Jordan’s ability to expand its export of goods and services beyond the region is the most crucial economic opportunity in the midst of daunting challenges on all fronts.
Without leap frogging to other regions, it would indeed be practically impossible to stimulate Jordan’s economy given its small size, the daunting fiscal deficit that limits public spending options; and closed and unpredictable borders with Syrian and Iraq.
Foreign direct investments and economic growth are at their lowest in a decade, and unemployment is the highest. None of these indicators are likely to budge if Jordan does not break through to European and other markets.
Yet, and in spite of gallant efforts by the Ministry of Industry and Trade and by industrialists, only a single request for export to Europe has been made since the Jordan Compact resulted in a new set of simplified rules of origin (ROO) requirements more than four months ago.
This result was not really surprising to many in the industrial sector. For, in spite of the best intentions of all stakeholders, the ROO simplification represented a necessary, but not sufficient, condition to stimulate export to Europe.
Among the obstacles was limiting the application of the agreement to factories within the industrial and economic zones (even though these zones were expanded); EU requirements for a 15 per cent minimum Syrian labour in each factory; relatively high shipping costs; the absence of an export facility that would help bridge the information gap on demand for goods and services, and standards and specifications in European markets; and exclusion of pharmaceuticals and food products from the agreement.
All these remain as obstacles in closing the trade gap of about JD300 million Jordanian exports to the EU against more than JD3 billion of EU exports to Jordan in 2015.
Some of the above constraints can be addressed if both parties are willing.
For example, it is probably unrealistic for most existing factories outside the zones to relocate to the zones and, as a result, they will have no incentive to expand employment.
Also, counting only Syrian labour on factory premises and ignoring Syrians working in the construction sector and services, which provide inputs into industry, distorts labour markets and incentives of Syrian workers and Jordanian policymakers.
It might be better for all concerned to incorporate Syrians working in all sectors formally and informally, estimated to exceed 200,000, which would allow Jordan as a whole to qualify for ROO.
As for closing the knowledge gap in export markets, this can only be addressed by creating a non-profit entity with private and public involvement that provides information, technical assistance and incentives to entities exporting new products to new markets for a certain period.
The “Product Space Model” (currently being used by the Jordan Strategy Forum), can help pre-define sectors and products which stand to have a better chance at competing in the European markets.
Jordan’s ability to vastly expand exports to European markets is not wishful thinking. It is based on existing evidence and transformations in the global supply chains; the “fourth industrial revolution”, which is diminishing the importance of economies of scale in favour of customised products, and just in time; and Jordan’s ability to diversify its energy sources and keep costs contained relative to Gulf countries.
More important, though not fully tapped, is the service sector (IT, call centres, finance, health, education, engineering, accounting, legal, logistics and tourism), which stands to directly export services as well as provide indirect services to existing exporters. Jordan has few alternatives to address its current economic predicament. Breaking out of its small economy and neighbourhood constraints, as opposed to simply looking for fiscal revenue sources, is a must.