Japan, Russia sow new business seeds

Nikkei Weekly, 06.05.2013

$1 billion fund to help Japanese firms cultivate neighbor's infrastructure, farming, medical fields

The scope of Russo-Japanese cooperation is set to expand, after the two countries signed a broad economic agreement late last month.

Natural resources and energy have long been the focus of the nations' economic relations. But the memorandum of understanding, inked April 29 during a visit to Moscow by Prime Minister Shinzo Abe, covers fields such as medicine, agriculture and infrastructure as well.

One of the core initiatives is the creation of a financial assistance framework for Japanese companies expanding into Russia. The Japan Bank for International Cooperation and the Russian Direct Investment Fund will each contribute $500 million in seed money and select projects for investment.

Including private-sector investment, the pool of cash is expected to swell to billions of dollars.

Attractive market

Japanese firms will help to develop infrastructure in Eastern Siberia and build so-called smart cities. They will also introduce cutting-edge medical technologies.

To give companies the confidence to invest in Russia, Nippon Export and Investment Insurance (NEXI) and the Export Insurance Agency of Russia will set up a new insurance program to shield businesses from bankruptcy and terrorism risks.

Russia is keen to reduce its reliance on the energy sector, aiming to create 25 million jobs for highly skilled workers by 2020. Moscow believes Japanese technology and expertise can help to reach the goal.

For Japanese companies, meanwhile, Russia is an enticing market thanks to its geographical proximity and massive economy. Just five countries have both a population exceeding 100 million and per-capita gross domestic product of more than $10,000. Japan and Russia belong to this club, as do the U.S., Brazil and Mexico.

Companies in Japan also see Russia as a key jumping-off point for entering Central Asian markets.

Japanese business activity in Russia was on the rise even before the pact was signed. According to Japan's Ministry of Foreign Affairs, 444 of the nation's companies were operating in Russia as of October 2011, nearly 100 more than four years earlier. Since 2008, direct investment has exceeded $300 million a year.

Underscoring corporate Japan's desire to put down deeper roots in Russia was the fact that over 100 senior executives accompanied Abe on his visit. The delegation was one of the largest ever to tag along with a prime minister abroad.

A round-table discussion on investment in Russia, held April 29 and sponsored by the Russian Direct Investment Fund, involved more than 200 corporate personnel.

Another forum on April 30 focused on a few specific fields: urban infrastructure construction and energy, medicine and cutting-edge technologies, and agriculture and food.

Joint development

What specific projects are in the works?

In one, Hitachi Ltd., Nikken Sekkei Ltd. and others plan to provide information systems and urban planning know-how to help Moscow reduce air pollution and traffic congestion.
Japanese firms also hope to leverage their world-leading energy-saving systems and information technology. Smart community projects are being planned for urban centers including Moscow and St. Petersburg.

Kawasaki Heavy Industries Ltd. intends to focus on selling high-efficiency gas turbines. It is part of a consortium that has already signed a memorandum of understanding with a Russian real estate firm for smart-city construction.

Companies with high-tech medical systems, meanwhile, are targeting the growing ranks of wealthy Russians.

Japan and Russia intend to jointly build a hospital and equip it with Sumitomo Heavy Industries Ltd.'s newest boron neutron capture therapy system.

BNCT, which can destroy cancer cells without damaging surrounding cells, is considered effective in treating recurrent cancers. Japan is a global leader in BNCT-related research and development.

Sumitomo Heavy plans to seek the Russian government's approval to start clinical testing. BNCT treatment will not come cheap - the company estimates it will cost around 3 million yen ($30,600) per person.

Japanese foodmakers are hoping to cultivate the Russian market, too. Kikkoman Corp. plans to sell soy sauce made in Holland, with a marketing strategy centered on proposing recipes for using the condiment in Russian dishes.

Japan and Russia also agreed to work together to develop the Russian Far East.

The region's population has shrunk from more than 8 million in 1991 to 6.27 million in 2012. At the same time, an inflow of migrants from China has created concern about border security.

Cooperation will focus on agriculture and energy. In one initiative, Japan will promote personnel exchanges between farmers in Hokkaido and Amur Oblast, which have similar climates. Hokkaido Bank will support the project.