Newsletter No. 588
News-Analysis
April 28, 2007

 

The following newsletter has been contributed by Sandra R. Leavitt (Shingetsu Member No. 55) of Georgetown University.

JAPAN BOOSTS ECONOMIC DEVELOPMENT IN SOUTHEAST ASIA THROUGH AID AND INVESTMENT

Structural Reform Aid

In mid-April, 2007, Japan's Policy and Human Resources Development (PHRD) Trust Fund awarded a grant to the Indonesian government US$1 million to support ongoing reform of Indonesia’s tax administration system. The funds will be devoted to improving business processes, information technology and human resources development at the Indonesian Finance Ministry.

Darmin Nasution, the Director General of Taxation at the Indonesian Finance Ministry, expressed appreciation for Japan and World Bank support, while World Bank country director for Indonesia, Joel Hellman, praised Indonesia for its commitment to tax reform. “An efficient tax administration system is vital to improving an investment climate and mobilizing funds for development programs,” said Ken Okinawa, a spokesman of the Japanese Embassy in Jakarta.

Financial Markets

Japan is expected to become the first G8 state to issue Islamic bonds when sukuks worth $500 million are issued in Malaysia by the Japan Bank for International Cooperation (JBIC) in May or June 2007. Competition is fierce among states vying to become the international hub for the Islamic financial market. Those investing considerable efforts and resources toward this end include the UK, Singapore and Malaysia. Japan’s bond release boosts Malaysia’s role in this lucrative market, which is valued at US$1 trillion and has an annual growth rate of 19%.

Resource Extraction

Japan’s recent aid and commitment to the Mindanao-Sulu area of the Philippines has translated into increased investment opportunities for Japanese companies in that region. Sumitomo Metal Mining Co., one of Japan’s largest mining companies, announced plans in mid-April to expand its activities in Northeast Mindanao. With an additional investment of US$1 billion, Sumitomo will be able to extract cobalt and nickel, both vital for industrial production. The new project, expected to last thirty years, is eligible for incentives under the Philippines Investment Priorities Plan.

Manufacturing

Joint ventures between Malaysian and Japanese companies are beginning to produce the technology transfer results so hoped for by Malaysia when it signed an EPA with Japan recently. Miyazu Malaysia, formed as a collaboration between Proton Holdings of Malaysia and Miyazu Seisakusho and the Sojitz Corporation of Japan, is heavily investing in local technological and human capacity for automobile design, engineering and die manufacturing. Currently, Malaysia’s automotive manufacturing companies import approximately 90% of components. Miyazu Malaysia hopes to reduce this by 60% by 2012, according to a recent Bernama news release.

Meanwhile, Nissan Motor continues to expand its sales and manufacturing of multipurpose vehicles (MPVs) in Asia through its Indonesia-based plants. Last week, Nissan Motor Indonesia (NMI) introduced its Grand Livina model designed specifically for the local market with extra capacity and clearance during floods. It is assembled east of Jakarta. Indonesia is Nissan’s second-biggest MPV market after China. It will soon start exporting MPVs to Malaysia and Thailand as well.

Amidst growing international demand, Japan’s Matsushita Industrial Co., began in April producing liquid crystal display (LCD) TVs in Malaysia. This is Matsushita’s first Asian facility outside Japan. Initial production will be for the local Malaysian market and Singapore, but is expected to expand to other regional countries next year. Hitachi, Japan’s second-largest LCD-TV manufacturer, is following suit. Hitachi is currently investing in new facilities in Malaysia that will allow it to meet growing LCD-TV demand in Australian and Southeast Asia. Toshiba and Sony are also expected to expand overseas production and sales throughout Asia.