Tuesday, March 17, 2009

Economy of Jordan

Jordan is a small country with limited natural resources, but has improved much since its inception as a country. Its current GDP per capita soared by 351% in the Seventies. But this growth proved unsustainable and consequently shrank by 30% in the Eighties. But it rebounded with growth of 36% in the Nineties. Just over 10% of its land is arable, and even that is subject to the vagaries of a limited water supply. Rainfall is low and highly variable, and much of Jordan's available ground water is not renewable. Jordan's economic resource base centers on phosphates, potash, and their fertilizer derivatives; tourism; overseas remittances; and foreign aid. These are its principal sources of hard currency earnings. Lacking forests, coal reserves, hydroelectric power, or commercially viable oil deposits, Jordan relies on natural gas for 10% of its domestic energy needs. Jordan used to depend on Iraq for oil until the Iraq invasion in 2003 by the United States. Jordan is also classified as an emerging market.

Economic History

Since 1987, Jordan has struggled with a substantial debt burden and rising unemployment. In 1989, efforts to increase revenues by raising prices of certain commodities and utilities triggered riots in the south. The mood of political discontent that swept the country in the wake of the riots helped set the stage for Jordan's moves toward democratization.

Jordan also suffered adverse economic consequences from the 1990-91 Gulf War. While tourist trade plummeted, the Gulf states' decision to limit economic ties with Jordan deprived it of worker remittances, traditional export markets, a secure supply of oil, and substantial foreign aid revenues. UN sanctions against Iraq—Jordan's largest pre-war trading partner—caused further hardships, including higher shipping costs due to inspections of cargo shipments entering the Gulf of Aqaba. Finally, absorbing up to 300,000 returnees from the Gulf countries exacerbated unemployment and strained the government's ability to provide essential services.

Macro-economic trend

Although the population is highly educated, its high growth rate (3.4% in the late 1990s, but 2.8% since 2003 and declining) and relative youth (more than 50% of Jordanians are under 16) make it difficult for the economy to generate jobs and sustain living standards. However, campaigns to boost female education and awareness about contraceptives have since gradually if somewhat belatedly reduced population growth. It is expect to remain over 2.5% till the end of the decade.

Jordan's geographic disposition and sole port of Aqaba puts it far from other markets makes its exports expensive to deliver. The problem is further compounded by complicated government procedures and bureaucratic culture. A further problem remains emphasis on large scale foreign investment and limited programmes to enhance local enterprise and productivity. This in turn means that several industries in Jordan are protected by the government and run near local monopolies (these include the Jordan Refinery Company among others, where steel and cement imports are limited) and government levies on raw materials generally translate to higher costs of production. A further problem can be found in local small and medium sized enterprises local and regional outlook rather than an orientation towards broader export markets.

Political disputes among its traditional trading partners—Iraq, Saudi Arabia, and the Gulf states—frequently restrict regional trade and development. King Abdullah II has encouraged his government to liberalise the economy, improve economic ties in the region, and seek opportunities in the global information economy.


Agriculture, forestry, and fishing

Despite increases in production, the agriculture sector’s share of the economy has declined steadily to just 2.4 percent of gross domestic product by 2004. About 4 percent of Jordan’s labor force worked in the agricultural sector in 2002. The most profitable segment of Jordan’s agriculture is fruit and vegetable production (including tomatoes, cucumbers, citrus fruit, and bananas) in the Jordan Valley. The rest of crop production, especially cereal production, remains volatile because of the lack of consistent rainfall. Fishing and forestry are negligible in terms of the overall domestic economy. The fishing industry is evenly divided between live capture and aquaculture; the live weight catch totaled just over 1,000 metric tons in 2002. The forestry industry is even smaller in economic terms; approximately 240,000 total cubic meters of roundwood were removed in 2002, the vast majority for fuelwood.

Mining and minerals

Potash and phosphates are among the country’s main economic exports. In 2003 approximately 2 million tons of potash salt production translated into US$192 million in export earnings, making it the second most lucrative exported good. Potash production totaled 1.9 million tons in 2004 and 1.8 million tons in 2005. In 2004 approximately 6.75 million tons of phosphate rock production generated US$135 million in export earnings, placing it fourth on Jordan’s principal export list. With production totaling 6.4 million tons in 2005, Jordan was the world’s third largest producer of raw phosphates. In addition to these two major minerals, smaller quantities of unrefined salt, copper ore, gypsum, manganese ore, and the mineral precursors to the production of ceramics (glass sand, clays, and feldspar) are also mined.
Industry and manufacturing

The industrial sector, which includes mining, manufacturing, construction, and power, accounted for approximately 26 percent of gross domestic product in 2004 (including manufacturing, 16.2 percent; construction, 4.6 percent; and mining, 3.1 percent). More than 21 percent of the country’s labor force was reported to be employed in this sector in 2002. The main industrial products are potash, phosphates, pharmaceuticals, cement, clothes, and fertilizers. The most promising segment of this sector is construction. In the past several years, demand has increased rapidly for housing and offices of foreign enterprises based in Jordan to better access the Iraqi market. The manufacturing sector has grown as well (to nearly 20 percent of GDP by 2005), in large part as a result of the United States–Jordan Free Trade Agreement (ratified in 2001 by the U.S. Senate); the agreement has led to the establishment of approximately 13 qualifying industrial zones (QIZs) throughout the country. The QIZs, which provide duty-free access to the U.S. market, produce mostly light industrial products, especially ready-made garments. By 2004 the QIZs accounted for nearly US$1.1 billion in exports according to the Jordanian government.


Oil shale in Jordan Unlike most of its neighbors, Jordan has no significant petroleum resources of its own and is heavily dependent on oil imports to fulfill its domestic energy needs. In 2002 proved oil reserves totaled only 445,000 barrels. Jordan produced only 40 barrels per day in 2004 but consumed an estimated 103,000 barrels per day. According to U.S. government figures, oil imports had reached about 100,000 barrels per day in 2004. The Iraq invasion of 2003 disrupted Jordan’s primary oil supply route from its eastern neighbor, which under Saddam Hussein had provided the kingdom with highly discounted crude oil via overland truck routes. Since late 2003, an alternative supply route by tanker through the Al Aqabah port has been established; Saudi Arabia is now Jordan’s primary source of imported oil; Kuwait and the United Arab Emirates (UAE) are secondary sources. Although not so heavily discounted as Iraqi crude oil, supplies from Saudi Arabia and the UAE are subsidized to some extent.[2]

In the face of continued high oil costs, interest has increased in the possibility of exploiting Jordan's vast oil shale resources, which are estimated to total approximately 40 billion tons, 4 billion tons of which are believed to be recoverable. Jordan's oil shale resources could produce 28 billion barrels of oil, enabling production of about 100,000 barrels per day. The oil shale in Jordan has the fourth largest in the world which currently, there are several companies who are negotiating with the Jordanian government about exploiting the oil shale like Royal Dutch Shell, Petrobras and Eesti Energia.

Natural gas is increasingly being used to fulfill the country’s domestic energy needs, especially with regard to electricity generation. Jordan was estimated to have only modest natural gas reserves (about 6 billion cubic meters in 2002), but new estimates suggest a much higher total. In 2003 the country produced and consumed an estimated 390 million cubic meters of natural gas. The primary source is located in the eastern portion of the country at the Risha gas field. The country imports the bulk of its natural gas via the recently completed Arab Gas Pipeline that stretches from the Al Arish terminal in Egypt underwater to Al Aqabah and then to northern Jordan, where it links to two major power stations. This Egypt–Jordan pipeline supplies Jordan with approximately 1 billion cubic meters of natural gas per year.

The state-owned National Electric Power Company (NEPCO) produces most of Jordan’s electricity (94%). Since mid-2000, privatization efforts have been undertaken to increase independent power generation facilities; a Belgian firm was set to begin operations at a new power plant near Amman with an estimated capacity of 450 megawatts. Power plants at Az Zarqa (400 megawatts) and Al Aqabah (650 MW) are Jordan's other primary electricity providers. As a whole, the country consumed nearly 8 billion kilowatt-hours of electricity in 2003 while producing only 7.5 billion kWh of electricity. Electricity production in 2004 rose to 8.7 billion kWh, but production must continue to increase in order to meet demand, which the government estimates will continue to grow by about 5% per year. About 99 percent of the population is reported to have access to electricity.

Services and tourism

Services accounted for more than 70 percent of gross domestic product (GDP) in 2004. The sector employed nearly 75 percent of the labor force in 2002.[2]

The tourism sector is widely regarded as underdeveloped, especially given the country’s rich history, ancient ruins, Mediterranean climate, and diverse geography. Despite personal appeals by the king and an increasingly sophisticated marketing campaign, the industry is still adversely affected by the political instability of the region. More than 5 million visitors entered Jordan in 2004, generating US$1.3 billion in earnings. Earnings from tourism rose to US$1.4 billion in 2005. The fact that the bulk of Jordan’s tourist trade emanates from elsewhere in the Middle East should contribute to the industry’s growth potential in the years ahead, as Jordan is relatively stable, open, and safe in comparison to many of its neighbors.

External trade

Since 1995, economic growth has been low. Real GDP has grown at only about 1.5% annually, while the official unemployment has hovered at 14% (unofficial estimates are double this number). The budget deficit and public debt have remained high and continue to widen, yet during this period inflation has remained low due mainly to stable monetary policy and the continued peg to the United States Dollar. Exports of manufactured goods have risen at an annual rate of 9%. Monetary stability has been reinforced, even when tensions were renewed in the region during 1998, and during the illness and ultimate death of King Hussein in 1999.

Expectations of increased trade and tourism as a consequence of Jordan's peace treaty with Israel have been disappointing though not unexpected. Security-related restrictions to trade with the West Bank and the Gaza Strip have led to a substantial decline in Jordan's exports there. Following his ascension, King Abdullah improved relations with Arabic states of the Persian Gulf and Syria, but this brought few real economic benefits. Most recently the Jordanians have focused on WTO membership and a Free Trade Agreement with the U.S. as means to encourage export-led growth.


The stock market capitalisation of listed companies in Jordan was valued at $37,639 million in 2005 by the World Bank.

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