AMMAN, 28 June 2004 — We are upgrading Jordan’s economic growth outlook for 2004. Economic activities across sectors picked up momentum in the first quarter, with real GDP growth hitting a record 6.9% (10.7% in current prices), compared to 2.8% (4.1% in current prices) in the first quarter of 2003. It is clear that the Jordanian economy has recovered from the disruptions caused by the war on Iraq and is now projected to post a real growth rate for the year as a whole of more than 5%. Given such economic growth and with population growth rate close to 2.8%, per capita income and the general standard of living of Jordanians must be improving at around 2.2% in real terms, the highest rate since the early 90s.
The return of confidence to the domestic scene, the expansionary fiscal and monetary policy, the continuing surge is exports especially to the US, the availability of excess liquidity in the banking system, the rise in consumer lending, higher remittances from Jordanians working abroad and the financial aid that the country is receiving are all contributing to the strong economic performance this year. All economic sectors performed well in the first quarter. The best performer was the manufacturing sector that grew by 17.1% compared to 0.9% in the first quarter last year. The surge in exports to the US, especially goods produced in the Qualified Industrial Zones (QIZs), surged by 41% in the first quarter to reach $229 million, up $90 million over the first quarter figure of 2003. Exports to the US are forecast to reach $750 million this year, accounting for more than 22% of the country’s total exports. The volume of Jordanian exports to Iraq did not only recover in the first quarter but exceeded the level that prevailed in the first quarter of 2002, i.e before the war on Iraq. The Iraqi market will continue to account for around 18% of total Jordanian exports.
Others sectors doing well include construction, tourism, telecommunication, banking and finance, retail and wholesale trade, utilities, government and other services. The construction sector which recorded strong growth rate last year, continued to rise this year as well. The growth in this sector is attributed to the large number of infrastructure projects currently being implemented and the rising number of housing and apartment buildings under construction. The area approved for residential and commercial construction rose by around 42% in the first quarter to reach 2.178 million meter square. The surge in construction activities was supported by strong demand from Jordanians and Arabs especially Iraqis after changing the laws to allow non-Jordanians easier access to the country’s real estate sector. The construction sector has strong forward and backward linkages with other sectors of the economy (building material, furniture, consumer durables, etc) and is therefore having a positive impact on growth elsewhere in the economy.
A strong recovery was recorded in the tourism and transport sectors with visitors mostly from the Gulf and the surrounding Arab countries dominating the flow. Major hotels in Amman reported average occupancy rates of more than 70% in the first five months of the year. It was a record first quarter for Royal Jordanian airlines in the terms of cargo and number of passengers. The instability in Iraq encouraged companies operating there to relocate staff to Jordan. The kingdom became the gateway to and from Iraq with surging re-exports to that country. Telecom and information technology also did quite well, and so did services such as banking, medical care, education in private universities.
The solid rise in real estate prices, up in certain areas of Amman by around 25% in the past six months, and the higher stock prices, with the market index up 6.9% since the beginning of the year, boosted the “wealth effect” of consumers and should reflect positively on their consumption and investments expenditures. Rapid expansion in consumer loans and higher remittances that are expected to reach $2.5 billion this year are also supporting growth in domestic consumption.
Saudi Arabia has extended for another year an oil grant of 50,000 b/d to Jordan that expired in the first week of April, and this will have a positive impact on the economy. Talks are under way between Jordan and both Kuwait and UAE to convince them to also renew their oil grants, which total 25,000 b/d each. The Jordanian government has raised the price of fuel in a bid to control the budget deficit and the higher cost of oil. Sales tax was also increased by 3% to 16% as of April 1, 2004. This helped boost government revenues but contributed to higher inflation rate. The average cost of living index in the first four months of 2004 was 3.6% higher than of the same period of 2003, and inflation this year is likely to exceed that of last year. Those who are working in the public sector and are mostly living on fixed wages and salaries are feeling the impact of higher taxes and rising prices.
Jordan will continue to peg the JD to the dollar at the fixed rate of $1.41, given that foreign reserves at the central bank are at an all time high of close to $4.8 billion and the country’s competitiveness remain adequate as evidenced by the robust export performance in recent years. The fixed exchange rate regime has served Jordan well and encouraged capital repatriation. The current peg to the dollar is a natural anchor, given that much of Jordan’s external current account inflows (aid, remittances exports of phosphates, potash etc.) are all dominated in dollars or in currencies linked to dollar. Notwithstanding the improving trends, Jordan remain highly indebted and foreign grants will continue to be required for several more years in order to keep the government’s budget deficit within safe financing limits. Jordan’s domestic and external public debt dropped by 4.6% to JD6.77 billion ($9.5 billion) at the end of April this year, from JD7.096 billion ($9.99 billion) at the end of last year. However, both amounts represented 89.7% of the nation’s estimated GDP. The outstanding external debt at the end of April stood at JD5.19 billion ($7.3 billion) or 68.8% of the GDP for 2004 while the outstanding domestic debt stood at JD1.58billion ($2.2 billion) representing 20.9% of the GDP.
Jordan future prospects look promising in light of the serious economic and legal reforms that were introduced in the past few years and the bold and enlightened leadership of King Abdallah. Jordanian companies stand to benefit from reconstruction and rehabilitation opportunities in Iraq in the months and years ahead. Capital Intelligence, a rating agency, has recently upgraded Jordan’s long-term outlook from BBB- to BB citing decline in government indebtedness, rise in foreign reserves, improved economic growth prospects and commitment to economic reform. Today, Jordan enjoys internal security and stability, has a free market oriented economy, an attractive investment climate, an advanced judiciary system, a world class infrastructure and communication, qualified and competitive human resources, a developed banking sector, and one of the most advanced and well regulated capital markets in the Middle East. This is why Jordan is now well placed on the radar serene of investors both domestically and from abroad.
(Henry T. Azzam is the chief executive officer of Jordinvest.)
