UAE product demand will rise in post-disaster Japan
Rushika Bhatia
Industry Watch

UAE product demand will rise in post-disaster Japan

A recent Dubai Chamber of Commerce and Industry study dealing with the Japanese earthquake, its economic cost, opportunities and challenges indicated that the Middle East region will have a positive impact from the country’s reconstruction efforts in post-disaster Japan.

The study further stated that the UAE, which is one of Japan’s major trading partners for imports, exports and re-exports, will benefit from the reconstruction work following the high magnitude earthquake as demand for UAE’s products like aluminium, copper, plastics, carpets and other textile and floor coverings may increase significantly in the coming days.

The study also pointed out that the demand for the UAE’s gas may possibly go up if Japan replaces its shortfall of nuclear power and imports a large quantity of gas from the UAE besides its regular oil imports from the Emirates.

As is well known, Japan is the main trading partner of Qatar, Kuwait, Saudi Arabia and Oman. Seventy percent of Japan’s oil supplies come from these countries. If Japan’s oil imports increase, it will positively impact those economies as well, added the study.

Pointing at countries adversely affected by the tragedy, the study stated that Singapore, Thailand, South Korea and other East Asian economies, which rely heavily on Japanese exports, may face some problems due to the current sluggish production process in Japan.

Japan is a major trading partner of Dubai as the country ranked 9th on the list of the Emirate’s top trading partners in 2010. The volume of Dubai’s non-oil trade with Japan reached AED 26 billion at the end of 2010, which is 2.7% higher than the 2009 figures. Dubai is home to 122 Japanese partnership and full ownership companies registered with Dubai Chamber.

According to a World Bank report, the cost of the disaster might cross USD 235 billion (AED 858 billion), which is estimated around 4% of Japan’s GDP and the disaster could become the costliest in Japan’s history.

Another report by Goldman Sachs Group Inc. predicts 0.7% to 1.3% decline in Japan’s GDP in the second quarter. Following the earthquake, tsunami and the subsequent nuclear crisis, the Japanese stock market skidded sharply, and in first two days of disaster, the Nikkei 225 index fell by 6.2% and 10.6% respectively, while within a few days, some US$ 458 billion (AED 1,672 billion) of equities lost significant value.

After the disaster, most of the companies are still trying hard to bring business back to normal. Giant automobile leader, Toyota has lost output of 140,000 vehicles and stopped its production in the calamity hit area. Sony followed suit and also suspended its operation in affected areas. Honda Motor Co. has announced a loss of 46,600 cars and trucks and 5,000 motorcycles since the catastrophe.

On the other side, the earthquake has severely affected the production capacity of Tokyo Electric Power Company to 34 gigawatts, a fall of 20-30%. Experts feared that if the cuts last for further three months, it could reduce manufacturing output by almost 14%, or ¥ five trillion (AED 0.22 trillion).

Japan is the third biggest economy of the world and contributes around 9% to the global economy. If the country’s economy goes in recession again, it might pose serious repercussions to the world economy. However, this is most likely not to happen, as past earthquake and other natural disasters in Japan had left very little effect on the world economy.

Citing the study of George Horwich on Kobe’s earthquake, which struck Japan in 1995, it is said that after Kobe’s earthquake, Japanese economy performed well and recorded a growth rate of 1.9% in 1995 compared with 0.9% growth in 1994. Within couple of months, port facilities had been restored.

In a year, imports and exports bounced back to their pre-disaster level. Moreover, after 15 months of the earthquake, manufacturing activity in Kobe witnessed a record growth. This time again, the Japanese are hoping for the same turn around.