Jordan: Iraq reconstruction boosts trade

Developing stronger ties between Jordan and Iraq was among the topics of discussion at the latest World Economic Forum (WEF) on the Middle East and North Africa, which was hosted by the Kingdom in May.

While the conflict in Syria was top of the agenda, participants were keen to look at ways of boosting intra-regional trade and investment, as part of discussions examining broader political and economic development issues.

Jordan has well-established bilateral ties with its resource-rich neighbour Iraq. Bilateral trade was worth JD861.4m ($1.2bn) in 2012, up from JD625.6m ($884.8m) in 2008, according to Jordan’s Department of Statistics. Most – 83% in 2012 – is accounted for by the Kingdom’s exports. Results from the first quarter of 2013 are positive, showing sales to Iraq up by nearly 50%, compared to a flat performance for exports overall.

Investors remain wary of security concerns in Iraq. However, reconstruction, together with Iraq’s booming oil sector, has helped Jordan expand its role as a key exporter of goods and services. Iraq is now producing 3.4m barrels of oil per day, having regained its number two spot on OPEC’s producer list.

Tarek Yaghmour, vice-president and head of research at Capital Investments, a local brokerage and asset management firm, told OBG that the equation for Iraq was a straightforward one. “The government is earning $250m a day from oil revenue and there’s only very basic infrastructure there,” he said. “A decade from now, Iraq will likely be a much richer country.”

Capital Bank chairman Bessam Salem told the Jordan Times that he regarded the Kingdom as a “key partner” for implementing major infrastructure projects, such as the Basra-Aqaba pipeline. The Jordanian lender holds a 72.3% stake in the National Bank of Iraq.

The 1700km-long $18bn oil pipeline is set to generate about $3bn in annual transit fees for Jordan. Salem added that the investment would play a key part in rejuvenating the 2009 Jordan-Iraq free trade agreement.

The importance of fostering further cooperation with Iraq was also highlighted by Jordan’s prime minister, Abdullah Ensour. Speaking at a meeting with Iraqi officials held on the sidelines of the WEF, Ensour cited opportunities for joint development in sectors that included energy, financial services and ICT.

Construction is one area where Jordanian firms are already active in Iraq. The importance of this sector is suggested by the composition of exports – the single largest category of sales, accounting for 18% in 2012, was metal and metal products, including manufactured goods used in construction, such as pipes, tubes, plates and wires.

Jordanian contractors may face some challenges in serving the Iraqi market, such as an uncertain security environment and competition from larger and better-funded firms, but they have some advantages as well, such as geographic proximity, cultural ties and strong diplomatic relations.

Jordan’s maritime transport sector is also likely to see an increase in traffic due to growth in the Iraqi economy. Aqaba port serves as a transshipment centre for Iraqi-bound cargo and could ease congestion at Iraq’s Umm Qasr port. In 2012, re-exports to Iraq amounted to JD151.7m ($213.4m), greater than the value of imports Jordan received from the same country.