Jordan’s economy appears to be back on track following multiple external shocks since late 2008, and, while growth remained relatively sluggish at 2.8% in 2013, many analysts predict an average of 4% or higher in the coming years.
Perhaps the clearest evidence of revived momentum has been the recovery of foreign currency reserves, which almost doubled from $6.6bn at year-end 2012 to almost $12bn a year later, according to the Central Bank of Jordan. This is equivalent to about seven months’ worth of imports, compared to less than four months – the standard reference by emerging market standards – at the end of 2012.
Remittances from Jordanians working abroad, the greatest single source of foreign exchange, rose 4.4% in 2013 to reach $3.65bn, sending out a further positive signal.
Reforms and tools
Various methods were adopted to help secure Jordan’s growth, including loan guarantees, budget support and other forms of economic and financial assistance from governments and multilateral institutions, including a $5bn investment package pledged by the GCC.
Even more importantly for the long term, the country has undertaken a series of structural and other reforms aimed at increasing competitiveness, productivity and the economy’s overall capacity to maintain healthy growth, despite negative influences from abroad.
Its efforts have included reform of general subsidies, including those applied to the electricity sector. The IMF also highlighted the Central Bank’s move to stimulate economic activity by gradually reducing policy rates by a total of 75 basis points, resulting in an uptick in private sector credit growth.
While implementation of these reforms remains a work in progress, growth has been sufficient for the IMF to keep releasing funds under a stand-by agreement with the kingdom, most recently a $264m tranche disbursed in April.
It remains too early to predict the final results of Jordan’s reforms, but the immediate impact is undeniable. The improvements witnessed in 2013 were achieved despite the fact that many of the impediments to Jordan’s economic development have yet to be removed. The war in neighboring Syria, for example, weighed on the kingdom’s tourism industry in 2013, with visitor numbers down 14% on the previous year, according to a report in the Jordan Times. The hundreds of thousands of refugees entering Jordan continue to put pressure on resources and infrastructure, while problematic fuel imports are adding to the country’s woes by inflating energy costs.
Ongoing disruptions in gas supplies from Egypt have forced Jordan to buy costlier fuels elsewhere, with heavy fuel oil and diesel reserves estimated to be costing the Kingdom approximately $5 million per day. While decisive steps have been taken, to relieve the kingdom’s dependence on imports for more than 95% of its energy needs, Jordanians are bracing themselves for a controversial hike in electricity tariffs, as the government looks to compensate for rising costs.
Facing real challenges
Going forward, Jordan will benefit from a comprehensive strategy to diversify its energy mix. Agreements have been reached with a Russian consortium for construction of a nuclear power station, with a Chinese group to build another plant fired by oil shale, and with both Iraq and Israel to deliver primarily oil and gas respectively via pipelines. Other moves to develop both conventional and alternative energy sources, including both wind and solar, are also under way. However, it will take time for such ambitious projects to yield results and drive down Jordan’s energy bill.
The economy should benefit from further reforms designed to unshackle private enterprise by improving access to credit and enhancing the country’s business climate. There are signs, too, that the tourism industry – Jordan’s second-largest source of employment – has turned a corner, with increases in both individual (3.1%) and group (4.7%) visitors, as well as total revenues (11.1%) for the first quarter of 2014.
In April 2014 alone, ground was broken on three new tourism projects, at the Dead Sea Development Zone, collectively worth around $1.4bn. The Porto Dead Sea project, valued at approximately $1.1bn, is being financed by the Egyptian Amer Group, while Iraq investors are bankrolling the $40m Sweimah Corniche venture and Amwaj Dead Sea initiative.
Overall, the travails of the past five years have focused the state’s attention on perennial challenges in terms of energy options and structural inefficiencies, but they have also encouraged the private sector to make itself more adaptable and resilient. Indeed, adverse conditions abroad have helped create impetus for overdue changes at home.
Oxford Business Group