Economy of Jordan - Economic Overview

Economic Overview

Jordan was largely an agrarian nation at the time of its independence in 1946. Following Jordan's annexation of the West Bank, Jordan experienced rapid economic growth due to a near doubling of arable land and a substantial increase in total water supplies as a result of the annexation. However, economic growth would continue up until Jordan's rapid defeat in the Six Day War where Israel annexed the West Bank sending hundreds of thousands of Jordanian citizens back across the border into Jordan proper. This loss of newly gained territory caused massive resource shortages and, ultimately, was essential in the development of social strife which culminated in the Black September civil war. Following the civil war, Jordan returned to prosperity that lasted up until the late 1980s. Economic growth during this period was caused by the oil boom in the Persian Gulf. The sizable Jordanian expatriate community in the Gulf then reinvested in their home country in the form of real estate and luxury goods. However, this growth was unsustainable and the newly affluent lifestyle was being sustained by high oil prices. In Queen Noor's Leap of Faith, she explained how instead of affluent Jordanians investing in the country's infrastructure, they were spending their money on expensive real estate and importing luxury goods from Europe. This new affluent lifestyle would be hard to sustain with the end of the oil boom and the emergence of the Persian Gulf Crisis. Over 300,000 Jordanians and Palestinians were expelled from Kuwait to Jordan due to Jordan's support for the Iraq causing high inflation and shortages. Furthermore, Jordan's favorable trade relations with Iraq had ended and years of heavily discounted and even free oil ceased. Foreign aid from the United States and the Persian Gulf slowed down significantly. Thus began Jordan's decade of economic contraction. Since 1987, Jordan has struggled with a substantial debt burden and rising unemployment. In 1989, efforts to increase revenues by raising prices of certain commodities and utilities triggered riots in the south. The mood of political discontent that swept the country in the wake of the riots helped set the stage for Jordan's moves toward democratization.

Jordan suffered adverse economic consequences from the 1990-91 Gulf War. While tourist trade plummeted, the Gulf states' decision to limit economic ties with Jordan deprived it of worker remittances, traditional export markets, a secure supply of oil, and substantial foreign aid revenues. UN sanctions against Iraq—Jordan's largest pre-war trading partner—caused further hardships, including higher shipping costs due to inspections of cargo shipments entering the Gulf of Aqaba. Finally, absorbing up to 300,000 returnees from the Gulf countries exacerbated unemployment and strained the government's ability to provide essential services.

When King Abdullah II ascended to the throne in 1999, he embarked on an aggressive economic reform plan which aimed to turn Jordan into a regional hub for ICT and tourism. In 2001, Jordan became a member of the World Trade Organization as a result of significant free market reforms. The 2003 Iraq War sent 750 thousand mostly affluent Iraqis into Jordan attracted by the kingdom's free market policies and political stability. The Iraq War accelerated the economic boom Jordan was experiencing since King Abdullah II's ascension to the throne. Amman was transformed into a regional business center and one of the region's most desirable investment locations. The tourism, real estate, and ICT sectors emerged during this period as Jordan's most competitive sectors. With hundreds of thousands of Jordanians abroad seeking property in their home country and regional investors seeking safe investments, Jordan's real estate sector became one of the region's most dynamic.

King Abdullah has repeatedly emphasised that Jordan has a bright future and that it compares favourably with much of the region on key social and economic indicators. Even though inflation pushed its way up to the 13% mark in the first half of 2008, the shocks to the system are far less than in neighbouring Egypt where inflation crept up to around 23%. Jordan’s economy has come under some pressure in 2007 and perhaps more so in 2008, primarily from global increases in oil and food prices that have affected the government budget and the current account balance. While Jordan is facing enormous economic pressures, it is managing to sustain good levels of GDP growth and foreign investment. There are a number of sectors that have performed well in 2007, including minerals, pharmaceuticals and tourism. Light industry has to face stronger competition and rising energy costs. For the construction materials sector, Chinese goods benefiting from low labour costs and Gulf products capitalising on low energy costs could make life difficult for many local producers of light industrial goods. However, Jordan’s free trade agreements, investment incentives and low transport costs for shipping to major markets are still drawing producers to the country. Steel and cement producers are not expected to face the same challenges as light industry and cement production is due to rise, with two additional plants under construction and likely to provide further export income.

The government is also pushing ahead with the establishment of economic zones to attract new industry and services to less developed areas of the country where problems of unemployment and poverty are particularly acute. Gulf economic growth should ensure more job opportunities for Jordanians in the Gulf and help to support living standards for many Jordanian families. However, its domestic developments will be the key to improving conditions. The government will push ahead with major projects such as the housing initiative, the economic zones, and attracting knowledge-intensive investments that require high-skilled labour and vocational programmes in the hope of creating more jobs and helping to counteract the impact of higher living costs, while at the same time hoping that global developments do not make its job even harder.

Jordan's economic growth slowed in 2009 as a result of the global financial crisis. In 2010, growth picked up in all major economic sectors as the Jordanian government announced a slew of incentives aimed at attracting foreign investment such as tax breaks and the establishment of new free zones.