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Jordan - ECONOMY

Jordan - The Economy


JORDAN, A SMALL NATION with a small population and sparse natural resources, has long been known by its Arab neighbors as their "poor cousin." In the late 1980s, Jordan was compelled to import not only many capital and consumer goods but also such vital commodities as fuel and food. Officials even discussed the possibility of importing water. Nevertheless, the Jordanian economy flourished in the 1970s as the gross domestic product (GDP) enjoyed double-digit growth. The economy continued to fare well in the early 1980s, despite a recessionary regional environment. Indeed, by the late 1980s, Jordanians had become measurably more affluent than many of their Arab neighbors. The 1988 per capita GDP of approximately US$2,000 placed Jordan's citizens well within the world's upper-middle income bracket.

Economic prosperity rested on three primary bases. Jordan's status as the world's third largest producer of phosphates ensured a steady--if relatively modest--flow of export income that offset some of its high import bills. More important, Jordan received billions of dollars of invisible or unearned income in the form of inflows of foreign aid and remittances from expatriates. These financial inflows permitted domestic consumption to outpace production and caused the gross national product (GNP) to exceed the GDP. In the late 1970s and early 1980s, GNP exceeded GDP by 10 percent to 25 percent. High financial inflows from the mid-1970s to the mid-1980s allowed Jordan to maintain a low current account deficit; in some years it registered a current account surplus, without much external borrowing and despite trade and budget deficits. Jordan's economy, therefore, demonstrated many of the characteristics of wealthier and more technologically advanced rentier economies. Jordan also capitalized on its strategic geographic location, its educated work force, and its free enterprise economy to become a regional entrepôt and transit point for exports and imports between Western Europe and the Middle East. Because of these factors, it also became a magnet for foreign direct investment, and a purveyor of banking, insurance, and consulting services to foreign clients. Jordan's heritage as a merchant middleman was centuries-old, dating back to the Nabatean kingdom of Petra. Because the economy depended so heavily on the professional service sector and remittance income from expatriates, the government sometimes called Jordan's manpower the nation's most valuable resource.

Jordan's economic strategy succeeded during the Middle East oil boom of the 1970s. In the late 1980s, however, as the worldwide plunge in oil prices persisted, economic problems emerged. Foreign aid was cut, remittances declined, and regional trade and transit activity was suppressed by lack of demand, leading to a deterioration in the current account. The government was deeply concerned about the economy's vulnerability to external forces. Jordan's economy depended heavily on imported commodities and foreign aid, trade, investment, and income. But because plans to increase self-sufficiency were only in the early stages of implementation, a short-term decline in the national standard of living and increased indebtedness loomed as the 1990s approached; observers forecast that austerity would replace prosperity.




In the late 1980s, depite recent reconomic setbacks, Jordan remained more prosperous than many developing countries, and its citizens were more affluent than their neighbors from other nonpetroleum-exporting countries. Jordan's persistent economic viability was surprising in several respects. Measured both in terms of population and production, the Jordanian economy was one of the smallest in West Asia, according to the United Nations (UN). Its population--not including the West Bank -- numbered only about 3 million in 1989. Jordan's 1987 gross domestic product was estimated at less than US$5.5 billion. Furthermore, Jordan's natural resources were not nearly as abundant as those of other Middle Eastern nations.

Added to these disadvantages was the incalculable cost to economic development of the regional political and military environment. The economy was dismembered by the 1967 Israeli occupation of the West Bank. Jordanians regarded the loss of this territory not only as a military and political defeat, but also as an enduring economic catastrophe that cost them a large part of their infrastructure, resources, and manpower. Jordan's defense burden, although only average by Middle Eastern standards, was very large by world standards. The country's 1987 defense expenditure of US$635 million constituted 22 percent of total government spending.

Despite such handicaps, the economy grew rapidly in the 1970s and continued to grow in the early 1980s. According to UN data, the annual real (inflation-adjusted) growth rate of GDP averaged almost 16.5 percent between 1972 and 1975. The average annual growth rate fell to 8.5 percent between 1976 and 1979, then peaked at almost 18 percent in 1980. Jordan's economic growth appeared more spectacular in percentage terms than in absolute terms because it started from low base figures; nonetheless, the pace of economic development was one of the highest in the world during this period. Jordan was not a petroleum exporter, a fact that made this growth rate all the more phenomenal.

Jordan dealt relatively well with the recession in the Middle East triggered by plummeting petroleum prices. Between 1980 and 1985, the average growth rate decelerated to about 4 percent a year, but Jordan's economy was able to sustain this growth rate at a time when other regional economies, such as those of the oilproducers on the Arabian Peninsula, were actually contracting. The boom in transit trade to and from Iraq after the start of the IranIraq War in 1980 accounted for much of the growth. The immunity of the large service sector to demand slowdown also postponed the effects of the regional recession. The government, however, constituted a large component of the service sector. In its role as a major customer and employer, the government sustained an artificial level of growth through continued deficit spending and a relaxed fiscal policy. Despite the extra money and demand that the government injected into the economy, GDP growth eventually stagnated in the late 1980s. GDP growth in 1989 was estimated at only 2 or 3 percent.


Jordan - The Economy - ROLE OF THE GOVERNMENT


In the late 1980s, the government of Jordan remained a staunch advocate of free enterprise. Unlike many of its Arab neighbors, and for both pragmatic and ideological reasons, Jordan had never nationalized businesses, seized private assets without compensation, or implemented socialism. But although the economic system was as liberal and market oriented as those of many fully developed nations, the government continued to play a large economic role, both in development planning and as a financier.

A Mixed Economy

Government encroachment on the economy in the form of ownership or equity participation in corporations was inevitable and, to some extent, inadvertent. The government's role as financier derived from several interrelated factors. Most important, the government was the only channel through which foreign aid, loans, and most expatriate worker remittances were funneled into the country. Acting as an intermediary in the distribution of these funds, the government acquired a reputation in the private sector for its "deep pockets" and fostered in the business world a feeling of entitlement to government support in the capitalization of certain enterprises. Inadequate private capital investment, resulting in part from an entrenched "merchant mentality," has been a weak point in the economy for which the government has had to compensate. Moreover, the large amount of capital investment required by some extractive industries was beyond the reach of willing private sector investors. In some industries, such as telecommunications, government ownership was viewed simply as a prerogative. In numerous other cases, the government felt compelled to bolster private investor confidence and so stepped in to rescue insolvent private sector companies and banks with an infusion of capital, to buy the receivables of exporting companies unable to collect payment from foreign customers, and, when publicly held companies went bankrupt, to compensate shareholders for the lost value of their stocks. In this manner, the government essentially adopted companies that were abandoned by the private sector.

Eventually, the government came to preside over a large mixed economy of some forty semipublic corporations. The government's share of the combined nominal equity of these companies was about 18 percent, but its share of their combined paid-up capital--a more realistic measure of ownership--was over 40 percent. The government had contributed 100 percent of the paid-up capital of eleven of the companies, although its share of their nominal capital was much lower. These firms included Arab International Hotels, the Arab Company for Maritime Transport, the Jordan Cement Factories Company, the Arab Investment Company, and a number of joint ventures with Iraq and Syria. In six of the companies, the government was a minor investor, holding less than 10 percent of the equity. The largest company in this group was the Jordan Refinery Company, in which the government held only a 3 percent share. This group also included the Arab Pharmaceutical Manfacturing Company and the Jordan Ceramic Company. Public investment tended to be highest in those companies with strong domestic and export markets. In 1988 the government was pursuing plans to offer the government-owned telecommunications industry and the national air carrier, Royal Jordanian Airlines, for sale to a combination of Jordanian and other Arab private sector investors.

Clearly, the government assumed responsibility for some aspects of the economy by default because of lack of investment activity and initiative in the private sector. Although total gross fixed capital formation was targeted by the 1980-85 Five-Year Plan for Economic and Social Development (known as the 1980-85 Five-Year Plan) to grow at about 12 percent annually, it grew at less than 1 percent per year. Public sector capital investment during the period totaled almost JD60 million, 40 percent more than stipulated in the plan, but private and mixed sector capital investment, at JD540 million, was only 75 percent of the planned target. The declining value of share prices on the Amman Financial Market since the early 1980s also indicated low private participation in equity markets.

Government officials have, on occasion, criticized the private sector for its unwillingness to make capital investments and its general preference for trade and consumption rather than production and investment. Revitalization and expansion of the private sector has been a long-standing official development priority. Perhaps the government's most important policy tool has been Central Bank regulation of bank interest rates on both loans and deposits. By setting ceilings on the interest rates that banks can charge certain borrowers, the government has tried to channel loans to capital-starved enterprises. The government also has encouraged foreign direct investment in the hope of stimulating growth of the domestic private sector through partnerships and joint ventures with foreign companies.

The incentives that the government has had to provide foreign and domestic businesses to invest in the economy have, however, run somewhat contrary to the free market philosophy. Under the 1984 Encouragement of Investment Law, foreign investors were permitted to own up to 49 percent of a Jordanian company. In certain cases (for example, export-oriented manufacturing enterprises), foreign investors could own all of a Jordanian company. To encourage investment, companies received customs exemptions, almost complete tax exemption for up to nine years, and unlimited profit repatriation. In some cases, they were given free land and facilities. Free zones granting similar concessions were established near Al Aqabah and near the Syrian border to encourage wholly-owned Jordanian companies to engage in manufacture for export. Five industrial estates throughout the country offered the use of government-built infrastructure and extensive government-run services to Jordanian companies.

Although government economic support was weighted toward fostering investment, the government also provided subsidies that were deemed necessary to guarantee citizens' welfare and political stability. The main government agent for subsidizing and setting prices was the Ministry of Supply, which was established in 1974 after merchants hoarded sugar to force up prices. The hoarding sparked discontent in the country at large and particularly in the armed forces. In the late 1980s, the Ministry of Supply imported wheat, meat, and other basic foodstuffs and distributed them at subsidized prices and bought crops from Jordanian farmers at higher-than-market prices. In the 1989 budget, JD33.2 million was allocated to food subsidies alone. The government also subsidized fuel, water, and electricity.

The government repeatedly has stated that it intends to phase out subsidies. The import restrictions imposed in 1988, however, had almost immediate unintended price effects that necessitated further subsidies and price setting. Although the government intended to ban only luxury imports, merchants began to hoard their inventory of imported goods in expectation of future restrictions. Hoarding led to sharp and sudden price inflation of such vital items as medicines and food. Domestic producers of goods that could substitute for imports also raised prices. In 1988 the Ministry of Supply announced that for the first time it would set or subsidize prices for tea, matches, electrical appliances, construction materials, and numerous other goods. For similar welfare reasons, unemployment was mitigated by public sector hiring, and the public payroll swelled to account for more than 40 percent of the work force in 1987.

In 1989 it was difficult to assess whether the government's role in the economy was increasing or decreasing. The government's forceful intervention with specific restrictions to stabilize the economy during the 1988 financial crisis was uncharacteristic. In general, the government appeared uncomfortable with the size of the role it was forced to play in the economy.




In the late 1980s, Jordan both exported and imported labor. The total domestic active labor force in 1987 was about 659,000 workers. Of this number, approximately 150,000 (23 percent) were foreign guest workers, and approximately 509,000 were Jordanian citizens. Concurrently, an estimated 350,000 Jordanians worked abroad. In 1988 the number of Jordanians living abroad, including dependents, was estimated at up to 1 million.

Labor Emigration

The oil price increases of 1973 and 1974 stimulated tremendous labor demand in the Arab petroleum-exporting nations, which tended to have small populations. Jordan, suffering from unemployment and having an educated and skilled work force, was prepared to fill this vacuum; over the following decade, several hundred thousand Jordanians left their country to work in neighboring Arab nations. About 60 percent of Jordanian emigrants worked in Saudi Arabia, about 30 percent worked in Kuwait, and most of the remainder found employment in other Persian Gulf states.

Remittance Income

Remittances to Jordan traditionally have been the largest source of foreign currency earnings and a pillar of economic prosperity. In 1980 remittance income was US$666 million, but by 1986, according to official statistics published by the Central Bank, remittance income had increased to an estimated US$1.5 billion at the then-prevailing exchange rate. According to a UN estimate, however, Jordan's 1986 remittance income was about US$1.25 billion and subsequently declined slightly. Actual remittance income was probably higher because much of the money was funneled back to Jordan through unofficial channels. Economist Ian J. Seccombe, who has produced authoritative studies of the Jordanian economy, estimated that real remittance inflows were perhaps 60 percent higher than the official receipts. Another expert, Philip Robins, estimated that real remittances could be twice the official receipts. Official figures did not include remittances in kind, such as automobiles brought back to Jordan and then sold by returning expatriates, nor remittance income exchanged at money changers rather than at banks.

Throughout the late 1970s and early 1980s, official statistics reported that remittance income exceeded export income, in some years by over 200 percent. Remittance income accounted for between 25 percent and 33 percent of the liquid money supply, about 20 percent of the GNP, and exceeded the figures for total government development spending, or total foreign aid receipts.

As early as the mid-1970s, however, remittance income and labor export created economic and demographic distortions. The problems were so pronounced that in the 1970s Crown Prince Hasan called for the creation of an international fund to compensate Jordan and other labor-exporting nations for the negative effects of emigration.

The billions of dollars that Jordanian emigrants pumped back into their home economy fueled prolonged double-digit inflation, especially of housing prices. To rein in inflation and to attract and capture remittances, the government tried to tighten the money supply by maintaining high interest rates for bank deposits. As a consequence, loan costs rose, hampering the investment activity of businesses and farms that needed finance. Also, and because remittances tended to be spent on imported luxury goods, the merchandise trade deficit expanded.

Jordanian labor export also had an unanticipated impact on the domestic labor force. Over time, foreign demand grew disproportionately for Jordan's most highly educated and skilled technocrats and professionals, such as engineers. This "brain drain" caused a serious domestic scarcity of certain skills. At the same time, wages for unskilled labor were bid up as Jordanian employers competed for manual workers. Progress on major infrastructure development projects was hampered. For example, according to a United States government study, the labor shortage idled heavy equipment on the East Ghor (also seen as Ghawr) Canal project for up to 70 percent of the work day. Ironically, Jordan was obliged eventually to import "replacement labor"--usually lowskilled workers from Egypt and South Asia--who transferred their wages out of Jordan. The number of foreign guest workers in Jordan grew compared to the number of Jordanians working abroad. The foreign guest workers also sent home a greater proportion of their wages than did the Jordanians working abroad. In the 1970s, such wage outflows constituted less than 10 percent of Jordan's remittance inflows, but by the late 1980s they offset nearly 25 percent of inflows, neutralizing much of the benefit of labor export.

Labor Force and Unemployment

In the late 1980s, after years of internal labor shortages, Jordan faced a looming unemployment problem. Throughout the 1970s and 1980s, Jordan sustained a high average annual population growth rate of between 3.6 and 4 percent. This growth rate was augmented by about 0.5 percent per year because of immigration into Jordan from the Israeli-occupied West Bank. In 1985 the government calculated that the work force would grow 50 percent to 750,000 by 1990. In the late 1980s, this prediction was proving accurate; about 40,000 people were joining the domestic labor pool every year. A combination of GNP growth, increased worker efficiency, emigration, and attrition created jobs for most new workers, and unemployment was kept to about 9 percent.

Experts believed, however, that unemployment and underemployment would probably increase rapidly in the 1990s as the labor pool continued to grow more quickly than labor demand. In 1986 only about 20 percent of Jordanian citizens worked or sought work, a figure expected to grow dramatically as the youthful population aged. In addition, because of the recession in Saudi Arabia and the Gulf states caused by slumping oil prices, Jordanians who had been working abroad were repatriating and seeking work at home. The Ministry of Labor estimated that about 2,500 Jordanians returned from abroad in 1986. Another source, however, estimated the number of returning workers and their dependents at 35,000 in 1986. Moreover, women--who in 1986 made up only a little more than 12 percent of the working population but almost 50 percent of secondary school and college enrollment--were expected to attempt to join the labor force in growing numbers. The work force had some elasticity in that approximately 150,000 foreign guest workers could be sent home and their jobs given to Jordanian citizens; but even if all guest workers were repatriated, unemployment would persist.

By one estimate that did not include repatriating Jordanian workers, unemployment could grow to 30 percent of the work force in the 1990s in the absence of extraordinary government action. Therefore, although aware of the problems caused by labor emigration, the government remained far more concerned about unemployment--and declining remittances--than about the problem of emigration. As of 1989, the government had stated explicitly that it would continue to permit unrestricted worker emigration.




Manufacturing contributed about 14 percent of GDP in the late 1980s. Much manufacturing activity related to exploitation of natural resources and to the mining sector. Although extractive industries were distributed throughout the country, about 90 percent of both small and large manufacturing entities were concentrated in the north, in an industrial belt between Amman and Az Zarqa. Between 1975 and 1985, total manufacturing value added grew at roughly the same rate as GNP, at an annual average rate of 13 percent through 1980, then decelerating to about 5 percent. Employment in manufacturing grew slowly, and in the late 1980s was estimated at slightly more than 50,000, less than 10 percent of the working population. For decades the government had emphasized industrial manufacturing development over other economic sectors, but growing excess industrial capacity prompted a greater priority to agriculture and water resource development in the 1986- 90 Five-Year Plan.


The manufacturing sector had two tiers. On one level were the large-scale, wholly or partially state-owned industrial establishments that produced chemicals, petrochemicals, fertilizers, and mineral products. These manufacturing entities included the "big five" companies that constituted the pillars of the industrial base: the Jordan Phosphate Mines Company, the Jordan Fertilizer Industries Company, the Arab Potash Company, Intermediate Petrochemical Industries, the Jordan Cement Factories Company, and also a recently enlarged oil refinery at Az Zarqa that employed about 3,000 persons. The chemical products sector employed about 4,000 workers at about seventy facilities. Because these industries were established to process the products of Jordan's mining and extractive sector, it was difficult to distinguish between the industrial and natural resource sectors of the economy.

Petroleum refining contributed 39 percent to gross output manufacturing; fertilizers, potash, and other nonmetallic minerals, 13 percent; industrial chemicals, about 8 percent; and iron, steel, and fabricated metal products, about 10 percent. Thus, about 70 percent of total manufacturing output was closely linked to the mining and extractive sector. The high contribution of these industries to the total value of manufacturing output resulted in part from the high underlying value of the natural resource inputs on which they were based. The same industries accounted for about 57 percent of total value added in manufacturing.

On the other level were small or medium-sized light manufacturing entities, many privately owned, that produced a wide array of consumer products. Many of these entities were cottage industries or small bazaar workshops. By one estimate, in 1984 more than 75 percent of the approximately 8,500 manufacturing companies employed fewer than five persons each. The most important, in order of contribution to gross output value, were food processing, tobacco and cigarettes, paper and packaging, beverages, furniture, textiles, and plastics. These companies and other smaller industries such as publishing, glass and rubber products, electrical equipment, and machinery--each of which contributed less than 1 percent of total manufacturing output value--together contributed about 30 percent of gross manufacturing output and 43 percent of manufacturing value added.

Industrial Policy

Like most nations with ambitious development plans, Jordan pinned its hopes on growth, particularly in the export of manufactured goods. Although high tariff and nontariff barriers sheltered selected industries from competition from lower cost imports, both nominal and effective rates of protection generally were low by the standards of developing economies. On the one hand, effective protection was high for paper and wood products, furniture, and apparel. On the other hand, imports of machinery, electrical equipment, and transport equipment were effectively subsidized. In view of its sustained high level of import of manufactured goods, observers viewed Jordan's pursuit of importsubstitution industrialization as moderate.

Jordan's import policy theoretically was designed to promote domestic manufacturing industries by ensuring their access to cheaper imported capital goods, raw materials, and other intermediate inputs rather than by granting them monopoly markets. The government believed that development of a domestic manufacturing base had to be led by exports because Jordan's small population could not generate enough consumer demand for manufacturing plants to achieve economies of scale or scope. In some cases, consumer demand was too low to justify building even the smallest possible facility. Domestic consumer demand alone was insufficient to support some manufacturing industries despite the relatively high wages paid to Jordanian workers; the high wages resulted in increased product costs and diminished export sales of manufactured goods. In the late 1980s, according to a Jordanian economist, the country continued to experience constant returns to scale despite its significant exports. Essentially, Jordan was still in the first stage of industrial production, in which the per unit costs were high because of limited output.

The relative contributions to manufacturing expansion made by domestic demand growth, export growth, and import substitution were difficult to assess accurately. Growth in domestic demand stimulated almost 60 percent of manufacturing expansion, export growth contributed a moderate 12 percent, and import substitution contributed nearly 30 percent. But exports accounted for about 33 percent of the growth of intermediate goods (fertilizers and other inputs) industries, and about 25 percent of the growth of consumer goods industries. In contrast, external demand contributed virtually nothing to growth in the metal products, iron and steel, rubber, and glass industries; import substitution, domestic demand growth, or a combination of the two accounted for all domestic manufacturing growth, resulting in self-sufficiency. In the case of the furniture, apparel, textile, and industrial chemical industries, however, either increased domestic demand, increased foreign demand, or a combination of both led to simultaneous domestic manufacturing growth and increased imports.

In the 1970s and early 1980s, the government concentrated on developing the first tier of the manufacturing sector--the production of chemicals and fertilizers--because, unlike consumer goods, these commodities appeared to have guaranteed export markets. The government followed this policy although the second tier of the manufacturing sector--the production of consumer goods- -had significantly higher value added. The government strategy was to increase value added in exported commodities by producing and exporting processed commodities, such as fertilizers from raw phosphates and metal pipes from ore and ingots. Because some other Middle Eastern and West Asian nations had adopted the same strategy, competition for markets increased at the same time that demand slumped. Jordan suffered from declining terms of trade as the value of its processed commodity exports fell relative to the value of its consumer and capital goods imports.

In the late 1980s, therefore, Jordan was reassessing its industrial strategy and searching for potential areas of comparative advantage in exporting light-manufactured goods and consumer and capital goods that had higher value added. Consumer goods were protected in many foreign markets, and Jordanian exports as a percentage of output in the consumer goods sector ranged only between 2 percent and 9 percent, as opposed to a range of 12 percent to 35 percent in the extractive industry based manufacturing sector. Accordingly, Jordan hoped to take advantage of its educated work force and increase the manufacture of capital goods that were either technical in nature or required engineering and technical expertise to manufacture. Those types of products had more appeal in foreign markets. To promote such development, the government established the Higher Council for Science and Technology, which in turn founded the private-sector Jordan Technology Group as an umbrella organization for new hightechnology companies.

Throughout the 1970s and 1980s, the profitability of some capital goods industries, measured as a ratio of both gross output value and of value added, fell steeply compared to profit ratios in the commodities and consumer goods sectors. During the same period, profitability of the natural resources sector declined minimally, while profitability of the consumer goods sector rose. The capital goods sector had been much more profitable than the natural resources sector; but by the late 1980s, the two sectors were equally profitable. The main cause of the plunge in profitability among capital goods apparently was price inflation of imported intermediate inputs. Especially affected, for example, were the electrical equipment and plastics industries--precisely the type of technical industries that Jordan envisaged as important to its economic future. The drop in profitability was not irremediable, however, and government officials continued to be optimistic about prospects in technical industries, particularly those that were skill intensive and labor intensive rather than capital intensive.

The pharmaceuticals and veterinary medicines industries were examples of the new direction of industrial development policy. The government-established Arab Pharmaceutical Manufacturing Company exported more than 70 percent of its production in 1987. A halfdozen other drug and medical equipment companies were garnering a large share of the Middle Eastern market in the late 1980s. Engineering industries also were a development target. In 1985 this manufacturing sector accounted for about 9 percent of manufacturing value added, 14 percent of total manufacturing employment, and about US$5 million in export sales. About 95 percent of the sector was devoted to basic fabrication of metal sheets, pipes, and parts. Jordan also exported in limited quantities more sophisticated products, such as domestic appliances, commercial vehicles, electrical equipment, and machinery; eventually it wanted to produce and export scientific equipment and consumer electronics. Another developing industry was plastic containers and packaging, of which about one-quarter of output was exported.

The strategy to boost manufactured exports ultimately had to take into account the low manufacturing productivity growth of the 1980s. Average annual productivity growth was estimated at 2 percent to 3 percent, and in 1986 it was a mere 1.4 percent. In several specific sectors, productivity was actually falling. Because this low or negative growth occurred at a time when labor productivity was increasing rapidly, it was attributable to some combination of insufficient investment and stagnant domestic and foreign demand. Jordan's average industrial capacity utilization, according to a UN report, was about 57 percent, but varied widely according to industry. Pent up consumer demand for some products was great enough so that any increase in capacity could be translated automatically into increased production and sales. Capacity utilization was almost 100 percent for certain chemical and consumer goods factories, indicating that more investment might be warranted, whereas capacity utilization in the production of certain household furnishings and building products was very low, suggesting suppressed or little demand. Spare production capacity meant that manufacturers would be able to meet sudden demand surges. In 1987, following a period of declining production, Egypt agreed to import construction materials and output of cement and metal pipes jumped 32 percent and 48 percent, respectively. Production of paper and cardboard also increased about 36 percent as the packaging industry developed, but production of detergent dropped 8 percent and production of textiles dropped 13 percent, leaving spare capacity. The variability of capacity utilization indicated the problems that the government had to confront in forecasting domestic and foreign demand for manufactured goods.

Electricity Generation

Between 1980 and 1985, per capita consumption of electricity doubled from 500 kilowatt hours per year to 1,000 kilowatt hours per year. The demand increase reflected the doubling in the number of households supplied with electricity as rural villages were electrified. By 1985 about 400,000 households, or 97 percent of the population, had access to electricity. Electricity generation increased 23 percent in 1986 and 18 percent in 1987 to total 712 megawatts or 3.2 billion kilowatt hours. After rural electrification was completed, growth in capacity outpaced growth in consumption, which was limited by conservation measures to about 3 percent to 4 percent per year. Roughly 40 percent of the electric power generated was used by industry, 30 percent was used by private citizens, 13 percent was used by commercial businesses, and the remainder was used by water pumping stations. The Hussein Thermal Power Station at Az Zarqa historically had produced more than 70 percent of the country's electricity, but at the end of 1987, the opening of the Al Aqabah Thermal Power Station added 260 megawatts, boosting Jordan's generating capacity to 972 megawatts and ensuring self-sufficiency into the early 1990s. A 400-kilovolt transmission line connected Al Aqabah and Amman. The Al Aqabah plant was to be expanded to a total capacity of 520 megawatts by the mid-1990s, and was planned eventually to supply 1,540 megawatts.

Although Jordan depended entirely on imported oil to fire its generating plants in 1988, the government planned to reduce this dependency. The 1988 discovery of natural gas at Rishah, near the Iraqi border, led to feasibility studies of retrofitting the Az Zarqa plant with gas turbine generators. A 20-megawatt hydroelectric station was to be included as part of the planned Al Wahdah Dam on the Yarmuk River. Discoveries of shale oil in the southern Wadi as Sultani region kindled hopes of a 100-megawatt shale-fired electric plant in that area. In 1989 Jordan also was prospecting for underground geothermal sources.




Jordan's mineral wealth and extractive industries constituted a major source of its gross output manufacturing as well as of its total value added in manufacturing. Such natural resources also represented a significant element in Jordan's exports.


Phosphate deposits were Jordan's primary natural resource and a major source of export income. Estimates of Jordan's proven, indicated, and probable reserves ranged from 1.5 billion to 2.5 billion tons. Even if the more conservative figure were the most accurate, Jordan could produce at its present rate for hundreds of years. Total 1987 production was 6.7 million tons, of which 5.7 million tons were exported as raw rock. The remainder was upgraded into fertilizer at several facilities and either retained for domestic use or exported. Jordan was the third ranked phosphate exporter in the world, after Morocco and the United States, and it had the capacity to produce well over 8 million tons annually. In 1986 phosphate sales generated US$185 million in income, which made up 25 percent of export earnings and gave Jordan a 10 percent share of the world market. Sales by volume in 1986 increased approximately 14 percent over the previous year, but profits rose only 4 percent, an indication of the depressed price for phosphates on the world market. In 1986 long-term agreements were concluded with Thailand and Yugoslavia that assured the added export of almost 1 million tons per year.

In 1985 the Jordan Phosphate Mines Company closed the country's original phosphate mine at Ar Rusayfah near Amman because it produced low-grade rock; this left major phosphate mines in operation at Al Hasa and Wadi Abu Ubaydah near Al Qatranah in central Jordan, and a new high-grade mine at Ash Shidiyah, forty kilometers south of Maan, where according to one estimate, reserves were more than 1 billion tons.

Among Jordan's major development projects was the construction of a US$450 million processing facility near Al Aqabah, completed in 1982, to produce monoammonium phosphate and diammonium phosphate fertilizer, and other chemicals such as phosphoric acid from raw phosphate rock. The project was envisioned as a boon to the extractive industry because it would increase value added in its major export commodity. Instead, it became an encumbrance as the prices of sulfur and ammonia (which Jordan had to import to produce the diammonium phosphate) rose while the price of diammonium phosphate on the world market slumped. Production costs of diammonium phosphate at various times between 1985 and 1987 ranged from 110 percent to 160 percent of world market price for the product. Nevertheless, Jordan remained cautiously optimistic about the long-term prospects for the fertilizer industry because of its geographic proximity to the large Asian markets. In 1985 Jordan exported more than 500,000 tons of fertilizer, primarily to India and China.


Potash was the other major component of Jordan's mining sector. A US$480 million potash extraction facility at Al Aghwar al Janubiyah (also known as Ghor as Safi) on the Dead Sea, which was operated by the Arab Potash Company, produced 1.2 million tons of potash in 1987 and yielded earnings of almost US$100 million. The facility processed the potash into potassium chloride. Future plans included the production of other industrial chemicals such as potassium sulphate, bromine, magnesium oxide, and soda ash. As in the case of phosphates, India was a major customer, buying almost 33 percent of output. Jordan was the world's lowest cost producer, in part because it used solar evaporation. There was lingering concern that possible Israeli construction of a Mediterranean-Dead Sea canal would dilute the Dead Sea, making extraction far more expensive.

Oil and Gas

By the late 1980s, a twenty-year-long period of exploration had resulted in the discovery and exploitation of three oil wells in the Hamzah field in the Wadi al Azraq region west of Amman that yielded only a small fraction of domestic energy requirements. Jordan also had just discovered oil from what appeared to be a field in the eastern panhandle near the Iraqi-Saudi Arabian border. Jordan remained almost entirely dependent on oil imported from Saudi Arabia and Iraq to meet its energy needs. Jordan refined the imported crude petroleum at its Az Zarqa refinery. In 1985 the Az Zarqa refinery processed about 2.6 million tons of petroleum. Of this total, about 1.8 million tons came from Saudi Arabia, 700,000 tons from Iraq, and 2,800 tons from Jordan's Hamzah field. An additional 400,000 tons of fuel were imported from Iraq. The Saudi Arabian oil was transported to Jordan via the Trans-Arabian Pipeline (Tapline). Oil from Iraq was transported by tanker truck. About 40 percent of oil imports were used by the transport sector, 25 percent to generate electricity, 16 percent by industry, and the remainder for domestic use.

Jordan's oil bill was difficult to calculate and was subject to fluctuation as the Organization of Petroleum Exporting Countries (OPEC) changed its posted price for crude. Since 1985, barter agreements with Iraq to trade goods for crude oil have removed some of Jordan's oil bill from the balance sheet. Jordan also varied its imports of crude oil and other, more expensive fuels, depending on its immediate fuel demand and its refinery capacity, and cut consumption through conservation measures and price increases.

The oil bill remained very large, however. A major irony of Jordan's energy dependence was that despite--or because of--its proximity to its main oil suppliers, it was sometimes obliged to pay extremely inflated prices for its oil. In mid-1986, for example, Saudi Arabia charged Jordan the official OPEC price of US$28 per barrel at a time when oil was selling on the international spot market for US$10 per barrel. Saudi Arabia's motives were perhaps as much political as economic, in that it wanted to maintain the integrity of the OPEC floor price for oil. Dependent on Saudi financial aid, Jordan could not alienate its patron by shopping on the world market. In 1985 estimates of Jordan's oil import bill ranged between US$500 million and US$650 million. At that time, imported oil constituted approximately 20 percent of total imports and offset 80 percent of the value of commodity exports. In 1986 and 1987, Jordan's estimated fuel bill declined considerably, to less than US$300 million. The drop resulted from barter with Iraq, decreased fuel imports, and OPEC's reduction of its official price of crude oil to bring it into line with world market prices. As prices dropped, the Jordanian government--which had subsidized domestic fuel prices--was able to cut the subsidy from US$70 million to US$14 million instead of passing on savings to consumers.

Since 1984 Saudi Arabia has forced Jordan to underwrite the entire cost of operating the Tapline. This has added more than US$25 million per year to Jordan's oil bill. During the Iran-Iraq War, therefore, Jordan tried to persuade Iraq to obtain an alternative oil outlet by building a pipeline across Jordan to Al Aqabah. The project foundered because of Iraqi concern that the line was vulnerable to Israeli attack and embarrassment over disclosure of Jordanian attempts to obtain a secret Israeli pledge not to attack the line.

The 1980 discovery of from 10 billion to 40 billion tons of shale oil deposits in the Wadi as Sultani area raised Jordanian hopes of greater self-sufficiency, but there were doubts that large-scale exploitation of the deposits would be commercially viable in the near future. Since 1985 Jordan has attempted to interest Western oil companies in exploring for oil. Amoco, Hunt Petroleum, Petro-Canada, Petrofina of Belgium, and the Japanese National Oil Company were conducting survey work in Jordan in the late 1980s. Jordanian planners hoped that potentially extensive natural gas reserves discovered at Rishah in eastern Jordan could eventually replace oil for electricity generation, cutting imports by one-quarter.


The government was concerned that scarcity of water could ultimately place a cap on both agricultural and industrial development. Although no comprehensive hydrological survey had been conducted by the late 1980s, some experts believed that demand for water could outstrip supply by the early 1990s. Average annual rainfall was about 8 billion cubic meters, most of which evaporated; the remainder flowed into rivers and other catchments or seeped into the ground to replenish large underground aquifers of fossil water that could be tapped by wells. Annual renewable surface and subterranean water supply was placed at 1.2 billion cubic meters. Total demand was more difficult to project. In 1985 Jordan consumed about 520 million cubic meters of water, of which 111 million cubic meters went for industrial and domestic use, and 409 million cubic meters went for agricultural use. By 1995 it was estimated that domestic and industrial consumption would almost double and agricultural demand would increase by 50 percent, so that total demand would be about 820 million cubic meters. By the year 2000, projected demand was estimated at 934 million cubic meters. Jordan, therefore, would need to harness almost all of its annual renewable water resources of 1.2 billion cubic meters to meet future demand, a process that would inevitably be marked by diminishing marginal returns as ever more expensive and remotely situated projects yielded less and less added water. The process also could spark regional disputes--especially with Israel--over riparian rights.

The government had completed several major infrastructure projects in an effort to make maximum use of limited water supplies, and was considering numerous other projects in the late 1980s. The King Talal Dam, built in 1978 on the Az Zarqa River, formed Jordan's major reservoir. In the late 1980s, a project to raise the height of the dam by ten meters so as to increase the reservoir's capacity from 56 million cubic meters to 90 million cubic meters was almost complete. A second major construction project underway in 1989 was the Wadi al Arabah Dam to capture flood waters of the Yarmuk River and the Wadi al Jayb (also known as Wadi al Arabah) in a 17 million cubic meter reservoir. These two dams and innumerable other catchments and tunnels collected water from tributaries that flowed toward the Jordan River and fed the 50-kilometer-long East Ghor Canal. Plans called for the eventual extension of the East Ghor Canal to the Dead Sea region, which would almost double its length. In 1989 about fifteen dams were in various stages of design or construction, at a total projected cost of JD64 million.

By far the largest of these projects was a joint JordanianSyrian endeavor to build a 100-meter-high dam on the Yarmuk River. The project, which had been contemplated since the 1950s but had foundered repeatedly because of political disputes, was revived in 1988 after the thaw in Jordanian-Syrian relations and appeared to be progressing in early 1989. Called the Maqarin Dam in previous development plans, it was renamed the Al Wahdah Dam to reflect the political rapprochement that made construction feasible (Al Wahdah mean unity). The dam was to create a reservoir of 250 million cubic meters. The Jordanian estimate of the cost, which Jordan was to bear alone, was US$397 million. Independent estimates placed the figure at more than US$500 million. Building time was estimated at two years after the planned 1989 starting date, but new political problems threatened to stall construction. In 1988 the United States attempted to mediate between Jordan and Israel, which feared the dam would limit its own potential water supply; Syria, however, refused to join any tripartite negotiations.

In 1989 serious consideration was being given to two proposals to construct major pipelines to import water. Completion of either project could be a partial solution to Jordan's water scarcity. Because of cost, however, neither project was likely to be constructed in the near future. One project was to construct a multibillion dollar 650-kilometer-long pipeline from the Euphrates River in Iraq. The pipeline would supply Jordan with about 160 million cubic meters of water per year. The other project, on which feasibility studies had been conducted, was to construct a 2,700- kilometer-long pipeline from rivers in Turkey, through Syria and Jordan, to Saudi Arabia. Jordan could draw an allotment of about 220 million cubic meters per year from this second pipeline. The estimated US$20 billion cost of the latter project was thought to be prohibitive.




Agriculture contributed substantially to the economy at the time of Jordan's independence, but it subsequently suffered a decades-long steady decline. In the early 1950s, agriculture constituted almost 40 percent of GNP; on the eve of the June 1967 War, it was 17 percent. By the mid-1980s, agriculture's share of GNP was only about 6 percent. In contrast, in Syria and Egypt agriculture constituted more than 20 percent of GNP in the 1980s. Several factors contributed to this downward trend. With the Israeli occupation of the West Bank, Jordan lost prime farmland. Starting in the mid-1970s, Jordanian labor emigration also hastened the decline of agriculture. Many Jordanian peasants abandoned farming to take more lucrative jobs abroad, sometimes as soldiers in the armies of Saudi Arabia and the Persian Gulf states or in service industries in those countries. Others migrated to cities where labor shortages had led to higher wages for manual workers. Deserted farms were built over as urban areas expanded. As the Jordanian government drove up interest rates to attract remittance income, farm credit tightened, which made it difficult for farmers to buy seed and fertilizer.

In striking contrast to Egypt and Iraq, where redistribution of land irrigated by the Nile and Euphrates rivers was a pivotal political, social, and economic issue, land tenure was never an important concern in Jordan. More than 150,000 foreign laborers-- mainly Egyptians--worked in Jordan in 1988, most on farms. Moreover, since the early 1960s, the government has continuously created irrigated farmland from what was previously arid desert, further reducing competition for arable land. Ownership of rain-fed land was not subject to special restrictions. Limited land reform occurred in the early 1960s when, as the government irrigated the Jordan River valley, it bought plots larger than twenty hectares, subdivided them, and resold them to former tenants in three-hectare to five-hectare plots. Because the land had not been very valuable before the government irrigated it, this process was accomplished with little controversy. In general, the government has aimed to keep land in larger plots to encourage efficiency and mechanized farming. The government made permanently indivisible the irrigated land that it granted or sold so as to nullify traditional Islamic inheritance laws that tended to fragment land.

Agricultural Development

Although the agricultural sector's share of GNP declined in comparison with other sectors of the economy, farming remained economically important and production grew in absolute terms. Between 1975 and 1985, total production of cereals and beans rose by almost 150 percent, and production of vegetables rose by more than 200 percent, almost all of the increase occurring between 1975 and 1980. Production of certain cash export crops, such as olives, tobacco, and fruit, more than quadrupled. Because farming had remained labor intensive, by one estimate about 20 percent to 30 percent of the male work force continued to depend on farming for its livelihood.

Even with increased production, the failure of agriculture to keep pace with the growth of the rest of the economy, however, resulted in an insufficient domestic food supply. Jordan thus needed to import such staples as cereals, grains, and meat. Wheat imports averaged about 350,000 tons per year, ten to twenty times the amount produced domestically. Red meat imports cost more than JD30 million per year, and onion and potato imports cost between JD3 million and JD4 million per year. Between 1982 and 1985, the total food import bill averaged about JD180 million per year, accounting for more than 15 percent of total imports during the period. At the same time, cash crop exports--for example, the export of 7,000 tons of food to Western Europe in 1988--generated about JD40 million per year, yielding a net food deficit of JD140 million. One emerging problem in the late 1980s was the erosion of Jordan's traditional agricultural export market. The wealthy oilexporting states of the Arabian Peninsula, concerned about their "food security," were starting to replace imports from Jordan with food produced domestically at costs far higher than world market prices, using expensive desalinated water.

Cropping and Production

Observers expected food imports to remain necessary into the indefinite future. Much of Jordan's soil was not arable even if water were available; by several estimates, between 6 percent and 7 percent of Jordan's territory was arable, a figure that was being revised slowly upward as dry-land farming techniques became more sophisticated. In 1989 the scarcity of water, the lack of irrigation, and economic problems--rather than the lack of arable land--set a ceiling on agricultural potential. Only about 20 percent of Jordan's geographic area received more than 200 millimeters of rainfall per year, the minimum required for rain-fed agriculture. Much of this land was otherwise unsuitable for agriculture. Moreover, rainfall varied greatly from year to year, so crops were prone to be ruined by periodic drought.

In 1986 only about 5.5 percent (about 500,000 hectares), of the East Bank's 9.2 million hectares were under cultivation. Fewer than 40,000 hectares were irrigated, almost all in the Jordan River valley. Because arable, rain-fed land was exploited extensively, future growth of agricultural production depended on increased irrigation. Estimates of the additional area that could be irrigated were Jordan to maximize its water resources ranged between 65,000 and 100,000 hectares.

Most agricultural activity was concentrated in two areas. In rain-fed northern and central areas of higher elevation, wheat, barley, and other field crops such as tobacco, lentils, barley, and chick-peas were cultivated; olives also were produced in these regions. Because of periodic drought and limited area, the rain-fed uplands did not support sufficient output of cereal crops to meet domestic demand.

In the more fertile Jordan River valley, fruits and vegetables including cucumbers, tomatoes, eggplants, melons, bananas, and citrus crops often were produced in surplus amounts. The Jordan River Valley received little rain, and the main source of irrigation water was the East Ghor Canal, which was built in 1963 with United States aid.

Although the country's ultimate agricultural potential was small, economic factors apparently limited production more than environmental constraints, as reflected by up to 100,000 hectares of potentially arable land that lay fallow in the late 1980s. The government has expressed considerable concern about its "food security" and its high food import bill, and it was implementing plans to increase crop production in the 1990s. Growth in agricultural output was only about 4 percent during the 1980-85 Five-Year Plan, despite investment of approximately JD80 million during the period, indicating the slow pace of progress.

In the late 1980s, Jordan was implementing a two-pronged agricultural development policy. The long-term strategy was to increase the total area under cultivation by better harnessing water resources to increase irrigation of arid desert areas for the cultivation of cereal crops, the country's most pressing need. In the short term, the government was attempting to maximize the efficiency of agricultural production in the Jordan River valley through rationalization or use of resources to produce those items in which the country had a relative advantage.

Rationalization started with a controversial 1985 government decision to regulate cropping and production, primarily in the Jordan River valley. Farmers there had repeatedly produced surpluses of tomatoes, cucumbers, eggplants, and squashes because they were reliable and traditional crops. At the same time, underproduction of crops such as potatoes, onions, broccoli, celery, garlic, and spices led to unnecessary imports. The government offered incentives to farmers to experiment with new crops and cut subsidy payments to those who continued to produce surplus crops. In 1986 cucumber production dropped by 25 percent to about 50,000 tons and tomato harvests dropped by more than 33 percent to 160,000 tons, while self-sufficiency was achieved in potatoes and onions.

Production of wheat and other cereals fluctuated greatly from year to year, but never came close to meeting demand. In 1986, a drought year, Jordan produced about 22,000 tons of wheat, down from 63,000 tons in 1985. In 1987 Jordan harvested about 130,000 tons, a record amount. Because even a bumper crop did not meet domestic demand, expansion of dry-land cereal farming in the southeast of the country was a major agricultural development goal of the 1990s. One plan called for the irrigation of a 7,500-hectare area east of Khawr Ramm (known as Wadi Rum) using 100 million cubic meters per year of water pumped from a large underground aquifer. Another plan envisioned a 7,500-hectare cultivated area in the Wadi al Arabah region south of the Jordan River valley using desalinated water from the Red Sea for irrigation.


Livestock production was limited in the late 1980s. Jordan had about 35,000 head of cattle but more than 1 million sheep and 500,000 goats, and the government planned to increase their numbers. In the late 1980s, annual production of red meat ranged between 10,000 and 15,000 tons, less than 33 percent of domestic consumption. A major impediment to increased livestock production was the high cost of imported feed. Jordan imported cereals at high cost for human consumption, but imported animal feed was a much lower priority. Likewise, the arid, rain-fed land that could have been used for grazing or for fodder production was set aside for wheat production. Jordan was self-sufficient, however, in poultry meat production (about 35,000 tons) and egg production (about 400,000 eggs), and exported these products to neighboring countries.


CITATION: Federal Research Division of the Library of Congress. The Country Studies Series. Published 1988-1999.

Please note: This text comes from the Country Studies Program, formerly the Army Area Handbook Program. The Country Studies Series presents a description and analysis of the historical setting and the social, economic, political, and national security systems and institutions of countries throughout the world.

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