INTERVIEW: Japan offers an illuminating view of Vision 2030 — Nomura executive Tarek Fadlallah

Illustration by Luis Grañena
Updated 11 September 2019

INTERVIEW: Japan offers an illuminating view of Vision 2030 — Nomura executive Tarek Fadlallah

Lebanon-born, British-educated, working for a Japanese bank in the Middle East — Tarek Fadlallah’s life and career reads like a chapter from a book on globalization.

“I’ve been lucky,” said the chief executive of Nomura Asset Management in the Middle East, the regional investment arm of one of Japan’s biggest financial institutions. “Japan seemed like a fascinating place and the lure of its largest investment bank was too great for a starry-eyed young man. It has given me a different perspective on finance and life in general.”

Fadlallah, who began with Nomura as a graduate trainee and stayed there for most of his professional life, highlights some similarities between Japan and the Middle East that may not be immediately apparent, as well as points of divergence.

“Both cultures share common philosophies around family values, tradition and loyalty, but there are clearly some big differences too. As part of the caravan routes over centuries, the Middle East has been open to other cultures and foreigners for a long time, whereas the Japanese islands were closed, and its people inward-looking for much of their history. This has shaped a cautious Japanese approach to their international affairs and to business.

“There are similarities here, too. I’ve found that business people in both Japan and the Middle East share a cautious management philosophy, and sometimes put off facing problems until they become unavoidable. This has often led to difficulties,” he said.

The business relationship between Japan and the Middle East centers on the Asian economic giant’s need for energy resources that it does not have at home, notably oil and gas. Japan gets the bulk of its oil imports from the Arabian Gulf, and most of that from Saudi Arabia. But it would be a mistake to suggest, as some have done, that it is a simple oil-for-electronics transaction.

“The Middle East is resource rich, while Japan is resource poor. So there has always been a strong potential synergy between them. But the trading relationship is not just about swapping oil for TVs — the Middle East has been a big investor in Japanese bonds since at least the 1998 Japanese banking crisis. And 5 percent of Toyota’s global production goes to the Middle East. There are lots of synergies across the resource-capital spectrum,” Fadlallah said.

Some economists have warned the global economy might be slipping into an era of “Japanification” — lost decades of economic stagnation, price deflation and low interest rates the country has endured. Some fear that Europe and even the US might be on the brink of a similar period of anemic economic growth.

If so, Japan — and many other Middle East economies — start with a distinct advantage. They have not allowed high levels of debt to build up in their economies, and — thanks to historically high energy prices — most Gulf economies still have plenty in reserve.

“The increase in global debt contrasts with the debt repayment of Japanese companies over the past 30 years. Now, there are imbalances in the global economy that are being amplified by monetary policies whose ultimate impact is unknown and potentially catastrophic. Japan is probably better positioned than most to see through a downturn,” Fadlallah said.



• Beirut 1966


• London School of Economics — bachelor’s in economics


• Graduate trainee, Nomura London

• Director, ABN Amro, London and Bahrain

• Director, Nomura Asset Management, Bahrain, Riyadh, Dubai

• Chief Executive Officer, Nomura Asset Management (Middle East)

A Japanese view on the big changes taking place in Saudi Arabia under the Vision 2030 strategy to reduce oil dependency is illuminating.

“Investors in Saudi Arabia are driven, first and foremost, by an analysis of data, and this shows that the economy is gradually rebounding after a difficult 2018. Rising consumer spending, evidenced by higher credit card purchases and soaring mortgage borrowing, and increasing capital investment by the private sector, is particularly encouraging.

“But diversifying the economy is immensely challenging and requires overhauling large sections of the economy that are highly dependent, both directly and indirectly, on oil related spending. Some will get hurt in the short term as subsidies are withdrawn.

“There is no doubt about the overall strategy or the direction of travel, however. It is correct and necessary, but it is also a truism the world over, that plans are easier to draw up than to execute. External headwinds, particularly as the world economy slows, are clearly not helpful. Foreign investors want to see quicker and more effective implementation of the overall privatization program, not just Aramco,” Fadlallah added.

There has been speculation recently that the Saudi oil giant might opt for Tokyo as the main foreign market for an initial  public offering (IPO) outside the Kingdom. Fadlallah thinks it is too early to comment on this prospect, but did say: “Recent announcements suggest a renewed determination to proceed with an IPO. Since the announcement of its likely listing, Aramco’s privatization process has been viewed by many foreign investors as the centre piece of the Kingdom’s economic reforms.”

Nomura operates a fully-licensed banking business in Riyadh, and Fadlallah travels there frequently. But he is based in the Dubai International Financial Centre in the UAE, and has pertinent views too on the UAE’s recent economic performance.

“The UAE’s economic performance last year was disappointing, and the consensus for this year shows only a slight uptick in growth, but lower interest rates through the end of this year will offer relief to the important real estate and retail sectors.

“The decline in residential housing prices and commercial rents have made Dubai competitive but maintaining a stable real estate sector is equally critical to the economy. Reducing building permits and reversing the increase in property taxes, as well as the tighter mortgage regulations that were imposed a few years ago, would be very helpful,” he said.

Just last week Dubai announced the formation of a top-level strategic committee to oversee the crucial real estate sector.

Fadlallah believes the future is bright for the UAE, and pointed to the recent sale of ride-sharing firm Careem to Uber for $3.1 billion as a prime example of the entrepreneurial business culture in the Emirates.

“The UAE continues to build a promising long-term future. It cannot escape the impact of lower oil prices, but its diversification efforts have already positioned it as the hub for non-oil related activity and from where many pan-regional businesses are emerging,” he said.

That optimism is tempered by a worrying backdrop in the global economy, however. “I’ve watched the global financial markets at close quarters for over 30 years, but you’re always learning, and the current environment is altogether different to anything we have seen in that period,” he said.

“It’s astonishing that eleven years after the global financial crisis, the major central banks are walking back on tentative attempts to normalize monetary policy by extending what were supposed to be ‘emergency’ measures. That shouldn’t be a good sign, yet US stock markets are close to their all-time highs,” Fadlallah warned.

The US-China trade war is high on his list of concerns. “President Trump is happy, but I’m slightly confused. Trump’s obsession with the stock market, and his eye on the next election, suggest that he will accept a deal with China soon and spin it as a win, but the damage is done.

“The lurch away from multilateralism and towards nationalism bodes poorly for international economic development and my biggest fear is that de-globalization will undo the benefits that have included increased global trade, prosperity and peace,” he said.

The chaotic situation in the UK over the country’s plans to leave the EU is also a worry. “Uncertainty over Brexit is hurting foreign investment in the British economy where Japan already has major manufacturing facilities, such as Nissan in Sunderland. Japanese companies have voiced their preference for Britain to remain part of the single market. It’s difficult to see any significant new commitments until the matter is resolved,” he said.

There is a glimmer of a silver lining in the UK situation for regional investors. “The interest of Middle Eastern investors is mainly in the real estate sector which has softened since the referendum, and while this has hit portfolio valuations, the opportunity to bargain hunt in the context of a weaker currency is becoming rather appealing,” he added.

Finally, Japan can teach the Middle East a lesson in how to get through periods of economic weakness. “Having witnessed the agonizing struggles of companies during the prolonged Japanese economic downturn, I am keen to share that experience with companies across the region as they look to adapt in a transforming economy.”

But Fadlallah warned: “Unfortunately, sincere advice is not always welcomed, especially when it goes against vested interests, and can sometimes be misinterpreted as criticism. The region faces enormous challenges, and we have to be big enough to rise to the task.”

South Korea downgrades Japan trade status as dispute deepens

Updated 18 September 2019

South Korea downgrades Japan trade status as dispute deepens

  • The change comes a week after South Korea initiated a complaint to the World Trade Organization
  • The new measures in effect mean it might take up to 15 days for South Korean companies to gain approvals to export sensitive materials to Japan

SEOUL, South Korea: South Korea on Wednesday dropped Japan from a list of countries receiving fast-track approvals in trade, a reaction to Tokyo’s decision to downgrade Seoul’s trade status amid a tense diplomatic dispute.
South Korea’ trade ministry said Japan’s removal from a 29-member “white list” of nations enjoying minimum trade restrictions went into effect as Seoul rearranged its export control system covering hundreds of sensitive materials that can be used for both civilian and military purposes.
The change comes a week after South Korea initiated a complaint to the World Trade Organization over a separate Japanese move to tighten export controls on key chemicals South Korean companies use to manufacture semiconductors and displays.
Seoul has accused Tokyo of weaponizing trade to retaliate against South Korean court rulings ordering Japanese companies to offer reparations to South Koreans forced into labor during World War II. Tokyo’s measures struck a nerve in South Korea, where many still resent Japan’s brutal colonial rule from 1910 to 1945.
According to South Korean trade ministry, the new measures in effect mean it might take up to 15 days for South Korean companies to gain approvals to export sensitive materials to Japan, compared to the five days or less it took under a simpler inspection process provided for favored trade partners.
Lee Ho-hyeon, a South Korean trade ministry official, said the change would affect about 100 local firms that export items such as telecommunications security equipment, semiconductor materials and chemical products to Japan. He said Seoul will work to minimize disruption to South Korean companies.
Japan for decades has enjoyed a huge trade surplus with South Korea, an economy that’s much more dependent on exports. Many major manufacturers heavily rely on parts and materials imported from Japan.
But the dispute is taking a toll. Exports to South Korea from Japan fell 9.4% last month, Japan’s Finance Ministry reported Wednesday.
The trade dispute between the neighbors erupted in July, when Japan imposed tighter export controls on three chemicals South Korean companies use to produce semiconductors and displays for smartphones and TVs, major export items for South Korea. It cited unspecified security concerns over Seoul’s export controls.
A few weeks later, Japan dropped South Korea from its own trade “white list,” triggered a full-blown diplomatic dispute that took relations between the US allies to their worst in decades.
The dispute has spilled over to security issues, with Seoul declaring it plans to terminate a bilateral military intelligence-sharing pact with Japan that symbolized the countries’ three-way security cooperation with the United States in the face of North Korea’s nuclear threat and China’s growing influence.
Following an angry reaction from Washington, Seoul later said it could reconsider its decision to end the military agreement, which remains in effect until November, if Japan relists South Korea as a favored trade partner.
Seoul announced its plans to downgrade Tokyo’s trade status in August before holding a 20-day period to gather opinions on the decision, during which the Japanese government voiced opposition to the move it described as “arbitrary and retaliatory,” Lee said.
He said Seoul needs to strengthen controls on shipments to a country that’s “hard to cooperate with” and fails to uphold “basic international principles” while managing export controls on sensitive materials.
South Korea previously divided its trade partners into two groups in managing export controls on sensitive materials. Following Wednesday’s change, South Korea now has an in-between bracket where it placed only Japan, which would mostly receive the same treatment in trade as the non-favored nations in what had been the second group.