Despite facing a challenging economic climate marked by regional unrest and high energy prices, Jordan’s industrial sector held its ground in the first four months of 2014, posting modest year-on-year (y-o-y) growth.
Industry is a significant contributor to Jordan’s GDP, accounting for over a quarter of the kingdom’s 2013 economic growth of 2.8%. However, growing turmoil in Iraq, on top of the long-running conflict in Syria, is having a negative impact on overseas trade.
Industrial output edged up 0.5% in the first four months of 2014 y-o-y, lifted by a 10.9% expansion in the mining and associated segments, as well as a near 20% growth in the electricity sector, according to the Department of Statistics. But Jordan’s manufacturing sector, accounting for four-fifths of the overall total, eased 1.8% over the same period. A slight rebound in April, expanding by 1.4%, reversed a first-quarter trend.
The figures look to be in line with promising forecasts made in April by the IMF of 3.5% economic growth for Jordan this year, increasing to 4.5% in 2015.
While traditionally strong, Jordan’s industrial sector is increasingly feeling the weight of unrest across the region.
Exports to Iraq all but dried up in June, according to the Jordan Free Zone Investors Association. Activity along the border has ground to a halt, while a backlog of goods continues to build up at the port of Aqaba due to strike action.
Data issued by the Department of Statistics in June named Iraq as Jordan’s largest export partner within the greater Arab trade zone for the first four months of 2014. The loss of trade across the north-eastern border will weigh heavily on Jordan’s industrial sector.
Turmoil in Syria, meanwhile, continues to take its toll on the kingdom’s industrial sector. Trade with the country has plummeted due to the conflict there, and Jordan has also found its industrial exports hit by the loss of land routes to the Mediterranean. Firms have been forced to ship freight through the Suez Canal, rather than transport overland to Lebanese or Syrian ports for trans-shipment, resulting in additional costs.
Industrial products, which represent up to 90% of Jordan’s exports, generated revenue of more than $1.4bn in the first quarter of 2014, according to data from the Jordan Chamber of Industry. Any drop in overseas trade would be bad news for the kingdom, coming at a time when the government is striving to draw down debt and bridge the current accounts deficit.
Instability taking toll
Bassam Al Zoumot, the general manager of Arab Fertilizers & Chemicals Industries (KEMAPCO), said that while regional instability had been known to bring positives to Jordan, it was now hindering growth. “Whereas in the past, refugees helped set Jordan on its current path, nowadays we are seeing refugees emerge from war-torn Syria with no semblance of human capital or financial might,” he told OBG.
The industrial sector has also had to grapple with ongoing disruptions to electricity supplies, largely caused by unreliable deliveries of natural gas from Egypt and shortages at home. The power cuts have forced several manufacturers to either scale back production, or resort to using expensive fuel alternatives, such as diesel, both of which are eating into earnings.
The government is moving to diversify energy sources and improve electricity security. However, projects will take time to complete, leaving Jordan’s industries struggling to deal with power outages and limiting their growth potential in the near term.
In the zone
While regional unrest is taking its toll on the industrial sector, change is afoot, according to Sheldon Fink, the CEO of PBI Aqaba Industrial Estate. Awareness is increasing among businesses and officials about how industry should be promoted and developed, he said. The estate operates the Aqaba International Industrial Estate in the Red Sea port city’s free trade zone.
“Initially, Aqaba lacked focus, but has now concentrated more on the port and industrials side which has boosted growth,” Fink told OBG. “The government needs to better manage revenues created from the special zones by investing them into growth channels with real prospects. Our project has not seen any slow down of investment, and indeed we are seeing growth in new projects this year.”
Oxford Business Group