Neighbourly ties: Trade and investment between Jordan and Iraq are growing

While Iraqi residents of Jordan drive demand across the kingdom’s economy, Jordanian businesses also have an important role to play in the stabilisation and reconstruction of Iraq, especially following the withdrawal of US troops from the country in 2011. Jordanian investors remain hesitant about their neighbour’s security situation and complex business environment, but some have now begun to invest in northern Iraq and the two governments are working to remove barriers to trade.

TRADE GROWTH: Bilateral trade has seen rapid growth in recent years. According to the Central Bank of Jordan, the figure jumped from JD387m ($543.8m) in 2007 to JD842m ($1.2bn) in 2011. Some 85% of this consists of Jordanian exports to Iraq, mainly in the form of fresh produce, electronics, and electrical and other manufactured goods. In fact, Iraq continues to buy more of the kingdom’s products than any other country.

Efforts are being made to ensure the smooth flow of goods across the Iraq-Jordan border. The “Iraq Reconstruction” tax of 5% on imported commodities was due to be cancelled by the Iraqi government in June 2012. In an effort to increase Jordan’s share of the re-export market into Iraq, Laith Dababneh, the Jordanian secretary general of the Ministry of Transport, has also been urging the Iraqi side to approve the port of Aqaba as its route of choice for government exports.

Iraqi exports to Jordan – largely consisting of crude oil – have increased markedly over the past decade, but dropped by almost a quarter between 2010 and 2011. However, the positive trend looks set to resume. Iraq’s decision in early 2012 to the increase amount of crude oil it trucks to Jordan from 10,000 barrels per day (bpd) to 15,000 bpd will come as welcome news in the kingdom. For the longer term, the two countries have also been in discussion over the construction of oil and gas pipelines, as well as over joint investment in the production of oil at the trans-border area of Risha. And it is not just hydrocarbons which Iraq brings to Jordan. The Iraqis who moved to Jordan since the fall of Saddam Hussein in 2003 have played an important role in the economy. Several retailers told OBG that affluent Iraqis continue to prop up demand. “Iraqis in Jordan are helping to drive sales in the high-end automobile industry”, said Basim Malhas, dealer principal of Mahmoudia Motors. Jewellers, retail bankers, private medical centres and real estate agents also attest to the importance of high-net-worth Iraqis.

FUTURE INVESTMENT: The kingdom stands a strong chance of attracting further Iraqi investment going forward. According to the Jordan Investment Board (JIB), some Iraqi investors decided in early 2012 to shift the site of a new medical university from Syria to Jordan, partly as a result of Syria’s ongoing civil unrest. With the JIB now reporting that foreign investment has increased more than 10-fold in the first quarter of 2012 year-on-year, Iraqi confidence in Jordan’s stable investment environment may increase yet further.

As for Jordanian business in Iraq, investors are likely to remain concerned about the security situation over the border. The more stable northern region of Kurdistan is considered to have vast potential for economic growth and has already attracted Jordanian businesses, including Pharmacy1 – Jordan’s leading pharmaceuticals chain – and Capital Bank, which acquired a 72% share of the National Bank of Iraq in late 2011.

“Because of the close relationships between the Jordanian and Iraqi markets, we believe in the need to provide our customers in Iraq and Jordan with adequate banking solutions to enable business and economic growth in both countries,” Basem Khalil Al Salem, the chairman of Capital Bank, told OBG. “The banking sector remains underserved, and its growth will play a key role in materialising the economic potential of Iraq.”

Jordanian contractors have also been invited by the Iraqi government to play a major role in $42bn worth of reconstruction work in 2012. The nascent Iraqi telecoms market is likely to garner attention as it opens to foreign competition. “Iraq has huge potential in everything from ICT infrastructure to software applications,” Abdelmajeed Shamlawi, the CEO of Int@j, told OBG.