To adapt to the major changes surrounding Japan and the world by becoming “a navigator”
U.S.-China tensions, the COVID-19 pandemic, and Russia’s invasion of Ukraine—the world is now in the midst of huge upheavals. Supporting Japan in properly adapting to such changes is the 2023 amendment of the JBIC Act. KOYAMA Ken, Senior Managing Director and Chief Economist, The Institute of Energy Economics, Japan, and SEKINE Hiroki, JBIC’s Managing Executive Officer and Global Head of Infrastructure and Environment Finance Group, discuss the global landscape leading up to the amendment of the law and the role required of JBIC.
(Left) The Institute of Energy Economics, Japan
Senior Managing Director, Chief Economist
KOYAMA Ken Joined the Institute in 1986 after receiving his master’s degree from the Graduate School of Economics, Waseda University. His fields of research include the world’s oil and energy situation and energy security issues. Was awarded his PhD from the University of Dundee in 2001. Among other various positions, he served as a member of the Japanese government’s advisory council on energy-related matters. Has been a visiting professor at the University of Tokyo’s Graduate School of Public Policy since 2010. Books authored include Interpreting from Geopolitics! The Future Map of Strategic Commodities (ASA Publishing Co., Ltd.). In 2023, he became the first Asian to receive The OPEC Award for Research.
(Right) Managing Executive Officer of JBIC
Global Head of Infrastructure and Environment Finance Group
SEKINE Hiroki Joined the Export-Import Bank of Japan (now JBIC) in 1995 after graduating from the Faculty of Economics, The University of Tokyo. Received his master’s in finance from the London Business School in 2005. Following appointments including the Infrastructure Finance Group, he was a visiting researcher at the Chatham House in the UK from 2020 to 2021. After his return, he was engaged in operations for the amendment of the JBIC Act in his position as Special Advisor for Operation Policy and Strategy, Corporate Planning Group. He assumed his current post in 2023.
Energy “weaponized” by Russia’s invasion of Ukraine has shaken the world
SEKINE The current global trends in energy resources had a large impact on the amendment of the JBIC Act. Mr. Koyama, you analyze such energy from the perspective of “strategic commodities.”
KOYAMA We use various kinds of energy in our daily lives when we turn on lights, cook with gas, drive our cars, and so on. They are such an integral part of life that you might not give them a second thought. Energy is indispensable to the economy and our lives, and you could even say that it determines the fate of a country.
Accordingly, if a country uses energy supplies to exert various forms of pressure or as bargaining chips, this creates enormous leverage, making energy a “strategic commodity.” The sea change in the energy situation brought about by the Ukraine crisis can be understood when viewed in terms of Russia’s “weaponization of strategic commodities.”
The world has been reliant on cheap Russian energy, and Europe in particular has had deep links with Russia in terms of procurement of natural gas and other energy resources. However, with the imposition of economic sanctions by the West following the invasion of Ukraine, Russian energy exports themselves became a risk factor. Europe is now in a game of survival as it seeks to escape from its dependence on Russian resources. It is now shifting direction to secure stable resource supplies even if the costs are higher.
SEKINE The invasion of Ukraine has again brought us face to face with the risk of resources becoming strategic commodities. That is why we need to take a hard look at what form risk control should take to meet the needs of today and think more about diversifying procurement to ensure that we can continue to obtain resources that are indispensable for our daily lives.
One of JBIC’s main functions is to promote the overseas development and acquisition of important resources for Japan. Given the recent situation, there is a greater need than ever to provide financial support to reduce dependence on specific countries and diversify acquisition channels for resources.
The vulnerability of supply chains brought to light by the pandemic
KOYAMA The importance of diversification was brought home when supply chains were disrupted by the COVID-19 pandemic, impacting our daily lives. Everyday life may seem to consist of things that are close at hand, but it is actually supported by large-scale supply chains that span the globe, and those many of those things actually come from far away. Everyone had mostly forgotten that supply chains are vulnerable.
SEKINE I agree. The pandemic and the invasion of Ukraine brought home the fact that the globalization benefits reaped from dependence on efficient division of labor and low-cost, high-volume production are clearly not sustainable. We must now build stable supply chains, even if this entails higher costs.
However, diversifying the risk that comes from dependence on the division of labor with certain countries, and building new, reliable supply chains is not economically efficient, and it is impossible for a single company to handle an entire supply chain.
Against this background, it has become important for public institutions such as JBIC to support companies in strengthening their supply chains in an effort to address the challenges they face. This is also an important reason for the amendment to the JBIC Act.
A divided world also obstructs the stability of supply chains
KOYAMA Not only the invasion of Ukraine and the COVID-19 pandemic, but global fragmentation centering on U.S.-China antagonism is also having a major impact on the stability of energy supplies and supply chains.
Although U.S.-China tensions have been intensifying particularly since the latter half of the Trump administration, the power balance between the two nations had, in fact, been changing even before then, with U.S. power wavering and China rapidly gaining ground. Over the past half century, efficiency and cost minimization have been pursued via the division of labor as part of free trade-based globalization. Before anyone realized, the world was heavily dependent on China’s manufacturing industry.
Then came the Russian invasion of Ukraine, triggering the birth of two axes, the “West” versus “China and Russia.” And a third axis, that doesn’t belong to either, the “Global South,” also emerged. These shifts by countries over energy resources, which have become “strategic commodities,” will likely become even more pronounced.
Under such circumstances, what should Japan do to protect its supply chains for important commodities such as energy resources? I think JBIC’s role is expanding.
SEKINE In order to ensure the ongoing acquisition of energy resources, which have become a strategic commodity as the risk of global fragmentation increases, we must diversify their procurement routes and supply chains. This is, of course, costly. As I just mentioned, it is not something that can be handled by a single company. Which is precisely why national governments have to show leadership. It is important to prepare risk control measures through subsidies and policy-based loans, and to send the message, “Let’s together strengthen our country.”
And as a policy-based financial institution, JBIC, must fulfill this responsibility, together with the national government.
As decarbonization accelerates, will critical minerals become the next strategic commodity?
KOYAMA As a matter of fact, the first oil crisis, that hit Japan 50 years ago, was caused by our dependence on certain countries and regions for energy. And the same kind of thing is happening again. I am concerned that something similar could happen down the line due to the rapid increase in demand for important materials known as “critical minerals.”
With the world accelerating its decarbonization efforts, the supply of rare earth and lithium-ion batteries essential for electric vehicles, and critical minerals, such as lithium, silicon, and nickel for applications such as semiconductors, is expected to tighten. And dependence is inevitable as certain countries have an overwhelming share of some critical minerals. Nevertheless, the question is how to manage this dependence to some extent or properly diversify.
SEKINE Japan possesses superb technologies in the supply chain process in terms of turning resources such as critical minerals into products. Therefore, Japan can play a central role in the development, production, and procurement of new supply chains by partnering with related foreign companies. While Japan will be a central player in creating a new, strong supply chain, this requires greater global collaboration, not only an all-Japan effort. JBIC is aware of its role in supporting such actions through the power of finance.
Promoting innovations by startups is essential for structural change
KOYAMA In working toward decarbonization, many countries around the world are aiming for carbon neutrality by 2050. This will require a fundamental change of the energy supply-demand structure within the next 30 years. That is a huge challenge.
While renewable energy use will undoubtedly expand greatly, at the same time there are many issues to be addressed, such as a tight supply of critical minerals, and the increasing costs of system integration to meet the growing use of variable renewable energies (e.g., wind and solar). In light of this, we must also strive to promote innovation to further develop Japan’s strong areas such as hydrogen and ammonia.
SEKINE Indeed, I believe that the global green transformation (GX) trend will not be reversed. Every country in the world has made the energy revolution a priority. But the pathways to achieving this are diverse, depending on countries’ respective circumstances. The only way to proceed toward this goal is to aim high and take on all kinds of challenges, constantly innovating, and making course corrections along the way.
Of course, Japan also needs to tackle similar challenges. The legal amendment has bolstered JBIC’s functions in financing startups that generate innovation in growth areas such as digital and green technologies. JBIC is now prepared to support global GX, including the promotion of innovation.
KOYAMA At the G7 Summit in Hiroshima this year (2023), the message went out to the world that the G7 stance is to aim for carbon neutrality via “various pathways” in which all kinds of technologies and energy sources should be used properly. I believe that Japan’s big contribution here was to have the G7 clarify its position of being supportive of the countries of the Global South by showing that what Europe, the U.S., and other developed countries are trying to do is not the “only pathway,” but that there are “various pathways” to achieve carbon neutrality.
And, in order for Japan to further maintain its presence in the world, we need to build a supply chain that makes the best of hydrogen-related and other technologies, in which Japan has superiority.
SEKINE I believe that this cannot be achieved without more technological innovation. That is why it is so significant that the amendment has made it possible to provide support through the Special Operations Account to businesses using new technologies and business models, resource development projects, and startups.
The “new form of capitalism” set out by the Kishida government also calls for nurturing startups, so this amendment to the JBIC Act is in line with national policy. However, focusing on startups is a new initiative for JBIC. This means we must move with the times so that more companies can connect with us, so that we can support them through all stages from their birth to growth and on to maturity. I have become very conscious of this again.
To fully leverage the amendment, JBIC needs to be able to be “a navigator”
KOYAMA The world is undergoing a major transformation. Countries, including Japan, must each prepare to respond to these changes. The state needs to drive this forward with policies and strategies. The power of finance will be an important key to support such efforts, and JBIC is central to this in Japan.
SEKINE As the various challenges become more complex and changes occur at rapid speed, everyone is searching for the form the new world should take. So that citizens can live with peace of mind, the country itself must strengthen its structures. Finance is a means to this end, and it is JBIC’s role to identify and address challenges for its realization, but I also feel that the limits have been reached for one country alone to provide solutions. Another of JBIC’s roles is to facilitate collaboration and connections with other countries and companies that have particular areas of expertise.
In addition, JBIC’s future efforts will include providing support for the creation of supply chains for energy resources, and for startups. It will also be necessary for us to not just respond to requests by our clients, but to proactively propose solutions as partners working together toward a goal. In other words, I believe that from now on, JBIC will need to be “a navigator.”
KOYAMA Through the amendment to the act, I think that JBIC will be able to operate in new ways. I have high hopes that JBIC, which has played an important role in supporting Japan’s energy challenges over the years, will successfully promote the energy transformation going forward.
