Oil to outer space: the changing face of UAE-Japan trade

ispace

• The UAE provided 42% of Japan’s crude oil imports in July
• But their trade relationship is changing and expanding
• Spacetech, AI and sustainable energy are among the growth areas

When the Emirates lunar mission is launched next month, the trade relationship between the UAE and Japan will be taken to a whole new level – approximately 384,400km higher.

The Rashid rover will be transported to the moon on a lunar lander made by Japanese company ispace. The exact date has yet to be confirmed, but a week-long window in November has been earmarked for the launch from Cape Canaveral in Florida, on a SpaceX Falcon 9 rocket.

The mission is set to add the UAE and Japan to the (extremely short) list of nations that have managed to land a craft on the moon. It’s part of the changing face of Tokyo’s trade with the Middle East, which has long been dominated by energy. 

• Emirates space agency names astronaut for 6-month ISS mission

• Galactic ambition: the UAE’s mission to Mars is just the start
• Egypt eyes more green ‘Samurai’ bonds amid Japanese demand

Japan’s reliance on foreign hydrocarbons to fuel domestic consumption and industrial production has grown since the Fukushima nuclear accident in March 2011.

In July this year, the UAE alone provided 42 percent of its crude oil needs, supplying close to 34 million barrels. In total, Japan imported 81.05 million barrels of crude in July, with 97 percent supplied by Arab countries.

Two months later, other parts of the UAE-Japan relationship took centre-stage when the two countries signed a strategic partnership agreement.

Key sectors for the deal – agreed after a meeting in Tokyo between Sheikh Khaled bin Mohamed bin Zayed Al Nahyan, chairman of the Abu Dhabi Executive Office, and Fumio Kishida, the prime minister of Japan – include technology, infrastructure, artificial intelligence, healthcare and SMEs.

WAM

Other priority areas are agriculture, manufacturing, climate change solutions, education, science and technology, plus defence and security. Under the agreement, UAE citizens will also be exempt from visa requirements to enter Japan in a bid to boost tourism. 

Zhouchen Mao, head of research and advisory at think tank Asia House, told AGBI: “As trade and investment between the Gulf Cooperation Council and Asia continues to rapidly recover from the COVID-19 pandemic, we expect economic relations between the UAE and Japan to continue to strengthen.”

Aside from hydrocarbons, he said, “there are also increasing opportunities in the sustainability drive between the two countries, with the UAE set to host COP28 in 2023 and likely to position itself as a regional and global leader on climate change ahead of the conference.

“Japanese expertise, investments and technology have spurred cooperation in non-oil sectors, including fintech, construction of smart transport and artificial intelligence.”

Hayashi Yoshimasa, Japan’s minister for foreign affairs, also predicts that bilateral trade will deepen in areas such as renewable energy, new energy with hydrogen and ammonia, science and technology, education, infrastructure and space technology, “going beyond our established cooperation in the traditional energy sector”. 

The UAE is Japan’s 10th largest trading partner globally, according to 2021 statistics, and Japan’s largest in the field of energy. 

The volume of non-oil trade between the two countries amounted to more than $13.3 billion in 2021. During the first half of 2022, it returned to pre-coronavirus levels, reaching around $7bn, an increase of 2.7 percent compared to the first half of 2021.

Latest figures from the Observatory of Economic Complexity reveal that Japan exported goods and services worth $610m and imported $3.6bn from the UAE in June. 

In the 12 months to June, Japanese exports have increased by 27.5 percent while imports increased by 157 percent. Top exports of Japan were cars ($160m), while imports were dominated by crude petroleum.

More than 340 Japanese companies in the UAE

The UAE is home to more than 340 Japanese companies operating in sectors including technology, renewable energy, transportation, healthcare, infrastructure and manufacturing.

Noboru Sekiguchi, consul-general of Japan in Dubai, said the two governments had worked together in recent years to expand the scope of cooperation in education, renewable energy and space exploration. 

The Emirates space agency first went into orbit with Japanese partners in 2020: its Mars mission – a probe called Hope – was launched from the Tanegashima Space Centre in southern Japan on an H-2A rocket made by Mitsubishi Heavy Industries. 

“This is one among many contributions by Japan to the UAE’s space explorations, and the achievement gives us literally a ‘hope’ for the future of our bilateral cooperation,” said Sekiguchi.

Many Japanese enterprises have established their MENA headquarters in Dubai.

“The abolishment of the required majority shareholding ratio of the UAE nationals in the foreign investments… could be a tailwind policy for Japanese corporations who generally prefer 100 percent capital investments,” Sekiguchi pointed out.

“Even the Japanese companies who have established their offices in the free zones see the new policy as a positive development in the UAE as it allows them to operate their businesses not only inside but also outside of the free zones.”

Last month, another UAE-Japan deal was unveiled: Emirates Steel Arkan announced a partnership with Itochu Corporation and JFE Steel Corporation to explore the construction of a ferrous raw material production facility in Abu Dhabi.

Japanese investments in the country currently exceed $4bn, accounting for 3 percent of foreign direct investment inflows and more than 8.2 percent of investments from Asian countries. 

At the same time, the UAE is one of the most important Middle Eastern investors in Japan, with assets valued at $1.2bn as of the end of 2020, representing a 40 percent of total investment in Japan from the region.

According to the Organisation for Economic Co-operation and Development, the Japanese economy is set to pick up from a slow start to the year, with growth hindered by COVID confinement measures, weak external demand and surging prices for energy, materials and commodities. The OECD forecasts GDP growth of 1.7 percent in 2022 and 1.8 percent in 2023.