New labour pool and higher standards to help Jordan's construction sector meet increasing demand

 

While external events have weighed on the sector in recent years, activity has started to pick up and there is reason to expect that this can be sustained. A number of factors, including the country’s sizeable refugee population and the government’s new focus on transport and infrastructure development, point to the potential for higher growth, and any easing of geopolitical tensions in the region could see the kingdom become a major base for reconstruction in the Middle East.

The sector continues to face challenges, with high energy, labour and materials costs among the most pressing. The overall economic climate in the country is also a constraining factor, as austerity measures and higher taxes hamper investment, in many cases leading to the postponement of key projects. Nonetheless, 2018 looks likely to see Jordan build on its already strong reputation as a major regional construction player, with the sector continuing to be an economic mainstay.

Facts & Figures 

According to the Central Bank of Jordan (CBJ), the construction sector contributed JD132.6m ($187.1m) to GDP at constant prices in the second quarter of 2017, representing 5.4% of total GDP of JD2.45bn ($3.45bn). The figure was a slight increase on the JD132m ($186.2m) generated in the same quarter of the previous year. Over the full year the sector contributed JD539.6m ($761.2m) in 2016, and with total GDP at JD9.8bn ($13.8bn), represented 5.5% of overall economic activity. In 2015 construction’s value added stood at JD533.8m ($753m), or 5.6% of total GDP, and in 2012, 2013 and 2014 the latter figure stood at 5.2%, 5.6% and 5.8%, respectively. In terms of industry growth this came in at 8.7% in 2013 and 6.8% in 2014, followed by a 1.3% contraction in 2015, before rebounding to 1.1% expansion in 2016. The figure for 2017 year had yet to be released at the time of press.

External Factors

The recent figures demonstrate that external events have affected the sector. The year 2014 had a particularly negative impact as conflict in neighbouring Iraq led to the closure of an important land route from Jordan, while global oil and gas prices also dropped. The closure of the border with Iraq blocked off a major market for Jordanian construction companies and led to a reduction in the kingdom’s exports, which both weighed on the economy.

Meanwhile, the decline in oil and gas prices was a double-edged sword. On the one hand it reduced the country’s energy import bill, as Jordan possesses no oil and gas deposits of its own; however, it also led to a major curtailment in remittances from Jordanians working in oil- and gas-producing countries in the Gulf.

Fiscal Consolidation 

These factors have contributed to a sluggish real GDP growth in recent years. Ministry of Finance (MoF) figures show the economy grew by 2.8% in 2013 and 3.1% in 2014, before slowing to 2.4% in 2015, 2% in 2016 and 2.2% in 2017.

The country also continues to suffer from stubbornly high levels of unemployment – put at 18.2% in the first nine months of 2017 by the MoF – and a gross public debt-to-GDP ratio, which stood at 95.3% in 2017. The debt challenge is being addressed by an IMF-backed programme of fiscal consolidation, which includes efforts to raise income through higher taxes. This included a February 2017 decision to end a previous hold on sales tax for many steel products used in construction, such as reinforced steel, steel sheets and galvanised steel. The lifting of this resulted in taxes rising from 8% to 16% for affected products. The CBJ’s producer price index for fabricated metal products rose from 109 in January 2017 to 112.5 by November. Non-metallic mineral products went from 101.2 in January 2017 to 104.2 in April, before dipping to 101.8 in November, while the index for stone, sand and clay quarrying rose from 84.3 in January to 86.0 in April, before rising to 89.3 by November.

At the same time one of the major sources of national debt is the National Electric Power Company, which had accumulated JD7.6bn ($10.7bn) of debt as of the first quarter of 2017, according to the MoF. Reducing this amount has been a key objective of the government in recent years, with one measure being the phasing out of fuel subsidies. While helpful in reducing government debt levels, this has lead to higher energy prices for construction companies and manufacturers of building materials, along with an increase in operating costs for other sectors. To ease costs for companies involved in construction, the government unveiled new electricity tariffs in late 2016 that aimed to reduce costs for major consumers, providing the price in crude oil remained below $55 per barrel. Apart from some exceptions, the cost of oil generally remained low, although from November 2017 to March 2018 figures have crossed the threshold with the price for Brent crude pegged at $65.58 per barrel as of March 7.

Labour 

Another factor affecting construction companies is the cost of labour, which has increased significantly in recent decades. An example of the increase in labour costs came in February 2017, when the government raised the monthly minimum wage from JD190 ($268) to JD220 ($310). There is, however, a large informal sector in Jordan, which drives down average wages: the IMF estimates that 26% of employment occurs within the informal sector, and a 2013 UN Development Programme report suggested that some 11.1% of all workers in the construction sector were informally employed. Particularly among the Syrian refugee population, it is extremely common to work informally in the construction sector, meaning that this number has likely increased.

According to the International Labour Organisation (ILO) an estimated 40% of working Syrian refugees work in construction, 91% of which do so without a permit. This group now makes up a significant portion of foreign employment, with a total of 33,600 working in the construction sector. That being said, of the considerable number of Syrian employees, only 3000 have official work permits. Most people legally employed in the industry are still Jordanian nationals, with some 27,900 males and 1360 females. Egyptian nationals formed the largest foreign grouping of official employees, with 9210 in the sector.

The most recent data available from the Department of Statistics shows that 39,952 people were officially employed in 2845 different establishments in the sector in 2014. More than half of these companies – 1499 – employed between one and four people, demonstrating the prevalence of small and medium-sized enterprises in the sector. Larger enterprises of 100 people or more employed 16,105 of the total construction workforce, with 70 companies fitting this bracket.

New Arrivals 

Indeed, the increase in the number of new arrivals has been a major challenge for the kingdom. According to the UN High Commission for Refugees, there were 736,396 “people of concern” registered in the country by mid-2017, 659,593 of whom were refugees from Syria. The Jordanian government believes the actual number to be much higher, with officials estimating in early 2017 that more than 1.3m refugees were in the country. The influx has placed considerable strain on national resources, with most of these incomers requiring assistance. International donors have stepped in to help, and in February 2016 a donor’s conference in London saw $1.7bn in grants and grant equivalents unlocked to help Jordan manage the crisis over a two-year period. However, the scale of the challenge remains significant.

One major step forward came in mid-2017 when, as part of the London conference agreement, Syrian refugees became eligible to receive work permits in the construction sector. Refugees can now apply for these directly, rather than needing an employer to sponsor them, with 10,000 one-year, renewable permits currently being issued every year by the General Federation of Jordanian Trade Unions.

As of August 2017, 1943 Syrian refugees had valid work permits, and this number is expected to rise with the simplified application process. More people are becoming officially trained: between September 2016 and August 2017, 2500 Syrian refugees received occupational licences for various professions in the construction sector, and an additional 1120 applied for occupational licences between August 6th and 10th alone. It is hoped that this move will not only ensure some income for refugees and their families, but will also help regulate the unofficial hiring of refugees, which has led to increasingly low wages and poor working conditions for both Jordanians and Syrians.

Increased Activity 

The CBJ’s data on construction activity shows that in 2017 the total number of building permits issued countrywide was 43,277, up 9.8% from 39,410 the year before, indicating a promising sign of recovery. The majority of these permits were granted for residential building purposes, with 39,792, or 92%, of total permits issued in 2017 falling within that category. Projects totalled 5708 sq metres, up from 5011 sq metres in the previous year. Irbid, which has the second-largest population in Jordan, saw more activity than Amman in 2017, with the former issuing 11,392 residential permits and the latter 7164. Zarqa, the third-largest city, has also seen issuances rise, with 5010 permits awarded in 2017, up from 2804 in 2012.

Meanwhile, the construction sector has continued to be a major destination for loans from the financial industry. Credit extended by licensed banks to the sector grew from JD3.7bn ($5.2bn) in 2012, to JD5.8bn ($8.2bn) in 2016 and JD6.6bn ($9.3bn) in 2017, with this pattern of increase unaffected by the downturn in overall economic activity in 2014 and 2015. This is unlike overall activity in the construction sector, which fell by a respective 24.1% and 12.5% in 2014 and 2015, before rebounding to expand by 10% in 2016 and 7.8% in the first nine months of 2017, according to the MoF.

Growth Cluster 

These signs are welcome for both the government and professional bodies. The national long-term development plan, Jordan 2025, sees construction as part of an important “growth cluster” – both domestically and within the MENA region – that the plan estimates to be worth $2.5trn in construction permits. Boosting the sector’s contribution to GDP and employment is thus a top priority for officials. This is refined in the Jordan Economic Growth Plan (JEGP) 2018-22, which sets a target of 15% growth in the construction sector’s contribution to GDP over the period. The JEGP has also identified priority areas such as schools, hospitals and housing as those requiring a “substantial increase in infrastructure”, which is expected to further boost activity.

Improving Standards 

In addition, the plan seeks to establish Jordan as a regional centre for architectural and engineering services in the MENA region. A stronger emphasis is being placed on the training and education of workers in order to improve overall quality and meet international best practices. Protecting standards will also involve more rigorous checking of companies operating in the market, with more inspectors and more stringent fines for those found to be in breach of construction specifications.

Action in this regard was taken in July 2017, when the Ministry of Public Works and Housing and the Royal Scientific Society (RSS) signed two quality control cooperation agreements. This will see the RSS provide technical support to meet quality control standards in the production of construction materials, along with products of stone crushers and quarries.

The JEGP also proposes a minimum participation rate of 50% for Jordanian firms in construction projects within the kingdom, a move that aims not only to bring more business into the sector, but also to encourage the exchange of ideas and adoption of international best practices by Jordanian partners.

There have been significant improvements in safety standards since the early 2000s. In further pursuit of workplace safety, the Social Security Corporation (SSC) and the ILO signed an agreement in August 2017 to cooperate and raise awareness about the importance of workplace safety, to evaluate firms on their adherence to these standards and to encourage owners to adopt improved safety practices. The construction sector in particular has the highest number of work-related injuries each year: the average work-related injury rate for SSC members is 18.13 per 1000, but at 45.1 this figure is significantly higher for construction workers. “The safety of workers has improved drastically in recent years, thanks to the efforts of both public and private entities,” Amjad Abu-Eisheh, chairman and general manager of M A Abu-Eisheh & Brothers Contracting Company, told OBG. “The SCC and ILO agreement is another step forward that shows the sector’s commitment to rise up to international standards.”

Opportunities Abroad 

In addition, the plan foresees neighbouring countries as major export markets for Jordanian companies, for architectural expertise as well as construction labour and capital. These overseas markets may include Iraq and Syria in the future, with both undergoing major reconstruction efforts following years of political instability and conflict. Jordan is also looking to further develop its links with the Arab construction sector more widely, positioning its contractors, architects, designers, engineers and developers within the region’s construction geography. A recent example of this was demonstrated through Jordan’s hosting of the International Conference on the Reconstruction of Syria, which was held in tandem with the 11th Jordan International Building, Construction and Engineering Industries Exhibition in Amman in July 2017.

Building Materials 

Jordan has an abundance of natural resources used in the building trade, from ornamental stone like marble to natural sand, gravel, silica sand and limestone. It also has an extensive resource base of metallic minerals such as copper and iron.

In 1951 Jordan established its first domestic cement company, Jordan Cement Factories, which was later privatised and is now a subsidiary of French industrial supplies company Lafarge. Lafarge Jordan is the largest cement and concrete producer in the kingdom, operating two cement plants – at Fuheis and Rashidiya – and nine concrete plants across the country. Lafarge Cement Jordan produces approximately 4m tonnes per year, while Lafarge Concrete Jordan has an annual production capacity of some 1.9m cu metres.

Another major player is local company Manaseer, which is involved in the infrastructure and building materials segment. Manaseer Ready-Mix, Manaseer Crushers, Manaseer First for Cement and Concrete Products, Manaseer Cement Industry, and Manaseer Carbonate are all present in Jordan, along with Manaseer Iron and Steel, which recycles scrap metal. Manaseer Cement has a 1.8m-tonne annual capacity, producing Portland Pozzolana Cement (PPC), clinker and Ordinary Portland Cement (OPC), while Manaseer First produces interlock, brick and curbstone.

Another business providing key services in the industry is Northern Cement Company (NCC), which produces OPC and PPC, along with block mortar, plaster finish coat, and plaster rush coat and render at its Al Muwaqar plant. The company expanded production in 2015, adding an extra clinker production line. In terms of metals, Jordan Steel Group has a rolling mill with an annual capacity of 360,000 tonnes of billets, 250,000 tonnes of steel rebar, 4000 tonnes of wire mesh, and a cut-and-bend capacity of 30,000 tonnes.

Other similar companies include Jordan Iron and Steel Industries, Arab Iron and Steel Industries, National Steel, which has an annual steel rebar production capacity of 120,000 tonnes, Philadelphia Metal Forming and Arabian Steel Pipes Manufacturing among others. Jordan Ceramic Industries has three factories, producing some 2.5m sq metres of floor and wall tiles annually, along with 4000 tonnes of vitreous China sanitary ware.

Projects & Plans 

A number of major construction projects have been progressing in 2017. In real estate, developments include the $5bn, 2m-sq-metre Abdali Project in downtown Amman; the two-tower, $400m Jordan Gate project; the 15-storey, JD50m ($70.5m) Abdoun Towers; the JD40m ($56.4m) Golden Gate development in Um Uthaina; and the 300,000-sq-metre Manazel Amman project, which will feature 1253 apartments and villas (see Real Estate overview).

In terms of infrastructure, the Syrian refugee crisis has led to a number of new projects. In May 2017 the European Bank for Reconstruction and Development announced a JD3.2m ($4.5m) loan to the Greater Amman Municipality to finance construction of a fifth cell at the Al Ghabawi landfill site, with the funding one part of an overall JD50m ($70.5m) loan to improve waste management in key areas. Other internationally funded construction projects include water supply systems for refugee camps, such as at Azraq, where the Swiss government recently funded a JD1.5m ($2.1m) scheme.

Transport 

Transport is also a major area for future construction activity. In June 2017 it was announced that some 80% of the infrastructure at the new port terminal in Aqaba had been completed, while there was also a resumption of work on a bus rapid transit (BRT) system in Amman. The project includes a wide range of construction works, including the building of overpasses and tunnels, as a 25-km-long bus network is established. The BRT system is expected to be operational in 2019, with approval also given to extend the service to neighbouring Zarqa, a project likely to be worth around JD20m ($28.2m).

In June 2017 the cabinet also approved a string of public-private partnership (PPP) projects worth around JD200m ($282.1m). These include the Amman-Zarqa BRT, BRT operations within Amman itself, and a JD80m ($112.9m) contract to develop, renovate and invest in Amman Civil Airport at Marka. Also included was an JD11m ($15.5m) project to establish a new building for the science faculty at Tafila Technical University. These projects come on the back of a number of other Cabinet-approved PPP developments, including a new JD30m ($42.3m) slaughterhouse for Amman, the JD24m ($33.9m) Zarqa industrial wastewater treatment plant, and JD30m ($42.3m) of industrial and medical waste treatment units at Swaqa, demonstrating the government’s commitment to such projects.

The Saudi Fund for Development is playing a part in developing the Amman-Aqaba desert highway improvement project, having signed a $105m loan agreement in early 2017 with Jordan’s Ministry of Planning and International Cooperation to develop the route. The upgrade will concern the whole 220-km roadway, which is made up of six stages put up for tender in 2016. Saudi private sector companies are also playing a key role in energy infrastructure, signing a memorandum in March 2017 with energy authorities to establish a $70m solar power station in eastern Jordan.

Outlook

Prospects for construction in 2018 depend greatly on the overall level of the kingdom’s economic activity. The sector has shown great resilience in the face of regional pressures, however, with major players able to build on the good reputation they have developed within the MENA region, along with the country’s overall strategic location and stability – a highly valuable commodity in the Middle East. Meanwhile, strategies will push for higher-quality production and stricter standards in the industry. Such an approach should hold the sector in good stead in the near to medium term, particularly given the extensive need for reconstruction work in neighbouring countries. Within the kingdom, too, there is a significant need for improved transport infrastructure, in particular, with this likely to be a major focus of governments in the years ahead.

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