Kenya and Japan have signed a loan deal in the agribusiness and water sector, confirming the Asian economic giant's quest for a stronger presence in Africa.

Japanese ambassador Shigeo Iwatani and Finance minister Uhuru Kenyatta signed the Mwea Irrigation Scheme project worth Sh12.1 billion and a Sh2.1 billion to go towards an Embu water supply project.

The deal comes just months after Japan signed a Sh23.4 billion geothermal loan deal underlining the country's growing interest in Kenya and Africa.

"We will deploy our comparative advantage in rice production to enhance domestic production through the introduction of the NERICA (New Rice for Africa) variety which is drought resistant, matures faster, and has higher yields," said Mr Iwatani.

The drive is expected to ease the country's dependency on imports to cover the annual shortfall.

A host of factors such as poor rainfall and low quality seeds have been attributed to declining rice production in the country.

"The funds will be applied to increase the productivity of rice and other crops through improvement of irrigation facilities," said Mr Kenyatta while signing the pact.

The Japanese government has given Kenya Sh360 billion in aid over the past four decades.

Prime Minister Yukio Hatoyama has come up with the "Hatoyama Initiative" that seeks to channel $15 billion (Sh1.15 trillion) to the developing world.

Japan's profile in Kenya has been outshone by an increasingly active and assertive China over the past five years - a move that has seen development aid from China double as Chinese firms, backed by state owned banks, increase their presence on the continent from dabbling in oil and mineral extraction to construction of mega infrastructure projects.

State-controlled banks

Japan's main goal is to encourage private investment in Kenya through loans from state-controlled banks as the country also scales up lending to the government.

In recent months, State-backed Japanese firms have been making a few but high strategic entries into East Africa, targeting the expected windfall in mineral extraction and the expanding consumer goods market.

The region, with a population of over 100 million people, has grown into a huge market.

"There is some kind of soft competition emerging between China and Japan, not just in Kenya but across Africa," Gerrishon Ikiara, a lecturer at the University of Nairobi's Institute of International Relations told Business Daily in an earlier interview.

"It's a fight that involves both economic and political dominance. Japan has been here for long but is now stepping up its efforts upon realisation that China is fast increasing its influence in key economies such as Kenya," he added.

China came in the game as its fast growing economy forced the country's leaders to look for more natural resources outside its borders - Africa turned out to be one area where such opportunities exist.

Instead of using the traditional western model in which aid was tied to political and economic reforms, China sought to put its imprint on the continent with unconditional aid and infrastructure construction.