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Ties across the river

Jordan finally ready for sustainable growth

by Riad Al-Khouri

As reform bears fruit, Jordan’s economy may finally beready to take off into sustainable growth. Recentindications of this came at the Dead Sea World EconomicForum gathering in May, which witnessed the signature ofinvestment deals for Jordan totaling $2.5 billion. (Bycomparison, all of 2006’s direct foreign investment intoJordan totaled $3 billion) Given that and other strongeconomic signs, Jordanian GDP looks set to continueexpanding at 6% or more in 2007 and over the next few years;and with population growth decelerating, that means higherper capita incomes.

However, Jordan’s path towards sustainable prosperitywould undoubtedly be smoother without major problems inPalestine, given the symbiosis between the two sides of theJordan River. Most Jordanian citizens are originallyPalestinian; but beyond family ties, many East Bankindividuals and firms have business in or with Palestine.

The most notable example of investment by Jordan in theWest Bank or Gaza (where the Jordanian dinar is widely used)is in Jordanian banks, the branches of which do the lion’sshare of Palestine’s financial business. For example,Palestinian banks hold only 30% of Palestinians’ depositswhile the rest is in the eight Jordanian banks operating inPalestine (including Amman’s flagship Arab Bank).

On that score, things could also move in the oppositedirection, with Palestinian banks branching out into Jordan.As part of its trade liberalization, Jordan’s banking sectoris opening up to outsiders, and the Bank of Palestine isseeking to branch out east of the Jordan, pending a rise incapital and Jordanian central bank approval.

Merchandise trade however, is another matter: as thingsstand today, Jordan’s export of goods to the Palestinians ismeager (and vice versa), with Palestine not even figuringamong the top ten customers or markets of Jordan. On paper,the two sides are committed to expanding commerce, and thePalestine National Authority has an agreement with Jordan tobolster and liberalize trade. In 2003, Jordan exempted allPalestinian goods from duties and fees, in line with anearlier Arab Summit decision, and canceled quotas governingthe entry of Palestinian agricultural products into Jordan.However, four years later, even with the easing of tariffand non-tariff barriers, Palestinian–Jordanian merchandise trade isstill paltry, not having moved much beyond its pre-Oslo 1993level of $60 million annually.

The reasons for this lack of commerce between Palestine andJordan are various, some of them being purely economic. Forinstance, it is sometimes the case that adjacent developingeconomies do little business with each other because theirproducts are so similar. To take two examples, Jordanians donot export many tomatoes to the West Bank because the lattergrows so much of them; nor do Palestinians buy a lot ofbuilding stones from the East Bank, when the stuff isabundant at home anyway.

However, such factors only partially explain the weak tradeflows between the two countries, and this brings us back tothe overriding issue of peace. The lesson of the past decadeor so has been that token commercial deals may help to breakthe ice between protagonists and lead to a feelgoodatmosphere; but expecting a full-blown business relationshipto thrive among all sides on both banks of the Jordanwithout genuine peace is at best naïve.

Amman’s push for Palestinian-Israeli peace is thus a logicalmove to help expand business ties across the Jordan. Thelatest effort by Amman in that direction consists of sellingthe Beirut Arab Summit peace initiative to Israel. Jordanhas always supported the 2002 plan, but five years on, Ammanhas even more to gain from reaching a fair solution to thePalestine problem. For example, political disaffection onthe East Bank — more apparent under democratization — wouldease with a Palestinian-Israeli peace that gives all sidestheir own turf to play on. As things stand now, thePalestinian majority in Jordan can neither aspire to realauthority in a quasi-democracy east of the river, norcredibly hope to project power in the West Bank/Gazaquagmire. Thus, a just peace, whatever the formula, wouldhelp solve East Bank Palestinian problems and lead to a morerelaxed situation on both sides of the Jordan.

Economically, peace would also benefit Amman through a realopening up of Palestine to Jordanian exports and vice versa,unhindered by Israel. However, with the present USadministration playing tough, Israel stalls on peace, to thedetriment of all. That includes Jordanians who, for thefirst time can glimpse sustainable development, but notachieve it without a solution to the Palestinian issue thatmakes all on both sides of the Jordan feel part of abrighter future.

Riad El Khouri is Director, MEBA Amman and a Senior Associate, BNI Inc New York City

 

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Riad Al-Khouri

Riad Al-Khouri is Middle East director of GeoEconomica GmbH
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