A joint venture between Taiyo Gyogyo and the Solomon Islands government, initiated by Taiyo Gyogyo in 1973, was a direct response to the changing international Law of the Sea. Under the terms of the original joint venture, Taiyo provided capital to build a cannery and shore facility and charter fishing vessels from Japan.63 In the 1980s, the company expanded its operational capability. The expansion of the joint venture centred on establishing a new cannery and commercial centre at the town of Noro in the Western Province. The expansion was in line with the Solomon Islands government plan for decentralisation of domestic industry. It was also an attempt to shore up the viability of the joint venture, which had been plagued by financial problems from the o u tset64
The development was undertaken in a five-year period from 1985 to 1990. It was dependent largely on the combined resources of several aid agencies and donors.
OFCF loans to Taiyo Gyogyo financed the new $12 million cannery; the Asian Development Bank funded a new power station with a loan of $7.2 million; the
63 Anthony V. Hughes, ‘High Speed on an Unmade Road: Solomon Islands’ Joint-Venture Route to a Tuna Fishery’, in David Doulman (ed.), Tuna Issues and Perspectives in the Pacific Islands Region, East-West Center, Hawaii, 1987, pp.203-24.
64 Interviews conducted by the author in Tokyo as well as with the Managing Director o f Solomon Taiyo, Honiara. According to company officials the main source of the financial problems was the fact that the joint venture was not structured to be profitable. It was set up to allow for a high debt to equity ratio and for shareholders to extract income from cash flow rather than profits. Also see Anthony V. Hughes, ‘High Speed on an Unmade Road’.
European Development Fund (EDF) provided a $10 million grant for associated infrastructure development including water supply, roads and wharf; and the Japanese government provided fisheries grant aid (1.8 billion yen/ $11.23 million) also for
infrastructure development at the Noro township. This included an oil terminal (leased by the Solomon Islands government to Solomon Taiyo), cold storage facilities and a
community centre.65
The contributions of aid to support this development reflected the importance of the Solomon Taiyo joint venture to the Solomon islands economy. The joint venture remains a crucial source of export earnings (estimated at 48 per cent in 1993) and employment (about 10 per cent). Thus a priority for the Solomon Islands is to keep the joint venture afloat. But such assistance also subsidises the operations of a Japanese firm, and provides an incentive for its continued participation in the joint venture.66
It has been suggested that Taiyo Gyogyo (re-named Maruha in 1993) has attempted to withdraw from the joint venture on a number of occasions due to financial losses and that there is a strong sentiment within the Taiyo company that it should withdraw.67 The fact that it remains is due, in no small measure, to the support of the Japanese government (through ODA and OFCF cooperation). The Japanese government interest in supporting the joint venture includes the issue of keeping its access to the Solomon Islands EEZ.
Instability inherent in the relationship, due in part to Solomon Islands government policy, points to an uncertain future for the Solomon Taiyo joint venture. This was evident during the negotiations for a new joint venture agreement in 1993. The Solomon Islands government had proposed selling its share of the company to the provincial
65 Details are from JICA, Basic Design Study for Noro Fisheries Infrastructure Development Project, March 1989; also Solomon Taiyo Ltd, company publicity material.
66 According to a senior Solomon Islands official, the infrastructure provided by Japan’s grant aid was not exclusively for use by the joint venture but there was no one else who could make use of it. The community centre was one part of the grant aid package that had been proposed by Taiyo Gyogyo and was initially intended to be a dormitory for fishermen. But under the requirements of grant aid (which stipulate that aid should not be for commercial use), the proposal was re-worded as a community centre. The official also said that Taiyo Gyogyo had helped ‘push through’ the grant request by lobbying key ministries in Tokyo. He added that when a European Community delegation had visited the Solomon Islands to inspect progress on the implementation of the EDF grant, there had been ‘surprise and consternation’ that it was primarily assisting the operations of a Japanese joint venture partner. Interview, Honiara, November 1993.
67 Interviews, Honiara; Tokyo. The trend in the 1980s has in fact seen Japanese joint venture partners withdraw from the region. These included Itoh-Chu Shoji, which withdrew from a fishing and canning joint venture in Fiji in 1987; Mitsui, which withdrew from Vanuatu in 1987; and a subsidiary of Mitsubishi and Nikkasturen (Kaigai Gyogyo Kabushiki Kaisha), which withdrew from PNG in 1982. The main reasons were commercial losses, and in the case of PNG, problems relating to transfer pricing. Companies also moved away from direct fishing activities to importing and distribution. In general, Japanese firms have faced strong competition from other fishing and processing nations, especially in Southeast Asia. For details see Geoffrey P. Ashendon and Graham W. Kitson, ‘Japanese Tuna Fishing and Processing Companies’, in David J. Doulman (ed.), The Development of the Tuna Industry in the Pacific Island Region: An Analysis of Options, East-West Center, Hawaii, 1987, pp.255-70.
government. This proposal triggered a strong reaction from the Taiyo management, which reportedly argued that if the central government withdrew, then the joint venture would not receive any further bilateral aid ‘because the Japanese Government recognised central governments and not provincial governments’.68 The Solomon Islands
government subsequently withdrew the proposal and a new joint venture agreement was concluded.