METI OFFICIAL DESCRIBES JAPANESE EXPERIENCE DOING

C O N F I D E N T I A L SECTION 01 OF 02 TOKYO 002241 SIPDIS E.O. 12958: DECL: 08/13/2018 TAGS: ETRD EINV PREL BEXP JA IZ IR SUBJECT: METI OFFICIAL DESCRIBES JAPANESE EXPERIENCE DOING BUSINESS WITH THE MIDDLE EAST REF: A. TOKYO 2142 ¶B. TOKYO 1541 Classified By: Ambassador J. Thomas Schieffer for reasons 1.4 (b/d). ¶1. (C) While Japanese media have reported positively on high-level discussions between the GOJ and Middle Eastern governments, Japanese efforts to attract investment and efforts to negotiate an Economic Partnership Agreement with the GCC, the actual exchanges have been challenging, according to working-level METI officials, and require managing expectations and balancing competing demands. The working level at METI also report significant cross-cultural problems for Japanese doing business in the Middle East. End Summary. -------------- Managing Expectations -------------- ¶2. (C) METI Middle East and North Africa Division Official Kenichi Shoji described what he felt were unreasonable expectations from Middle Eastern countries in a recent meeting with EconOffs. For example, Saudi Arabia has insisted Japan build manufacturing plants there. Such a move would be impractical, Shoji said, because manufacturing companies, whether auto, solar or other, require various supporting industries such as metal, parts, delivery services. Moreover, he explained, such plants would require skilled labor that may not be available in economies predominantly focused on oil-production. (Note -- while Shoji stated this point, we note instances where assembly of cars from imported kits have been underway in some Middle Eastern countries for years. End note.) ¶3. (C) As another example, Shoji remarked most of the recent meeting between Tehran Mayor Mohammed-Baqer Qalibaf and Japan's Ambassador to Iran Akio Shirota was "simply talk." The Tehran-based Mehr newspaper reported the mayor's hope for Tokyo and Tehran to become sister cities, for direct flights between the two capitals, and his desire to invite the Tokyo Governor to visit Tehran. Shoji downplayed these reports, but added Japan is genuinely interested in helping Iran develop energy-saving technologies. During a June 3 meeting in Rome with President Ahmadinejad, Prime Minister Fukuda offered assistance developing non-nuclear energy systems, if Iran complied with the international community's requests concerning nuclear inspections (ref B). On this point, Shoji said, the Mehr article was correct. -------------- Private Discussions -------------- ¶4. (C) Shoji said solar power is a field in which Japan has developed some particularly interesting technologies and that several Middle Eastern countries would like to work with Japan on solar power. Japan is also interested in working with Middle Eastern partners on renewable/alternative energy and on energy conservation projects. Japanese, in discussing prospective deals, however, have been shocked when information they thought they were sharing privately with one party was later repeated back to them by others. "If we talk about developing energy saving programs with one country, we'll receive a series of phone calls from other Gulf State countries asking why we did not offer the same arrangement to them," Shoji lamented. TOKYO 00002241 002 OF 002 -------------- Selectively Attracting Investment -------------- ¶5. (C) Shoji illustrated the problem of divergent business expectations with an example from the aviation industry. METI officials in the Gulf States are looking for prospective buyers for the new Mitsubishi Regional Jet, a new aircraft being developed by Mitsubishi Heavy Industries. In Saudi Arabia and the United Arab Emirates (UAE),however, the answer was, "we do not want the jet, but we will buy the company." Expressing consternation, Shoji explained Mitsubishi Heavy Industries, is a main player in Japan's aerospace, nuclear energy and defense sectors, and the GOJ would be concerned if more than a small portfolio share were purchased by any foreign buyer or fund. ¶6. (SBU) Nonetheless, GOJ officials are interested in attracting investment from the Middle East, especially from resource-based sovereign wealth funds. Investment from funds representing Japan's key energy suppliers is attractive to GOJ policy makers and business executives who expect these institutions might be less active than U.S. or European-based private equity or other such funds. During a mid-July visit to Kuwait, the United Arab Emirates, and Uzbekistan, then Finance Minister Fukushiro Nukaga listed attracting investment from the region's oil exporters as the top item in his agenda. Likewise, new METI Minister Toshihiro Nikai told reporters August 4 that Japan must step up efforts to attract investment from the Middle East. A day earlier, the Kuwait Investment Authority announced plans to triple investment in Japan over the next three years, mostly in Japanese real estate and listed equities. To increase Japan's attractiveness to outside investment, the GOJ recently concluded bilateral tax treaties with Kazakhstan and Brunei and announced plans to accelerate similar negotiations with the UAE, Saudi Arabia and Oman. Japan is also actively negotiating an Economic Partnership Agreement with the Gulf Cooperation Council countries. -------------- Comment -------------- ¶7. (C) On a personal note, Shoji said he had been assigned to work on Middle East issues, rather than volunteering. He served three years in Saudi Arabia as a GOJ official, and he and his family had found the culture shock profound. Despite press reports about generally improving economic relations between Japan and the Middle East, Shoji reported in his experience there is still a wide cultural gap to bridge in order for Japanese to do business in the Middle East. Shoji's remarks, track with others we have heard in the Japanese bureaucracy. SCHIEFFER