Executives' Comments Speech by Chairman Chairman SAKAKIBARA's speech at the EU Head of Missions Meeting
1. His Excellency Ambassador Schweisgut, Excellencies, thank you for inviting me to address the Head of Missions Meeting today. I have already had the pleasure of meeting some of you at the reception following Keidanren's Annual General Assembly and I am delighted to get acquainted with the other Ambassadors from the EU.
2. At the outset, please allow me to speak briefly about Toray's business activities. I am the Chairman of the Board of Directors. Toray is present in eight European countries: UK, France, Germany, Italy, Switzerland, Czech Republic, Spain, and Hungary, and with its 14 consolidated subsidiaries employing about 3000 people, produces fibers & Textiles, plastics, carbon fiber composite materials, and water treatment membranes & equipment. At the end of last year, the total cumulated investment in Europe rose to 1.3 billion euro generating sales of 760 million euro.
3. Now, let me start with the state of the Japanese economy. I am sure you are periodically reporting it to your capitals, so it will not come as a surprise to you if I say that the Japanese economy is finally poised to rid itself of deflation, after overcoming the global financial crisis and the unprecedented earthquake. The Bank of Japan projects that consumer prices for all items will rise by 1.3 percent this fiscal year and 1.9 percent the next year, discounting the effects of the consumer tax hike. Real GDP has grown for six consecutive quarters. The growth for the first quarter of this year was particularly strong, due to people's rush to buy before the consumer tax rise, giving rise to concern about a subsequent large-scale downturn in consumption from April onwards. It turned out that the reaction has generally been within our expectations, demonstrating that, despite the tax hike, Japanese economy is on a gradual trend towards recovery.
The question is whether we can maintain this trend and put the economy firmly back on the path to a full-scale growth. The answer to this question will depend on efforts made by the government and the business community over the next few years. It is in this context that I assumed the Chairmanship of the Keidanren on June the third, and today, I would like to share my views with you in that capacity.
4. As you all know, Prime Minister Abe has made revitalizing Japan's economy his top priority and is actively pursuing a three-pronged strategy of bold monetary policy, flexible fiscal policy, and a growth strategy encouraging private-sector investment. Tokyo based observers of my country's political and economic situation that you are, I am sure you are witnessing many signs that this strategy dubbed "Abenomics" is resulting in the emergence of a virtuous economic cycle. Now, as the future is looking brighter and confidence in growth is returning, we have the responsibility vis-a-vis our future generations not to miss this opportunity to truly revitalize the country.
5. The big question is, how can we achieve this goal of truly revitalizing our country? I believe that encouraging innovation is the key. Technological innovation, which is the greatest driver of economic growth, is a vital tool for making resource poor Japan more internationally competitive.
A major objective during my term of office is to restore the luster to Japan's technical capabilities so that they can once again be considered the best in the world. This will require raising government investment in R&D to 1 percent of GDP, encouraging further corporate technical innovation, strengthening ties among government agencies, universities, and research institutes, and developing high-caliber researchers and technical experts capable of leading the world.
After the Second World War, Japan became an economic superpower in a remarkably short time, due to Japan's overwhelming technical capabilities as a nation powered by technology and the dynamism across the society. To revitalize the Japanese economy, we need to return to this root of ours as a nation powered by technology and restore its corporate dynamism. Companies should actively embrace risk, rise to the challenge of aggressive R&D and technology development, and lead the world in identifying new needs and creating new markets. They should also take the initiative in devising new business models, transforming industry structures, thereby creating new industries and businesses that will become powerful drivers of the Japanese economy. In short, companies should aim for a "Nation powered by future-shaping technology."
There is no time to lose. This is the moment to launch daring new endeavors. Armed with a determination to reclaim a strong Japanese economy and to propel Japan forward, corporate executives should feel it their responsibility to display an active entrepreneurial spirit and to resolutely shift to a growth-oriented business strategy.
By innovation, I am not merely talking about technological innovation. I believe that innovation in a broad sense, such as breaking away from conventional wisdom and challenging broad-based reforms across the entire spectrum of our lives, be it social, political, or economical, is required. This is because based on current projections, we are faced with a grim prospect that in 50 years' time, our population will drop to just two-thirds of what it is now, creating an extremely elderly society composed of 40 percent of people aged 65 or above. I believe that if people in all sectors of our society could share a sense of urgency and make innovative changes to conventional systems and practices as well as to the commonly accepted views that underlie them, we can generate the power to drive new growth for Japan.
In this context, the Basic Policies for Economic and Fiscal Management and Reform, "Honebuto-Policy," and the revised Japan Revitalization Strategy adopted by the Cabinet on June 24 as the "third arrow" of Abenomics mark the start of the innovation process in the sense I have just mentioned. In particular, as for corporate tax reform, it should be noted that the first phase of the reduction of the effective corporate tax rate will begin in the fiscal year 2015 and that the rate will be reduced to the twenty percent range in several years. This will further improve the business environment in Japan, making it easier for foreign companies to make new investments and expand businesses here.
Social security system is the area most in need of innovation. The existing social security system, which assumes constant high economic growth and a pyramid-shaped demographic distribution is obviously no longer sustainable. Now is the time to face this harsh reality and to radically reform the current system. Specifically, social security benefits need to be prioritized and streamlined. The tax burden and social insurance premiums are also to be reformed in an integrated manner. In addition, the consumer tax rate should be raised to 10 percent as planned in order to secure a stable revenue to finance the social security system.
Innovation is also required to encourage greater workforce participation by women. Decisive change must be brought about in both the mind-set and the existing system to create a society where all people, regardless of gender, can contribute according to their skills and ambitions. In April this year, Keidanren released its Action Plan on Women's Active Participation in the Workforce which includes the formulation and publication of corporate action plan. The measures listed in the government's growth strategy are consistent with those in the Keidanren's Action Plan. Women's participation in the workforce should be promoted not merely as an obligation, but as a management strategy to survive global competition. Keidanren, by encouraging member companies to formulate action plans, will support voluntary corporate initiatives in this direction.
The last area in which I would like to stress that innovation is urgently required is agriculture. To boost competitiveness and turn agriculture into a growth industry, it is essential, in addition to the measures in the growth strategy, to expedite the consolidation of farmland and through such measures as further easing the restriction on corporate ownership of farmland, enable the enlargement of the size and the diversification of farming operation. Keidanren will reinforce its efforts by taking concrete steps to expand cooperation and partnership between industry and agriculture.
Alongside innovation, another key to attain "Japan Is Back" is to achieve growth within the context of the global economy. In the 21st century, corporate value chains extend globally. In such an age, Japan must project its strengths to the rest of the world and, conversely, actively absorb vitality and growth capacity found there.
From this perspective, promoting wide-area economic partnerships is of primary importance. At present, Japan is participating in the TPP, RCEP, and Japan-China-Korea FTA negotiations with a view to creating a FTAAP, Free Trade Area of the Asia-Pacific, by the year 2020. Of course, I am not forgetting the Japan-EU EPA, so please don't worry. By playing an active role in leading these negotiations to a successful conclusion, Japan will enable its companies to project their strengths worldwide and also to capitalize on the global economic growth.
A further point is to ensure a level playing field. Issues of primary importance in this context include reducing effective corporate tax rates and ensuring stable and economic energy supply, especially by swiftly restarting the nuclear power stations after having made sure of their safety. These measures are prerequisites for attracting more world-class companies to our country.
8. My final point is on the Japan-EU EPA. More than a year has passed since negotiations started in April last year. During this time, Keidanren has supported the talks from the side by strengthening dialogue with the European business community. In collaboration with BUSINESSEUROPE and the Federation of German Industries, Keidanren held sector-to-sector meetings in Brussels in April last year and March this year. Dialogue has become deeper and progress has been achieved in areas such as non-tariff measures. I have no doubt that the EU Ambassadors stationed in Japan are all in favor of concluding this negotiation rapidly in a mutually beneficial manner and I would like to take this opportunity to ask for your continued support.
Although Keidanren will continue to encourage industry dialogue with the aim to bringing the negotiation to a swift conclusion, in light of the objective in the growth strategy of making global rules for trade and investment, I think we need to shift into high gear. Given that emerging countries will account for an increasingly large portion of the global economy, Japan, the EU, and the US, sharing fundamental values, have to proceed as quickly as possible to make rules that are fair and transparent, and to harmonize technical regulations and standards, so that they can be extended to emerging markets. From this perspective, I am encouraged to note that both sides seem to share the view that 2015 should be the target for an in-principle agreement. What should be done to reach this goal, is the question that we at Keidanren will always bear in mind in pursuing further industry dialogue.
I would like to conclude by stressing again what I mentioned at the outset: that efforts made over the next few years will determine the fate of Japan in the 21st century. To demonstrate that "Japan Is Back," Keidanren will actively step up its efforts to collaborate with the political leaders. Politics and economics must go hand in hand to bring about a dynamic and prosperous Japan. Keidanren will strengthen its partnership with the government and, by making constructive suggestions and proposals, maximize the chances of achieving a strong economy and a strong Japan.
This concludes my presentation.