Unprecedented developments in the Saudi transport and logistics sector are set to further bolster the flourishing economic ties between Japan and Saudi Arabia.
Japan shares a long-standing business relationship with the Kingdom of Saudi Arabia. Having established an economic council in Saudi Arabia in 1955, the two countries have shared mutual progress and developed strong trade relations over time. The economic relationship between them is of great importance and considered an international model for constructive cooperation and strategic partnership.
The relationship is based on a solid foundation of institutional and organizational frameworks, represented by the Saudi-Japanese Joint Committee, the Saudi-Japanese Vision 2030, and the Saudi-Japanese Business Council that operates under the umbrella of the Federation of Saudi Chambers, as well as bilateral cooperation and understanding agreements in many fields.
Riding the wave of unprecedented transformation, guided by its Vision 2030 and the able leadership of Crown Prince Mohammed bin Salman, Saudi Arabia emerged as the fastest-growing economy in the Group of 20 leading rich and developing nations, which puts it on track to be a top-15 economy by the end of the decade. The transport and logistics sectors are key drivers of its ambition.
While Saudi Arabia is the main provider of oil to Japan, it is also a key market for Japanese vehicles. Also, increasing cooperation between Japan and Saudi Arabia in the oil and petrochemical industries has made Japan the third-biggest trading partner of Saudi Arabia. To sustain that momentum, Saudi Arabia is targeting $3.3 trillion worth of investments with Japan by 2030, as the two nations continue to increase cooperation in the energy sector for a smoother energy transition, with a focus on electricity, renewable energy, energy efficiency and innovation.
Expanding on the economic relations and further promoting trade and investment opportunities in various fields, the two nations signed 15 new strategic investment agreements in December 2022, spread across various industries during the Saudi-Japan Investment Forum held in Riyadh.
The agreements are aimed at driving investment in various industrial sectors including metals, marine, petrochemicals and automotive, with nearly 100 Japanese companies investing in the kingdom already. Utilizing its relationship with Japan, Saudi Arabia has committed to manufacturing 500,000 electric cars annually by 2030.
With a focus on emissions reduction, the two countries also signed a memorandum of cooperation in the circular carbon economy and carbon-recycling fields, as well as hydrogen, fuel ammonia and derivatives.
Japan aims to further increase cooperation in the sectors of entertainment and tourism — growing rapidly as a result of recent social and economic reforms in Saudi Arabia. Start-ups in Japan are eager to enter the Saudi market to take full advantage of the rapidly increasing investment opportunities and greater ease of doing business.
The ongoing significant developments in the Saudi logistics sector are set to revolutionize trade relations and open doors for increased bilateral cooperation between the two countries. As Saudi Arabia continues to develop its robust logistics sector, it can benefit from Japan’s advanced technologies and expertise in supply chain management, whereas Japan can further enhance its participation in the Saudi economy and reap benefits from the lucrative investment opportunities offered by the ever-expanding Saudi transport and logistics sector.
Leveraging its strategic location connecting the three continents of Asia, Africa and Europe, Saudi Arabia is striving to emerge as a new global logistics hub. In 2021, it launched the ambitious National Transport and Logistics Strategy, which provides a road map for the transformation of the country’s transport and logistics sector. Within two years of its launch, the sector has witnessed a rapid transformation and has built on human, technical and infrastructure capabilities that have been in progress for many years.
Guided by the NTLS, the Saudi Ministry of Transport and Logistics Services (MOTLS) is making concentrated efforts toward enhancing the country’s logistics infrastructure and facilitating seamless trade operations by modernizing ports, improving transportation networks and streamlining customs procedures and regulations. This is enhancing connectivity and efficiency and ensuring a smoother flow of goods and services.
Furthermore, the Saudi government has implemented digitalization initiatives to optimize logistics processes. The integration of advanced technologies such as blockchain, artificial intelligence and the Internet of Things will streamline supply chains, reduce costs and enhance transparency and security. These digital advancements align with Japan’s expertise in logistics technology, creating opportunities for collaboration and joint ventures.
The Saudi Arabian Ports Authority, which is responsible for managing ports and maritime activities, has been at the forefront of developing world-class port facilities in Saudi Arabia. The recent expansion of the King Abdulaziz Port in Dammam and the upcoming megaport project in Jeddah are prime examples of Saudi Arabia’s commitment to becoming a logistics powerhouse. These state-of-the-art ports will cater to increasing demand and handle larger cargo volumes, attracting international shipping lines and enhancing trade connectivity.
The United Nations Conference on Trade and Development’s Liner Shipping Connectivity index for the second quarter of 2023 ranks Saudi Arabia first in the Arab world and 16th globally in maritime transport. With three of its ports featured among the 100 largest ports in the world, Saudi Arabia is significantly raising the performance of its seaport network and is currently ranked fifth on an index of countries offering the quickest containership services.
The nation’s logistical transformation blueprint is already yielding significant results. The size of its maritime sector has doubled in the past decade, with more than 53,000 marine vessels registered in 150 countries transporting 11 billion tons of cargo annually throughout the nation.
The world has taken notice, too. For example, Saudi Arabia has moved up 17 places in recent years on the World Bank’s Logistics Performance Index, a prestigious ranking of global logistics powers.
Another critical measure of success is the volume of investments coming into the Saudi logistics sector, which has reached $559 million via more than 200 major contracts. As a result, the sector nearly doubled its general cargo throughput between 2021 and 2022 and increased its global market share of transshipment containers to nearly 32%.
To continue accelerating growth, MOTLS is establishing 59 logistics zones across the nation. Also, 19 industrial zones are being expanded to industrial logistics zones to accommodate the ever-increasing cargo traffic. The industrial logistics zones are to be developed through public-private partnerships, which have attracted investments totaling $7.7 billion.
The move is also aimed at supporting the growth and integration of supply chains and enhancing connectivity with regional and global supply chains. As part of the initiative, MOTLS has committed to agreements of more than $267 million to boost private-sector investment in domestic and global supply chains, thus stimulating industrial and economic growth. The ministry is also working closely with the public and private sectors to strengthen local supply chains and integrate small and midsize enterprises with large strategic industries to maximize local content in national products and develop industrial value chains for the products.
Paving the way for market liberalization and increased private-sector participation, the government is putting major efforts into enhancing its business-friendliness, making active reforms in governance structures and regulations. These changes have led to Saudi Arabia being ranked sixth on the latest Agility Emerging Markets Logistics Global Index, published in 2022.
The development of logistics platforms in Saudi Arabia is a major goal within the national strategy for transportation and logistics services. Strategic partnerships with dedicated service providers are being assessed by the authorities to further streamline air, land and sea transportation and logistical processes. Thus far in 2023, infrastructure development projects worth more than $160 million already have been awarded in the maritime sector alone.
The government is also signing build-operate-transfer agreements with private-sector companies to develop and operate container terminals at the Jeddah Islamic Port, which has attracted an investment of $2.4 billion. Eight other agreements have been signed to operate cargo facilities in other airports across the nation.
By 2030, Saudi Arabia plans to invest $147 billion in more than 300 projects in the transport and logistics sector, with about 65% of that spending coming from the private sector.
Japan is near the front of the line as a partner for Saudi Arabia because of its keenness to invest and collaborate on various projects, and its recognition of the immense potential of the Saudi Arabian logistics sector. Japanese companies are attracted to Saudi Arabia’s favorable business environment, strategic location and commitment to innovation and technology. The $3.3 trillion projected to be invested by the two nations by 2030 is expected to boost bilateral trade further, while fostering knowledge exchange, expertise transfers and job creation.
As Saudi Arabia and Japan strengthen their economic ties through the transformation of the logistics sector, the potential for increased trade and investment is vast. Synergies between the two countries, combining Saudi Arabia’s strategic location and ambitious economic reforms with Japan’s technological prowess, will unlock new opportunities for businesses and create a mutually beneficial relationship.
Saudi Arabia and Japan are doing no less than forging a new era of economic cooperation. By capitalizing on Japan’s logistics expertise and Saudi Arabia’s strategic initiatives, the kingdom is poised to become a global logistics hub, attracting investments and driving trade growth. The partnership between Saudi Arabia and Japan is set to redefine trade relations and create a win-win situation for both nations.
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