Vision 2030 and the Transformation of Saudi–Japanese Economic Relations

Makio Yamada Research Fellow January, 2017 King Faisal Center for Research and Islamic Studies Vision 2030 and the Transformation of Saudi–Japanese Economic Relations Abstract The visit of Deputy Crown Prince Mohammed bin Salman to Tokyo in August and September 2016 resulted in the beginning of the reconfiguration of Saudi–Japanese economic cooperation into one that responds to the goals of Vision 2030 and the National Transformation Program 2020. In recent years, the two states have been keen on transforming their energy- based bilateral relationship into what they have referred to as a ‘strategic’ and ‘multi-layered’ relationship. Today, as Saudi Arabia accelerates its efforts to achieve a transition to a post-oil economy, they have begun to cooperate on the creation of more diverse economic ties between them, through the newly formed Saudi– Japanese Vision 2030 Joint Group. Riyadh is aiming to develop new economic sectors such as renewable energy, tourism and entertainment, and the digital economy, as well as promoting localization of the energy and defense industries. Consequently, it expects investment in these sectors from the world’s third largest economy. Tokyo also desires to strengthen its cooperation with the largest oil supplier to its economy for the sake of energy security. Policy-makers from both states agree that human capital development is one of the key factors that will determine the outcomes of the efforts made by the two governments.

3 Introduction Since the visit of Deputy Crown Prince (DCP) Mohammed bin Salman to Japan in August and September 2016, Saudi Arabia and Japan have been working on the transformation of their bilateral relationship into one responding to the goals and targets of Vision 2030 and the National Transformation Program (NTP) 2020, which were announced earlier this year. This paper will shed light on the dynamics of that transformation; it consists of five parts: (i) Overview; (ii) Background; (iii) What Saudi Arabia aims to gain from Japan; (iv) What Japan aims to gain from Saudi Arabia; and (v) Prospects.

1. Overview DCP Mohammed bin Salman, who is also a defense minister of Saudi Arabia, visited Japan for four days between 31 August and 3 September following his three-day visit to China.1 Following his arrival in Japan on the evening of 31 August, DCP Mohammed visited Japan’s Imperial Palace on the morning of 1 September to greet Japan’s Emperor Akihito, and had a meeting with Japan’s PM Shinzō Abe (安倍晋三) at the latter’s office in the afternoon of the same day. At the end of their meeting, seven memorandums of understanding (MoUs) were exchanged between Saudi Arabia and Japan (Table 1).2 The following day, DCP Mohammed also met Japan’s Crown Prince Naruhito at his residence, and held talks with Japan’s defense minister Tomomi Inada 稲田朋美( ) too. Prior to his meeting with Inada, an MoU for promoting exchange between the defense ministries of the two states were signed.3

Table 1: 7 MoUs exchanged between Saudi Arabia and Japan during the DCP–PM meeting No. Name of MoU 1 Promotion of cultural exchange 2 Cooperation against counterfeit products 3 Cooperation in the field of small and medium-sized enterprises (SMEs) 4 Cooperation in the field of energy 5 Industrial cooperation 6 Cooperation between the Japan International Cooperation Agency (JICA) and the Saudi Development Fund (SDF) 7 Cooperation between Kyodo News and Saudi Press Agency Source: The Ministry of Foreign Affairs Japan

1- After his visit to Japan, DCP flew back to China to attend the G20 summit in Hangzhou as head of the Saudi delegation (“Saudi Prince to Discuss Reform Drive in Visits to China, Japan”, Al Arabiya, 25 August 2016). DCP, known as being fond of Japanese culture, in particular anime, privately visited Japan for his honeymoon before (“サウジ副皇太子、来日ヘ 日本アニメに詳しい親日家”, 朝 日新聞, 24 August 2016). 2- Ministry of Foreign Affairs Japan, “安部総理大臣とムハンマド・ビン・サルマン・サウジアラビア副皇太子との会談”, 1 September 2016, http://www.mofa.go.jp/mofaj/me_a/me2/sa/page4_002309.html [accessed 30 September 2016]. 3- Ministry of Defense Japan, 日サウジアラビア防衛相会談（概要）“ ”, 2 September 2016, http://www.mod.go.jp/j/press/youjin/201602/09/_gaiyo.html [accessed 30 September 2016].

4 DCP Mohammed and PM Abe agreed on the formation of the ministerial-level Saudi– Japanese “Vision 2030 Joint Group” (ビジョン 2030共同グループ) as a platform to discuss, plan, and implement bilateral cooperation projects aimed at achieving the goals of Vision 2030 through the participation of Japanese firms and institutions. The first meeting of the Joint Group took place in Riyadh on 9 October. The meeting was attended by Japan’s economy, trade, and industry minister Hiroshige Sekō世耕弘成 ( ) and three Saudi ministers: the economy and planning minister Adel Fakeih, the commerce and investment minister Majid Al-Qasabi, and the energy, industry, and mineral resources minister Khalid Al-Falih.4 The meeting saw the creation five working groups to continue discussions on detailed plans of cooperation in the following fields: (1) trade and investment; (2) finance; (3) energy and industry; (4) SMEs and human capital development (HCD); and (5) culture and sports. The second meeting of the Joint Group is expected to take place in Tokyo in the spring or summer of 2017.5

2. Background: Saudi–Japanese Relations in Recent Years Saudi Arabia and Japan celebrated the 60th anniversary of their diplomatic relationship in 2015. Since 1955, the two countries have maintained a reciprocal relationship based on energy trade: Saudi Arabia has been an irreplaceable source of Japan’s oil imports while Japan has been a major destination of Saudi oil exports. In addition, Arabian Oil Company (アラビア石油), a Japanese private oil company, produced oil in Al-Khafji in the former Saudi– Kuwaiti neutral zone between 1961 and 2000.6 Since the beginning of the current century, the two countries have been accelerating their endeavors to develop the bilateral relationship beyond the energy nexus. In January 2001, Tokyo revealed its new policy toward Saudi Arabia and other Gulf Cooperation Council 7 (GCC) countries aimed at building ‘multi-layered relationships’ (重層的関係) with them. Subsequently, Riyadh and Tokyo began referring to their bilateral relationship as a ‘strategic partnership’ (戦略的パートナーシップ) in April 2006, around the time of Crown Prince Sultan’s 8 visit to Tokyo and meeting with PM Junichirō Koizumi (小泉純一郎).

4- Ministry of Foreign Affairs Japan,薗浦外務副大臣の「日・サウジ・ビジョン “ 2030共同グループ閣僚級会合／第12回日・サウジ合同委員会」への出 席及びサウジアラビア訪問（結果）”, 9 October 2016, http://www.mofa.go.jp/mofaj/press/release/press4_003791.html [accessed 10 October 2016]. 5- Ministry of Economy, Trade, and Industry Japan,世耕経済産業大臣がサウジアラビア王国に出張しました “ ”, 9 October 2016, http://www.meti.go.jp/press/201620161011006/20161011006/10/.html [accessed 20 October 2016]. 6- 庄司太郎『アラビア太郎と日の丸原油』エネルギーフォーラム, 2007. 7- Ministry of Foreign Affairs Japan,湾岸諸国との重層的な関係に向けた新構想 “ ”, 9 January 2001, http://www.mofa.go.jp/mofaj/press/enzetsu/13/ekn_0109.html [accessed 12 October 2016]. 8- Ministry of Foreign Affairs Japan, “共同声明 日本・サウジアラビア王国間の戦略的・重層的パートナーシップ構築に向けて”, 6 April 2006, http://www.mofa.go.jp/mofaj/kaidan/yojin/arc_06/jsaudi_sengen.html [accessed 12 October 2016]

5 In truth, however, Saudi–Japanese economic relations were already beginning to be diversified following the period of the first oil boom (1973–83). Responding toSaudi Arabia’s first industrial expansion then, two petrochemical joint ventures were formed in the Al-Jubail Industrial City between Saudi Arabian Basic Industries Corporation (SABIC) and Japanese consortiums led by companies from Mitsubishi Group (三菱グループ). As Saudi Arabia embarked on its second industrial expansion during the new oil boom in the mid- 2000s, aiming at the consolidation of its global leadership in the production of basic petrochemical products and extending production-chains further downstream to labor- intensive manufacturing sectors, Japan came to be counted as a key industrial partner once again.9 The bilateral industrial cooperation was boosted with the creation of the Japan–Saudi Arabia Industrial Cooperation Taskforce (日本サウジアラビア産業協力タスクフォース) in Tokyo following PM Abe’s visit to Saudi Arabia in May 2007, during his first premiership (September 2006–September 2007). The Taskforce cooperated with Saudi Arabia’s National Industrial Clusters Development Program (NICDP), a program then jointly supervised by the Ministry of Petroleum and Mineral Resources and the Ministry of Commerce and Industry with the objective of nurturing targeted manufacturing sectors, to promote investment by Japanese firms in the Saudi economy.10 The two organizations have so far succeeded in launching eight industrial projects in the Kingdom, including the truck-assembly plant of Isuzu Motors 11 (い すゞ自 動 車 ) in Dammam, which opened in December 2012. Another major bilateral industrial project is Rabigh PlusTech Park, an industrial park currently under development in Rabigh, the town close to the King Abdullah Economic City in the north of Jeddah. The project began with the creation of Petro Rabigh, an equally owned petrochemical joint venture between Saudi Aramco and Japan’s Sumitomo Chemical (住友化 学). It was the first petrochemical project of Saudi Aramco, and Petro Rabigh launched one of the world’s largest refinery-integrated petrochemical complexes, producing 1.3 million tons per annum of ethylene in April 2009.12 Rabigh PlusTech Park, which is adjacent to the complex, has been attracting both Saudi and foreign producers in the conversion industries that will process petrochemical products produced by Petro Rabigh into manufacturing products.13 Following Japan’s political experiment during the three years of the administration of the now-defunct Democratic Party of Japan (民主党) between 2009 and 2012 – during which the earthquake, followed by the Fukushima nuclear disaster, hit Japan in March

9- Makio Yamada, “Gulf-Asia Relations as ‹Post-Rentier› Diversification?: The Case of the Petrochemical Industry in Saudi Arabia”, Journal of Arabian Studies, 1(1), 2011: 99–116. 10- National Industrial Clusters Development Program, http://ic.gov.sa/ [accessed 13 October 2016]. 11- Japan–Saudi Arabia Industrial Cooperation Taskforce, http://www.saudiarabia-jccme.jp/ [accessed 13 October 2016]. 12- Petro Rabigh, http://www.petrorabigh.com/ [accessed 13 October 2016]. 13- Rabigh PlusTech Park, http://rabighplus.com/ [accessed 13 October 2016].

6 2011 – 14 the two states began reinvigorating bilateral exchanges upon Abe’s re-election to the premiership in December 2012 and the return of his Liberal Democratic Party (自由民主党) to power. PM Abe visited Saudi Arabia again in April and May 2013, and then-Crown Prince Salman paid a visit to Japan in return in February 2014, pledging the further development of bilateral ties.15

3. What Saudi Arabia Aims to Gain from Japan The main objective of DCP Mohammed’s visit to Japan is considered to be strengthening and diversifying Saudi Arabia’s economic ties with the world’s third largest economy, whose gross domestic product (GDP) was $4.12 trillion in 2015,16 as part of the Saudi government’s efforts to realize the goals and the targets set out in the Vision 2030 and the NTP 2020. Following the announcement of them in April and June this year, respectively, DCP Mohammed visited the world’s largest economy (the US) in June and the second largest economy (China) in August before traveling to Japan. Vision 2030 identifies the new economic sectors the Saudi government is targeting in order to achieve the transition of the Saudi economy to a post-oil economy: “We will support promising sectors and foster their success so that they become new pillars of our economy. In the manufacturing sector, we will work towards localizing renewable energy and industrial equipment sectors. In the tourism and leisure sectors, we will create attractions that are of the highest international standards, improve visa issuance procedures for visitors, and prepare and develop our historical and heritage sites. In technology, we will increase our investments in, and lead, the digital economy… At the same timeas diversifying our economy, we will continue to localize the oil and gas sector… Our aim is to localize over 50 percent of military equipment spending by 2030. We have already begun developing less complex industries such as those providing spare parts, armored vehicles and basic ammunition. We will expand this initiative to higher value and more complex equipment such as military aircraft.”17

14- Following the earthquake, Japan received liquefied petroleum gas (LPG) worth $20 million from SaudiArabia as emergency assistance for citizens in the areas affected by the earthquake (Ministry of ForeignAffairs Japan, “サウジアラビア政府からの支援”, 11 May 2011, http://www.mofa.go.jp/mofaj/press/release/2304_0511/5/.html [accessed 20 October 2016]). 15- Ministry of Foreign Affairs Japan,安倍総理大臣のサウジアラビア訪問（概要） “ ”, 1 May 2013, http://www.mofa.go.jp/mofaj/kaidan/page4_000069.html [accessed 13 October 2016]; Ministry of Foreign Affairs Japan, “安倍総理大臣とサルマン・サウジアラビア皇太子との会談（概要）”, 20 February 2014, http://www.mofa.go.jp/mofaj/me_a/me2/sa/page4_000382.html [accessed 20 October 2016]. 16- World Bank, “Gross Domestic Product 2015”, http://data.worldbank.org/data-catalog/GDP-ranking-table [accessed 30 September 2016]. 17 - Vision 2030.

7 The basic strategy of Saudi Arabia is to invite foreign investment first to createthe production base of these new sectors, and then gradually ‘Saudize’ production through the transfer of knowledge, skills, and technologies from foreign investors to local workforces. This strategy was formed through the development of the oil and petrochemical industries in recent decades.18 As a first step in the reconfiguration of Saudi–Japanese economic cooperation into one contributing to the development of these new economic sectors, the “Saudi–Japanese Business Forum for Vision 2030” was convened on the sidelines of DCP Mohammed’s visit to Tokyo. The Forum, which took place on 1 September, was attended by Japan’s economy, industry, and trade minister Sekō and several Saudi ministers and key officials, as well as 532 participants from both countries (Table 2).19 The Forum witnessed the exchange of 11 MoUs between Saudi and Japanese firms and institutions (Table 3). Saudi Aramco, being a counterparty of six MoUs, was central to these new initiatives, reflecting the goal of Vision 2030 to transform the company from an oil company into a “global industrial conglomerate”.20

Table 2: Saudi Representatives at the Saudi–Japanese Vision 2030 Business Forum in Tokyo Name Position Ibrahim Al-Assaf Minister of Finance (إبراهيم العساف) Khalid Al-Falih Minister of Energy, Industry, and Mineral Resources (خالد الفالح) Majid Al-Qasabi Minister of Commerce and Investment (ماجد القصبي) Mufarrej Al-Haqban Minister of Labor and Social Development (مفرج الحقباين) Adel Fakeih Minister of Economy and Planning (عادل فقيه) Ahmad Al-Khatib President, General Authority for Entertainment (أحمد الخطيب) Yasir Al-Rumayyan Managing Director, Public Investment Fund (ياسر الرميان) Source: Japan Cooperation Center for the Middle East

18 - Makio Yamada, Beyond Oil: The Political Economy of Saudi–East Asian Industrial Relations, 1953–2013. Doctoral Thesis, University of Oxford, 2015. 19 - Japan External Trade Organization, “日本企業の多様な対サウジアラビア投資に期待「ビジョン 2030」ビジネスフォーラムを東京で開催”, 15 September 2016, https://www.jetro.go.jp/biznews/2016159/09/c1d775ab470ee.html [accessed 30 September 2016]. 20- Vision 2030.

8 Table 3: 11 MoUs exchanged at the Saudi–Japanese Vision 2030 Business Forum No. Name of MoU 1 Studies on setting up manufacturing operations 2 Cooperation in the field of energy efficiency 3 Cooperation in the field of waste-to-energy power plant 4 Cooperation between Saudi Electricity Company and Mitsubishi Corp. 5 Cooperation in the field of training local workforces 6 Cooperation in the field of LPG emergency relief: Saudi Aramco 7 Studies on the production of solar modules: Saudi Aramco and Showa Shell 8 Studies on the production of tubular goods: Saudi Aramco and Sumitomo Corp. 9 Cooperation between Saudi Aramco and Mizuho Financial Group 10 Cooperation between Saudi Aramco and the Bank of Tokyo-Mitsubishi UFJ 11 Cooperation between Saudi Aramco and Sumitomo Mitsui Banking Corp. Source: 産経新聞; Personal communications

In addition, the Japan Cooperation Center for the Middle East 中東協力センター( ), a public– private partnership, created a handbook listing 26 Japanese firms and institutions and addressing how each of them can contribute to the achievement of the goals of Vision 2030. The handbook, entitled “Japanese Strategic Partners for Saudi Arabia’s Vision 2030”, was handed to the commerce and investment minister Al-Qasabi at the Forum, and later to DCP Mohammed too.21 Furthermore, DCP Mohammed and Saudi ministers and officials, on a number of occasions during their stay in Japan, expressed a call for Japan’s participation in Saudi Arabia’s economic transformation initiatives. In what follows, the developments in each of the targeted sectors will be described. Renewable energy: The NTP sets a target of producing 3.45 gigawatts of power, or 4 per cent of the total power consumption, through renewables by 2020, with a 35 per cent rate 22 of local content contribution. Saudi Aramco agreed with Showa Shell (昭 和シェル ) to study the production of solar modules in the Kingdom. Showa Shell is a Japanese refinery firm, 15 per cent of which is owned by Saudi Aramco.23 Its affiliates include Solar Frontier (ソーラーフロンティア), a solar energy firm which implemented Saudi Aramco’s Al-Midra Tower 10.5 megawatts solar car park project in Dhahran in 2012.24 This solar car park has so far been the largest solar power project in Saudi Arabia.

21- 中東協力センター, “26の企業と団体が「Saudi Vision 2030」の「戦略的パートナ」として名乗り”, 8 September 2016, http://www.saudiarabia-jccme.jp/ [accessed 30 September 2016]. 22- National Transformation Program 2020: 74. 23- Aramco Overseas Company, “Showa Shell Affiliation”, https://aramcooverseas.com/about/joint-ventures/showa-shell-joint-venture/ [accessed 30 September 2016]. 24- “Solar Frontier Trumpets Module Performance in MENA Installation”, PV Magazine, 5 September 2013.

9 Tourism and entertainment: The key strategy of the Saudi government to develop tourism is to link it with culture and national heritage. The NTP sets the target of increasing the number of museums from 155 in 2015 to 241 by 2020.25 During DCP Mohammed’s visit, a Saudi the Secretary General of the King Abdulaziz ,(فهد السماري) delegation led by Fahd Al-Samari ,and the advisor at the Royal Court (دارة امللك عبدالعزيز) Foundation for Research and Archives visited museums in Tokyo to hold discussions on how these museums present their collections and contents to the public. The museums the delegation interacted with included Edo-Tokyo Museum (江戸東京博物館), Tokyo Fuji Art Museum (東京富士美術館), and the National Museum of Emerging Science and Innovation (日本科学未来館).26 In the field of entertainment, Ahmad Al-Khatib, president of the General Authority for Entertainment, a governmental organization created in May 2016, reportedly had a meeting with representatives from SEGA Sammy Holdings (セガサミーホールディングス), an amusement business firm, to discuss cooperation.27 The digital economy: DCP Mohammed, as well as the energy minister Al-Falih and the managing director of the Public Investment Fund (PIF) Al-Rumayyan, had a meeting with Masayoshi Son (孫正義), CEO of Soft Bank (ソフトバンク), a Japanese multinational telecom firm. Following their meetings in Tokyo, Son signed a MoU with the PIF in Riyadh on 12 October. Under the envisioned plan, Soft Bank will establish a provisionally titled “Soft Bank Vision Fund” and seek investment into it by the PIF and other global investors, with the objective of investing globally in the field of technology. Soft Bank plans to invest $25 billion in the fund over the next five years, and the PIF will consider an investment of $45 billion in the same period. Soft Bank expects that the fund will develop into the size up to $100 billion.28 Localization of the energy sector: In December 2015 Saudi Aramco launched a local content which aims ,(اكتفاء :development initiative called “IKTIVA” (In-Kingdom Total Value Add to supply 70 per cent of energy-related goods and services locally by 2021.29 The company agreed with Sumitomo Corporation (住友商事) to study the production of tubular goods used in the oil and gas fields in the Kingdom.30 Localization of the defense industry: During his talk with Japan’s defense minister Inada, DCP requested Japan’s cooperation in the development of this sector.31

25- National Transformation Program 2020: 66. 26- “Saudi Delegation Gets Insights into Tokyo Museums”, Arab News, 3 September 2016. 27- “副皇太子が会いたかった意外な人物”, 日本経済新聞, 19 September 2016. 28- Soft Bank Group, “「ソフトバンク・ビジョン・ファンド」の設立に関するお知らせ”, 14 October 2016, http://www.softbank.jp/corp/news/press/sb/201602_20161014// [accessed 17 October 2016]. 29- Saudi Aramco, “Saudi Aramco Launches ‘Local Content Development’ Supplier Initiative”, 1 December 2015, http://www.saudiaramco.com/en/home/news-media/news/IKTVA-PROGRAM.html [accessed 30 September 2016]. 30- “官民のサウジ投資加速 ジェトロ等がフォーラム開催”, 産経新聞, 2 September 2016. 31- Ministry of Defense Japan, 日サウジアラビア防衛相会談（概要）“ ”, 2 September 2016, http://www.mod.go.jp/j/press/youjin/201602/09/_gaiyo.html [accessed 30 September 2016].

10 4. What Japan Aims to Gain from Saudi Arabia Not surprisingly, Japan’s foremost interest in its economic relations with Saudi Arabia remains energy. Since the time of the Second World War, the absence of natural resources has been the Achilles Heel in Japan’s national security. Thus, Japan, since the early 1970s onwards (when Aramco began to be nationalized), has developed a ‘technology-for-oil’ exchange with Saudi Arabia in order to safeguard its energy security.32 This strategy has also offered Japanese firms opportunities to globalize their businesses beyond their traditional markets in the West, East Asia, and Southeast Asia. Although the global oil glut since the latter half of 2014 has provided Japan with greater opportunities to diversify the sources of its oil imports, Saudi Arabia remains the largest and an irreplaceable source of oil imports for Japan. Oil from Saudi Arabia accounted for 33.5 per cent of Japan’s total oil imports in 2015,33 while in the same year Japan was the second largest export partner of Saudi Arabia after China.34 At the first meeting of the Vision 2030 Joint Group in Riyadh in October, the two states agreed on increasing oil storage capacity in Okinawa 沖縄( ) (an island in Southern Japan), which Saudi Aramco maintains in cooperation with Japan Oil, Gas, and Metals National Corporation (石油天然ガス鉱物資源機構), a semi-governmental enterprise, from the current 6.3 million barrels to 8.2 million barrels. Saudi Aramco, since 2011, has been using this storage to supply oil to other East Asian countries too under the condition that Japan keeps the priority access to its stockpiles in the case of a supply emergency.35 In addition, the Japanese government and Japan’s finance sector have been exploring the possibility of being involved in Saudi Aramco’s planned partial privatization, which will be an initial public offering (IPO) of up to five per cent of the company. Japan’s three leading private banks – Mizuho (みずほ銀行), Tokyo-Mitsubishi UFJ (三菱東京UFJ銀行), and Sumitomo Mitsui (三井住友銀行) – signed MoUs with Saudi Aramco, offering their support in introducing potential business partners among Japanese SMEs to the Saudi oil company-in-transition.36 While Saudi Aramco reportedly plans to list its shares on the stock markets in New York, London, and Hong Kong in 2018,37 Japan’s economy, trade, and industry minister Sekō 38 has requested the company list its share on the Tokyo Stock Exchange東京証券取引所 ( ) too.

32- Makio Yamada, Beyond Oil: The Political Economy of Saudi–East Asian Industrial Relations, 1953–2013. Doctoral Thesis, University of Oxford, 2015. 33- Agency for Natural Resources and Energy Japan, 平成27年資源・エネルギー統計年報（石油）: 91. 34- General Authority of Statistics Saudi Arabia, “Exports 2015”, http://www.cdsi.gov.sa/ [accessed 16 October 2016]. 35- “Saudi Aramco, Japan to Expand Okinawa Crude Storage Deal: CEO”, Reuters, 1 September 2016; “経産相、サウジで「国営石油 の東証上場を」経済閣僚に要請”, 日本経済新聞, 9 October 2016. 36- “官民のサウジ投資加速 ジェトロ等がフォーラム開催”, 産経新聞, 2 September 2016. 37- “Saudi Aramco IPO to Offer Stake in All Operations of Company”,Gulf News, 6 October 2016. 38- “経産相、サウジで「国営石油の東証上場を」経済閣僚に要請”, 日本経済新聞, 9 October 2016.

11 During his stay in Tokyo, DCP Mohammed reportedly met representatives from the Tokyo Stock Exchange.39 On the other hand, when asked about the possibility of the Japanese government directly investing in the company, Yasutoshi Nishimura 西村康稔( ), an advisor to PM Abe, denied it.40

5. Prospects As Saudi Arabia accelerates its efforts to diversify its economy away from oil, its economic relations with Japan, which were seen as energy-centered in the past, have begun to undergo transformation too. While Saudi–Japanese economic cooperation in non-oil sectors has so far been limited to a few sectors, mainly petrochemicals, the rise of new economic sectors targeted by Vision 2030 and the NTP 2020 – such as renewable energy, tourism and entertainment, the digital economy, and the localization of the energy sector – is likely to pave the way to more diverse economic exchanges between the two countries. Policy-makers of both states share the view that the key to the success of greater Saudi– Japanese cooperation in these new economic sectors is human capital development. One of the largest challenges facing the Saudi reform initiatives is making economic diversification and labor nationalization compatible with each other, and this requires the effective narrowing of the skills mismatch between schools and the labor market in the Kingdom, through provision of appropriately designed industry-oriented education and training programs for young Saudi citizens. Today, over 80 per cent of the private sector jobs in the Kingdom are still occupied by expat workers, and the proportion of expat workers remains particularly high among technical professions – considered to be over 90 per cent.41 The Saudi government is aware of this, and the NTP 2020 set the target of increasing the proportion of high school graduates enrolled at technical and vocational schools from 7 per cent in 2015 to 12.5 per cent by 2020,42 as well as creating the “King Salman University for Technical and Vocational Education”.43 The skills mismatch is a concern for Japanese firms investing and considering investing in Saudi Arabia too. Japanese government officials discussed with DCP Mohammed during his stay in Tokyo the barriers facing Japanese investors in the Kingdom: one of them is that some firms have been

39- “副皇太子が会いたかった意外な人物”, 日本経済新聞, 19 September 2016. 40- “Japan’s PM Adviser Says No Gov’t Plan to Invest in Saudi Aramco”,Reuters , 16 September 2016. 41- “Saudi Work Force in Private Sector Rises by 10%”, Arab News, 7 July 2016; “97% of Engineering Jobs Occupied by Foreigners”, Arab News, 23 August 2016. 42- National Transformation Program 2020: 57. 43- Ibid.: 101.

12 experiencing difficulty in recruiting qualified Saudi technical workers,44 partly because of Saudi citizens’ preference for public sector jobs and state-owned enterprises such as Saudi Aramco and SABIC.45 Over the past decade, the Saudi government has sent over 700 Saudi students to Japanese universities on the King Abdullah Scholarship Program (now called the Custodian of the Two Holy Mosques Scholarship Program), including 460 currently studying in Japan.46 Japanese firms and institutions also run three technical training schools in the Kingdom in the fields of auto mechanics, plastics fabrication, and the maintenance of home appliances. It is desirable that the two countries further increase their cooperation in the field of human capital development to support the diversification of the Saudi economy and deepen bilateral economic relations.

44- 中東協力センター, “センターの中西会長、サウジアラビアのムハンマド副皇太子に拝謁”, 8 September 2016, http://www.saudiarabia-jccme.jp/ [accessed 30 September 2016]. 45- “Saudi Graduates Still Prefer Government Jobs”, Arab News, 17 January 2014. 46- On 3 September, the last day of his visit in Tokyo, DCP Mohammed met Saudi students on the Program and directed that Saudi students studying Japan without governmental scholarships will also be included to the Program (Royal Embassy of Saudi Arabia Cultural Office Japan, “كلمة سعادة امللحق بمناسبة زيارة صاحب السمو املليك ويل ويل العهد لليابان وصدور أمر خادم الحرمني الشريفني بضم الدارسني عىل حسابهم الخاص لعضوية البعثة” يف 1-12-1437هـ. 8 September 2016, https://saudiculture.jp/news/3807/ [accessed 7 October 2016]).

13 King Faisal Center for Research and Islamic Studies (KFCRIS) The King Faisal Center for Research and Islamic Studies was founded in 1403/1981 in Riyadh, Saudi Arabia. The Chairman of the Center’s board is HRH Prince Turki Al-Faisal bin Abdulaziz, and its Secretary General is Dr. Saud bin Saleh Al-Sarhan. The Center’s activities include strategic studies, special reports, field research, polls, conferences, panel discussions, and workshops on various subjects and fields. The Center provides in-depth analysis on contemporary political issues, Saudi and regional studies,and Arabic language and modernity studies. KFCRIS collaborates with prestigious research centers around the world, employs a group of distinguished researchers, and maintains contacts with a wide range of experts in various research areas. The Center also offers a variety of training programs designed to meet the needs of the labor market and to enhanceand refine the skillsand experience required of young Saudis in various fields of work. The Center is also home to a library containing rare manuscripts, an Islamic art museum, King Faisal Memorial Hall, and a visiting fellows program.

The mission of the King Faisal Center for Research and Islamic Studies is to be a beacon for humanity, as envisioned by the late King Faisal bin Abdulaziz. Through research and studies, the Center seeks to stimulate cultural and scientific activities for the service of humankind, to enrich cultural and intellectual life in Saudi Arabia, and to facilitate collaboration betweenthe East and the West.

P.O.Box 51049 Riyadh 11543 Kingdom of Saudi Arabia Tel: (+966 11) 4652255 Ext: 6892 Fax: (+966 11) 4162281 E-mail: [email protected]