Abenomics Needs More Margaret Thatcher, Marubeni Chair Says

Japan Prime Minister Shinzo Abe should use similar policies to former U.K. leader Margaret Thatcher to bring the world’s third-largest economy out of its “lost decades” funk, said Marubeni Corp. Chairman Teruo Asada.

From a recession in 1981, the U.K. went on to post its highest growth rates since World War II as the late prime minister opened up state-controlled industries to domestic and overseas investors and sold off such companies as British Gas and British Telecom. Today, four of the six major companies supplying gas and electricity in the U.K. are owned by overseas utilities.

Thatcher’s decision to hand over water utility management to private companies alone improved the U.K.’s fiscal balance, Asada said in an interview in Tokyo. A move by the world’s most indebted nation to get the government out of the water business could open Japan to more investment and competition, he said.

Deregulation of “airport, port, highway and such kinds of concession businesses should be realized and opened to public and private business groups,” said Asada, whose company is involved in these industries abroad. Lobbying of the government on this issue is under way, he said.

Marubeni fell 1.4 percent to 724 yen at 10:19 a.m. in Tokyo, paring its gain this year to 18 percent. The Topix benchmark index declined 0.1 percent.

State Control

In the U.K., Marubeni’s domestic rival Sumitomo Corp. bought Sutton & East Surrey Water Plc for $260 million in February and another trading house Itochu Corp. last year took 20 percent of Bristol Water Plc. for $68 million. Asia’s richest man Li Ka-Shing is among the foreign investors in U.K. water companies.

In contrast, Japan’s water market is administrated by the government via the Japan Water Agency. The electricity market, the world’s third-largest, is mostly split between 10 regional utilities that monopolize generation, transmission and distribution in their areas with little competition.

Japan’s highways are split between three state companies by region, while ports are owned by local and national governments.

In potentially the first deal of its kind, state-owned New Kansai International Airport Co. plans to hold a global auction of its concession next year with a view of raising as much as 1.2 trillion yen ($12 billion), two people familiar with the matter said in February.

Since being swept into power in December elections Abe has vowed to revive an economy where property prices have dropped for 21 consecutive years by seeking to spur 2 percent inflation within two years and championing fiscal and monetary stimulus.

Yen OK

The result of what’s been dubbed Abenomics is a weakening of the yen to a five-year low and a 42 percent jump in the benchmark Topix index this year, the best performance among the world’s top 10 economies.

There’s no need for further yen weakness as advocated by some Japanese carmakers, Asada said.

“Some manufacturers say they need a much weaker Japanese yen,” Asada said. “That’s ridiculous. One hundred yen to the dollar, plus minus five, is reasonable and favorable for most companies, especially for the exporters.”

Abe now needs to execute on promises to take the country into all available free-trade agreements, restart the nation’s idled nuclear generators and open up public infrastructure businesses, Asada said.

Lesser Evils

Fears that free-trade accords may kill off Japanese farming or that monetary stimulus will push up the cost of the national debt need to be seen in comparison with continuing the status quo, Asada said.

“We have faced two lost decades,” he said. “Without Abenomics we’ll have the same thing continuing. In 2013 the introduction of Abenomics is the right thing.”

Marubeni is among the companies speaking with the government about greater opening up of so-called concession industries, such as power generation, to any willing bidders, Asada said.

Marubeni owns more than 10,000 megawatts of electricity capacity abroad and very little in Japan, because the market is dominated by regional utilities and the tariffs being set by the government are too low to justify new investment, he said.

The company would be keen to use its experience gained abroad in Japan and to bring in partners as minority investors to introduce the latest technologies and know-how, he said.

In the water treatment, Marubeni has worked with both Veolia Environnement SA and Suez Environnement Co, the two biggest companies in the industry, he said.

‘Serious Meetings’

“Many Japanese companies including trading companies have much experience and know-how through doing the same kind of business outside of the Japanese market,” he said. “Serious meetings” with the government on this reform will take place, Asada said.

On atomic energy, Asada said some reactors idled after the Fukushima nuclear accident of 2011 need to be restarted. Atomic energy should account for at least 20 percent of the country’s total supply. Japan has newly built atomic reactors such as the No. 3 unit of the Shimane plant in western Japan that have superior safety systems, he said.

Beyond that, renewable energy may climb to 5 percent to 6 percent of total supply within 15 years, he said. Hydropower could make up another 10 percent and the rest should be split between coal and gas-fired stations, he said.

It’s Japan’s power market opportunities that most attracts Marubeni, Asada said.

“If we’re allowed, our ultimate target is to be involved in the coal or gas-fired power station business in the Japanese domestic market.”

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