Crude oil heading east, Toyota cars heading west

The traditional image of trade relations between Japan and Saudi Arabia — crude oil heading east, Toyota cars heading west — is an oversimplification, but there is sufficient truth in it to make it more than a cliche.

 

Crude oil remains the main export of the Kingdom, and that will be the case for a long time, even as Vision’s plans for 2030 to diversify the economy away from oil dependence evolve; Japan— with no indigenous oil reserves, requires large energy imports to power its enormous production capability.

 

The Kingdom, on the other hand, wants those goods manufactured that Japan produces so efficiently— high-specific motor cars, electronic goods, and other consumer hardware. Oil-for-Land Cruisers are not very far from the mark.

 

The challenge for policymakers from the two countries wanting to move beyond that template is that apart from oil, there’s not much that Saudi Arabia produces that Japan wants.

 

That is in the nature of commodity-dependent economies and it will change only as Saudi Arabia develops new industries and technologies as intended by the Vision plan.

 

The National Logistics and Industrial Development Strategy implemented a year ago is the master plan for this industrial revolution.

 

It establishes a network of special economic zones throughout the Kingdom to incubate industry expertise, driven by the Fourth Industrial Revolution technologies and large foreign investment.

 

Japan is where the foreign element comes in. What the Kingdom wants is to learn from Japan’s innovation-driven economy, which necessarily involves some form of transfer of technology.

 

Saudi policymakers don’t bone about wanting to buy the technology that makes the Toyotas, as well as the cars themselves.

 

But in the past, these ambitions came up against challenges. It’s no secret that Saudi Arabia has been talking to Toyota about the possibility that Japan’s leading automaker could set up a production facility in the Kingdom for some time now.

 

That would bring jobs for Saudis, and the Japanese have perfected the hi-tech industrial skills, as well as an indigenous base for selling cars in the Saudi and Middle East markets.

 

But the talks have stalled over Japanese reservations about local workforce efficiency and cost, relatively small local market, and lack of local supplies and components.

 

It simply does not make financial sense for Toyota without a large subsidy from the Saudi Government.

 

While that impasse could be broken, or, say, another car manufacturer— from South Korea or China — might step in, it illustrates two factors that hold back Japan-Saudi trade and investment.