Between Modernization and the hard Necessity to Import
Wednesday, May 27th, 2009
- Consumer-weak domestic market – phosphate and pharmaceuticals popular exports
By Bernd-Dieter Fridrich
With borders facing Iraq, Syria, Israel and Saudi Arabia, Jordan has only 26 kilometers of coastline in the extreme southwest on the Gulf of Aqaba. The region around the port town of Aqaba has been a special economic zone since 2001. The vast majority of the population lives in the northwest of the country on the banks of the Jordan River. The Hashemite Kingdom relinquished its claim to the West Bank in 1988 in favor of a future Palestinian state. About half of the population is of Palestinian origin; a mainly Muslim country (93 percent Sunni) with Bedouin roots. The monarchy is supported principally by the rural tribes, who also build the backbone of the military. King Abdullah II assumed the throne on February 7, 1999. He enjoys the backing of the military and is respected by the tribal leaders. The economy is based primarily on the export of phosphates – Jordan is the world’s third largest exporter of this raw material – and the tourist trade to important historical sites like ancient Petra in southern East Jordan, Aqaba and Gerasa, as well as the desert palaces of the Umayyad Caliphs. Import greatly exceeds exports, particularly energy imports. Unemployment is high, particularly because of the countless refugees from the Sheikhdom of Kuwait following the Gulf Crisis.
The basic economic conditions for the kingdom are difficult. It lacks its own energy sources. In addition, the notorious scarcity of water with a continuing high population growth presents the country with huge problems. The existing economic structures are grounded only on a limited domestic market. With some 5.5 million inhabitants, the country has a comparatively small population and therefore constitutes a market of little importance. About a third of the Jordanians live in poverty. Although unemployment numbers are seldom announce in the capital of Amman, they probably actually well exceed the 20 percent mark. The efforts that the progressive-thinking King Abdallah II made after ascending the throne to liberalize and internationalize the economy, for example through a free trade agreement with the USA and an association agreement with the European Union, have only been a qualified success, particularly since dependency on oil deliveries from other Arab countries has risen drastically following the Iraq War of 2003.
Important import commodities are fuels, food, vehicles, machinery, and industrial goods. Among the economic assets along with phosphates – especially important as a fertilizer and as an additive to detergents and cleaning agents, such as potash for use in soap or glass production, for example – are, first and foremost, chemical products like pharmaceuticals and special fertilizers, fruit and vegetables. This means that the country’s most important industrial businesses are a phosphate factory, a cement work and an oil refinery. Jordan has been a member of the World Trade Organization (WTO) since 2000. The droughts in recent years, however, have had a noticeable effect on agricultural exports. The cultivation of grain, lentils, bitter vetch, tobacco, tomatoes, olives, figs and pomegranate, particularly in the Jordan Riff Valley, is often supported by artificial irrigation. Citrus fruits, bananas and melons are also important cultivated products. Not more than five percent of the country’s area is arable.
In this overall difficult setting, Jordan has been able to stalwartly maintain itself in recent times. Despite the worldwide rises in the price of importing energy and food, Jordan has been able to sustain an annual growth rate of around six percent until now. The government of Prime Minister Nader Dahabi is relying on growth and on traditional strengths like tourism, Jordan’s role as the logistical ante chamber to Iraq and the “export” of for the most part well-trained workers to the still booming Gulf Region who transfer their savings back home. Other props of the economy are particularly the construction industry and the massive influx of Iraqis, who in the end greatly fueled the demand. The processing industries on the whole meanwhile are contributing only modestly to the growth rate with 2.2 percent (2007 compared to 2006) – with the exception of the first placed Pharmaceutical industry.
Pharmaceutical Industry on a Growth Curve
As a matter of fact, this still young business sector has been able to write an unprecedented history of success since 2003. Despite some fears, the introduction of a sharpening of patent protection in accordance with the TRIPS Agreement (Trade Related Aspects of Intellectual Property Rights) has not had a negative effect on the industry’s seventeen companies. With the most rigorous patent protection regulations in the Arab world, Jordan is not only a very successful business partner, but has also become a competitor to be taken seriously in the pharmaceutical research industry. Larger business units were formed through amalgamations in the hope of being better able to survive internationally. A new company, APMC (Arab Pharmaceutical Manufacturing Co.) was formed out of APHA (Arab Pharmaceutical Manufacturing) and ADPH (Advanced Pharmaceutical Industries). In the same year, the merged enterprise, JPHM (Jordanian Pharmaceutical Manufacturing Co.) was formed. In addition, the Tantash Group assumed management of MPHA (Middle East Pharmaceutical and Chemical Industries) and APHC (Arab Center for Pharmaceutical and Chemical Industries Co.), as well as combining both companies’ production of generic drugs.
The pharmaceutical industry already takes second place in the export statistics after the textile branch. In 2006, exports in the pharma branch – around three-fourths of the total production – amounted to about 220 million euros, with four-fifths going to the Arab region. Saudi Arabia, Algeria and Iraq, as well as the United Arab Emirates, are the most important export countries where expenditure for health is increasing with the growing prosperity. Amounting to 90 percent, generic drugs, in part produced and marketed under their own brand names and in every dosage form imaginable, are the most important pillars of sales. The approval procedure of the JFDA (Jordan Food and Drug Administration) provides an exemption clause according to which later generic drugs can be tested and researched even prior to the expiration of a patent so that the prerequisites for marketing have already been met when the patents expire.
On the other hand, the country grants a so-called data exclusivity in the first five years after the expiration of a patent, which means that the generic drug producers may not use the patent owner’s data or safety and efficacy studies for the approval of the generic drug. Most multinational companies use this possibility to protect their patented products against generic drug competition in Jordan. Hikma Pharmaceuticals is the absolute industry market leader, who has not only diversified the most, but also has the developed markets in the USA and Europe to thank for a large amount of the company’s turnover. The success rests on three pillars: protected brand name pharmaceuticals that are not only increasingly finding a market in the Near and Middle East, but also in Europe; injectable generic medicines; and generic drugs destined mainly for the U.S. market. The turnover in 2006 (1 euro = 0.96 JD / Jordan dinar) of 226.4 million JD was well ahead of the industry second, Dar Al Dawa, with sales of “only” 33.6 million JD.
Open for Foreign Investment
Ever since taking office ten years ago, the king, who is still young, has been endeavoring to modernize his country and also particularly to win foreign investors to provide impetus to the upgrading of the infrastructure. Saudi Arabia takes first place, followed by Iraq. The cumulated value of direct investments in the kingdom has more than tripled between 2002 and 2006, from 2.8 billion JD to 9.0 billion JD. The foreign involvement in the Jordanian building sector is also conspicuous. The influx of Iraqis since 2003 has resulted in a strong surge in demand for living space where a backlog had already existed as it was. In Amman alone, 7,000 housing units are said to have appeared on market in 2007, including thousands of homes.
The good as completed privatization of state businesses and facilities, such as in the mining, energy, telecommunication and transport sectors, has already proven to be positive. As yet still largely untapped is the potential for renewable energies and an effective use of energy, making the market opportunities for relevant foreign technologies very good. Due to the great amount of sunshine, thermal solar power plants readily present themselves to meet the growing demand for energy and drinking water. Prince Hassan Ibn Talal, the brother of former King Hussein, is a great proponent of producing solar energy in the desert and so has already organized a number of international conferences on the subject. Prince Hassan is planning the transfer of solar energy to Europe on a grand scale. Environmental awareness is growing in Jordan ever since an independent Ministry for the Environment was established several years ago. Until now, the focus has been on the creation of regulations for hazardous emissions, water quality and waste treatment.
The government in Amman is seeking to obtain support from the international donor community with reference to the special geopolitical position of the country. The kingdom likes to play the safe haven card in an unsettled region and can improve its economic situation in its regional neighborhood; meanwhile, despite positive trends, the major dependency on foreign financial aid and external developments in the energy and financial markets remains.
Unabated Struggle with the Debt Repayment
The national budget was burden last year by extensive social expenditures resulting from the abolition of major subventions; for example, in electricity and fuel. Through energy price subventions, the population had become used to an energy consumption that could no longer be sustained in times of strongly rising rates for petroleum and natural gas. Now the attempt is being made to align the level step by step with the free market. Without the longstanding supply of oil from Iraq at preferential conditions, Amman should have begun with the overdue painful cuts long before 2005. Foreign debt had decreased until 2007 and was at about 44 percent of the Gross National Product. Last year, Jordan was able to pay off debts owed to the state creditors of the Paris Club at preferential terms conditions.
The imports that rose by 18.2 percent in 2007 show two things. On the one hand, the already deficit trade balance is continuing to be burdened. On the other hand, a survey of investment commodity imports indicates either a robustly rising level of investment activity or at least a strongly growing intermediate trade with Iraq, which is benefiting the country. Exports, however, increased in comparison to last year by only 9.5 percent.
The Economy at a Glance
Imports with a volume of 13.51 billion U.S. dollars (2007) pertained primarily to road vehicles (22 %), machinery (17 %), electronics (15 %), chemical products (9 %), electrical engineering (7 %), iron and steel (5 %), and measurement and control technology (3 %).