The Jordanian economy has done pretty well recently, boasting high growth rates, attracting attention from regional investors, and enjoying increasing exports.Regarding the latter, the kingdom chalked up close to $4.1billion in national merchandise exports last year, up by almost 13% on 2005. Traditional Jordanian production such as fertilizers (the country’s second most important good sold abroad) still accounted for almost 8% of exports in 2006, with potash, another mainstay of the old Jordan economy, constituting over 6%. However, other products with a higher value added have become more prominent in the past few years. These include pharmaceuticals, currently the country’s third most important export, with a share of over7% last year, and most notably clothing, which has been number one for much of the present decade. Growing steadily from a very modest share in the late 90s, the clothing industry was responsible in 2006 for just over 30% of totalJordanian merchandise exports, a proportion roughly maintained since 2003, with the value of Jordanian clothing exported last year expanding by 18% compared to a rise of just over 5% in 2005.
So where are all these clothes sold? You’d think that shoppers in Lebanon, Iraq, or the GCC countries, traditional outlets for Jordan’s products, would see Jordanian garments in their local stores, but that is rarely the case.Actually, you would have to go to New York or LA to find most of these clothes. Is that a bizarre situation? Not at all, if you consider the importance of Middle East diplomacy to Jordan’s economy. In fact, Jordan’s success in this business rests on a break it got over a decade ago from its favorite uncle, a person with a red, white and blue top hat called Sam, with so-called Qualifying Industrial Zones(QIZs).
In the Zone
Under the QIZ—blatantly designed to reward Jordan for its pro-American stance and nudge the kingdom even closer toIsrael—a product with 11.7% added value from Jordanian, 7-8%from Israeli, and the balance of 35% from either country, the US or Palestine, enjoys duty-free entry into theAmerican market. For example, if a skirt costing $10 is imported into Jordan from India and dyed in Amman to raiseits value to $11.17, it cannot by such a transformation alone enter the US market free of duty under currentJordanian-American trade rules. However, if that same garment also gets, for example, Israeli zippers worth $0.80and American trim costing $1.53, then the finished product has added the necessary amount of value (in this case stipulated at a minimum of 35%) in the correct proportions to qualify for duty- free entry into the US market.
The roaring success of this arrangement has left the US as the main importer of Jordanian products last year, buying more than 31% of the kingdom’s exports, up from a derisory amount in the mid-90s. For various reasons, clothing has turned out to be the major exported QIZ item, with garments(most of which are produced in QIZs) amounting to almost 91%of Jordanian sales to the US in 2006.
Not that the QIZ deal has done that much for Jordan’s economy: for a start, most of the capital and many of the workers at QIZ factories are not Jordanian—as a lot of profits and wages are sent home outside the kingdom, Jordan gets that much less benefit. The other problem is that UncleSam in December 2004 also “rewarded” Egypt with a QIZ deal; as the Egyptians can more cost-effectively produce garments(and for that matter, other products) wanted by US consumers, Jordan QIZs had better watch out. Under theAmerican policy of “competitive liberalization” grantingQIZs to both neighbors seeks to make them more competitive, which is probably a good thing—if the Jordanians are up to it.
QIZ helps plug trade gap
Meanwhile, QIZ has helped Jordan to strengthen what would otherwise be anemic exports of goods, partially plugging a massive trade gap. In 2005, exports of Jordanian goods covered a mere 41% of the kingdom’s merchandise imports, but higher sales abroad from Jordan’s QIZs last year helped bring up the coverage to a little over 45%. The shortfall is partly made up by better figures in Jordan’s services trade balance, but in the end the kingdom regularly consumes more from abroad than it sells to the outside world, with the gap being made up by foreign largesse.
RIAD AL KHOURI is an economist, and Director MEBA Ltd Amman/Senior Associate BNI Inc New York; He can be contacted at [email protected]
