Jordanian industry makes progress on phosphate, chemicals and pharmaceuticals

The industrial sector continues to show growth. Phosphates and potash, chemicals and pharmaceuticals, and textiles and garments all continued to expand in terms of both net profits and volume in 2015. The fact that these segments have grown in the face of global economic headwinds and in a region directly affected by major geopolitical tensions demonstrates the sector’s resilience and ability to adapt. The government has also been actively helping manufacturers and heavy industry through incentives and promotional campaigns. Recognising that the sector is vital to the kingdom’s long-term development plans, this support looks set to continue and expand.

Facts & Figures: 

The 2015 figures from the Central Bank of Jordan (CBJ) place the kingdom’s GDP at constant market prices at JD11.4bn ($16bn). Manufacturing made up JD1.9bn ($2.7bn) of this total, or 16.5%. Mining and quarrying, meanwhile, added a further JD188.9m ($265.7m), making the total contribution of Jordan’s industrial sector some JD2.1bn ($3bn), or 18.2% of overall GDP. The contribution to GDP for both segments was up on 2014 as well, when manufacturing contributed JD1.86bn ($2.6bn) and mining and quarrying adding JD170.2m ($239.4m). The CBJ figures for 2015 show a total of 1891 companies registered in the industrial sector, out of a national total of 6337. These companies had combined capital of JD49.1m ($69.1m). The figures for 2014 listed 2179 industrial companies out of a total of 7521, with combined capital of JD58.2m ($81.9m). The vast majority of companies in the sector are small or medium-sized enterprises (SMEs), with an average per company capital of around JD7748 ($10,900) in 2015, according to CBJ data.

In terms of output value, the CBJ further divides manufacturing into five major segments – all of which are dominated by a few large companies. The five segments are: petroleum products, cement, clinker, chemical acids and fertilisers. The mining and quarrying sector, meanwhile, is further divided into potash and phosphates.

Exports: 

The importance of these industrial segments can clearly be seen in the kingdom’s export figures. The country exported a total of JD4.8bn ($6.8bn) in 2015 from this segment, with potash accounting for JD434m ($610.4m) of that figure and phosphates comprising JD369m ($518.4m). Chemicals and fertilisers of all kinds totalled JD1bn ($1.4bn), making these categories equal to some 38% of Jordan’s total exports.

The manufacture of other goods added up to a considerable share of the total as well. The CBJ statistics show exports of manufactured goods classified by material at JD431.1m ($606.3m) for 2015, while miscellaneous manufactured goods accounted for JD1.25bn ($1.8bn). The largest portion in this group was clothing, with some JD979m ($1.4bn) in exports in 2015. Machinery and transport equipment accounted for a further JD200m ($281.3m). The majority of the other manufactured goods are produced by SMEs. Combining the large and small industrial outfits and segments, Jordan’s economy is clearly dominated by industry, with manufacturing, mining and quarrying at the core of around 80% of all exports.

Segment Breakdown: 

The Department of Statistics compiles Jordan’s General Industrial Index to measure industrial activity. This index of industrial production, which includes manufacturing, mining and electricity production, shows that 2015 was a mixed year. Starting the year 11.6% down, by March it was up 8.87% year-on-year (y-o-y), before declining 10.57% in June. Similar fluctuations occurred during the rest of the year and into 2016. In the first quarter of 2016, the index was 6.1% down y-o-y from 2015. The main reason for this recent slide was a decline in manufacturing activity, which is weighted to count for 86% of the index’s total. Manufacturing fell by 5.3%, while mining and quarrying decreased 0.9%, although electricity production rose 0.1%. However, there were signs that some vitality was returning to the sector in March, with an 8.3% month-on-month increase in manufacturing activity then.

External Environment: 

Several external factors lie behind industry’s performance over the 2015-16 period. First, there was considerable regional instability, with conflicts in neighbouring Syria and Iraq. While Syria was once a major export market and transit route for Jordanian products, the border is now sealed. Trade with Iraq had compensated for some of this loss to manufacturers, until the Iraqi border was closed in July 2015. Many exporters re-routed via Saudi Arabia and Kuwait, adding to costs and eroding competitiveness. The closing of the borders is pushing Jordan to search for new markets. For example, exports to the EU should grow with a new 2016 preferential trade agreement and some Jordanian industries are now also looking to increase their trade with sub-Saharan Africa. “Jordanians need to learn that Africa is not only the MENA region. There is a growing opportunity in the sub-Saharan market too and it is competitive to export to Africa from Jordan,” Naim Rafiq Burghli, chairman of Rafiq Burghli, a diversified firm dealing with paint, minerals, jewellery, gold, and automotive products, told OBG.

Another external factor has been the general economic downturn in the Gulf due to falling oil and gas prices. This has especially affected Jordan’s third-largest export market, Saudi Arabia. It has also led to a decline in grants from Gulf countries to Jordan. Indeed, Jordan’s GDP growth has been decreasing over time. At constant market prices, with 1994 as the benchmark, 2013 saw a 2.8% expansion, 2014 witnessed 3.1% growth, followed by a 2.4% increase in 2015.

Plans & Programmes:

In addition to the Ministry of Industry and Trade (MIT), which is responsible for regulation and monitoring of the sector, a number of other ministries also have a role. Among these are the Ministry of Planning and International Cooperation, the Ministry of Public Works and Housing, the Ministry of Labour, and the Ministry of Energy and Mineral Resources (MEMR). The Aqaba Special Economic Zone Authority, also called ASEZA, which administers the Aqaba Special Economic Zone (ASEZ), comes under the Prime Ministry, as do the Ports Authority, Greater Amman Municipality, the Executive Privatisation Commission and the Petra Region Commission.

Within the MIT’s portfolio comes the Industrial Development Directorate, while the minister also sits on the board of the Jordan Enterprise Development Corporation, also known as JEDCO. The Jordan Industrial Estates Company (JIEC) is an autonomous corporation for the estates, while the Jordan Investment Commission was established in 2014 to take over the tasks formerly performed by the Jordan Investment Board, the Export Promotion Department, and the Development and Free Zones Commission. The Companies Control Department is an independent body associated with the MIT that has responsibility for company registration and monitoring.

MEMR has responsibility for the National Resources Authority, an autonomous body that regulates and monitors the mining and quarrying sector. The Jordan Food and Drug Administration and Jordan Customs also operate as autonomous bodies. In addition to these official bodies, the Jordan Chamber of Industry, the Amman Chamber of Industry and the Amman Chamber of Commerce are key professional associations in the sector, while the General Federation of Jordanian Trade Unions is the main national labour group.

The Plan:  

The government ministries are currently the key drivers of Jordan’s 10-year economic development plan, Jordan 2025. Launched in May 2015, the plan includes 400 policies and measures to be undertaken by the government, the private sector and civil society. These are to be implemented via three successive executive plans, with the current one running from 2016 to 2018. The industrial sector’s contribution to GDP is expected to rise to 27% by 2025, up from around 22% in 2014, according to the figures cited in the plan.

The kingdom’s range of free trade agreements (FTAs) combined with its location, are helping to establish Jordan as a gateway to other regional markets. Economic clusters are to be developed, playing to relative regional strengths and targeting key markets. Jordan has a wide range of FTAs. In 2000 the kingdom signed the Jordan-US FTA, and inked an FTA with the European Free Trade Area in 2002, after beginning an association agreement with the EU. In 2004 an agreement with Singapore was signed, and since 2012 another has come in force with Canada. In 2015 Jordan and Pakistan signed a series of preliminary agreements in advance of an FTA. Jordan is also a founding member of the Greater Arab Free Trade Area and a signatory of the Arab-EU Agadir Agreement.

The Syrian crisis has also had an impact on multilateral trade relations. In February 2016 the London Support Syria Conference saw donors pledge some $1.7bn in grants and other transfers to Jordan. This will go to programmes targeting economic growth and job creation for the 630,000 to 1.2m Syrian refugees now estimated to be living in the kingdom. In July 2016 the EU decided on its new goods of origin rules, under which it is including Jordan for preferential treatment, with major benefits going to the garment sector in particular.

Support for the garment sector is timely, given the difficulties the sector has been experiencing in recent times, as has been acknowledged by the government. At a meeting in February 2016, the MIT extended an income tax exemption for profits from exports until the end of 2018. The public sector was also instructed to continue to give local industries a pricing preference of 15% and favour local manufacturers in purchase orders through to the end of 2016 (see analysis). According to some sector operators, such measures could be useful across the industrial sector, with a need for the government to revise and develop a better tax structure to enable the survival of companies.

Productive Clusters:

Jordan’s industrial development policy has focused on the creation of special zones for some years. Some of the first of these were the qualified industrial zones (QIZs), established in the late 1990s as part of an agreement between Jordan, Israel, Egypt, the Palestinian Authority and the US. Provided that goods contained a certain proportion of inputs from each of the regional signatories, they could be exported to the US duty and quota free. Since this time, Jordan’s trade with the US has taken off, particularly in garments. The Jordan Times reported in October 2016 that the US Department of Labour has lifted restrictions on Jordanian textile imports. Industrial estates of all kinds have also sprung up around the country. The JIEC currently promotes six of these – the Abdullah II Ibn Al Hussein Industrial Estate (AIE), 12 km south-east of Amman; the Al Hassan Industrial Estate and QIZ (HIE) in Irbid; the Al Hussein bin Abdullah II Industrial Estate (HUIE) at Karak; the Aqaba International Industrial Estate and QIZ (AIIE); the Ma’an Industrial Estate (MIE); and the Al Muwaqar Industrial Estate.

AIE has some 358 SMEs on site, with a total investment volume of over JD1bn ($1.4bn). HIE, meanwhile has around 101 companies operating, with more than JD222m ($312.2m) in capital investment. HUIE, which is 20 km south of the main Amman-Aqaba highway, has 14 tenant companies, with around JD33m ($46.4m) invested. MIE also leverages its proximity to the highway – the main transport route for the vast majority of Jordan’s imports and exports. Al Muwaqar, meanwhile, is in a development area where companies receive a 50% income and social services tax exemption for the first 10 years, while AIIE is located in the ASEZ and has some 38 companies within its 275-ha site.

Attracting Finance

The estates have enjoyed considerable success in recent years. In February 2016 occupancy rates were 100% at AIE, 98% at HIE, 60% at HUIE, and 51% at Al Muwaqar. Al Muwaqar recently received a financial boost with a JD1.5m ($2.1m) investment from Dead Sea products company La Cure Jordan. The Dead Sea is a natural mineral resource providing ingredients for many beauty and spa products. ASEZ also achieved a major result recently, signing a deal with China’s Shenzhen Chamber of Investment to develop an industrial and logistics estate in the port city. Covering an area of about 1m sq metres, the project is due to take five years to complete and comes as part of a major recent Chinese investment in Jordan.

Meanwhile, there are also four public free zones in the kingdom, administered by the Free Trade Zones Corporation (FTZC) and chaired by the minister of finance. In the first quarter of 2016 the FTZC reported $1bn in exports, mainly of machinery and oil products, with the former accounting for JD619m ($870.5m). The FTZC’s portfolio includes the Zarqa Free Zone, 35 km north-east of Amman; the Sahab Free Zone, established to serve AIE; the Airport Free Zone, at Queen Alia International Airport; and the Al Karak Free Zone, located at HUIE. There are also nine privately run free zones, employing some 4000 people, and six private sector industrial parks in operation around the country. The latter group include specialised locations such as Cybercity, along with Al Tajamouat, Ad Dulayl, Gateway, Al Mushatta and Al Qastal.

Phosphates & Potash

Because of its unique geology – lying east of the Jordan Valley fault line – the kingdom has some sizeable deposits of valuable minerals. Indeed, mining and quarrying added $739.5m to GDP at current prices in the first three quarters of 2015, up 23.5% y-o-y on 2014, according to the most recent economic report from Bank Audi. That year also saw solid growth in the segment up 10.5% y-o-y in 2013.

The larger contributions were for the most part due to greater output, as phosphate and fertiliser prices dropped in 2015, especially during the second half of the year. At the same time, the income tax on mining operations also rose in 2015 from 14% to 24%. The kingdom produced 8.26m tonnes of phosphates and 2.35m tonnes of potash in 2015, up 16.2% and 12.9%, respectively, on the 7.1m and 2.1m tonnes delivered in 2014. Output in 2015 was higher than any of the previous five years; however, there are concerns about increased levels of competition.

“The mining industry in Jordan is being challenged by a big drop in prices and more aggressive competition from international players who have smaller costs and lower tax rates,” Brent Heimann, president and CEO of the Arab Potash Company (APC), told OBG.

Big Players

Two major entities dominate the segment – the Jordan Phosphate Mines Company (JPMC), founded in 1949, which produces all the kingdom’s phosphates, and the APC, founded in 1956, which produces all the country’s potash. APC has four subsidiaries: the Jordan Magnesia Company, Arab Fertilisers and Chemicals Industries (KEMAPCO), the Numeira Mixed Salts and Mud Company, and the Jordan Dead Sea Industries Company. It also has three affiliates: the Jordan Bromine Company; the Nippon Jordan Fertilisers Company (NJFC), which produces and markets products in Japan in partnership with JPMC and Mitsubishi; and Jordan Industrial Ports Company, which works with JPMC and the Aqaba Development Corporation.

JPMC saw its net sales grow from JD738.4m ($1m) in 2014 to JD750.2m ($1.1m) in 2015, with the company responsible for Jordan’s entire phosphate output, some 4.8m tonnes of which were exported – the most since 2011. The downturn in global demand for fertilisers affected the uses to which this was put – 318,000 tonnes of fertilizer were sold by JPMC in 2015, after 646,000 tonnes in 2014 – but phosphoric acid sales increased substantially, compensating for this loss.

Despite some challenges, APC also saw healthy sales in 2015. The 2.35m tonnes of potash produced was 12.6% up on 2014, a record volume for annual production. Yet total sales were down over the year, from 2.24m tonnes to 2.19m tonnes, while potash prices also fell due to weakening demand and foreign exchange fluctuations in the main importing countries. Operational income declined as well, yet the company nonetheless saw net profits increase. These rose from JD99.7m ($140.2m) in 2014 to JD130.8m ($184m) in 2015. The firm attributed this to a mixture of higher output combined with lower fuel and freight costs.

Heavy Industry

The phosphates and potash segments also feed into a major domestic chemicals, pharmaceuticals and fertilisers industry. These segments consist of many subsidiaries of JPMC and APC, along with associated companies. Indo-Jordan Chemicals and the NJFC are connected to JPMC, while Jordan Dead Sea Industries Company, falls under APC’s subsidiary, JBC. KEMAPCO is also a key player, along with Jordan Sulpho-Chemicals Company, Jordan Al Abyad Fertilisers and Chemicals, and Manaseer Group’s Jordan Modern Advanced Chemical Industries Company. Hammoudeh Group and Jordanian Swiss handle much of the marketing contracts for the industry.

Chemicals, pharmaceuticals and fertilisers are highly export driven. Of the combined JD1.04bn ($1.5bn) exported by these segments in 2015, medical and pharmacy products took the largest share, at JD398.7m ($560.7m), followed by phosphoric acid at JD127.8m ($179.7m). Dyeing, tanning and colouring materials came in third, at JD38m ($53.4m). Other export lines include plastics, carbonates, sulphuric acid, polishing and cleaning preparations, and complex fluorine salts.

The kingdom also has a vibrant steel sector, with 12 steel factories operating in the country. Jordan Steel Group (JSG) is the major player. JSG produces rebar, wire mesh, billets and merchant bars through three subsidiaries – Modern Wire Mesh, Jordan Steel Engineering Industries, the Consolidated Jordanian Company for the Steel Industry and a marketing company, Ammoun Steel Trading. Global downward pressures on prices have affected the sector in recent times, as has the closure of neighbouring markets. Nonetheless, steel prices have remained high in the domestic market, prompting calls for the government to allow more steel imports, which is being resisted by local players and is likely to continue to have an effect.

Outlook

Although the regional environment will likely remain challenging, and the global environment continues to be one of slowing growth and heightened competition, Jordan exhibits many signs of stable growth. The domestic market is growing, and the kingdom maintains a number of competitive advantages. Importantly, the country is a natural logistics pathway, offering stability and gradually improving transport and ICT infrastructure. The long term remains promising.