Tokyo Story

Japan and Saudi diversify trade

Japan and Saudi seek cooperation beyond oil.

Saudi King Salman bin Abdulaziz Al-Saud waves as he attends Saudi-Japan Vision 2030 Business Forum in Tokyo

Almost half a century since the last Saudi royal visit to Japan, the mood couldn’t be more optimistic. Following extended visits to Malaysia and Indonesia, King Salman arrived to Tokyo to oversee the signing of multiple Memorandums of Understanding between both state and private actors for the development of joint business and industrial ventures.

Perhaps the most significant development of the visit so far was the joint announcement of what is now known as the Japan-Saudi 2030 Vision, and agreement which seeks to promote further economic integration and development between the two nations. Beyond the agreements already settled upon during the visit (which have covered manufacturing, agriculture, and energy), Saudi Arabia has pledged to set up a new special economic zone (SEZ) to attract Japanese companies to come and set up bases in the Kingdom.

Deregulation, preferential tax treatment and simplified customs procedures will give Japanese companies a competitive edge within these zones. Special criteria will also be explored to facilitate the granting of visas for Japanese nationals seeking to do business in Saudi Arabia.

The SEZ will be named the “Enabler Showcase Zone” and will host research and development facilities as well as major manufacturing plants. Japanese car manufacturer Toyota is looking into training personnel in Saudi Arabia, and has apparently inked a feasibility study agreement to evaluate the establishment of a factory in the SEZ.

Other developments include an agreement between the Saudi sovereign wealth fund and Japanese firm Softbank to work together on a multi-billion-dollar technology investment fund. The Saudi Stock Exchange and the Japan Exchange Group have also stated their intention to seek broader cooperation in the future, including the cross listing of shares and other financial products.

High up on the list of priorities for the Saudi King during this visit is the continued promotion of what is said to be the biggest IPO in world history. Saudi Aramco will float 5% of its shares in 2018, and the promotion of this has remained a focus of King Salman’s trip through Asia.

While it is more likely that Saudi Aramco will choose to float its equity on the London or New York stock exchanges, the Tokyo Stock exchange will also be studied as a possible host for the stock at the request of Prime Minister Abe. These agreements were not forged overnight however, having been first discussed during Deputy Crown Prince Mohammad bin Salman’s visit to Japan last Summer.

If all these agreements come to fruition in the near future, this visit could mark a considerable shift in Saudi-Japanese relations. While Saudi Arabia supplies around 30% of Japan’s oil imports, its economic relations have so far rarely extended beyond the energy market. Japan is keen on securing its supply of hydrocarbons, but as Saudi Arabia pushes its diversification agenda, a number of new investment opportunities could appear in the Kingdom for Japanese companies.

In 2016, Japan imported around USD18 billion in goods from Saudi Arabia, mostly oil products, while it exported only around USD5 billion. Renewed relations with the Kingdom could create much wider opportunities for exports, particularly in the areas of high-tech products, pharmaceuticals, and logistics.

At the time of writing, the Saudi King has already said its goodbyes to the Japanese high-representatives and moved on to China, from where he will then visit the Philippines to conclude his month-long tour of Asia.