UAE's Role in Global Trade

The Geographic Significance of the UAE in the Context of Japan's Strategic Interests

Introduction

The United Arab Emirates (UAE) is a federation of seven emirates on the southeastern tip of the Arabian Peninsula. It holds a unique geographic significance that resonates with the strategic interests of countries worldwide. Among these nations, Japan, which has one of the world's largest economies, recognizes the immense value of the UAE's location, primarily as it acts as a gateway to both Africa and Europe and its proximity to the strategically crucial Strait of Hormuz.

UAE: The Gateway to Africa and Europe

The UAE’s position between the Asian subcontinent, Africa, and Europe gives it a seamless maritime link to the burgeoning markets of Africa. Via the Suez Canal, it offers a direct route to the Mediterranean and further into Europe. As a testament to the canal's significance, approximately 12% of global trade by volume traverses through it, with an estimated 50 ships passing through daily, carrying goods valued at around $3 billion (MFAT, 2021). This is important for Japan, which has had longstanding trade affiliations with European nations and emerging economic relations in Africa. It inherently values the geostrategic significance of the UAE. Due to its geography as gateway to Africa and Europe, the UAE acts as an optimal hub and point of transshipment, bridging varied time zones and ensuring efficient logistics. In fact, Japan's trade with Europe alone accounted for about 12.4% of its total trade in 2022, which means a hub like the UAE is vital to its shipping endeavors (Workman, 2023).

Furthermore, the eminence of the UAE's geographic stance is accentuated by its state-of-the-art ports, especially the Jebel Ali port in Dubai. This port stands as one of the globe's most substantial and industrious ports, handling over 13.7 million TEU (Twenty-Foot Equivalent Units) in 2020 (Hallak, 2022). Modern facilities such as Jebel Ali provide Japan with the requisite logistics wherewithal to assure prompt delivery of diverse goods, ranging from electronics and vehicles to other pivotal trade commodities, catering to various destinations in both Africa and Europe. To quantify this, Japan exported goods worth approximately $91 billion to Europe and around $9 billion to Africa in 2022 (Japan External Trade Organization, 2020).

In essence, the geographical prominence of the UAE, embellished by modern infrastructure and pivotal maritime routes, plays a decisive role in Japan's expanding global trade ambitions, specifically targeting Europe and Africa.

Perhaps even more critical to Japan's strategic interests is the UAE's proximity to the Strait of Hormuz. This narrow passage connects the Persian Gulf to the Gulf of Oman and the Arabian Sea beyond, and it is one of the world's most significant maritime chokepoints. An estimated one-third of the world's liquefied natural gas and almost 25% of total global oil consumption passes through the Strait, making its stability paramount to the world's energy markets (U.S. Energy Information Administration, 2021). Japan, being heavily reliant on oil imports, is particularly sensitive to disruptions in this region. The majority of its crude oil imports travel through the Strait of Hormuz, sourced primarily from the Middle East (Ministry of Economy, Trade and Industry, Japan, 2016). Thus, the stability and security of this strait directly impact Japan's energy security. Recognizing the UAE's strategic location adjacent to the strait, Japan sees it as a reliable partner ensuring the safe passage of its vessels. The close relations between Japan and the UAE play a pivotal role in guaranteeing that Japan's energy and cargo needs are met without interruptions.

The UAE: Stability in a Conflict-Prone Region

In the geopolitical mosaic of the Middle East, characterized by multifaceted tensions and conflicts, the UAE emerges as a noteworthy exception. As nations in the vicinity grapple with political upheavals, sectarian strife, and socio-economic challenges, the UAE has managed to carve a niche for itself as a stable and progressive nation. This stability, juxtaposed against the region's tumultuous backdrop, is not just pivotal for its own socio-economic development but is also a linchpin for countries like Japan, which are vested in ensuring unimpeded trade and energy flows from the region. For countries like Japan, which heavily rely on the Middle East for their energy needs and view the region as a crucial trade partner, the stability of the UAE is important. Given the volatility that occasionally disrupts oil supplies and trade routes in the region, a stable partner like the UAE offers reassurance and continuity. For instance, Gulf News (2019) points out that the “UAE wholly endorses international efforts to safeguard vital maritime passage” through the Strait of Hormuz. Due to countries like Iran seizing ships, it is important to see the UAE stand up and urge greater security over the shipping lanes, as this signals to Japan that its cargo can expect a reasonable degree of security under the UAE’s watchful vigilance.

Indeed, the Jerusalem Center for Public Affairs pointed out in the wake of the Arab Spring that “the UAE has stood out as one of the most stable Arab states and a key ally of the West as a whole” and that it frequently “looks like an island of stability. Indeed, this is an attribute in which the UAE leadership takes pride. In 2011, its leading think tank, the Abu Dhabi-based Emirates Center for Strategic Studies and Research (ECSSR), asserted that the UAE had become ‘a model of political stability at the regional and global levels.’ To prove its point, the think tank, which is headed by Sheikh Muhammad bin Zayed Al Nuhayyan, the Crown Prince of Abu Dhabi, made reference to a recent report by Bank of America/Merrill Lynch that ranked the UAE as one of the most immune countries to political risks in the Middle East, Eastern Europe, and Africa” (Gold, 2020). The fact that the UAE offers stability in a region where conflict often occurs is a big one when it comes to Japanese businesses decided where to plant investments in the Middle East. Japan wants a peaceful Middle East, and recently the “Japanese foreign minister urged Iran to deescalate geopolitical tensions and affirmed Tokyo’s support for regional counterterrorism efforts” (Soliman, 2021). This shows that Japan is not going to be doing much business in Arab States that support terrorist organizations. Thus, the UAE, which recently signed the Abraham Accords with Israel, stands to benefit from the political and regional stability it is promoting: Japanese businesses see the UAE as an idea setting.

The UAE proved its mettle in terms of stability in 2020 in response to the COVID pandemic, when it was announced that the “UAE’s Jebel Ali Free Zone (Jafza) is working with several Japanese trade promotion bodies and other institutions to strengthen Japanese presence in the region by attracting companies from diverse sectors” (Zawya, 2020). Then as now, Japanese businesses have been key trade partners in the UAE’s Jebel Ali Free Zone. “In 2019, Jafza’s total trade value with Japan stood at around AED13.8 billion ($3.81 billion), making Japan Jafza’s eighth-largest partner by trade value…In this context, DP World, UAE Region and Jafza organised a webinar for Japanese companies operating in the UAE. The webinar shed light on the initiatives taken by them to tackle the unforeseen challenges that arose due to the Covid-19 pandemic, ensuring business continuity and promoting the well-being and safety of the community. It also assessed future opportunities that will enable companies to grow regionally.  

The webinar was supported by the Consulate General of Japan in Dubai, Japan Business Council (JBC) and Japan External Trade Organisation (Jetro) Dubai” (Zawya, 2020). This report thus highlights the high level of interest that Japanese business and trade takes in the UAE and how UAE stability gives confidence to Japanese businesses.

Indeed, Japanese companies, particularly construction companies, have had a lot to do in the UAE, since the tsunami a decade ago wreaked havoc there (Gulf News, 2014). The UAE has such an important position as gateway to Europe and Africa, that Japanese businesses see it as a great incentive to cooperate with the state in picking up the pieces after a natural disaster and bringing stability to the region.

Infrastructure, Stable Ports, and Logistics: Good Investment for Japanese Businesses

The UAE also offers infrastructure, stable ports, and logistics for Japan to advance its shipping pursuits. For instance, the UAE ranks 16th in the world in terms of quality of overall infrastructure according to the Global Competitiveness Report 2019 by the World Economic Forum (World Economic Forum, 2019). Plus, the UAE’s Jebel Ali Port is the 9th busiest port in the world based on container traffic (TLME, 2023), which shows just how in demand its port services are. Additionally, as per the World Bank’s Logistics Performance Index 2018, the UAE ranked 11th out of 160 countries, showcasing its logistics prowess and efficient customs procedures (Aboul-Dahab, 2020). This, too, is also important for Japan, which wants to see that its goods are handled swiftly and securely. Also, the UAE ranked 16th in the World Bank’s Ease of Doing Business 2020 report, illustrating its supportive environment for businesses (UAE, 2020). For Japan, this makes the UAE an attractive investment hub.

The UAE government has implemented policies to create a business-friendly environment, including tax incentives, free trade zones, and a straightforward process for setting up businesses (US State Dept., 2023). This is attractive for Japanese investors who are looking for a hassle-free environment to establish their operations.

All of this tells the story of an Arab State that is invested in itself for the sake of the future and for the sake of successful collaborations with foreign states like Japan. As a matter of fact, the UAE stands out among all the Arab States for its rapid rise from independence just half a century ago to genuine leader on the world stage today. The UAE has undergone one of the most remarkable transformations in the world over the past few decades, evolving into a global business hub with a robust economy, world-class infrastructure, and a strategic geographic location. These factors collectively make the UAE an attractive destination for foreign investments, particularly for Japanese companies looking to broaden their presence in the Middle East. The country’s commitment to safety and stability further enhances its appeal, creating a conducive environment for business growth and development (Gulf News, 2014).

The UAE’s strategic position at the crossroads of Europe, Asia, and Africa provides unparalleled access to key markets across the Middle East, North Africa, and South Asia. This geographic advantage is a significant draw for Japanese investors seeking to tap into the growing economies of these regions (Gulf News, 2014). The UAE serves as a gateway, facilitating trade and investment flows, and acting as a regional hub for companies looking to expand their footprint.

Much of this is primarily due to the fact that the UAE has invested heavily in developing its infrastructure to international standards. The country boasts an extensive network of roads, airports, and telecommunications, ensuring seamless connectivity and efficient transportation (World Economic Forum, 2019). For Japanese companies, which often prioritize efficiency and precision, the UAE’s infrastructure provides a reliable foundation for business operations.

The UAE is home to some of the world’s largest and most efficient ports, such as Jebel Ali in Dubai, which ranks among the top global shipping hubs (TLME, 2023). The country’s logistics sector is highly advanced, offering state-of-the-art facilities and services that ensure the swift and smooth movement of goods (UAE, 2020). Japanese companies involved in manufacturing, trade, or supply chain management can leverage the UAE’s logistics prowess to enhance their operational efficiency and reduce costs (Gulf News, 2014).

Safety and stability are paramount for foreign investors, and the UAE excels in providing a secure business environment. The country is known for its political stability, low crime rates, and stringent security measures, creating a safe haven for investors and businesses (Gold, 2020). This stability is a crucial factor for Japanese companies, as it ensures a predictable and risk-averse environment for their investments.

The UAE government has implemented a range of policies aimed at fostering a business-friendly environment. These include tax incentives, free trade zones, and a straightforward process for setting up and conducting business. Japanese investors can benefit from these policies, which reduce bureaucratic hurdles and create a welcoming environment for foreign enterprises.

The UAE has successfully diversified its economy, reducing its reliance on oil and investing in sectors such as tourism, aviation, and renewable energy. This economic diversification provides a stable and resilient environment for businesses, ensuring that the economy can withstand global fluctuations in oil prices. For Japanese investors, this diversification translates to a range of investment opportunities across various sectors (Gulf News, 2014).

Not to mention that the UAE and Japan have a long history of cultural and economic cooperation, with numerous Japanese companies already established in the UAE. This existing network provides valuable support and resources for new Japanese entrants, facilitating their integration into the local business landscape. The strong bilateral ties between the two countries also ensure that Japanese investments are welcomed and supported.

The UAE’s strategic location, advanced infrastructure, efficient logistics, safe and stable environment, business-friendly policies, diversified economy, and strong bilateral ties with Japan collectively create a compelling proposition for Japanese investors. As the Middle East continues to grow and diversify, the opportunities for Japanese companies to expand their presence and capitalize on this growth are significant. The UAE stands out as a strategic partner, providing a reliable and efficient base from which Japanese companies can explore and tap into the vast potential of the broader Middle East region.

Conclusion

The UAE's strategic location and its business-friendly ethos make it an ideal gateway for Japanese companies aiming to tap into the larger Middle Eastern and African markets. By setting up a base in the UAE, Japanese enterprises can not only cater to the local market but can also efficiently expand their footprint in the broader region. Furthermore, business ties often transcend mere economic exchanges. With strengthened economic relations, there's an increased scope for cultural, educational, and technological exchanges. Japanese businesses in the UAE can contribute to the diversity of the nation, bringing in their unique work ethics, technological prowess, and cultural ideals. The UAE has a recognized stability in region that is often marked by instability and conflict. One can see for example the current fighting in Palestine for an example of the kind of conflict that businesses and governments do not like to see. What Japan sees in the UAE is a stable government that puts investment first and front and center. That focus on priorities is why Japan and the UAE have gotten along so well.