A combination of aid and investment from its Arab peers and stronger regional trade ties is proving instrumental in helping Jordan draw a line under several years of sluggish growth.
Jordan’s economy has borne the brunt of multiple shocks since 2008, with regional turmoil still weighing on its recovery. However, fears that an exodus of capital from the Amman Stock Exchange (ASE) could present the country with an added challenge have been eased by evidence of increased activity from Arab investors, particularly among Gulf Cooperation Council (GCC) member states.
These resources have helped Jordan to narrow its current account deficit by 29% to $3.4bn at end-2013) and a modest pick-up in real GDP growth is forecast for 2014 according to a report by Bank Audi published in April.
Data released in June by the exchange showed that while the pace of overall foreign investment in ASE-listed companies slowed in the first five months of 2014 year-on-year (y-o-y), Arab investment bucked the trend.
The value of shares sold by non-Jordanian investors reached JD175m ($246m) in the first five months of 2014, while purchases trailed at JD162.5m ($229m), resulting in a net decrease of JD12.5m ($17.6m). In contrast, the ASE witnessed a net increase in foreign investment of JD65.6m ($92.3m) during the same period last year.
Foreign ownership of companies listed on the ASE slipped to 50% from 51.3% over the same period and, with international investors accounting for less than 30% of total trading activity so far this year, the figure could drop further.
However, while international foreign holdings in the ASE took a downward turn, Arab investors had increased their share of the capital market to 36.8% at the end of May, up from 33.9% a year earlier. Arab investment also accounted for 69.1% of stock purchases, increasing its dominance of overall foreign ownership on the bourse to 73.6%.
In for the long haul
Like many emerging markets, Jordan has witnessed a degree of capital flight in recent months, as the US Federal Reserve begins winding down its quantitative easing program.
But Arab funds are also flowing into Jordan via other routes, including bank deposits, equity stakes in unlisted companies and projects, and a continuing $5bn investment package first announced by the GCC in late 2011.
Jordan’s ties to the Gulf have also produced significant employment opportunities. According to Bank Audi, 80% of the 500,000 Jordanians who worked abroad in 2013 were based in GCC countries. Total remittances reached $3.65bn, up 4.4% on 2012, while strong growth prospects for the Gulf indicate a further increase this year.
Arab nationals play a key role in maintaining Jordan’s tourism industry, accounting for 3m, or 55% of the country’s 5.4m visitors in 2013, according to local media reports. Attracting more visitors from the Gulf has become particularly important, given the significant drop in the number of Europeans travelling to the region. Jordan’s strategy includes a sharper focus on areas such as medical tourism and so-called “Muslim-friendly” vacations, both of which have GCC visitors in mind.
Regional trade links also remain strong. Around a quarter of all Jordanian exports go to Iraq and Saudi Arabia, according to the report, while other GCC markets may well assume more significance, given recent rising turbulence in Iraq. According to the Jordanian government’s Department of Statistics, the GCC countries absorbed 18.2% of the kingdom’s exports in 2013, including 79% of its fruit and vegetables.
A reliance on a particular region for trade, investment and employment has its disadvantages and Jordan may well prefer to be spreading its risk exposure more widely. However, Jordan’s GCC partnership has yielded greater liquidity, more jobs and increased investor confidence, while the long-term investment objectives of the Gulf countries will be instrumental in helping the kingdom weather setbacks.
Oxford Business Group