By Oxford Business Group
State support and incentives combined with growing confidence in the local economy are helping Jordan’s manufacturing industries deal with challenges being caused by globalization.
Manufacturing industries currently contribute around 16 percent to gross domestic product (GDP) but will likely fall as the share of services and information and communications technology grows in the coming years.
There are signs that measures enacted by the government early this year to attract foreign investors and stimulate business activity are starting to pay off. These included a reduction in corporate taxes for industry, long-term tax breaks for foreign direct investment in industrial and free zones, and strengthening of state fiscal.
“Our austerity measures plus the stimulus measures have not only bolstered the macroeconomic outlook and injected fiscal discipline but have moved the economy further toward recovery over the course of next year,” Mohammad Abu Hammour, minister of finance, said in October.
While the government has laid the groundwork for increased investments in the economy, the actual flow of capital has yet to strengthen, with figures released by the Jordan Investment Board (JIB) on October 30 showing an 8.45 percent fall year on year in the value of investments in the first three quarters of 2010.
One area where investment figures were strong was industry, with the sector attracting $741.5 million out of the $1.5 billion total. Significantly, 80 percent of the total came from local investors, an indication of rising confidence in the government’s policies to support industry and other sectors.
This domestic capital to a large degree helped to offset the 24 percent drop in foreign investments, a fall attributed by many experts to weaker regional economies and caution over making new investments, rather than any waning interest in Jordanian industries.
There is also some concern over the falling value of the US dollar, to which the dinar is pegged, with the drop in dollar’s buying power having the potential to push up the cost of imports, including those needed by the manufacturing sector.
“Our imports from Japan and European countries are not denominated in the US dollar, which means that the dinar’s value against the yen or the euro will go down, leading to more expensive goods from these markets,” economist Jawad Anani told local media on November 3, adding that unless steps were taken by the government inflation could be pushed up.
While a number of Jordan’s industries, in particular those linked to the mining sector such as phosphate and chemicals production, rely on local natural resources, they also depend heavily on imported hydrocarbons to power their plants and fuel their transport requirements, as well as provide for new equipment. A continued fall in the dollar, dragging down the dinar with it, would add to the financial pressures on such industrial operations.
It is not only rising costs that Jordanian industry has to deal with, it also has to learn to adapt to a rapidly changing economic environment, due to the lowering of tariff barriers and the promotion of a free trade regime by the government, says economist and writer Fahed Fanek.
“Jordanian industry was born behind high customs protection walls; sometimes competing products were not allowed to enter the market,” he wrote in an article published in mid-October. “Industry was taken by surprise when the walls of protection were torn down or reduced suddenly, and the local market was flooded with foreign products of high quality and at low prices.”
Industries such as Jordan’s textile sector are competing with Asia and elsewhere, while other domestic manufacturers are also coming under pressure as protection is eased.
One answer is for local industrialists to form ties with manufacturers overseas, creating market strength, while another is to focus on niche segments where either easily accessible natural resources or a highly developed skills base will give the domestic economy an edge over rivals.
