A high-profile visit with vision in mind
A high-profile visit with vision in mind
Thus when Deputy Crown Prince Mohammed bin Salman, second deputy premier and minister of defense, visits Japan and China next week, he will be greeted as an old friend.
The Kingdom has been a major oil supplier to both countries. These contracts have been notable for their stability. Even as its economy has slowed, China’s demand for energy has remained strong. Saudi crude imports continue to be a trusted source. The Kingdom is Beijing’s largest oil supplier. China has a Saudi trade deficit. In 2014, its Saudi imports were $48.5 billion. This was principally for oil and petrochemicals. By contrast, China’s sale of goods and services to Saudi Arabia was $20 billion.
Japan has no domestic hydrocarbon reserves. It is therefore reliant on oil and its imports. Much of Japan’s gas is supplied as LNG from Indonesia. But Saudi Arabia has long been a key oil supplier. In 2014, Japanese imports from Saudi Arabia were worth $14.5 billion while the Kingdom bought $9.9 billion worth of goods from Japan.
These figures hint at the important role that China and Japan can play in Saudi Vision 2030. This January, Chinese president Xi Jinping began his Middle East tour in Riyadh. He arrived almost ten years to the day after the late King Abdullah broke new diplomatic ground by visiting Beijing.
Officials on both sides had done a great deal of preparatory work. No less than 14 separate agreements and memoranda of understanding were signed. Among them was a framework agreement between Saudi Aramco and the Chinese National Company for Petrochemicals. Other projects ranged from energy to science and technology, satellite navigation, renewables and nuclear power. Beijing will provide an important technology input for development of our non-oil economy. Two deals covered Saudi investment in ground-breaking Chinese environmental schemes. The technological benefits of these projects will ultimately feed back to the Kingdom.
Japan already has an extensive record of investment in Saudi projects. As early as 1957, a Japanese oil firm was granted an exploration and production license. In 1971, the late King Faisal paid a state visit to Tokyo. Commercial links have since grown steadily. Japan’s involvement in the Kingdom has focused principally on petrochemicals. It now has 74 Saudi joint ventures with projects capitalized at SR67.4 billion.
Japanese trading companies have a reputation for careful research and analysis. They will establish themselves in a country and patiently watch and assess market opportunities. They are prepared to wait for the right deals, not the first deals that come along. Thus Japan is well equipped to understand the Saudi market. Its trading companies fully appreciate the potential for their country’s companies. The extent of Japan’s existing commitments fully demonstrates this.
After concluding his visit to Japan, the deputy crown prince will go to China for the G-20 summit in Hangzhou. The leaders of the world’s major economies have much to discuss. Global growth is once more slowing. There are fears of a return of recession. But Prince Mohammed will bring some positive news. He has already made successful presentations of his Vision 2030 in the United States and France. This will be the first time that he has been able to set out Vision during the G-20 summit.
The Kingdom is fortunate. Despite weak oil prices, it has sufficient resources and the political will to invest for growth. The increase in the Kingdom’s wealth generation will come from the non-oil economy. The Vision cannot be achieved without foreign financial and technological investment. Since it became a full World Trade Organization member in 2005, Saudi Arabia has steadily honored its obligations under WTO rules. It now conforms to global corporate and regulatory standards. It has a stable business environment.
So at a time when international companies are casting around for profitable new opportunities, Saudi Arabia offers considerable prospects. This key message to his G-20 colleagues will doubtless be inspirational. Instead of pulling in its financial horns, the Kingdom has decided to go invest for growth. By the time the international confidence picks up, Saudi Arabia will be well into its ambitious economic transformation.