Jordan's textiles, garments and accessories segment pushes into new markets

The textiles, garments and accessories segment has been a success story of Jordan’s industry. The ready-wear, footwear and fabric manufacturers have grown despite difficult business environments. The segment is likely to benefit from a relaxation of the rules of origin (ROO) agreement with the EU, as more companies raise standards to meet materials-sourcing and employment criteria. Companies are set to create agreements with larger suppliers in Europe, replicating the other successful examples. “What we need to do is use the experience we have gained in the US market to establish the EU as a more major export partner,” Fares Hammoudeh, chairperson of the Zarqa Chamber of Industry, told OBG.

The industry faces challenges of cost management and competition, and there is a need to innovate and produce more value-added products. This will require a shift in output from staples to designer items, and from bulk supplying to cultivating branded chains. These may be some way off, but signs point to Jordan’s garment manufacturers moving the market in this direction.

Facts & Figures 

According to the Department of Statistics, Jordanian clothing manufacturers exported JD1.11bn ($1.6bn) worth of products in 2017, equivalent to 24.9% of export earnings. When JD537,700 ($759,000) in footwear exports and JD28.7m ($40.5m) in yarn, fabrics, made-up articles and related products are added, the percentage rises to 25.5%. Only chemicals exported more, at JD1.5bn ($2.1bn).

Clothing producers have reported consistent export growth in recent years, of 2.7% and a value of JD1.02bn ($1.4bn) in 2016, 7.8% in 2015 (JD979.1m, $1.38bn), 12.1% in 2014 (JD908.2m, $1.28bn) and 9.7% (JD810.1m, $1.1bn) in 2013, bucking the more mixed trend overall. The total export value declined in 2015 and 2016 from a high of JD5.2bn ($7.3bn) in 2014, as a regional conflicts and economic softening took their toll.

Segment History 

The garment sector began to take off in 1996 with the signing of the qualifying industrial zones (QIZs) agreement with the US. Under this, Jordanian manufacturers were given tariff- and quota-free access to the US market if they used a certain portion of inputs from Israel, the US, Jordan and the Palestinian Territories (see overview). Manufacturers were given designated production areas, the first of which was the Al Hassan Industrial Estate at Irbid, which began operations in 1998. Additional QIZs have been created since then, with 14 in existence at the end of 2016. The removal of tariffs and quotas was a boon for the garment segment, as import tariffs on these goods were particularly high in the US at the time.

In the years of the QIZs, Jordanian garment manufacturers made agreements directly with large stores and outlets in the US, along with bulk textile and clothing manufacturers there. The US outfits established reliable supply chains, good relationships and long-term contracts, while Jordanian products became more well known and in demand. However, in 2001 a free trade agreement was signed between Jordan and the US, removing some competitive advantages of the QIZs. Nonetheless, the majority of garment firms remain there, with the three largest at Dulyal, Sahab and Irbid. The QIZs mainly produce men’s and women’s apparel.

Labour 

The majority of workers in the QIZs and the garment segment are non-Jordanian. According to Better Work Jordan (BWJ) – a partnership between the International Labour Organisation and the International Finance Corporation launched in 2008 – some 65,000 people were employed by the segment in 2017, with around 75% of these migrants, mostly from Sri Lanka, India and Bangladesh. Women also composed the majority of workers, at 69%.

Much of this profile is explained by the additional costs of employing citizens. Nationals typically receive extra living expense payments, while migrant workers receive housing and food from factory estates and canteens. Retaining Jordanian workers can be difficult, as women tend to leave the workforce when they marry. The countries of the Indian subcontinent also have workers already skilled in the garment and textile industries, reducing the need for on-the-job training.

Given the labour-intensive nature of much of this work, the government has sought to use the garment industry to generate employment opportunities in low-income areas. This has led to the establishment of garment factories in around 20 areas that have been designated “poverty pockets”. Some 3500 local workers were employed in these areas in 2016.

Agreements 

The sector is likely to help tackle another poverty issue – the 736,396 UN-registered refugees living in Jordan in mid-2017, some 659,600 of which are from Syria. Under a pledge made at the February 2016 London Donors Conference, where governments and international organisations met to coordinate assistance for Jordan to handle the refugee influx, the kingdom agreed to employ 200,000 refugees in various industries. This would help them out of poverty, while unlocking aid and relaxing the ROO agreement with the EU (see overview).

“The agreement creates sustainable job opportunities for both Jordanians and Syrian refugees,” Dina Khayyat, vice-chairperson of the Jordan Garments Accessories and Textiles Exports Association, told OBG. “It will hopefully boost European companies’ ability to produce and import products from Jordan with the advantage of saving on Customs duties. International brands are manufacturing high-quality clothes in Jordan with competitive prices under the supervision of BWJ.”

Boosting Trade 

The garment segment was thought to be a main beneficiary of this. Yet, as of early 2018 just 11 Jordanian companies met the ROO conditions, and only three of these were engaged in trading, according to the Ministry of Planning and International Cooperation. While few businesses have taken advantage of the relaxation of the ROO, many can export qualified goods to the EU. Indeed, the kingdom already does substantial trade with the bloc, recording JD124m ($174.9m) in exports and JD3.17bn ($4.5bn) in imports in 2017.

“We need to get out of the formalities of the agreement and into the practice,” Hammoudeh told OBG. Making business-to-business connections is the next step towards this transition. The government is ready to assist with agencies such as the Jordan Enterprise Development Corporation and the Industrial Development Directorate. Individual chambers of industry have a major role to play in solidifying partnerships as well, attempting to directly match members with major EU industrial and commercial players.

The next advantageous development target of garment firms may be domestic designer brands and becoming a sourcing place for international brands to produce in Jordan, with a booming local fashion designer scene emerging. The domestic high-end fashion industry may be in its infancy compared to more established markets, but branded products represent the most value-added line of the industry and is an area that manufacturers could more aggressively pursue.