Jordan’s private sector responds to economic reforms

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Business leaders in Jordan are stepping up their calls for government policymakers to consult more closely with them in formulating and implementing economic reforms, stressing the possibility of negative consequences for the private sector.

The warnings come as the business community continues efforts to head off a 7.8% hike in electricity rates for companies consuming more than 10,000 KWh a month, which opponents say would substantially increase costs already under inflationary pressure, making Jordanian exports less competitive and endangering jobs at home.

Facing an increase in costs

Barring changes, the new rates, along with a similar increase for households using more than 600 KWh a month, will apply to consumption on or after January 1, and additional increases are scheduled to be phased in over the next several years. Reforms also include the revocation of special discounts of 25% for security agencies, civil society organisations and municipalities.

Jordan imports more than 95% of its energy requirements, equivalent to about one fifth of GDP. Since the US-led invasion of Iraq in 2003 ended the kingdom’s access to preferentially priced fuel imports from its oil-rich neighbour, Jordan has turned to Egyptian natural gas to replace most of the shortfall. However, repeated attacks on Egypt’s pipelines in recent years have interrupted supplies, with Jordan purchasing costing heavy fuel oil as a substitute.

The government has committed itself to a revival of the energy sector, including greater use of renewables, long-awaited exploitation of Jordan’s substantial deposits of oil shale, and the construction of a nuclear generating station. It will be several years, however, before these undertakings significantly reduce the need for imported hydrocarbons.

Nor are higher energy costs the only worry for the business community: officials are also contemplating labour-market reforms aimed at raising minimum standards for pay and benefits. This could place key sectors like pharmaceuticals and the garment industry at a disadvantage against lower-wage rivals from South and East Asia. Changes to income taxes are also under consideration, including higher levies on both companies and private citizens.

Impact of reforms

Advocates of these and other reforms insist they are necessary to stabilise the government’s balance sheet, bring more local women and members of disadvantaged groups into the workforce, and wean the economy off injections of foreign aid. Apart from stabilising public finances, they also insist that the changes will level economic playing fields across the board, reducing socioeconomic disparities among regions and ethnic groups and thereby reducing the likelihood of protests and other forms of unrest that might threaten the tourism trade.

Critics allow that some of the changes are necessary and even desirable for the long term; they argue, however, that now is the wrong time to exert more pressure on Jordanian companies. Regional and international competitors, they say, still enjoy access to heavily subsidised power supplies and/or cut-rate labour, gradually pricing Jordanian companies out of the market. According to figures quoted in late December by Fathi Jaghbir, who heads the Association of Small- and Medium-Sized Industries, some 1100 companies employing a total of 23,000 people closed their doors in 2013. Many others rose to take their place, but the pace of the “churn” is evidence for many that Jordan’s economy is at a vulnerable junction.

Among other things, business leaders believe that some of the reforms being introduced or considered are informed by a flawed analysis of the economy’s performance. While the government has acknowledged the burden imposed by having to host hundreds of thousands of refugees from Syria, the business community says authorities have failed to account for the artificial boost in domestic demand generated by the same influx, the windfalls bestowed on some firms by the demise of Syrian competitors, and the presumably temporary relocation of some Syrian factories to Jordan.

Take away these countervailing factors, they say, and Jordan’s economy – forecast to have grown by 3-4% in 2013 – might have suffered a contraction instead, so the advent of higher labour and power costs could touch off a recession.

On the other hand, many merchants and industrialists argue, closer coordination between the public and private sectors would empower the latter to more fully capitalise on current conditions by investing in new equipment, hiring more workers, and building more sustainable relationships with customers. They would also like to see faster government decision-making, and more input from business when it comes to selecting development projects that will benefit from a $5bn investment package pledged by the six-country Gulf Cooperation Council in 2012.

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