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The Tohoku Recovery One Year After the Disaster | Koji Toyokuni, Director-General JETRO Paris Former Director-General Tohoku Bureau of Economy, Trade and Industry METI [Date of Issue: 27/April/2012 No.0206-0839]

Date of Issue: 27/April/2012

The Tohoku Recovery One Year After the Disaster

Koji Toyokuni
Former Director-General
Tohoku Bureau of Economy, Trade and Industry

One year after the March 2011 disaster, the Tohoku economy is moving slowly but steadily toward recovery. However, circumstances vary according to the area and type of industry, and there are more than a few new challenges. The government plans to target its support so that 2012 launches Tohoku firmly on to a recovery trajectory.

A year has now passed since the Great East Japan Earthquake struck on 11 March 2011. Immediately after the disaster, particularly when I saw the extent of the devastation of the tsunami-battered coastal area, I really wondered if the area would be able to recover. However, thanks to the subsequent massive efforts of all concerned, the Tohoku economy has begun to move slowly but steadily toward recovery. According to the macro data, the Industrial Production Index (IPI) for the six prefectures in the Tohoku region was 93.5 in January, rebounding to a level not far off the 95.3 national figure. Thanks to the recovery effort, construction demand is strong, and the ratio of job offers to job hunters is up on pre-quake levels in all six Tohoku prefectures. Large retailers too have enjoyed buoyant sales.

However, this macro data does not reveal the full picture for the Tohoku economy or the real problems. Different areas and industry types face very different situations, and more than a few new challenges have emerged in the process of recovering from the disaster.

Trends the Industrial Production Index (seasonally adjusted) Progress toward industrial recovery varies widely between inland areas and the coast. Inland, production slumped immediately following the disaster, but companies managed to resume operations faster than expected. In Iwate Prefecture, factory damage as well as the supply chain breakdown brought the IPI down to 64.2 in March, but as of April, production recovered rapidly, boosting the IPI to around 90 in most areas. From summer, however, the IPI again started to slip to down to around 80, due not so much to the impact of the disaster as factors such as an historically high rate of yen appreciation as of summer, economic uncertainty in Europe, and the floods in Thailand. Meanwhile, the coastal area will is taking more time to recover from the disaster. In Miyagi Prefecture, the IPI sagged below 50 in both March and April. Because many of the prefecture’s factories are located along the coast, Miyagi sustained more damage than anywhere else. The IPI recently finally crept above 70, aided by the resumption of production at large factories on the coast such as Kirin Brewery and Japan Nippon Paper Industries. However, many companies, particularly marine product processing firms and other coastal operations, will take longer to get up and running again, and the production level in Miyagi remains low compared to the other affected prefectures.

Tsunami damage in Ishinomaki City, Miyagi Prefecture The government has now instituted in its supplementary budget a subsidy for the restoration of commonly used facilities that belong to business cooperatives or other associations of SMEs (‘SME Group Subsidies’). Given that support for companies suffering earthquake and tsunami damage was previously restricted to financing, this is a ground-breaking initiative, committing central and prefectural governments to covering 75 percent of affected companies’ recovery costs. Additionally, in some cases, companies wanting to rebuild plants or stores in quake- or tsunami-damaged areas cannot immediately build on the same spot. To deal with situations like these, the Organization for Small & Medium Enterprises and Regional Innovation, Japan (SME Support, Japan) has introduced a system whereby it provides temporary store and factory space free of charge. More specifically, SME Support, Japan is constructing temporary stores and factories in conjunction with local cities, towns and villages and leases them to SMEs free of charge. Almost 300 facilities are currently under construction and over 200 have already been completed, with projects moving steadily into action. More than 70 businesses forced to evacuate as a result of the accident at the Fukushima Daiichi Nuclear Power Plant are scheduled to move into the temporary facilities that have been constructed in the Yotsukura Industrial Park in Fukushima Prefecture.

One example of a temporary facility project One major obstacle to recovering from the Great East Japan Earthquake that has emerged is the problem of SME double loans. A number of SMEs had already borrowed money before the quake, but lost the buildings and facilities which they had bought using that money as a result of the earthquake and tsunami. Borrowing more money to rebuild their factories imposed a double burden. It was feared that if this problem was not redressed, factory reconstruction would remain stalled, threatening the collapse of the entire regional economy. Measures such as the SME Group Subsidies and the SME Support, Japan temporary factories are expected to go a long way to resolving the issue. Subsidies and the free use of temporary facilities will greatly alleviate the financial burden incurred by companies in resuming their business operations. Combining these measures with interest-free and low-interest loans and careful structuring of repayment conditions should virtually eliminate the double loan problem.

For those cases where heavy borrowing prior to the disaster mean that companies will find it difficult to rebuild even using SME Group Subsidies and the various types of low-interest loans, industrial recovery organizations have been introduced as a mechanism for buying up debts. Desks have been set up in the affected prefectures so that businesses can come in to ask about their particular circumstances, and in cases deemed appropriate for rehabilitation through debt buy-up, the industrial recovery organizations are buying that debt in consultation with banks, racking up a solid track record already.

The necessary budget measures to provide a framework for recovery are therefore generally now in place. However, for most SMEs in the affected areas, it may well seem that they are still in the starting blocks. According to a survey by the Tohoku Bureau of Economy, Trade and Industry, only 25 percent of SME Group Subsidy projects had been completed as at February this year. The reason that Miyagi Prefecture’s IPI is still hovering around 70 may be a reflection of these actual circumstances in the affected areas. Budget measures to date are scheduled to be rolled over again into FY 2012, sustaining support toward the realization of a recovery. The government has also earmarked 50 billion yen in next year’s budget, aiming to continue its assistance to ensure that the year 2012 marks the beginning of a fully-fledged recovery.

In closing, I would like to touch on challenges beyond the immediate recovery. In July last year, the Tohoku Bureau of Economy, Trade and Industry put together a recovery action plan, drawing up the Bureau’s own priorities in that regard. The concept driving the plan was to work toward early rehabilitation and recovery from the disaster while at the same time building industries with strong competitiveness. Even as we engage the recovery process, major events are afoot in the global economy. Factors such as yen appreciation and the catch-up being staged by the newly-emerging economies are making conditions even harder, and companies from the affected areas in the Tohoku region will not be immune from the necessity of dealing with these. Creating competitive industrial clusters is consequently absolutely vital. In terms of specific industrial areas, one key area will be the auto industry cluster which is currently developing in response to Toyota positioning the Tohoku region as one axis of its operations, but ‘building competitive industries’ will be a catchphrase not just for such leading-edge industries but also for agriculture, forestry and fisheries, traditional industries and even shopping areas. Tohoku has many world-class assets, including its agricultural produce, marine products and tourist areas. We believe that these have the potential to foster internationally competitive industries. ‘Recovery’ does not mean returning to the status quo. Rehabilitation and recovery are urgent tasks. Some areas will take longer to recover, and government measures also need to be bolstered. However, looking further ahead, if we cannot manage to build competitive industries, we will not be able to achieve the stimulation and development of the Tohoku region as the next critical step beyond rehabilitation and recovery.

(original article : Japanese)
(For the Japanese version of this article)

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