[ Nippon Keidanren ] [ Policy ]

A Vision for Strengthening Economic Ties with Arab Nations

December 7, 2009

Nippon Keidanren (Japan Business Federation)
Committee on the Middle East and North Africa

Over the course of many years, Japan has built positive relationships with the Arab nations. We have established mutually beneficial economic ties with oil-producing countries in particular by importing petroleum resources from them and exporting automobiles, machinery, steel, and other products in return. The Arab world is a diverse region, home to many countries that have positioned themselves as hubs of trade or have succeeded in promoting themselves as major tourist destinations, thereby freeing themselves almost completely from the dependence on oil money. Even in the oil-producing states, meanwhile, there have been moves in recent years to diversify the industrial structure out of concern for boosting employment among younger people or protecting the environment.

In ensuring sustainable development into the future, both Japan and the Arab nations face a growing need to bolster the cooperative relations among them. As the Arab nations put more energy into the diversification described above, Japan is in a position to extend its support to Arab nations, based on its own developmental experiences, and to further forge complementary economic relations with them. Japanese companies, too, by making full use of their strengths and taking part in continued cooperation in line with the needs of the nations where they do business, have a positive impact on Arab countries in the form of expanded trade, jobs creation, technology transfer, and the spread of related services. From these perspectives, the Japanese business sector is committed to forging even stronger ties with the nations of the Arab world, giving proper consideration to their diversity.

It is against this backdrop that the first meeting of the Japan-Arab Economic Forum, bringing together governmental officials and private-sector representatives from Japan and Arab states, is taking place. This forum provides an extraordinarily significant framework for promoting dialogue and deepening mutual understanding between the two sides. It is expected to play a key role in terms of laying the groundwork for the creation of strategic, multilayered partnerships in the future. We wholeheartedly welcome the realization of this forum, one that ambassadors to Japan from Arab League member nations have worked with the Japanese side to bring to fruition for many years.

The Japan-Arab Economic Forum will see exchanges of views aimed at the strengthening of international ties into the future. With respect to industrial promotion, enhanced trade and investment, jobs creation, and the environmental and other global-scale issues that are key topics of discussion, the Japanese business world takes the views described below in considering appropriate forms for future Japanese-Arab cooperation.

1. Cooperating to Promote Industry and Create Jobs

The countries of the Arab region have achieved solid economic growth across the board in recent years. The resource-rich nations in particular have enjoyed high growth rates; these countries, however, continue to depend primarily on their natural resources for their revenues, and have only limited capacity in industries providing broader employment. At the same time, nations throughout the region—both oil producers and others—have high birthrates and rapid population growth, especially in younger generations. These trends are confronting them all with the structural issues of burgeoning youth populations and the resultant rising unemployment. Unemployment among younger generations could hamper economic growth over the medium to long term, which is why the region's nations are implementing political and social reforms and placing priority on the creation of new employment opportunities for young people through the enhancement of workers' abilities and the diversification and advancement of industrial structures.

The nations of the Middle East are in fact now picking up the pace of their efforts to lessen their reliance on oil and diversify their economies. The Emirate of Dubai, for example, has positioned itself as a hub of transit trade by building its central port facilities. The emirate has also set up a free trade zone alongside its port facilities, providing such incentives as the abolition of restrictions on foreign capital in order to attract foreign corporations. Dubai has thereby succeeded in making itself a center for processing trade as well, and has achieved an economy that scarcely depends on petroleum exports. The region is home to a number of other states pursuing this diversity. In particular, the members of the Gulf Cooperation Council (GCC) are fostering core industries ranging from the upstream areas of oil and natural gas extraction to refining and petroleum chemicals, and even materials industries like aluminum refining and direct reduction steelmaking, which make use of the cheap, plentiful gas and electricity resources available to them. This strategy is promoting the spread of peripheral industries like plastics and processed metal products, thereby creating new jobs.

Through direct investment and technology transfer in advanced industrial fields, the Japanese business community hopes to forge strategic partnerships in broad industrial fields going beyond the energy sector, thereby helping to bring about further diversification and advancement in Arab economies, as well as increased employment. With support from the Japan-Saudi Arabia Industrial Cooperation Task Force, we have already seen some success in this area, such as investment in the region from Japanese firms. From now on the important task will be to build best practices based on these examples and roll out more such projects.

Human resources are at the root of any industrial diversification or advancement. We hope the national governments in the region will expand their investment in education. The Japanese side, too, is prepared to pursue public-private partnership efforts to foster human resources through education and jobs training, thus laying the foundation for further regional investment.

2. Promoting Tourism

Tourism is particularly promising as an industry that can serve as part of increasingly diverse economies. Tourism includes more than just the travel industry: it is closely related to transport, restaurants, manufacturing, entertainment content creation, and other diverse industrial areas as well. A robust tourism industry leads directly to economic growth and the promotion of employment. Countries like Egypt, Jordan, Morocco, Syria, Tunisia, and Yemen, with their extensive resources including historical structures registered as World Heritage sites, are of course popular tourist destinations, but the region has other examples of nations successfully establishing urban-based tourism industries in recent years. Dubai, for instance, has outfitted itself with airport infrastructure and resort facilities, and is putting energy into boosting its entertainment and leisure industries, attracting "health tourist" visitors, organizing sporting events, and marketing itself as a site for international conferences. Taking all the add-on effects into account, fully 33% of Dubai's GDP comes from tourism-related industries.

The Japanese business community is committed to contributing in such areas as creating peripheral infrastructure for tourism resources and providing relevant services in destination areas. Furthermore, we hope to learn much from the tourism successes of Arab countries, such as marketing strategies to draw foreign tourists, and put this knowledge to work in establishing Japan as a prime global tourist destination.

3. Boosting Trade and Investment

The nations of the Arab region form a massive market of some 330 million people. The region's purchasing power is on the rise, thanks to economic development and other factors, and its presence as a consumer market is becoming more significant. Amid these conditions, it is essential for Japan and the Arab nations to do away with tariff and nontariff barriers to trade and to liberalize the flow of goods between them in order to increase economic welfare on both sides.

In an increasingly globalized world economy, further liberalization and facilitation of trade and investment will be of direct benefit to both Japan and the countries of the Arab world. At the governmental level, it is important to establish legal frameworks including economic partnership agreements, free trade agreements, investment treaties, and tax conventions. Negotiations are currently under way on the Japan-GCC Free Trade Agreement; it is hoped that this FTA will be completed at an early date. In order to make the Japan-GCC FTA compatible to rules of the World Trade Organization, it is necessary to do away with tariffs on substantially all trade including transportation machinery like automobiles, auto parts, and trucks, which account for more than half of Japan's exports to GCC nations.

In the past Japanese direct investment in Arab economies was not especially active. More recently, however, particularly in the GCC members, a series of large-scale Japanese investments have gone toward energy, power generation, chemical plants, and other fields, and the investment amount is growing rapidly. Northern African Arab nations, meanwhile, are strengthening economic ties with the Middle East and sub-Saharan Africa, as well as looking to foster their manufacturing industries, aiming to become export bases with an eye on the formation of a free-trade zone including them and the European Union. The nations of Northern Africa are accordingly making plans for roads, harbors, power plants, and other needed infrastructure, leading to expanded business opportunities. Other fields where there is a potential for cooperation include food, housing, medical care, and education, all of which are expected to see stronger demand in economies where the population is rising rapidly.

The further promotion of liberalization in services trade and investment, making it easier for corporations from Japan and other foreign countries to set up bases of operations and do business in the region, will lead to the diversification and advancement of industrial structures and the creation of job opportunities for younger people. In the industrial fields outlined above, it is hoped that Arab nations will relax or eliminate foreign-capital restrictions and other barriers to market access and adjust domestic regulations that hamper the activities of foreign investors, such as restrictions on property ownership.

In areas where commitments in services trade and investment are made, it will also be important to relax restrictions on the issuance of work visas and residence permits to foreigners. This will prepare an environment in which foreign workers can freely play an active role, either as intracorporate transferees or on a contract basis.

The region is already home to some examples of free trade zones, where tariffs have been abolished and the entry of foreign capital and movement of natural persons have been liberalized. From the viewpoint of achieving further industrial diversity and creating more jobs, it is hoped that future moves will advance trade and investment liberalization in areas outside these free trade zones as well.

At the same time, in order to forge stronger reciprocal ties, it will also be important to expand exports of high-value-added products from Arab nations to Japan and investment directed to Japan. Efforts in these areas will lead to more vibrant partnerships in the future.

4. Tackling Environmental, Energy, and Other Global Issues

In recent years, the Arab nations have seen increasing demands for electric power and other forms of energy as their populations have risen and they have built various types of infrastructure. To respond to this rising energy demand, it will be key to improve the energy efficiency of the process of manufacturing products and of the products themselves. Reducing energy use means using the limited resources available to us more effectively, and it leads directly to enhanced energy security and lower costs. The development of renewable energy sources will also be effective. Some concrete measures are already being taken in this connection. The Emirate of Abu Dhabi, for example, is putting efforts toward solar power generation, taking advantage of its climatic conditions. It is also showing leadership by hosting the headquarters of the International Renewable Energy Agency (IRENA), among other steps. Many Arab states have introduced wind power facilities, which in Egypt and other nations are the focus of large-scale promotion plans. Furthermore, a number of the region's countries are promoting nuclear power as an energy source. The promotion of lower energy use and the development of renewable energy sources contribute to the prevention of global warming, and it is hoped that these positive efforts from each nation will continue.

In response to the sincere efforts of these Arab nations to tackle global-scale environmental and energy issues, Japan intends to provide top-level technologies and know-how through cooperation between the public and private sectors. This will be contingent on the provision of appropriate protections for intellectual property rights. Japan is also prepared to work toward the broader use of energy-efficient products. In this connection, we hope to see the nations of the Arab world taking a forward-looking part in the ongoing World Trade Organization talks on lowering or abolishing tariffs on environmental goods.

Arab nations, particularly the Middle Eastern region, face harsh climatic conditions, and demand for water has been climbing rapidly due to population growth and urbanization. There are also fears of worsening groundwater pollution. We will examine the prospects for specific ways we can contribute through public-private cooperation in the field of new technologies, including those for water desalination, sewage treatment, and waste processing.

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