforts in poverty alleviation and social development with a focus on human-centred development; an accent on basic education and primary health care; new directions in infrastructure development, using ODA only for projects that cannot be funded privately, more bundling with technical assistance, and teaming up with multilateral institutions; emphasis on environmental issues; support for women in development; stronger emphasis on human resources development; formation of global partnerships; an increase in cross-border regional co-operation; assistance in conflict prevention and post-war conflict development; technical co-operation in legal and financial systems; and enhancement of the private-sector role.


For the modalities of ODA, the report recommends: increased public participation, particularly non-governmental organisations (NGOs) and recipient country stakeholders; disclosure of information; enhanced development; and fostering of international aid experts to place in multilateral institutions. As for the implementation, it recommends: increased collaboration of agencies; increased delegation of authority to the field; improved evaluation by including other donors, examination of environmental and social impact, and disclosure of more information; enhanced collaboration with private sector and multilateral institutions; and increased policy dialogue with recipient countries. The government plans to take action on these recommendations.


Another significant development in Japanese ODA is the push to improve transparency and efficiency by concerned ministries and agencies. A memorandum issued in November 1998 (see Annex V) recommended the following: publishing the ODA mid-term policy, the five-year country assistance programmes, the list of potential loan projects, project evaluations, and procurement details; and improvement in monitoring and evaluation. To enhance efficiency, it recommended: better planning by focusing on priority areas; continuous re-evaluation of self-help efforts and good governance; timeliness and flexibility in dealing with specific situations; and improvements in project preparation, evaluation, and monitoring. As for administration, it recommended better co-ordination among different ministries, the private sector, and other donors; reduction of overlaps in project preparation; better utilisation of NGOs; and enhancement of field offices.


Asian crisis and The Second Tokyo International Conference on African Development (TICAD II)


Recognising the serious situation affecting many Asian countries, Japan progressively mounted a major response. Starting July 1997, its initial response to address the crisis reached some $44 billion. This package included: contributions to the International Monetary Fund (IMF) and the Association of South East Asian Nations (ASEAN); assistance for financial sector reforms; Japan's own assistance for private sector activities; facilitation of trade financing and insurance; assistance to the socially vulnerable; human resources development; and measures for foreign students in Japan. Of this amount, about 5 per cent or $2.2 billion was in the form of ODA.


After October 1998, Japan launched other initiatives as follows: a) "New Initiative to Overcome the Asian Currency Crisis" (New Miyazawa Initiative) totalling $30 billion. b) The Asian Currency Crisis Support Facility in the ADB under the New Miyazawa Initiative (approximately $3 billion) to help Asian countries facing economic difficulties with interest subsidies and provision of guarantees. This Facility can be utilised under the "Asian Growth and Recovery Initiative" announced by Japan and the United States at the Asia Pacific Economic Co-operation (APEC) Economic Leaders Meeting in November 1998. c) A Special Yen Loan Facility of maximum Yen 600 billion (approximately $5 billion) over three-year period, which will be used for infrastructure development to stimulate the borrower's economies, generate employment, and carry out economic structural reforms of the Asian countries. The package qualifies entirely as ODA, and the funds will be tied to Japanese companies, while remaining in conformity with OECD rules on tied aid credits. d) New measures such as local training of 10 000 people who are assuming a central role in various industries (approximately $20 million).


As the crisis moves towards a recovery phase in some countries, three aspects should be highlighted. First, Japan has moved swiftly, devoting considerable financial resources of about $80 billion to address the crisis. Second, the role of ODA in the response, amounting to about $10 billion, is a key element in helping the countries move from crisis to recovery. Third, it will be necessary to deepen the analysis of the crisis to understand exactly what happened, what has been done by the various actors, the sustainability of "economic take-off" and "self-help efforts", and to assure that root causes of the crisis are addressed.
Japan hosted TICAD II in October 1998, which adopted the Tokyo Agenda for Action (see Annex VI), a guide for policy implementation by African countries and donors as they enter the 21st century. The agreed goals and priority actions were: a) social development: education, health and population, measures to assist the poor; b) economic development: private sector development, industrial development, agricultural development, external debt management; and c) foundations for development: good governance, conflict prevention and post-conflict development.


NGOs and the public


Support for NGO activities is less than 3 per cent of the Japanese ODA programme. There is therefore room to foster more collaboration by NGOs in enhancing effectiveness, particularly to compensate the shortage of official ODA staff in the field. Japanese NGOs are still underfunded, understaffed, underskilled, and relatively young (see Box 1). In Japan, corporate and individual contributions to NGOs are not widespread. Therefore, if NGOs are to assume an effective partnership role in the Japanese ODA programme, they need to be liberated from the double bind of limited government support and insufficient private contributions. Increasing the budgetary allocation for this component should be reconsidered.


Japan's public information on ODA continues to be one of the most wide-ranging of DAC Member countries. On the other hand, some ODA related information such as country studies, project documents, project evaluation reports, and others are not available to the public. Making such information available would enhance transparency and could foster better understanding and support for the programme. In parallel with efforts to be more effective and results-oriented, it is important to promote public education that highlights the relevance of objective improvements in human-centred development, as opposed to emphasizing inputs such as facilities built, supplies and equipment provided, and numbers of people trained, or how much appreciation was expressed by the recipients.


Social sectors: health, education, environment, water, and sanitation


The health sector in 1996-97 took up 3 per cent of Japan's bilateral commitments (see Table VII-5), mainly concentrated in tertiary and curative health, such as support for hospitals and high technology equipment, medical research institutions, high level training, and posting of Japanese advisors. Further breakdown shows that the contribution to basic health was 1 per cent. Recently, Japan has begun to recognise: the importance of primary health care; a need to shift from expensive tertiary forms of care to primary services; a need for sustainable systems; use of locally available human and financial resources; appropriate infrastructure and technologies that are suitable to local conditions at affordable costs; and closer collaboration with NGOs. These ideas should be mainstreamed in Japan's programme and translated into effective implementation. Furthermore, an outcome-oriented assistance, rather than an input-oriented focus, would improve the quality of Japan's support towards this sector (see Ghana report ' Annex III).


In 1996-97, 6 per cent of bilateral ODA was allocated to education. Further breakdown suggests that only 1 per cent of Japan's bilateral ODA was committed to basic education (see Table VII-5). The majority of support went to higher education such as universities, research institutions, and vocational training, particularly in engineering and high technology. In general, the Japanese programme has yet to establish a system to conduct analyses on the impediments to schooling and on the ability of communities to maintain schools, monitor enrolment rates, or carry out dialogue with the recipients to ensure increased girls' enrolment, as targeted in the IDS.


In recent years, Japan has placed high priority on the environmental front and has allocated large amounts of resources. However, Japan could make a stronger contribution to environmental analysis and policy dialogue. Assistance towards water supply and sanitation has taken up half the share of social sector allocation, partially due to construction of large urban water supply and sewerage facilities and support for research institutions. Targeting poor areas where the shortage of water is more acute will be increasingly in line with the alleviation of poverty. A more active approach in policy dialogue with recipient countries regarding user fees and cost recovery for urban and industrial use could contribute in shifting resources to ensure better access to water by the rural poor.


Cross cutting issues: poverty, gender, and governance


The ODA Charter states that "many people are still suffering from famine and poverty in developing countries". However, neither the Charter nor any other official document clearly defines poverty, poverty reduction, or who the poor are; nor do they elaborate on the options of targeting poverty directly versus a "trickle-down" through support to economic infrastructure. Japan also needs to define "basic human needs" projects -- whether higher education, tertiary health, and urban water supply and sewerage projects technically qualify, as opposed to basic education, primary health, and rural water supply and sanitation projects. Overall, the monitoring and evaluation of poverty alleviation efforts are still weak in the Japanese aid programme. It is hoped that, the new monitoring system to be established in the seven target countries for implementing the IDS will eventually be mainstreamed throughout the entire Japanese ODA system.


Attention to women in development (WID)/gender equality in the Japanese aid system mainly consists of having a small number of women-focused projects. Although the gender focus is slowly being mainstreamed, Japan's weakness in gender analytical capacity/skills mix is a key issue. Gender specialists are insufficient in relation to the challenging goals in the WID Initiative agreed to by Japan. Gender sensitivity still largely depends on individual interest of staff and departments. An overall strategic gender plan, openly supported by top management and accompanied by clear incentives and training would ensure that the results of gender analysis are integrated into major projects. Changes in evaluation methods towards result-oriented impact analysis would also contribute in this respect (see Ghana report ' Annex III).


Japan has made few interventions in governance. The reasons could be attributed to: Japan's request-based approach; an emphasis on recipient countries' own self-help; and a cautious attitude towards intervening in internal affairs. Most of Japan's assistance in this area has been indirect through training and institution building. However, the TICAD II Conference incorporated democracy and good governance as basic foundations for development in the Tokyo Agenda for Action. Japan has also worked within the OECD on the Financial Action Task Force against money laundering and has ratified the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Within DAC, Japan joined in a Recommendation to place anti-corruption measures in ODA procurement. Japan's contributions to these issues both within the ODA programme and in other coherent efforts should continue. The influence that these issues have on the path of development in recipient countries is often decisive, and thus cannot be ignored.


Evaluation and effectiveness


Evaluation has been part of Japan's ODA for many years and is conducted at several tiers. MOFA conducts around 150 evaluations annually, and both JICA and OECF have their own programmes as well. Their findings are compiled and released in separate reports by each organisation. A serious weakness of these evaluations is that there is minimal reference to data on socio-economic impact of projects, and instead, an emphasis on the physical conditions of constructed facilities and on how much beneficiaries have appreciated the projects. Attempts to link the cause and effect of how the projects have actually improved the lives of targeted beneficiaries are notably absent. On project monitoring, JICA has a relatively strong approach to portfolio management at field level. OECF has made systematic efforts to use evaluations as a learning tool at management and technical staff levels, as well as in the field, identifying the appraisal phase of the project cycle and institutional weakness as the two most important sources of project success or failure.


Japan needs to do more to bring its aid portfolio into harmony with the overall goals of the IDS. The adoption of a country strategy approach is a major step in this effort. Based on country assistance strategies, this would imply, for example, increasing support for public health clinics instead of urban hospitals that are costly and not as relevant in a poverty-oriented strategy or a broad-based primary health care programme; more support towards primary education rather than universities which are also costly and of little relevance to the poor; and the avoidance of the provision of high technology equipment, infrastructure or services that cannot be sustained. Building on country studies, the quality of evaluations needs to be bolstered by paying more attention to relevance, appropriateness, sustainability, cost effectiveness and socio-economic impact. Increased participation from other donors may be a way to improve methods of evaluation and to incorporate wider views concerning effectiveness. As Japan "desires to occupy an honourable place in international society", effectiveness in reaching the "many people (who) are suffering from famine and poverty", as it sets out to do, is ultimately the surest way it could fulfil this through its ODA programme.


Policy coherence, untying, and debt relief


With the prolonged economic recession in Japan and the deep economic set-back in East Asia, the coherence between Japan's aid, investment, and market access policies becomes even more important. When Japan, or other OECD countries, restrict access to their markets in areas where low-income countries have a comparative advantage, the possibilities for export-led growth and integration into the global economy for developing countries are constrained.


Japan began untying ODA loans in the late 1970s, and they are now virtually all untied. However, in the context of the Asian crisis and Japan's recession, the Special Yen Loans of Yen 600 billion (an estimated $5 billion) will be tied, while remaining in accordance with OECD rules. Grant projects are limited to Japanese firms, such as trading companies, but procurement not tied to Japanese goods and services. Non-project grant aid is untied, though technical co-operation is normally tied. The procurement procedure and contract information on ODA loans is already fairly open, but Japan will be making all procurement more transparent by providing information on bidders and contracts for both grant aid and loans.
Japan has been one of the most prominent and vocal advocates of untied aid. With DAC Members now involved in a major effort to reach consensus on untying aid to the least developed countries -- an issue that has long been identified as the key test of donor countries' coherence of policies towards developing countries -- Japan's position on the recommendation will be critical in making this significant step forward in multilateral untying. It is important therefore that there is the political will and the flexibility in Japan to join the emerging consensus position.


Japan's position on ODA debt is based on the country's own post-war development of repaying all its World Bank loans. Therefore, Japan strongly believes in the ideas of discipline and "self-help efforts", and would consider it a "moral hazard" if the recipient country obligations were to be simply forgiven. Thus, it has sought creative approaches to debt service reduction to lessen the burden for countries incapable of repayment, while simultaneously helping them to fulfil their responsibilities as sovereign states. The cumulated effect of some measures are equivalent to debt cancellation of over 80 per cent. Japan's actions have mainly involved offering grants for debt relief to poorer countries. In FY1997, grants worth $233 million were committed to 14 countries to cover interest and principal due to Japan.


Recommendations

  • Japan should maintain and increase its ODA volume.

  • ODA administration should be strengthened, including staffing, increasing the roles of implementing agencies, decentralisation of field offices, improved aid co-ordination, and enhancement of NGO involvement.

  • A new medium-term policy statement for ODA will provide a basis for the re-orientation of Japan's aid policies and management, in line with the new International Development Strategy. Country assistance strategies should be prepared in accordance with the IDS and with participation by recipient countries, other donors, and NGOs; country strategy design teams should be sensitised to the IDS before they go out to the field; and lessons learned from the seven IDS pilot countries should be mainstreamed in the overall ODA programme.

  • It will be important for the integrity of ODA to be preserved within the OECF/JEXIM merger, particularly through separate policies and accounts.

  • There needs to be an analysis of the domestic roots and the implications of the Asian crisis, including the sustainability of "economic take-off", "self-help efforts", governance and corruption, and institutional and human capacity development.

  • Cross-cutting issues such as poverty, gender, and governance, should be mainstreamed, with clear definitions for "basic human needs", "the poor", "poverty", and "poverty reduction".

  • Projects should be designed, monitored, and evaluated with a view towards cost-effectiveness, sustainability, technological appropriateness, and socio-economic outcome/impact. Policy dialogue should be given more emphasis.

  • Coherence between development co-operation and other economic policies of Japan affecting trade and investment vis-à-vis developing countries needs to be systematically promoted.

  • Japan is encouraged to further promote untying of its ODA, particularly to least developed countries, bearing in mind also DAC's work in this area.

 

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