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Jordan: When the Going Gets Tough

After turning in strong performances over 2008, Jordanian exporters, in line with the global slowdown, are preparing for tougher times in 2009. However, as investment into the country's transport network increases, they look set to benefit from sustained growth in neighbouring markets.

Jordan has largely been buffered from the worst excesses of the subprime fallout, thanks to the relatively sheltered financial sector. However, earlier this month, the Jordanian Prime Minister, Nader Dahabi, told local media that national exports will definitely be affected by the global economic slowdown. Indeed, a recent World Trade Organisation study expects global trade to drop by 9%. A fall in exports from Jordan's qualifying industrial zones as a result of the US recession, and decreases in the international commodity prices, will impact national exports this year.

The Arab Potash Company (APC), Jordan's second-largest firm by market capitalisation, forecasts lower production levels due to declining demand but maintains that higher profits can nevertheless be achieved as companies renegotiate annual distribution contracts. "Higher prices will more than offset lower production," the APC's chairman, Mohammed Abu Hammour, told OBG. He went on to explain that industrial companies are finding it more difficult to get credit lines, thus keeping minimal inventories and delaying orders with the expectation that prices will fall.

While the reality of 2009 is beginning to sink in, these tougher times follow a record-breaking year for Jordanian exporters. According to the Department of Statistics (DoS), total exports were up 35.9% to JD5.5bn ($7.8bn) in 2008, from JD4.1bn ($5.8bn) in 2007. Jordan's biggest exports in 2008 were apparel ($1.01bn), fertilizers ($843.6m), crude potash ($769.1m), crude phosphate ($520.7m) and pharmaceutical products ($497.5m).

The country has also, crucially, begun to increasingly diversify its trade portfolio, reducing its dependency on US demand. While Jordan was a regional pioneer for free trade with the US, the American market is no longer as significant today as it once was. "Exports to the US will account for about 10% of total exports in 2009, down from 27% of total exports in 1999," commented Abu Hammour. The three top export markets for Jordanian goods in 2008 were India ($1.28bn), the US ($1.04bn) and Iraq ($807.5m).

The diversification could not come at a better time, as other Middle East and North African countries begin to increase their US-bound export traffic. With Bahrain and Oman signing FTAs with the US, and low-cost apparel exporter Egypt inking a qualified industrial zone agreement, Jordanian exporters are facing increased competition from countries that benefit from cheaper labour and commodity costs. As a result, the country has begun to focus its energy on boosting regional trade volumes, particularly to neighbours like Iraq.

"Companies are starting to face a slowdown of local orders but have been compensating with Iraqi orders, especially for infrastructure projects," Eyad Kodah, the director-general of the Jordanian Free Zones Corporation , told OBG. "The Iraqi government will spend $70bn for reconstruction and infrastructure projects, and some of that work will pass through Jordan," he added.

Since 2003, Jordan has served as a primary port of entry for Iraqi-bound trade, particularly for destinations in the western provinces. While the stabilisation of the country will shift some traffic to Iraq's Gulf ports, and limit US reconstruction traffic, Jordan has taken a number of steps to facilitate the flow of goods and capital between the two countries. One key step has been the Jordanian government's decision to relax residency rules for Iraqis, which came into effect in February. The new regulations make it easier for Iraqi investors to come and do business in Jordan. Iraqi officials have welcomed the move, with the Iraqi ambassador, Saad Hayyani, telling local press that, "The new measures will encourage more bilateral economic cooperation."

Recent data indicate that this is indeed the case. According to the DoS, exports to Iraq surged by 61% year-on-year. Jordan exported JD58.8m ($82.9m) of goods to Iraq in January 2009 compared with JD36.6m ($51.6m) in January 2008. This increase made Iraq Jordan's top export market in January 2009, followed by the US ($74.3m) and Japan ($46.1m).

Aqaba is in a particularly good position to take advantage of Iraqi reconstruction efforts. Earlier this month the Iraqi transportation minister, Amer Abdul Razzaq, announced that the Iraqi government will rely on the port of Aqaba to transport goods from Egypt to Iraq. According to Abdul Razzaq, imports and trade volume between the two countries will increase significantly during the Iraqi reconstruction phase. The port town has already overhauled its cargo bulk and storage infrastructure, and is set for a further round of improvements in the coming years to expand its capacity and attract additional traffic from other regional ports like Haifa.

"The year 2009 will be the year of survival. Those that make it will be around for a long time to come," Fayez Tarawneh, the chairman of United Arab Investors Company, a multifaceted investment firm, told OBG. Indeed, with the global economic downturn affecting nearly every industry and market, Jordanian exporters will look closer to home to offset lost business elsewhere.

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© Oxford Business Group 2009