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The Tohoku Economy Three Years after the Great East Japan Earthquake Overcoming challenges, growth strategy | Kazuhiro Morimoto Director-General Tohoku Bureau of Economy, Trade and Industry METI [Date of Issue: 30/April/2014 No.0230-0927]

Date of Issue: 30/April/2014

The Tohoku Economy Three Years after the Great East Japan Earthquake
Overcoming challenges, growth strategy

Kazuhiro Morimoto
Director-General
Tohoku Bureau of Economy, Trade and Industry
METI


Three years since the Great East Japan Earthquake, economic indexes have recovered but much has yet to be done to rebuild housing and commerce along the coast and improve operating rates in the marine product processing industry. We will power forward the recovery effort while strengthening the growth capacity of the Tohoku region as a whole.


1. Status of the Tohoku economy

In November 2013, Tohoku's industrial production index topped its pre-quake 2010 level and even moved above the national level ( Fig. 1 (49KB) ). Factors behind this improvement include:
(1) the contribution of the manufacturing industry, which has continued to work hard to recover from the damage caused by the disaster; (2) support from the central government and local authorities, who have underpinned the restoration of factories and office buildings*; and (3) strong reconstruction demand for high-level public works, etc. The considerable support and many messages of encouragement received not only from the rest of Japan but around the world have also been a real contribution on both the tangible and intangible levels toward the recovery of the affected areas, and I would like to take this opportunity to offer my deep appreciation.

* Subsidies covering 75 percent of factory and office building restoration costs, temporary factories and stores created and leased to affected companies by the Organization for Small and Medium Enterprises and Regional Innovation (SMRJ), subsidies for reconstruction expenses provided by various local authorities, and low-interest financing by public financial institutions, etc.

There have also recently been changes in the industries driving Tohoku. Before the Lehman shock, electrical and electronic machinery accounted for approximately 33 percent of Tohoku's industrial production, but in 2012 this dropped to below 25 percent, with transportation machinery and
equipment-primarily automobiles-conversely expanding its share from six to 11 percent. Within the electrical and electronic machinery industry too, the focus is shifting from component manufacturing for televisions, digital cameras, game consoles and other such devices to component manufacturing for the growth markets of smart phones and tablets. Manufacturing further in from the coast, which has recovered comparatively quickly from earthquake damage, has responded to this change in industrial structure by moving into the automobile industry and expanding international orders for smart phone components.

Housing construction is also robust. Construction not only of disaster recovery public housing and other such public housing but also of private homes and rental apartment buildings has been strong across Tohoku as a whole, buoying business confidence. As a result, consumption across Tohoku as a whole is not expected to drop markedly following the April 2014 consumption tax hike, and is thus considered likely to remain comparatively solid.

2. Difficulty of restoring tsunami-hit town areas

At the same time, there is a strong sense among the public that little progress has been made toward recovery. This is because local residents have not returned to the extent originally envisaged to areas that suffered serious tsunami damage or to areas evacuated following the nuclear power plant accident.

In March 2011, directly after the disaster, around 470,000 people were thought to be living in temporary public housing or other temporary dwellings, having evacuated their homes because of the disaster or the ensuing nuclear power plant accident. That figure had plunged to around 330,000 by December 2011, but even now, 27 months on, it remains over 267,000. In areas where there was serious tsunami damage, buildings need to be moved to higher ground and land along the coast needs to be raised before people can move back in, but personnel numbers at the municipal level have been insufficient to sort out the necessary land interests, while heavily concentrated public works has absorbed much of the available labor force, delaying the original plan. As a result, there are still many areas where commercial businesses have left their original premises to operate at temporary stores, with the timing of the resumption of their original operations in the re-consolidated areas yet to be decided.

3. Challenges in the marine product processing industry

There are also cases where, despite having overcome obstacles and making progress toward restoring plants and equipment, difficult challenges remain. One example is the marine product processing industry. With the Sanriku coast previously among the top three fishing grounds in the world, many marine product processing companies produced various products and shipped fresh catch from there. However, because the industry by its nature was obviously focused along the coast, they suffered extensive tsunami damage. Many of the factories have since been restored using generous subsidies from central and prefectural government. However, despite restoration, they continue to experience low operating rates ( Fig. 2 (35KB) ). This is partly because the wholesalers and retailers with whom they used to deal have been procuring the same products from marine product processing plants in other areas, so that while Tohoku operators might be back in business, the sales channels which they have lost have yet to recover. There are also more than a few companies whose unique brands, for example, might have enabled them to hang on to their clients, but they have not been able to resume full production either due tostaff shortages,. Many businesses formerly employed local housewives, but because many of these personnel have moved with their families either further inland or to higher ground, it is difficult for them to travel down to the coast to work. Businesses could potentially hire staff from outside the region, but then with preparation still not complete for the construction of local housing, there would not be sufficient places for them to live.

4. Tackling industrial reconstruction

Entering the fourth year since the disaster, the Tohoku Bureau of Economy, Trade and Industry has laid out the following approach to industrial reconstruction in order to respond to the situation outlined above, and is in the process of taking this forward.

(1) We will liaise closely with municipal authorities on the restoration of local commerce along the coast, encouraging the creation of urban area reconstruction plans geared to the return of local residents. We will also provide subsidy-based support for the construction of commercial facilities and build temporary commercial facilities in order to encourage the emergence of local commercial clusters.
(2) To promote new product development and sales channel expansion in the marine product processing industry on the Sanriku coast, we will work with the Fisheries Agency, relevant local authorities, the Tohoku Economic Federation, JETRO and SMRJ to provide focused support for strategic product development and the development of overseas sales channels.
(3) Based on the growth strategy for the Tohoku region which is outlined below, we will support the further upgrading of the manufacturing industry inland where progress has already been made toward recovery.

5. Growth strategy for the Tohoku region

'Disaster reconstruction' does not mean returning seriously affected areas to their pre-disaster state. Rather, in the course of recovery it is important to build a foundation for wide-ranging long-term growth that includes the surrounding regions, while also covering shortfalls that existed before the disaster.
To that end, the Tohoku Region Industrial Competitiveness Council, comprising governors from the seven Tohoku prefectures (including Niigata Prefecture), leading local businesspeople, and officials from those local branches and bureaus of the central government which are responsible for Tohoku, met from November last year to March this year to lay out a direction for the region in the years ahead.

The Council agreed on the following steps, and local authorities, industry and the central government are now expected to share information and work from a common perspective in putting these steps into practice.

(1) Unprecedented new initiatives have emerged in the course of reconstruction, such as the creation of new business by young people and the creation of proprietary brands through alliances among existing businesses. These will be identified and carefully nurtured to drive growth in the Tohoku region.
(2) To make maximum use of the Tohoku region's rich cultural heritage and local resources such as festivals and local products, local authorities and economic associations across the Tohoku region will work together to deliver a maximum-impact message overseas to increase the number of tourists visiting the region and boost the profile of local products.
(3) In the case of the manufacturing industry, to develop world-class automobile manufacturing and R&D bases and medical equipment production and development bases in the Tohoku region, local authorities, industry and the government will work together to develop the business environment and encourage local SMEs to enter these industries. Future manufacturing human resources will be nurtured across the region as a whole.

Fig. 3 Tohoku region growth strategy (296KB)

Boasting a unique history and cultural heritage, a rich food industry, and beautiful natural scenery right alongside leading-edge industry, the Tohoku region is highly attractive to both tourists and companies. While the region may have suffered extensive damage through the disaster, in the course of recovery, government, industry and universities across the entire Tohoku region are increasingly working together to widen their vision offshore to boost tourism and expand industry. Tohoku's recovery progress and growth will merit close attention in the coming years.

(original article : Japanese)



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