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November 5, 1974

Europe, Middle East and North Africa Region

k\I,$~ On4 Tffkfd'no II1-IQ U IL U'U % U U* , U r , , , i n

Document of the international Bank for Reconstruction and DevelopmentInternational Development Association

This report was prepared for official use only by the Bank Group. It may notbe published, quoted or cited without Bank Group authorization. The Bank Group doesnot aCccept responsibility fIr tlhe accuracy or comnpletenesi of the report.

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CURRENCY EQUIVAIENTS

(Since February 13, 1973)

US$ 1.00 = JD 0.322

JD 1.00 - US$ 3.11

Page No.

COUNTRY DATA

MAP

SUMMARY AND CONCLUSIONS . .............................. i-iii

I. RECENT GROWTH TRENDS ................................. 1

II. DOMESTIC FINANCE ..................................... 4

III. BALANCE OF PAYMENTS ................................... 8

IV. ECONOMIC POLICIES AND PLANNING ....... ................ 13

V. INDUSTRY . ....................................... 16

TEXT TABLES

1. INDEX OF PRODUCTION .................................. 1

2. AGRICULTURAL PRODUCTION .............................. 2

3. RESOURCE GAP ......................................... 3

4. CENTRAL GOVERNMENT'S REVENUES AND EXPENDITURES ....... 5

5. MONEY SUPPLY AND ITS COMPONENTS ...................... 7

6. BALANCE OF PAYMENTS .................................. 9

7. PUBLIC FOREIGN AID ................................... 11

This revort is based on the findings of an economic mission which visitedJordan in January 1974. The mission was composed of Messrs. Johan de Leede(Chief of Mission and general economist). Jivat N. Thadani (industrial econo-mist and Henry B. Thomas (industrial credit specialist).

Pae f 3 .sws-

oDuimyDTAfi- JORDANW

hits POPULATIWH twns97,7)0 bek.E 'llo (.id-19723 .. ker he.s .arbl. land

SOCIAL INDItlAl0RS Rr -C. '

Jo-da Dengo Desi TabbaaOie

190 T 1MT - YF

S PU CR APITA oSI (ATLAS BASI) /5 . 270A1 300Da 380A/ 70617

p2P;tt1~ApIICCrd :irbrte p thousad) [47/b 49 /c 6[.o 8 III

crude death rate (pe eonan) 16 7; 16 Tb 23 77 Ii. 13infan aeurtality rate (Per thooeand live births) .. 36 7-; a . 12• IfLire erIpeotoe..y at birib (years) 52 /5 54 hi /n 52 - 8

Orone reponchictlsi rate /2 3.6 /5 ~~~~~~~~~~~ 3.5 Ic2.8 Io 3.. .9pepeletblon grout, rate' /5 .3.3 7W 7.2 7W 2.3 / 2.6AlPopjlntt.e g-oti rats- urban... 3 7T 37k

u-li [.•~~~~~~~~~~~~~~~~~~~5/g 67 /1 Iz/r [6/I. 1,315- l. Tl7 •o 7T 53 77 5i 7- 52

Dnoecroo/12465 u4 ce,237 5 7' 37;- - _i A __17.2_ 7, 0.8 77&Z 1. 7 -, 2.3A/

Deu'poPeIl-o u- poot-nt of Lt.tl h4 /L2 38 /1 4. Idk) 60 /kFatly plnnniug, N- f accptors ousltl-e (thou,. ...... o

Ac f ries( o-,eri.d een ..... 12

T.t.IrTTa- frce (thousands) 390 L 360 /I,, •20A/ I,5C53 A 570eercetgeeplnyod hr egrlcltnre 35 [g ~ 29716 5 6 7- 57 7;d t ip 7-;

Pec .tae .ncployod *Lk1. 87Tht, 146 7 67;.

Parcout ornto-trenrcic-d by tugboat 1 .Perct ofrtiona moos eetoo by tagh-nt 201% .....Pertt or rttoc-L in--e rccet-J by le-t 20%..,P.rot uf ,,on.oeI jocose roc-ou ty be-d [.0% .

Ohin¶RI30TION CF LAnD OWLENSHIP 5 7Loondhby toploorasr . .. 53v S7d

o-cd by -.1llet 10% ofonr . .. 0.5 7; o

h'EALTh AND NUTRITIONP.poletton or Zphyielso 595C / 2,680 7.260 Ar 5,950 "7,1i.P.puLntonperourotg Person 1,940 7. 1,0•-0 670 7? 730AI 1,.250

PoP.Ul-io per hoepttal tied 680 79 0 960) 370 711. [.10 77 2,60

percytaclre'.,; s8o rqienue/ 87 /00 98 /ntd 90 /od 94 /ad 96 /adPer nptt proteinabpply, iteI (gows per day) 16 58 7.7 65 72 ho/7ad 63 72 70 72

Of oliAh, aelsel nod PoIse 16 777 ia M;; 23 7.2 16 7a 27 7'nDeathrsteI-6 ysee /7 .. 57a- .. .

7a7oe

EIMCATIONAdTjuntod /b pri.ery retool enroIneot reIbo 76 /af 70 /fi4 ~ 145 lag,u107/ag,i 121/oI aAdjusted Zr so ,leysh-o nein rotto 24 7Uc 30IN i 13 73 2072 6 7""Toa.rn of echoliug jv-ldsd, first nod seined Il.eel 12 - 12 13 13 12 -Vocatlonel e-rl-nt u of eon, school oneol11-t /of 3/ 7of 9 If 34 /1 1IIf.arlAd.t Ut--ay ento 32 7gi'oj.u 62 ~tAam •50 7n.a 55MIA n

legnNo. of pec.cos perre. uba), .. 2 6 I Psreeet of ocoupled cnitn vihtbt piped outer 79 /at . . •7

Acres, o olnetuotty o 8 of total Popeleti-) 17 ... 271. haFeroato t -1ol,pepulation c-rnoted tr olactriolty IE.ELi .

l-ONSiNflti8lRaIoG rceer per IOO ppulation 38 160 69 77 215

.- ..per ION) pcjoat.i- 6 7 .. 13 49p.-r -.Wtj (kd, p, 59 ?I 81~~~2 155 44)

Nenotioee.pttoi P.-. kg per your 0.2 0.2 0.04, l.b 0.1 1.6

.Lute, Figuo refer eIther to the letsut periods or to eon rc roa a tg-tbre, Wd vsht, the le t_nt years. Latt periondo refer ine principle to ditetibthulo by age ard sea of nattonl POPoaie.the yearo 1956-60 or 19 702; the .Letot yeoru in. PrU /6 rtfa tnad rqirnSts o l oootsa .bcipbe to 1960 and 1920. lIted by [BObA Soowoboj Nae'h De.-t.o Provide for a mists-aI The Per C.pIt (s tiaecat siort prie-rofr afov-c o f 60 gr~eas of total preteic par day, an 20 gras of

ycurn ,tl,cr iic10,lnatdby th ceoevrin animal and poise pr'teb, nI uhob 10 pos eh-Id he an,-IOte~choijous an thu 1972 World Banj Atlr.e. protein. Theae standards -t sinhat here than thoec utf 75

/7A -eu ober of drughtern par woa or orproudnoitr gVoo of intel protein gent 23 gre. of anima Prtotin a. nage - ove~~~~~~~~~~~rage for the cord, propoad by PAO to the Third World Food

/~PepeluLior g-oth oLonor for the de-d-s antiog I3-Y1960 aid 19710. /7, m otudiec ha.e suggeted that anode death rtate of dhildre

/5 ~~~~~~~Ratio f tador 15 abd 65 ne evr ge krhte in age 1 thrcngh 4 may he used as a first approimation tiix ofths ho ao frce brorbt of ogre 15 through U6 cal-tritioa./5FAQ ref-ree stuodurd rcpo-ot phyotslOfleul ro /5 Facetage enrolled of sorrepeadlg pepalation of ecnt g

qbir_necto fur norseo -otitity and he-1th, tkbleg andeficed for ma.h oantr.7

1 972i lie 1959-63; /e 1965-70 Ci actuate; Id 1966; /0 Estiato; 1/f 1969; I5 1961; -A 1960-72;Over 3,i pouato;m 1 A-6 / Over 15'000 pnpulafl'o; A East Boork acym Is 1971; ""/ Ratio ofpopulatios uedmr 15 and 65and see te ttaiL labor ferns; Ia 1968-67r /p District hwad_erters, 1lnW.iti.3 of30.000 orsr ina.l.t-nte, and those loosailima of 5,000-9,WO inbbitat',' and suburbs of laos are Jrseale in eijobtoo thirds orear of eno-oloaly a.ttee sale. a not ssgagd lot agriulture; / Piea years and over; /r 12-59years old1 /s S Ipl surrey;i /t Wele only; /0 Er---aill /vf Covcrtneg7.5 adIllo. hactar- of p_rnto tLand,eso1udlug 0.8ilhnheooaLre to 7[1lo woeroip, Z7d 2.1 m.ilio henlire. of nin lan hd; I/v coverieg 6.5 dlohcteonace of printo land; A 1s962; /5 isoluding mideira buit not aesietant n-r-a; Is c-versseet only; /ain Notinnidin loca haspitala; 7.1_ 1967; fee 1957-59; led 1964-66i I.e fegicterd d;ths; /af Inoludlng-1¶iTNwA

soul; la Inbludiag overage stdae ab 1965; 7I 1968k ft7)5 .years and ove; /aV"'Ned an rite;leA 12 years an ver; /" a.pel. survy; may uILa"stieate !TTitar2e; anPestige af heesehfle wltbuat piped

eatcr toelda deeUlngs; /00 Flare..etae of hueohoids with elentrie itgh[.i9; /.V Pereentags of bo.nsig caSte with

hrl do-gi'phtns -and ichbr force In Jrdon, -at of the figuren for 1960 com from the 1961 C-aon and, for 1920, fineOhs.i971g ..u.sho1d amacse (East Bardkely) which probably ndsr-rqnreearsu farelo families crudreues

sIeLbaon io selected as as ubjeotlve orntr7 beauces the Jtordania 0-ermet st- to reach a par ..ptta incom about

eqoa t. the Pree.ant level In Lebanon ur the ant tan peers, an~d lbenau sizs end nlI.atio conditionsto tbs twocoutr Ies are shelac.

R2 Septanber 5, 1976

Page 2 of pages

ECOIIN?IC ?;DICATCiRS

ANISUAT. 9ATE OF GhOdT3iGROSS NATIONAL PRODUCT 1N 1X7?/ (PF CE!'TA, CO'STA:7 PRICES)

Percenl (ob_ lEUS$ iIr. tage 1 965 1970 357' "'?? 19.'7

GNP at Miarket Prices 892.6 '30.0 7*0 - 4- ?.1 2.9 1Gross Domestic Investment 2]7.7 2L.9 c. -7i? ' ,1.0 -4.6 ?4.'.Gross NaticnaI Savin_/ 20'.1 22.8 ..Current Account Balance 11.8 1. 'h:°orts of Goods, NFS 17'.5 lo., l'.f6 0.6Inports of Goods, Ni4242.2 97. ' lc.9 7.

OUTFUT, LABOR FOzTUE AIL)PRODUCTIVITY IN 19-72

Value Aded_/ Labor Force-/ V. A. Per dorkerPercen- Percen- Percen-

5$s M1n. tage Mln. tage US $ tage

Agriculture 1l2.0 18.9 O.I05 29.2Industry 108.S 19.6 0.057 15.8Services L57.3 65.5 0.198 55.0Unallocated .

Total/Average 1T87 100.0 0.60 '00.0.

GOVEAIWtENT FINANCEGeneral Government Central Government

(J.D. Mln.) Percentage of GDP (J.D. Mln.) Percentage of GDP197?2 / 1972 et 1969-71 1973 1.97' 1970-1972

Current, Receint,/ f5.6 15.7 5.7 1.0 'Lr2.1Current Exoenditure 7°.1 '7.0 39.8 76.2 28.9 27.9Current Surolus 6i 2.7 0.9 5.T 4 . 2Development Expenditures 22.2 9.' 7.2 78.5 19.6 11.7External Assistance (Gross)-/ .. .. .. 57 21.? 19.?

May MayMONEY, CPEDIT AND PRICES 1970 1971 1972 1973 1973 1974

(Million JD's Outstandn-g End Period)

Money and Quasi Money 129.] 135.2 146.5 176.1 159.1 191.1Bank Credit to Public Sector 4.8 2'.' 23.9 38.7 31.2 47.9Bank Credit to Private Sector 49.6 44.9 97.9 59.7 52.2 70.8

(Percentages or Index Nhm7bers)

Monev and Quasi Money as , of,GDP 61.5 60.5 58.8 66.7 63.8 71.1Cost of Living (1970 = 100) 4 100 119.7 129.9 192.9 117.0 152.6

Annual Percentage Canges In:Cost of Living Index - 6.8 9.3 8.1 1O.I 1.9 30.5Bank Credit to Public Sector (Net) .. 307.6 - 4.6 86.9 16.6 53.*Bank Credit to Private Sector 0.3 3.0 6.7 23.7 2.9 35.7

NOTE: All conversions to dol7 ars in this table are at the average exchange rateprevailing during the period covered.

2/ Total labor force in east bank; unemployed are allocated to sector of their normaloccupation.

2/ Data refer to West Bank and East Bank, since separate accounts are not available.

3/ Includes foreign budget support (JD 44.7 million in 1971).

9/ Annual Average of Amman Cost of Living Index.

not availablenot applicable

e estimate

Page 3 of 3 pages

TRADE OF PAYMENTS AND CAPITAL FLOWS

PERCEN-BALANCE OF PAYMENTS 1971 1972 173 MERCH'ANDISE EXPORTS (AVERAGE 1971-1975) US $ MLN. TAGE

(Millions US S)

Phosphates i.25 27T. 6To,atoes and Tomato J.i-e 2.8 7.9Eggplants 1.2 2.6

Eaports of Goods, NFS 82.9 112.4 173.5 Citrus Fruits 4.4 9.51soprt. of Coodo. NF-S -25750 -3320 -424 2 Cigsretten 1.7 3.7

Resource Gap (deficit -) 189.3 217.6 -25J.7 CAloert 4.0 10.4All other co-.ndities 0 39.

1/ 456TOTAL 'it 100.0interest Receipts (net)- 13.5 9.4 15.9 TWorkers' Remittances 13.7 20.7 45.7Other Factor Payments (net)Net Transfer. 102.5 191.2 200.9 EXTERNAL DEBT, DECEMBER 31. 1972 US S MLN.

a ^n Curre,.t A::cc=t--S9.6.3

Direct Foreign Inves- ent- - .3.6 -1.1 - 3.4 Public Debt, Including Guaranteed 160Net MLT Borrowing Non-Guaranteed Private Debt

Disburse.eet. 26.9 30.1 39.5 Total Outstanding and DisbursedAmortization 4.8 -11.7 -16.2 PERCEN-Sub-total 22.1 18.4 23.3 DEBT SERVICE RATIO Por 19721/ TAGE

Capital Grants - - - Pub,ic De:t, Including luaranteed 7.3Other Capital (net) 0.6 0.4 - Non-C.aranteed Private DebtOther Ite.n N.E.I. 7.5 - 2.6 7.2 Total O-.:ts.nding and DisbursedIncrease in Reaerver (ve -33.0 18.8 38.9

Gron. Off. Re.. (End Year) 253.2 271.3 312.4Net Total Reserves (End Year) 249.4 268.5 321.5

RATE OF EXCHANGE FOREIGN TRADE OF OIL IrkD/IDA ' ENDING, (AUGUST 31. 1974) (MILLIOC US):(Million US S) IRD IDAD

Through - February 1973 1965 1971 J972 193

US $ 1.0 - JD 0.357 Imports 9.05 13.56 12.78 12.94 C.Ottaandi.g and Diaburaed .21.J1) 1.00 - US S 2.80 (0/w Petrol.) (5.97) (11.S8) ( 9.271 (10 005e U Tdfnbur e-d . 2-5

E,ports - 0.09 - 0.05 Outstanding Including Disburaed ,Since - February 13, 1973 Oil Tran-

US S 1.00 = JD 0.322 sit Fees 4.8 9.60 9.83 10.57JD 1.00 - US S 3.11

I/ Includes direct investment income

21 includes loans to the private sector

RV/ sr1 of Debt Serv--e ro Epnorra of Gonde (idJiL.,-d for transit goods and gold exportt), M.en-Factor Services a.d Worker.' RSamrt-Aner

not available

not applicable

estimate

.... ...... .

\- C N\-

0~~~~~~\ v-: \-l t

C ~~~~~~~~~-=_es. ,

000~~~~~~~~~~~~~~~~~~~~~~ I

-0~~~ ,--'-$ D .

SUMMARY AND CONCLUSIONS

F_rnomir rproverv from the conseauences of the 1967 war and thrcivil disturbances in 1970 has been slow but is now underway. Industrialnrnodii-f-inn picked up in 1972 and 1973, hbt a stagnant sprvirps sertnr andan exceptionally bad crop in 1973 resulted in only 3 percent growth in realGNP in 1972 and 1 percent dron in 1973 1/ The Octobpr 1971 Middlp Eat con-flict did not directly affect the Jordanian economy, and prospects for 1974are fav.orable; economIc grnwth this year mny excppd A nprcent investmoentand exports expand and agricultural output recovers.

ii. Renewed attention of the Government to the needs of economic devel-opm-ent is reflected -in the 19Q73-7S crnnnnm. Plan and sA ua bal- a .nn.cedstrategy aiming at 8 percent annual economic growth. During the first yearof the plan, substantial progress was mAde on irstltutional refor.- .-A proectpreparation. In 1974 implementation of many of the new Government projectswill start, ad public investmen.t is 141kely to i.ncrease. Private 4,v stu.eS ,t in high cost housing and industry boomed in 1973 and indicators point to ashlarp increase of pr4vate Jnvestments In 1974.

iii. ̂ 'though te e-,ploymer,t situat on ----- -o have improved in recent5.54 .I.LLk~JU~, L Ll1_ C&LLjJ.L%y A IL. C5. LUO WL SJL OC=1UO L.U kiCXVC .LLUIjLUVCU L±1 C CL

years because of growth in construction activities and temporary labor emigra-tion, thLere iLs a needu fLor thLe creatiLon of L more perarLent eu.ploymuent opportuni-ties to absorb the growing labor force, and reduce underemployment. The Gov-ernment's emphasis Un VUCdLoUlndA tra-ining sll sol hU tUelp to imprUve Lniepresent discrepancies between demand and supply for the various skills.

iv. After some years of losses in foreign reserves, the balance of pay-ments in 1972 and 1973 improved considerably. Tne overaii surpius in 1973amounted to JD 13 million, and at the end of that year gross official reservesstood at the JD 100 million, which represented 9 months of imports at '1973level. During the last two years commodity exports, mainly phosphates andcement, increased by JD 12.7 million. Merchandise imports, however, increasedeven more and the trade deficit widened by JD 19 million. A JD 16 millionimprovement in net receipts from services, mainly in foreign travei andworkers' remittances, and a JD 23 million increase in foreign budget supportand direct military aid over these two years more than compensated for thedeterioration in the trade account. Although donors changed, budget supportand direct military aid was remarkably stable and represented 19 percent ofGNP in 1973. Expenditures on defense and public security including directmilitary aid were equal to 20 percent of GP in i973.

v. The improved balance of payments position is expected to continuein 1974. Imports may jump due to replenishment of food stocks, steep increase

1/ National account figures include East and West Bank.

in imports and prices of equipment, and adaptation of oil prices; the latterare to be negotiated jointly with new oil transit fees. Export receipts willincrease mainly as a result of increased phosphate exports and five fold risein phosphate prices since 1973. Full resumption of Kuwait budget support andincreasing disbursements on recently contracted loans will probably keep thetotal balance of payments in equilibrium.

vi. It is the Government's long-term aim to eliminate the chronic im-balance between current expenditures and current domestic revenues but thepolitical situation in the region has so far prevented the Government tromreducing the relatively high level of military expenditures. Some progresswas made on the revenue side. In 1973 current domestic revenues rose by 22percent, mostly because of the expansion of foreign trade, price increasesand the collection of tax arrears. Current domestic revenues exceeded ex-penditures on recurrent civilian operations by an amount equal to 6 percentof GDP. Development expenditures increased from about JD 10 million before1967 to JD 38 million in 1973. These were financed to the extent of 18 per-cent from domestic borrowing and 29 percent from foreign loans and credits.The 1974 budget anticipates a 23 percent increase in domestic revenues,mainly on account of profits from phosphates, and current expenditures areplanned to increase by 22 percent. Public development expenditures areexpected to double to JD 73 million with major resource allocations to theJordan Valley irrigation scheme, phosphate mining, railway connection of thephosphate mines with Aqaba, power supply and social sectors.

vii. Expansion of credit to the public sector was the main factor behindthe 10 percent annual increase in money supply during the last five years.With a decline in real production during that period, the additional moneysupply inflated the economy's liquidity. During the sixties, hoardings ab-sorbed an important part of the money supply, but currency is now flowingback to the banks. Strong real estate speculation reflects limited invest-ment opportunities and a tendency to hedge against price inflation; the costof living increased by 7 to 10 percent in 1972/73 and is currently runningat about 20 percent a year due mainly to rising costs of imports. Monetarypolicy can help in draining the overliquidity by consolidating cash savings,restricting credit expansion for non-productive purposes, and raising interestrates. Such policies, however, would need a supporting tax policy. Directtaxes account for only 8 percent of total government revenues, and there isscope for both wider tax coverage and structural increases.

viii. This report includes a detailed analysis of the industrial sector.The sector is small both in relative and absolute terms, and represents about12 percent of GDP and employs 7 percent of the labor force. The 1973/75 Plancontains JD 36 million investments in industrial projects and power generationand aims at 14 percent annual growth for the sector. These plan targets arelikely to be attained.

ix. The need to improve the trade balance and the recent increases inphosphate prices motivated Dlans to expand the eaDacitv in phosphate miningfrom 1 million metric tons a year in 1973, to 3 million tons in 1975. Plansalso exist to start nronrssing of unexportable grades of nhosnhate= Jordan

hias established 'its colmpet'Lt've abillity fIor a sTr,Lall1 n umlber of manufactures.The Plan contains a number of well prepared projects in this range, likeceramics industry (in which 'hC has participated), textiles (with TaLwaneseparticipation), sheet glass (not yet in execution) and an extension of thecement plant.

x. In the longer term, further expansion of phosphate mining and pro-cessing and possible exploitation of copper and Dead Sea potash reserves canresult in a large rise in exports. The copper and potash projects may be ableto attract additional foreign finance and will not necessarily reduce invest-ments in other fields. Tnough major import substitution industries have beenestablished some further substitution possibilities exist in various small-scale productions.

xi. With suitable policies, a substantial number of medium- and small-scale industries could be developed such as clothing, tools, building prod-ucts, plastic moulding and agro-industries, which employ relatively largenumbers of people and will also increase exports. Jordan's incentive systemis adequate but small investments should be freed from most existing controls,and incentive benefits should be granted automatically. The Government policycould be more effective in removing bottlenecks in the form of scarcity ofcertain skills, credit to small industry, and availability of industrial sites.Scarcity of experienced entrepreneurs makes subsidized technical assistancenecessary in the field of small-scale industry.

xii. Total disbursed public debt outstanding at the end of 1972 is es-timated at $161 million of which $12.7 million from IDA. In 1973, Jordancontracted $92 million in foreign loans, which carried on the average an in-terest rate of 1 percent, with 7 years of grace period and 30 years maturity.Disbursements on foreign loans are budgeted at $128 million (JD 41 million)in 1974, more than three times the actual 1973 level. Although this targetmav not be fully reached, a substantial jump would come about with the ex-pected acceleration in the execution of projects partly financed from abroad.Debt service payments in 1973 were $13.7 million compared to $7.9 millionin 1972, fast growing exports kept the ratio of debt service to exports ofgoods and services at 7.3 percent.

I.RECENT GRO'rMTn TRIENADSr

Production

1. The 1967 war and the Israeli occupation of the West Bank interrupteda period of continued economic growth averaging 8 percent per year during tnefirst part of the sixties. Confrontation with Palestinian commandos in 1970checked an initial recovery of the economy, and the consequent ciosure or thefrontier by Syria affected exports. In 1970-73 GNP fell back close to its 1966level. All sectors were adversely affected by the political events. Agricul-tural production, which represents nearly a fifth of GDP, was in 1970/72 about5 percent below the pre-war three years' average. Industry, accounting alsofor about a fifth, recovered in 1972 and surpassed pre-war production only by1973. Private services which account for nearly half of domestic productiondeclined steadily. Government services, including defense increase

- 2 -

of internal stability re-enforced domestic demand, particularly for housing.Since 1971 value added in conntriirtinn increased by 55 percent per year. In1973 bottlenecks began to appear and construction prices rose by an estimated30 percent. The increased construction activity had a spill-over on the restof the economy. As a result of higher domestic and foreign emand, the EastBank index for irndustrial prnoductinn climtbed frnm Q.Q in 1970 to 152.9 in1973. However, agricultural production declined in 1973 due to frost andexceptional drough.t. Bedc4A A4drect- proAuction losses, th- -rop failure ledto depletion of stocks, reliance on expensive imports and heavy price increasesfor foodstuffs .

Tsble 2: AT?TCLTT'PU11AT PPvomTh rTTCW.1 /1

(thousands of tons)

1969 1970 1971 1972 1973

Wheat 159.3 55.5 168.1 211.4 50.4LZ Iz '1 ') ' r,I a A

Barley 42.5 5L. 224.0 JU J5.9

Tobacco 2.0 1.2 1.1 0.7 1.1Other field crops 31 11. i4 35.9 6.3 13.9

Tor,,atoes 15 1 137 .4 1370 I 15.) 7 83.1 ilomatLes I .J.J % fj I .- t Ij / .U I.1J1-I U-J. a

Other vegetables 69.1 70.2 89.8 93.4 65.0

Olives 23.9 3.0 18.5 35.0 5.2Grapes 14.2 6.4 18.6 18.2 Citrus 24.3 48.9 41.2 20.9 15.4Mlelon 53.2 22.8 27.1 63.0 56.0Other fruits 27.7 22.5 14.5 15.8 5.2

/1 East Bank only.

Investment and Savings

3. Fixed capital formation recovered quickly from its depressed levelof 1970 and by the end of 1972 reached the volume achieved before the 1967war, and reachled the ratio of about 27 percent of GDP according to the latestnational account estimates of the government. Most of the investments weremade on the East Bank. As before 1967 almost three-quarters of total invest-ment was in construction. The share of the government in total investmentwas increased from 45 percent before the 1967 war to over 50 percent in theyears immediately thereafter in an atteumpt ot reactivate the economy, butthis trend was checked by the 1970 events. In the last three years, recoveryof the public sector was slow compared to the private sector but in 1973 theshare of the government in total investments started to increase again withthe implementation of the new Development Plan (1973-1975).

4. National savings amounted to roughly 25 percent of GDP in 1973. Thedoubling of the savings ratio since 1960 was mainly due to the growth in budget

-3-

support and, more recently, higher workers remittances. Domestic savings,which exclude these transfers from abroad were negative, the dissaving beingequal to 8 percent of GDP in 1973, a situation which is entirely due to theexcess of public sector consumption (mainly defense). Private savings arerecorded to be nearly 20 percent of GDP. 1/ They are partly generated on theWest Bank and the Government has to rely on indirect measures to attract thispart of savings for investments on the East Bank.

5. In 1973 Jordan had a large resource gap, equivalent to 31 percentof GDP, mainly due to high defense and public security expenditures whichrepresented more than a fifth of its GDP. Jordan can support this burdenonly with foreign financial help. Budget support and direct military aidwere, during the last two years, almost equal to total defense and securityexpenditures. However, the resource gap excluding military expenditures de-creased from 14 percent of GDP in 1969 to 9 percent in 1973, and was in 1973entirely financed from workers' remittances and other net factor incomes.

Table 3: RESOURCE GAP /1(million JD's?

1969 1970 1971 1972 1973

Defense and Public Security Outlays /2 46 38 39 55 /3 57 /3Resource Gap Excluding Defense 30 20 29 23 24

RPeontcrrP Can /4 76 58 _A 78 81

Net Factor Income 13 12 10 11 20Other Private Transfers /3 1 1 1 2 4

Foreig n Bu1dgAet ea, e tuppo Trt ,nci 4 3innn4rt- IA

United Nations and OtherEconomic Grant Assistance /5 4 5 4 7 7

Fiinancial G-ap / -16 -6 -21 1 4

/1 East Bank only./2 Table 5.1./3 Including foreign military assistance outside the Government Budget

(page 11).14 Table 3.1. Equal to resource balance in Balance of Payments./5 Table 3.6./6 Table 3.1. Equal to current account deficit of Balance of Payments.

1/ National accounts include an arbitrarily estimated contribution of theWest Bank whicn adds to the normal mLargin of error; private savingfigures (which appear as the difference between the Gross NationalProduct and consumption plus pUDlic savings) should be used wLth greatcaution.

- 4. -

II. DOMESTIC FINANCE

Gove-rnment

6. Although the Jordanian Government pursues the modei of a marketeconomy, the public sector plays a major role in the economy. The Governmentemploys more than one third of civilian wage earners and nas taken an activerole in most of the major business ventures. Government expenditures areroughly 40 percent of GDr and a large part of national income aepends on it.With the relatively narrow tax base that results, the Government relies in-creasingly on domestic and foreign borrowing for the financing of its develop-ment program. The Government expects that, in the long-run, development ofthe productive sectors will increase Government revenue sufficiently to makethe country independent from the large foreign budget support.

7. The Government budget is dominated by defense expenditures and for-eign budget support. Between 1969 and 1973 nearly two-thirds of recurrentexpenditures were allocated to defense and public security, which excludescertain direct grants of military equipment that do not appear in the Govern-ment budget. Non-military recurrent expenditures were amply covered by do-mestic revenues, but recurrent expenditure including defense exceeded domes-tic revenues by an average of JD 30 million. The deficit was covered by for-eign support (see chapter !II under foreign aid) which represented since 1967,with the loss of West Bank tax revenues, more than half of the Government'scurrent income and increased from JD 35 million in 1970/71 to JD 45 millionin 1973, leaving an increasing surplus for financing development expenditures.In the course of 1973 Kuwait resumed its budget support, and in 1974 theUnited States will probably increase its contribution. These together maybring 1974 foreign assistance to the budgeted level of JD 55 million.

- 5 -

Table 4: CENTRAL GOVERNIMENTVS RE'V-NUES ALND EXPENDITURS(in millions of JD's)

Budget1969 1970 1971 1972 1973 1974

Domestic Revenues 32.5 30.3 35.7 37.8 46.0 56.6Foreign Support andAssistance 38.4 35.4 35.4 44.4 45.0 55.1

Current Expenditures 65.2 59.0 60.7 70.3 76.2 93.0(of which Defense andPublic Security) (46.2) (38.2) (38.9) (45.1) (47.0) (51.6)

Current Surplus 5.7 6.7 10.4 11.9 14.8 18.7

Development Expenditures/1 22.5 21.3 22.2 35.6 38.5 72.6

Budget Deficit (-) -16.8 -14.6 -11.8 -23.7 -23.7 -53.9

Drawing on Cash Balance andBank Advances 3.7 8.3 -6.6 7.3 4.6 0.6

Bonds and Treasury Bills 8.4 4.2 11.4 5.0 6.8 12.0Gross Foreign Loans 4.7 2.1 3.6 10.2 11.2 41.3Other Foreign Finance - - 3.4 1.2 1.1 -

/1 In addition to investment, includes debt service on foreign loans andrepayd-uents of' UomLest'Lc 'loan-s. (JD 9.2 ,.L.L.LiLon .n 173I, JDJ 0.7 mLi±±LLon

in 1974 Budget.)

8. Domestic revenues, in 1973, amounted to 17.5 percent of GDP, ofwnich 4.5 percentage points from non tax receipts, 11.5 percentage pointsfrom indirect taxes and only 1.5 percentage points from direct taxes. In thefram,ework of the current Plan the Government is reviewing its revenues policyin order to diminish dependence on foreign budget support, to augment theshare of direct taxes and to rationalize the tax system. A number of positivesteps have been taken. Domestic revenues, in 1973, were 22 percent higherthan in the previous year and are expected to increase by 23 percent in 1974.The intended improvement in structure was, however, not achieved and theshare of direct taxes showed a steady decline over these two years. The 1973revenue increase was mainly in indirect taxes due to expanded foreign trade,price rises, and discontinuation of the privilege of deferred import dutypayments by firms affected by the 1970 disturbances. The increase in thebudgeted 1974 revenues is largely because of an anticipated rise in theGovernment's income from its majority share in the phosphate company.

9. Revenues from the new capital gains tax on real estate will bevery modest: for houses the levy will be 4 percent on the sales price; forland 20 percent of the difference between the fiscal value calculated fromthe 1966 assessed value and the sales price. In a climate of skyrocketing

- 6 -

real estate values the new tax is, however, of major importance from theequity point of view. The introduction of an inheritance tax, which was alsoproposed in the Plan, is still under study and may also be introduced in thecoming years. Tax collections have improved, and the Government is now think-ing to accelerate collection further by requiring prepayment of taxes beforethe assessments can be challenged in court. Although these measures may addto direct tax revenues, more drastic measures are needed to reach a tangibleincrease of the share of direct taxes, especially in view of the slow expan-sion of the tax base caused by generous tax exemptions in the new investmentlaw. The Government is reviewing the import tariff structure and a new customslaw is under preparation but it is designed to rationalize the system ratherthan increase revenues. In view of large windfall profits the Governmentlevied a mining royalty on phosphate rock as of May 1974.

10. In a climate of renewed economic expansion and steep price increases,the Government found it hard to keep current expenditures in check. Wageshave not been raised since 1970, but in the beginning of 1974, the Governmentgranted wage increases, mainly for the civil service, which are expected toincrease the total wage bill by almost a fifth. Soon after the 1974 budgetwas approved, the Government promised pay increases to the Army of equal mag-nitude to that granted earlier to the civil service. No resources were allo-cated for this additional expenditure, which may lead to more reliance on thebanking system if no compensatory measures are taken.

11. In 1967, after the war, the Government more than doubled developmentexpenditure (including debt service) to an amount of JD 23 million in order toenhance the level of economic activity. After a temporary decline during the1970 disturbances, development expenditures expanded again in 1972 by 59 per-cent in an attempt to increase production and modernize the structure of theeconomy. The actual development expenditures in 1973 were 8 percent higherthan in the previous year, although it represented only two-thirds of theamount budgeted for. The 1974 budget anticipates an almost two-fold increaseof development expenditures mainly to catch up on the shortffall in thepreceding year.

12. The large increase in development expenditures since 1967 was ini-tially financed from domestic sources. In 1969 the Government started toissue treasury bills which were largely absorbed by the banking system. In1971 this policy was complemented by bond issues. 60 nercent of which arecurrently held by the public, the rest by the banking system. In 1974, theGovernment intends to issue JD 12 million bonds- of which JD 6 million areexpected to be absorbed by the public.

13. In 1972 the Government started to borrow large amounts abroad forsperifir development nroierts. DibhrqPsmPnts, on these foreign Ioancs in 197Twere JD 11.2 million, which is JD 15.8 million below the budgeted figure. Thismay reflpct the slnw start on the imnlpmpenttinn nf the Threo Yar Plan. The

expected budget for 1974 foreign borrowing is JD 41.3 million ($128 million).ro m fm.itmntsC fo-r thsc loanse jla lreadAr been ot-ned.u, but considerable acce-

leration of disbursements would be needed if this target is to be achieved.

-7-

Money

14. Money supply as a percentage of GNP increased from about 25 percentin the early sixties to 52 percent in 1973. This is a relatively high ratioconsidering that on the West Bank the Jordanian dinar is not the only legaltender. The largest increase occurred in circulation of currency which inDecember 1970 accounted for 78 percent of total money supply, a fact thatpoints at a strong propensity to hoard, probably because of the unsettledconditions in the region. After public order was restored in 1971, currencyin circulation decreased gradually to 70 percent of total money supply atthe end of 1973. The obvious preference for holding cash is also 'probablydue to the free convertibility of the Jordanian dinar, the 100 percent cover-age by gold and other convertible foreign assets, the stable official goldparity and, until 1969, stable domestic purchasing power. This last factoris probably less important at present with domestic price inflation runningat 10.4 percent in 1973 and about 20 percent in 1974. Heavy real estatespeculation indicates that people may be hedging against further inflation.The present overliquidity can become an additional element of price instabilityand pressure on the balance of payments.

15. The Central Bank has taken some measures to reduce excess liauiditv.In 1973 the reserve requirement for commercial banks was increased from 7 to10 Dercent; which the banks could easily meet. The Central Bank also abolishedinterest payments on current accounts. These measures seem insufficient inthe present situtiion- On the other hand. the Government relaxed for certainbasic commodities the 20 percent deposit requirement on documentary creditsfor imnort-t hutt this my have the effect of inc-reasing linqidity. Monetaryauthorities do not contemplate credit restrictions, but try to persuade thehbnks to inre-as lending to industrv, mining acn.d agriculture and restrictlending for other purposes. The low levels of credit to industry, miningnd agriculture (about a fifh of total commercial ban.k credits) has recentlyshown strong increases but this was not accompanied by a reduction in creditto trade and constructionr. Overall total comercial ban.k credit to the psector expanded by 24 percent.

Table 5: MONEY SUPPLY AND ITS COMPONENTS(-ir. millior.s of JD's)

(end of year)

1969 1970 1971 1972 1973

Money Supply 96 105 108 115 139

Net Foreign Assets 95 94 90 98 104Cr.eAdit to Publl1c Sector ='7 5 20 19 I 351 I~CLl s. LL a AU .L t I LL.t. LU I 7 _.14Credit to Private Sector 43 44 45 48 59

Other -12 -14 -20 -19 -22

- 8 -

16. Credit to the public sector was the main factor behind the increasein money supply during the last five years (an increase by JD 42 millioncompared to JD 16 million to the private sector), particularly in 1973 whencredits to the public sector jumped by JD 16 million or 87 percent. Under thepresent system, the balance of payments is the final constraint on such expan-sion of money supply. With hoardings flowing back into circulation, monetaryauthorities need to adopt appropriate policies to reduce the high level ofliquidity to restrain the inflationary impact. The Government exclusion ofcommercial banks from the purchase of new government bond issue, could helpin absorbing part of this new liquidity.

17. Besides credit restrictions and better structural coverage of theGovernment budget, more active interest rate policies could form a thirdelement in the monetary strategy. While interest rates abroad were rising,the rates in Jordan stayed at about the same level. High liquidity keptshort-term rates low; long-term rates were kept at the same level by special-ized credit institutions at Government urging. The government has taken afirst step in the right direction by increasing the interest rates on its bonds.New bonds will carry a 7.5 percent interest rate. The yield will be tax exemptand holders will qualify for a chance on semi-annual lottery prizes equal to0.5 percent of the outstanding issue annually. Combining these elements, to-tal interest will probably be over 10 percent, 2 percent more than for previousissues. With inflation running at 10 percent a year there is a case to increaseall other interest rates, including the 9 percent legal ceiling. At the sametime, measures to absorb the excess liquidity of the commercial banks will haveto be taken.

Prices

18. The rise in the cost-of-living index accelerated from 7 percent ayear in 1969 to 10 percent in 1973; and reached about 30 nercent on an annualbasis in the last quarter of 1973. The cost of living peaked in April 1974,but fell to about 19 nercent above last year's average in mid-1974. Thesestrong fluctuations were mainly related to the bad 1973 crop and expensivefood imports. Although lower food nrire-, in 1974 temnorarilv halted the risein cost of living, further domestic price increases may be unavoidable in thepresent inflationary world climate. More conservative monetary policiesmay be of some help in this respect and could help protect the balance ofpavment .

III. BALANCE OF PAYMENTS

19_ The baac-f p-xm.ents improved by JD 24 milllon over the last fouryears in spite of a soaring trade gap that rose from JD 53 million in 1969 toJD 84 million in 1973. The rising trade deficit was due to the rapid rise incommodity imports related to high defense expenditures, the bad 1973 crop and

A >m _ A E t 124 . t__t____&_.._1._1____ _*VV>LJ. WUZIILLWUU Ly ZAMVLL*a IL1ULU L lldil UUUU±CU l11 LllU ± dst tWo yearsbut were still less than a quarter of imports in 1973. Favorable developmentsin services andU transfers ledU to a TD Ilill i,provement of he current

- 9 -

account of the balance of payments over the last four years, and the currentaccount showed a JD 4 million surplus in 1973. The capital accounit did notchange very much over the last four years.

Table 6: BALANCE OF PAYMENTS(millions of JD's)

1969 1970 1971 1972 1973

Export of goods f.o.b. 15 12 11 17 24Tmnnrt of gnnds n-i-f. 68 65 76 95 108

Trade Balance -53 -53 -65 -78 -84

Non-factonr Seruirces (ra.t)- - -3 -Investment income (net) 6 6 5 3 5Workers Remittances 7 6 5 8 15

Balance of Goods A Se _ ce-4- -63 _-4 -5 -6 -61

Transfers 4/7 4l0 37 A 6Q

fCurrent Account=16_=21 1 4_

Private Capital (net\) 1 = = =1Public Capital (net) 5 2 8 7 8Others -1 3

AtUiLtfLon to R'eserves 1 1x

Foreign Trade and Services

20. Closure of the Suez canal in 196i and of Syrian frontiers from 1970to 1972 blocked nearly all exports to the West, and concentrated Jordan'sforeign trade on the Arab markets (72 percent of total commodity exports) andthe Far East (about 14 percent). Temporary closure of the Lebanese--SyrianIrontier in 1973 and renewed fighting on the Golan Heights also had some adverseeffects on export expansion. Despite these events, commodity exports grew byan average of 13 percent a year in current price since 1969. Traditionally,Jordan's exports are fruits, vegetables and phosphates. Food exports decreasedduring the last four years oy tour percent a year (mainly as a resuit or dec-lining revenues from vegetables and growing export of citrus). In 1973 foodexports accounted for about 33 percent ot total domestic commodity exports.Phosphates exports were growing steadily up to 1969 when closure of the Syrianfrontier combined with over supply in world markets, reduced sales by one-third.By 1973 phosphate sales had recovered and contributed 29 percent to domesticcommodity exports. Other industrial exports are 38 percent of the total; theredirection of East Bank producers to Arab markets after the West Bank occu-pation and worldwide shortages of products like cement explain the almost36 percent annual increase in this category since 1971. Unprocessed re-exports

- 10

mainly from Lebanon to the oil producing states represented in 1973 42 percentof total commodity exports.

21. The value of commodity imports increased between 1969 and 1973 atan annual average of 12 percent. Imports of staple commodities, like wheatand sugar, edged up in 1972, probably for speculative stock formation. The1973 crop failure depleted these stocks and kept food imports at a high level.Over a five year period the food imports represented 29 percent of the totaltrade deficit, which may offer in the long run scope for substantial importsubstitution. On the other hand, Jordan imports all its oil requirements.Oil prices were maintained at about $2 a barrel, throughout 1973; pendingprice renegotiations between the Government and the oil pipeline company thattransports its oil through Jordan. A new price will probably be negotiatedas part of a package deal including transit fees. Such fees covered 93 per-cent of Jordan's oil bill in 1972.

22. The strong improvement in the services account between 1969 and 1973was initially the result of lower government spending abroad. Receipts fromservices also started to grow in the seventies. A 1971 agreement with the oilcompany resulted in an increase in transit fees for JD 1 million to JD 3.4 mil-lion in 1973. In the same year the Jordanian airline (Alia) started to showa positive cashflow on its earlier investment on new aircraft. Revenues fromforeign travel picked up and at present is almost equal to the expendituresof Jordanians travelling abroad. Because of new additions to the high levelof foreign exchange reserves and high returns on part of these assets, netinvestment income reached JD 5.1 million. The most important improvement was,however, in workers' remittances which increased from JD 5 million in 1971 toJD 15 million in 1973. Revenues from this source are already approaching theearnings from domestic merchandise exports. Since surrounding countries sufferfrom labor shortages and pay much higher salaries, an increasing number ofworkers is seeking employment in the neighboring countries. Net receiptsfrom "other services" increased to JD 10 million in 1973. This item is aresidual which represents activities of authorized exchange dealers. Theorigins of these receipts are not precisely known.

Foreign Aid

23. Unrequited official transfers amounted to JD 65 million in 1973, orabout a third of East Bank GDP. A large part of this inflow filters down intothe economy through salary payments, sustaining employment and standards ofliving. The forelign reurrenry rereipts that they renresent finance the high

level ot imports. Before the 1967 war, budget support came largely from theUnited States and England. The program was graduallv being phased out withthe growing strength of the Jordanian economy and stood at only JD 8 millionin 1966. The ouitrome of the 1967 war depnrived the economy of the West Bankproduction and the Government of West Bank tax revenues, increasing at thesame time the need for defense and refugee relief expenditures. Under theKhartoum agreement of August 1967 Saudi Arabia, Kuwait and Libya made avail-able JD 37 million nnnual budget sunport until the consenuences of the warwere eliminated. The United States and England discontinued their support.

- 11 -

Tn 1970, VKuwait an T- 1 -ya s-upenAdA t-heir cpinnort- h,it tho lna8 Wsa qlmnoQt-

completely offset by renewed support from the U.S.A. and some help from otherArab- state. Tn 19701 SauA4 A,rhia ndA the Unit-eA ntao bot-h increaseA t-hir

support. Kuwait support was resumed in 1973. UN assistance in 1973, mainlyfor refugee relilef, was about JD 6 millio-4n.

Table 7: PUBLIC FORPTIGN AID(in millions of JD's)

1969 1970 1971 1972 1973

Budget Support 37.6 33.1 34.9 44.0 44.7WU A.-3 4Ar_;4 a 'T /.Q %n o 7 1.i

Kuwait . 11.6 - - 8.5T JL-LIuya . V.U - --Other Arab States . - 2.9 0.2 0.8T U.SA. - - 17.0 21.: A0

Budgeteda EconomiLc and TechnicalAssistance 0.8 2.4 0.5 0.4 0.3

Arab League - 2.1 0.3 - 0.2U.S.A. 0.8 0.3 0.2 0.4 0.1

Other Current Transfers 7.4 3.6 0.1 21.6 16.1U.S.A. - - - 14.41i 9.8U.N. Agencies 3.4 4.5 3.6 6.8 6.6Others 4.0 -0.9 -3.5/1 0.4 -0.3

Development Loans (gross) 4.7 3.u 9.4 10.8 1Z.7Saudi Arabia 1.5 0.5 0.4 --Kuwait 0.6 0.3 0.3 0.7 1.0U.S.A. 1.0 0.8 0.4 2.3 4.9Germany (Fed. Rep. of) 0.2 0.1 0.6 5.2 2.4U.K. 1.3 0.3 1.8 1.3 1.6IDA 0.2 0.1 0.2 0.8 1.3Others -0.1 0.9 5.7 0.5 -1.5

Total 50.5 42.1 44.9 76.8 71.7

/1 Includes JD 4.3 million USA budget support for 1971, received in 1972.

Source: Tables 3.1, 3.6, and 5.3 of statistical appendix.

24. The renewed Government attention to economic development, combinedwith intensive pron4et- idrennt-ificatinn bvy tho JnrAnn G- aovrrnmnt and foreigndonors led during the last three years to an increase in foreign developmentloans. Disbursements of development loans increased from an average level ofJD 3 million in the 1967-71 period to about JD 11 million in 1973. New com-mitments jumped from JD 5 million in 1071 to JD 16 million in 1972 anA JD 30

- 12 -

million in 1973. Large commitments over the last two years were made by theUnited Kingdom ($33.4 million), United States ($26 million), Kuwait ($24.2million), and Federal Republic of Germany ($20.3 million). Commitments fromIDA over this period amounted to $24.3 million. The terms on loans to Jordanhave been highly concessionary. At the end of 1972 average interest on the$160 million outstanding and disbursed public debt was 2 percent with a graceperiod of 9 years and maturity of 31 years. These terms imply a grant elementof about 67 percent. New 1973 commitments have a grant element of about 72percent. In 1973 principal repayments on a number of old loans were startedand debt servicing on public debt excluding military loans increased from$7.9 to $13.7 million. Due to substantial increases in receipts of non-factorservices and workers' remittances, the ratio of debt service to export of goodsand services revenues stayed at 7.3 percent 1/.

Prospects for 1974

25. Immediate prospects for Jordan's economy are favorable. The antic-ipated increase of investment will sustain further production growth, partic-ularly in industry and construction activities. The good rains this winterallow for a good crop and agricultural production may regain its 1972 level,which would imply 40 percent sectoral growth. The Government's currentexpenditure for 1974 is expected to be 20 percent above the 1973 actuals, anincrease which includes recent wage and salary adjustment and an anticipatedincrease in public services. Private services are more difficult to predict.Growing income in primary and secondary sectors, as well as increased incomefrom workers' remittances, are expected to create sufficient demand. Furtherlabor emigration may, however, reduce a number of marginal services that areonly offered by individuals under the stress of unemployment. Inflation willprobably remain high.

26. The balance of payments will probably stay in equilibrium at a higherlevel of both imports and exports. Low foodstocks will necessitate furtherimports until the new crop at the relatively high international prices. Thesubstantial rise in government investment and expected growth in privateinvestments may lead to large increases in imports of capital goods. On theexport side, phosphates may yield JD 14 million more than in 1973 and otherexports may add one or two million dinars. Growing disbursements on foreignloans may probably be sufficient to finance the deficit on current account.

27. Considering the long grace period on new debt and expected increasesin Pxnnrts nf gnndq snn eprv-icpe the deht seprurl ratio mav stay arniind the

present level until 1976. Beyond that time earnings from phosphate and otherPxrorts may nrohbh1x7 rly ta g t a cslwor irate and tho Aodt service rate may start

to rise. However, if the export potential from mining, processing of minerals,an d agriculture are bein-g developed in the mean.while both the debt service andexports may rise substantially in the long run.

1/ Exports adjusted for transit goods, non-monetary gold exports and capi-tal revenues.

- 13

IV. ECONOMIC POLICIES AND PLANNING

The Plan

28. After the return of stability and order in 1971, the Governmentturned its attention to economic reconstruction and to laying the foundationsfor future economic growth. While pursuing the objective of reunificationof the Kingdom. the Government of Jordan decided to plan for the developmentof the East Bank economy for the ensuing three years. The emphasis of thenlanning exercise was on project develonment. Total investment over the1973-75 period was projected at JD 179 million compared to JD 100 millionIn the previous three-year per4od The nublic sector would execute 56 ner-cent of this program, substantially more than has been the case in the past.Aeririltiire wnoltd ahqnrh 15 I er--ent f the tot-al; industry, mining and nower,20 percent; economic infrastructure, 28 percent; and social services (in-lut4ing housing) 37 nprcent. The nriginal phasing of the program has alrePAdv

proved to be too optimistic. The first year of the Plan (1973) was largelysnent on nrn-ieit prpran rtion a ond, ct iritstitution biuildrlina. jith t-hp cn.12pni,ntdelays, only the industrial sector program may be fully implemented largelydue to the Adyno...4n o~f the private sector. Acceleration in other sectors maybe possible in the coming two years. Since the Plan did not give specialpriorit- to pro4 ects wi,4th s1,hort gsatito4 n periods, th. 4-i-.nt of these ir.-

vestments on production will to a large extent be felt after 1975. Plannerscounted heavily. on existing -- nderutilized capacities in the settinrg ,f an 8percent annual growth target. Industry has now about achieved full capacity.useA _4 1 , an pr4ce an employme= _ A4 ca_r sbo _ha fo ot-e setr A%AO 9 LL , a&nW ph. *t.^ V}.U C t IULS L L. ..I .ia V.J OIJf_ . iAL. LL. A OCU.UL £0 FLUO

point is not far off. With the anticipated normal crop, an 8 percenit growth.r.abeattained in 197 buU tL wi.L La tae more tir.e before thLILLs rate -an blue

established as a trend.

29. The macroeconomic framework of the Plan covers the whole Kingdom,.w.VI ch r.akes the derived savings not directly comupatilble with an essenti-33-W*.£LAt LiOm L1L U L .VU LIUI L ULLLy EUdL± WLIdi 4.aiL.Ld±yEast Bank investment program. Assuming a conservative estimate of piast sav-ings (i4.e. excluding statistical discrepanciLes) a high mnarg Lna'l nsat'oua'l sav-±i

5O\. ..L LULL PLeU L.L.0L U LL LL~JdI.~IUd~Ld ILU4. 5

ings rate of 37 percent would be required to reach the Plan target. However,delays in the investment program, reswmption of Kuwait budget support, prom-ised U.S. expanded aid and five fold increase of phosphate prices have greatly'LmprovedU Jorudai's fir.ancial prospects and ehe problems that were implicit inthe forecast savings rate will probably not arise.

Investment Policies

30. Besides concentrating its attention on the 1973-75 period the Planalso formulates the Long-term aims of economic policy in Jordan. These are:

- nigh empioyment ieveis and upgrading of laDor torce;

high economic growth without price intlation;

- 14

reduction of trade deficit and independence from foreignbudget support;

better regional and social distribution of benefits frompublic services.

These policy aims would require projects that are labor-intensive and couldhave strong balance of payments effects. The major industrial import substi-tutions have already been implemented, sometimes at high cost to the consumer.There is potential for light export-oriented industry, but probably not to anextent that would greatly affect the trade deficit. Agriculture provides thebest opportunities for labor-intensive production with either export potentialfor fruit and vegetables, or import substitution potential for cereals, dairyproducts and meat. The mild winter and possibility of gravity irrigation givethe Jordan Valley a comparative advantage for early fruits and vegetables.Part of the valley is being developed with the help of foreign financial andtechnical assistance. Some small groundwater irrigation projects are alsobeing implemented in the highlands. Application of modern agriculturaltechnology could substantially improve Jordan's low average yields, and thenew research and education programs provide a step in this direction. Theplanned landowners-tenant legislation which may secure a longer period oftenure would fulfill another condition to higher yields. The Government aimsat ensuring profitable prices in an attempt to stimulate farmers' response tothe official programs. Whereas, these policies may strengthen the balanceof payments in the long run without completely removing the trade gap, theymay not have a tangible effect during the Plan period. However, the develop-ment of the mining sector for export, given the current levels in world prices,may bring about a structural change in the balance of payments. For that rea-son the Plan anticipates a sizeable increase in phosphate production, and theconstruction of a fertilizer plant to exploit non-exportable low grade phos-phate. Prospects for exploitation of the Dead Sea potash reserves and copperore have been greatly enhanced by the present favorable prices on the worldmarket. These projects may create relatively few jobs compared to the capitalinvestment involved, but since they have the ability to attract foreign finance,their financing need not reduce the chances for financing other labor intensiveprojects. Jordan's first development concern would continue to be the identi-fication and preparation of a pipeline of economically feasible projects ofboth types.

Manpower and Income Distribution

31. The Plan set a target of 70,000 new jobs, implying an annual increasein employment by 6 percent which seems high compared to the planned 8 percenteconomic growth. However, in recent years the employment situation has im-proved substantially, thanks to emigration to neighboring countries wheredemand and salaries are high. The number of Jordanians working abroad ispresently estimated at between 250 and 300 thousand. Skilled workers arescarce in Jordan and agricultural wages in the Jordan Valley, for example,have recently approached those paid by industry in urban areas. Some unskilled

- 15 -

Asian labor is being hired in the Valley. A 1972 multi-purpose survey revealedthat at that time only 4 percent of the labor force was looking tor work. Thesurvey covered a sample representative for the entire population but it maynot record accurately the situation of refugees living on UNWRA rations whomay not declare they are seeking a job. Also in view of seasonal factors, the4 percent ratio may somewhat underestimate unemployment. Nevertheless, thislow ratio underscores the view that open unemployment is a problem for specificoccupations rather than for the labor force as a whole. With open unlemploymentat relatively low levels, the Government may turn its attention to hiddenunemployment in agriculture and government services, and to the population ofthe refugee camps.

32. During the sixties the population of the Amman Governorate grew at9 percent a year. This is partly due to the influx of West Bank refugees and,partly, to continuing rural exodus. Urban population accounts now for morethan 65 percent of total population. The Jordan Valley project may help toalleviate the situation by providing rural jobs as well as by diminishingthe gap between urban and rural life through the higher incomes and thesocial infrastructure it would provide. Since the start of the project thepopulation of the Valley already increased by 15 percent. The Government isalso attempting to develop Jordan's only seaport, Aqaba, and has a number ofsmaller projects for the highlands. The new Investment Law which allows proj-ects outside the Amman Governorate three additional years of tax exemptionreflects the same concern for balanced regional growth.

33. Policies to create more equal distribution of benefits among socialgroups are most evident in the egalitarian education system. The landowners -tenants legislation and the inheritance tax (which are both still under study)in conjunction with better enforcement of the Income Tax Law, could have adirect impact on distribution of income and wealth.

34. The Government has made substantial progress in developing theinstitutional framework for a mixed economy which nartlv denends on Govern-ment initiative and foreign technical assistance in order to create suffi-cient economic momentum. Proiect implementation is coordinated by the Na-tional Planning Council and by the Jordan Valley Commission for this partic-ular proiect. The latter is complemented by a Farmers Association which willdetermine cropping patterns in the Valley, provide agricultural inputs andsell crops on behalf of the farmers. Tn industry, miningo honusAing tn,riamand agricultural marketing, public corporations are promoting new ventures.The cornorations manage the existing state participations and take new par-ticipations if private shareholders cannot sufficiently be found or if theGovernment wants to keen a stake in the enternriQe (whirh ic the rnca Formining). Semi-public or public specialized credit institutions provide medium-and long-term finance in onen comnetitinn with nriunto onmmercinl hanlcks

- 16 -

V. INDUSTRY

Structure and Growth

35. The manufacturing and mining sector in Jordan is still quite smallin both absolute and relative terms. It accounted for 12 percent of GDP atfactor cost in 1973, compared with about 11 percent in 1972 and 10.2 percentin 1971. Measured in constant 1969 prices, however, its share in GDP roseby only 0.7 percent in 1973. There appears to have been a substantial im-provement in the utilization of installed industrial capacity, from 78 per-cent in 1971 to about 90 percent in 1973. Reliable data on changes in thelevel of fixed capital investment in industrv are not available. Nationalaccounts data indicate only that the value of investment in machinery andequipment for all sectors of the economy rose from about JD 4 million in1971 to JD 5 million in 1972 and to about JD 6 million in 1973. Jordan hasalmost no domestic capacity for production of industrial machinery and equip-ment; import statistics are therefore a good index of changes in the value ofcapital expenditure. Trade data show the value of capital goods imported forindustry, construction, power and transport at about JD 6 million for 1972,and about JD 7 million for 1973.

36. The industrial sector is mainly composed of a few large companies,which enjoy strong government support. Of the 589 establishments employing5 or more persons each, only 55 firms accounted for 55 percent of the workforce in these establishments, 87 percent of the fixed assets, and 78 per-cent of the value added. Of even greater significance is the dominant roleof the 8 largest establishments, which account for 26 percent of employmentin firms employing 5 or more persons, 53 percent of the fixed assets, and47 percent of value added. The 1971 industrial survey indicates that 25,800persons or 7 percent of the East Bank labor force was employed in industriesand mines, of which 58 percent in the establishments employing 5 or morepersons each. According to the 1970 manpower survey 24,200 persons wereemployed in mining and industry; estimates by the National Planning Councilindicate a total of 28,000 persons. The following six industry groups,arranged in descending order of importance, employed more than 1,000 workerseach: mining and quarrying, mineral based manufacturers (including cement),food processing, textiles, apparel and petroleum refining.

37. The single most important commodity export of Jordan is phosphaterock. It has accounted for 24-28 percent of total commodity export earningsin the past five years. Exports of cement come next in importance at present.Substantial excess capacity following the West Bank occupation, and risingworld demand enabled the industry to increase its exports in 1971 and 1972,earning almost JD 2 million in the latter year. During 1973 rising domesticdemand caused a reduction in cement exports, but current plans call for sub-stantial capacity expansion. Other significant industrial product groupsinclude: cigarettes, wet batteries, textiles and apparel, leather and lea-ther-products, and naner-board. Exnorts of these grouns have fluctuatedsubstantially from year to year, in response to a variety of circumstances,

- 17 -

Darticularlv the closure of borders for political reasons. Jordanian manu-facturers, however, have established their competitive ability to export suchmanufactured goods. not only to immediate neighboring Arab countries, butalso to markets further afield.

38. Ruling wage levels for unskilled labor allow for exports of rela-tivelv lahor intensivP nroducw't-s to middlp-pestprn markets but are probablytoo high to compete in other export markets with Asian low cost producerswhich are paying about 30 to 40 norrent less for qimi1lr lhaor. At t:hpsame time, the Jordanian wage structure provides considerable incentive forworkers to improve their skills and move up to higher paid ,obs or -_igrateto neighboring oil-rich countries xwhich are short of skilled labor. Monthlywages range from JD 12 to 20 in sma 11stblihnts t ahbiit TD 25-30 forskilled workers in larger industries. Wages of about JD 12 a month, paid forexample in garment factories, are low by Jordanian standards but there doesnot yet appear to be any real upwards pressure because of labor shortages.Highly skillIed personnel earn T, L0-90 per mLLonth, as thley can easily gel-equivalent or higher salaries on jobs in neighboring oil-rich countries.

Government Policies

39. The Government has taken an active role in promoting the growthof industrial an mLJin'ng sectors. Ln tLhL pa L, iL hIa cotibL uLte sIarecapital and extended loans to almost all the major industrial undertakingsin the country-, i.e. phosphate mining, ceme,.t, petroleum refinling, paper-board, leather tanning, woollen textiles, vegetable oils, soaps and toiletrequLremients, etc. it is also formally involvea in almost every new Lnvest-ment through import licenses and investment incentives. Technically, anyproject that involves a capital expenditure of less than jD 5,000 does notneed specific government approval. However, since there is only negligibledomestic production of capital goods and machinery, most industrial projectsdo need import licenses for machinery and equipment. Imports in general aresubject to import duty; but imports for projects approved by Governmernt underthe Encouragement of Investment Law may be exempted. Hence, it is advan-tageous for entrepreneurs to formulate their projects in a manner that: meetsthe requirements of the law and seek Government approval. In addition toduty free imports of capital goods, they may become eligible for remissionof income and social service taxes on profits for a period of six or nineyears (depending on shareholding and location of the enterprise), and exemp-tion from taxes on land and buildings for five years. In some cases customsduties on imports of raw materials and components may also be waived or reduced,and protective duties on imports of competing products may be raised. Appli-cations are scrutinized in the Ministry of National Economy, and consideredby a committee on which other ministries, the Central Bank and the privatesector are represented. Final approval is given by the Council of Ministers.It should be possible to allow greater freedom for investment decisions.Government could consider the feasibility of raising the limit for industrialinvestment decisions not requiring Government approval to JD 15,000 in thefirst instance and to about JD 25,000 thereafter. Existing industries shouldbe allowed to expand up to a certain extent, with minimum restrictions.

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40. A sample review of cases approved in 1972 and 1973 indicates thatwhile the Government is anxious to promote new industrial ventures and isgenerous in its tax policv for these, it does take interest also in ensuringthat "wasteful" or "excessive" competition does not take place. Multipleunits for a single product would be allowed only when it is established thatthe market can sustain more than one unit of "economic" size. In the con-text of the widespread under-utilization of installed capacity which wasreported for several years, this policy had obvious appeal but there is adanger of over-protecting inefficient establishments. Competitive pressuremay bring down prices, increase domestic demand and create a drive to export.

41. The Government's policy regarding capital goods for industry isboth liberal and helpful. Recognizing that the domestic market is too smallto allow any significant local manufacture, the tax policy is quite generousonce a proiect has received official approval. Capital goods are permittedto be imported duty free, and import duties are reimbursed for raw materialsand semi-finished products which are incorporated in exports. It is perhapsarguable that this policy provides no special incentives for "labor intensive"production techniques, and that the need to create more iobs in the industrialsector could be better served by a policy which would make import of machi-nery that substitutes for labor less financially attractive. However, it isnecessary to recognize that Jordan has to compete in the region, within whichsome other countries have equally cheap or even cheaper unskilled labor anda wider variety of raw materials. Hence, Jordanian entrepreneurs would needaccess to capital goods as well as raw materials at least cost.

42. The Government's policy for protection of domestic manufacturersis apparently conceived as one of "sufficient" support. In practice thishas meant a nuite high level of nrotection through tariffs and administrativecontrols. Administrative controls are of two broad types. First, there aretihf nffirinallv nnrnovec ".jinPIP PnfPrnrigP" infitvqrrips for which the Govern-ment has reserved the entire domestic market in certain branches to reachcrrtaln econnTmies nf scale= Bide the,- there is a mT-inritv of enterpriseswithout monopoly status but where imports of competing goods are subject toGovernment licensing. Generally, if a commodityis produired within the coun-trv in sufficient quantity for satisfaction of domestic demand at the estab-lished prices, immorts would be disallowed. it appears that this policy is

t t, E _ _* t,

based on grounds of conservation of foreign exchange; but it can also providea comfortable cushion against foreign com.petition to domestic prodlucers. Otberthan quantitative restrictions tariff policv is widely used for both revenueand protection purposes. Als an i4.n stLr ument fo proecin loca 4P_dust- -

I-. LA~& pt fJ~C . Ol LIO L UILEL L LU 1.jJLI-)LE~L. L.Ll6, LLU LJ. J LLUUOL.L.=

their imports of raw materials, intermediates and components are made eitherfree Ut Aduly or at quite mI,odest lariff rates, whie competing prolucls are

subject to fairly high tariffs, varying between 40-65 percent ad valorem.Tellgective protection allowed to Ile dor.esti- value alled m.ay le threeLi £ LC L.- LUL L -LUL UL UW U L L-Li UILC L I. V-L UCO uU Ld Li L

or four times as high as the nominal protection, depending on the importcontent In Udomestic products. .Ouch a Situation exiLsts fLor steeL re-roll,gand primary fabrication (e.g., bars for bolts), leather tanning, paper-board,textile spinning, as well as weavlng arld knitting. It would be ad-vantageouUfor the Government to consider the value and economic significance of new

- 19 -

domestic operations in relation to the levels of effective protection thatthey seek. It would then be able to adjust its tariffs to the objective ofmaximiz1in dnmestic value added (and emplovment) per unit of revenue foregone,which it does not attempt to do at present. Jordanian exports are subject toa sma1l 2 nperrent export tax. which seems difficult to iustify in view of itssmall yield and of the export promotion policy. Specific mining and otherexports may be taxed plprtiveplv if necessary.

'43 isntina -n,tc tvi -, I >,t4i t'V 1C hpnuiIv rnnrpntrnted in the Amman-

Zerka area. Of the 589 firms identified in the 1971 survey, as many as 497were located 4n this area. The Goverr.mernt wishes tn deeupnn induist rial Pm-ployment in other population centers of the country; but progress in regionaldispersion of industryt is likely to be slow because of the absence of sig-nificant economic advantages in the small population centers. Aqaba, lo-cated by the sea, and being AevelopeA as a tourlst resort, has gond poten-tial for development as a center for light and non-polluting industries.

Financial Institutions for Industry

44. In 1973, the Industrial Development Corporation (IDC) was createdby law as an autonomLous entLity, wItitL thi'e MiXnlster ofL National EConorLiO,y as2President. The organization is expected to act as a holding company for allGoverrnment investments in industry, anu actively prom-ote further inU(ustrial-ization. Part of the staff of the Jordan Center for Industrial Development,wiiiich had been created in 1965 with-I tec'lLCical and L'dLnanclia support 'from u',ur/UNIDO, has been taken over by the IDC; a new proposal has been submitted toUNDP for assistance to develop IDC's capability as an effective instrument forpromotion of new industries. This proposal was formally reviewed by a UNDP/UNIDO consultant in September 1973 and his recommendations are now being con-sidered by the Government.

45. The nominal value of the investments now vested in IDC amountsto iD 9.1 million or 36 percent of the total investment in these companies.IDC is authorized to sell any of its current investments and to use theproceeds, as well as half of investment income to promote new industries.It can treat its total assets as a potential "revolving" fund for the en-couragement of new enterprises. in addition !DC can receive funds throughthe government's budget or borrow funds locally or abroad. It currentlyhas under consideration a JD 400,000 domestic bond issue. IDC is held tooffer the share capital of all its new projects to the public in order tocreate investment opportunities for risk bearing capital and to activateprivate enterprise, but can subscribe to the part that the public fails toabsorb. IDC is also charged with responsibility for helping existing indus-tries to improve their performance. At present it has a professional staffot only 6 persons, of whom 5 have had 5 to 6 years experience. There appearsto be a need for additional high-level staff, as well as an intensive train-ing program for existing staff.

46. Thle role of the Industrial Development Bank in providing term fi-nance for industrial investments is considerable. Founded in 1965 with a

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minority Government participation, the Bank developed its business rapidlyand approved 30 loans for JD 933,000 in 1966. The political events of 1967had an adverse effect on the Bank's business, and this was further aggravatedby the civil disturbances of 1970. However, recovery has been rapid, and in1972 the Bank approved 27 loans for JD 940,000. In 1973, in response to amarked upsurge in the demand for funds, 30 loans for JD 1,467,000 were ap-proved.

Some Constraints

47. In considering the prospects for industrial growth in Jordan, itis necessary to take account of some major constraints over which the Gov-ernment has little control in the short- and medium-term. The size of thedomestic market is small. The Arab Common Market has now attained the stageof free trade for all products with a domestic cost component of at least40 percent. Resulting export possibilities are being exploited to the extentpossible. However, Jordan has largely to trade with state import monopoliesthat impose some limitations on growth of Jordanian exports. On the otherhand the economies of the other member countries are not sufficiently differ-entiated from one another to offer scope for major development of manufacturingactivities in Jordan.

48. The range of raw materials available in Jordan is rather limited.Though the agricultural sector produces several varieties of vegetables andfruits with good growth prospects, particularly with the implementation ofthe Jordan Valley development projects, it is not likely that excess andclheap supply can lead to the establishment of competitive agro-industry inthe medium-term. The country also has good mineral resource base for cement,ceramics and glass. It is carefully investigating its potential advantagesfor manufacture of fertilizers, based on phosphate rock and potash; but formost new projects, as for most existing manufactures. the country has to denendon imported raw materials and other components. In this context, the almostland locked nosition of Jordan and hiT.h cost of transnort to and from Jordanis a handicap. The over land route to Beirut has not proved to be reliablein the past. Jordain triedH to cdPverlon its trarde via Aqabah This is su-itablPfor trade with Red Sea countries and points east, but is currently expensivefor trade jwith Euronp w.hitch must go aroundr Africa The Irinmian effn-rt tn

develop Aqaba was underpinned by an ad valorem 15 percent surcharge on importsthrough Beirut. ThIs made trade via Beirut even more expensive than it wason account of border charges levied in Syria and Lebanon and the delays ofroad trons-orta-tion at border check-points. There appears to be need for acareful re-examination of the entire problem of transport costs for interna-tional trade, via Beirut and Aqaba, with a view to the removal of chargesimposed by the Government of Jordan, and reduction as far as possible of theburdens imposed by countries through which transit is necessary.

/0 .-~~~~~~~~~L-. C... JL WC..1-I L.k4 A. L .49. Thle reopening of the Suez Canal, -which n-ow appears to bue a di's-

* iI LL J~I1I UL Lt L.)U~ %dJIIi WIIUII LLW dp1Lb L U

tinct possibility for 1975, would make a considerable difference in thetr anLLoUL L coUs Ls 1o JUUanliadnt LIdaC WiLtl tiediterranean counLtries. ILCL .111-portance of Aqaba would increase naturally whlen shipping can pass through

- 21 -

the Suez Canal to Europe; and the 15 percent ad valorem surcharge on traf-fic through Beirut might then become more easily removable, with consequentreduction in cost of imported raw materials. The prospects of exports viaAqaba would also improve directly, because of the reduced freight charges onimports and exports.

Industrial Planning and Prospects

50. The three-year development plan (1973-75) contemplates investmentof the order of JD 26.1 million for the manufacturing and mining sector:JD 5.2 million in 1973, JD 8.0 million in 1974 and JD 12.9 million in 1975.Though the 14 percent annual growth rate envisaged for the 1973-75 periodis much higher than that achieved in 1973, it does not appear unreasonablein the context of the industrial projects approved by the Government during1972 and 1973. In 1972 the Government approved 20 projects, with an estimatedinvestments totalling JD 2.8 million; and in 1973 51 projects involvingcapital investments worth JD 8.7 million. In some cases these figure:, includeequity investment only and substantial funds are to be obtained through long-and medium-term loans. Taking into account the expenditure already inicurredin 1973, the further approvals likely in 1974 and 1975 on which also someexpenditure would be incurred within the plan period, it appears likely thatthe plan target for industrial investment may well be achieved.

51. The plan envisages the creation of about 9,000 new jobs in manu-facturine and mining during the three-year period. During the first yearof the Plan one thousand new jobs, many of which were in small establishmentswith less than S emnlovees hpcame availhl1e Cnngiderinv the likelv eimnlovmentpotential of the projects approved by the Government so far, and the capitalinvestment Pnvisaged for them. it nnnears that the rnitnl1 enenditure nperjob created is likely to be around US$18,000 as compared with the figure ofIJS$A-7s enviseued in the nlann The nhopnhate mirfnina indusctry c2n he exonec'tedito create the 600 jobs envisaged in the plan, but the plan targets for employ-ment in ot-her indsict-ri-es are unlikely to he aheved

Mining

52 A public mining company was established in 1973 as a oint venturebetween the public and private sector with an initial capital of JD 1 million.T'he ob,ectives of the new company are to extract, beneficiate and marketmineral rocks available in the country.

53. Jordan exported over one million tons of phosphate rock in 1968.In the next three years thck- quantity exportCed declined gradually, partlybecause of transit problems which affected access to established marketsin 'Europe, andu part'ly buecause of difficulties in th1e Aevelopm,en- of new,

..~ ~'L .. '~C IL pa L.Ly UC aU~ J .. L±L I~UA. JC £ 11 LLI L L ~ V LL JELL.L IL Wmarkets in Asia. However, exports picked up in 1972 and exceeded 1 milliontons~L in ' 1973 AbotUVUL LWo-thidLLU UL LIte sUpp.Ly Ls o' I7-712 £D P L adUe, adLU

only one-third is of the higher 73-76 BPL grade, after beneficiation.

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Table 9: EXPORTS OF PHOSPl-IATE ROCK

Year Export Tonnage Value F.O.B. (JD)

1969 928.000 3,56520001970 658,000 2,237,0001971 650.000 2 238.0001972 952,000 3,498,0001973 1;150000 (annrox-) 4.000.000 (pnnrnx.)

During the second half onf 1973 the nrice of nhosnhate rock 1umped from theearlier (relatively stable) price of US$11-11.50 per ton to a new price ofabout US$38 ner tnn and inrrpAspd in July 1974 further to roughly USS55 perton. The world price is actually determined by world demand in relation tosupplies from the LISA and Morocror th trwn nrincipal nroductina countries.Jordan is too small a supplier to have any significant effect on prices, butit shares the benefit of the current nrire level with the major producers.

54. Th~~~~~~~~~~,e Phosphate Mfining Co. (n which th Gvr,n ha cnrolninterest of 83 percent) has been planning a substantial expansion of opera-tions. Of thle twao ma,or mining areas - Ruseifa and E1 Hasa, the latter hasbeen selected for the first major expansion. El Hasa supplied about halfthe naational outpu:t in 1973 - 520,000 ons . Tle devel-- t pla fp__plhates envisages an output of 1,750,000 tons in 1974, rising to 3,000,000 tonsIln 1975. 9hlie productlon plan for 1974 and 19U 75 wouldJ rely on open cast min-ing. In 1975 a pilot underground mine in the El Hasa area would come intooperd L.UILsu * 11r iz: I 1LLJd.LUX 0LU V LcL I U . IILLIILLr, UULw UL ILL1 7 /._ IdC UCt::L

planned to take advantage of the verv high prices which are available now, andWIcLhL a[e expcteLU LU l.dL Up to 17/U. OpULL cast opeULaLIUiI aLe Lel.atively

easy to expand, as they require little equipment. Limited but convenientlylocated reserves are available for the 1975 operations plan. The companypresently employs about 650 of its total 1700 personnel at El Hasa, and thisnumber is expected to rise to about 1150. New ore benericiation capacityis needed at El Hasa. The Company does not expect any problems in acquisitionof equipment for its 1975 open cast mining pian. For its underground miningplan, more detailed work remains to be done before machinery can be ordered,and there could be further delays; in that event, open cast mining operationsmav need to be continued on the expanded 1975 scale into 1976 and may beionger.

55. TThe Ruseifa mine is not slated for expansion because of the highercost of mining and transport. Production for export is likely to range bet-ween 550,000 and 650,000 tons per year. The Government is studying a prospectto manufacture phosphoric acid and compound fertilizers based on non exportablegrades of plhosphate ot Ruseifa. Expansion of output at Ruseifa for ore exportsvia Beirut does not appear likely in the short run because of the reportedbottlenecks in loading facilities at Beirut. However, completion of therailway connection with Aqaba, expected in 1975, and the reopening of the SuezCanal may change transport routes.

- 2 3 -

56. It is difficult to project a price for phosphate rock beyond 1976.New sources of phosphate supply are being developed in Spanish Sahara as wellas in the established exporting countries but international market arrange-ments may prevent that oversupply will force down to a level that wou]d reflectmore closely the costs of production in various countries. On the oth,er hand,market arrangement may make it difficult for Jordan to expand production bymore than the growth of the world market after the present programs have beencompleted. Government is considering to expand production to 10 million tonsby 1980.

57. The Government is pursuing its investigation of the possibility ofexploiting other mineral deposits such as copper and manganese in the WadiAraba area. Exploratory drilling in that area has been completed and hasproven sufficient copper ore with a satisfactory copper content to justify thenext step towards a copper project. Present copper prices prospects arepositive. The Government is also updating a previous feasibility study forthe exploitation of dead Sea notash; a nroiect that eventually may supDortfurther development of a Jordan fertilizer industry. Feasibility studies forexploitation of trinnli- feldspar, gypsum mnarble, etc._ are in variousstages of progress.

Large Industries

58. The scope for development of large-scale enterprises has been underfairlv intensive exaowination by Government agencies, in cooperation with do-mestic entrepreneurs and foreign technical consultants, for some time. Forthe Three Year Plan (1973-75) a short l-ist- of major industries had b--een, ilen-tified. During 1973, the Government licensed a ceramics plant, and a textilemili of in,000 sp4_inde_ac 400 loos 1 in 4collaotinwha Taian-- m.Plans for expansion of the existing cement plant and steel (bars) re-rollingmill-1 h tave also been approved. A glass sheet plant hIas bIeen approvedU inL prln-ciple, but thie final feasibility study for this is not yet ready and invest-ment fun-Is have not hleen committedl. Prjet fo neecrcsee uncC LLLLLO ic VC L C~C i LLLLIL LU . ro-lects LUL i fXCr CL Xe t Cii s lee furnace,a second detergent plant and extension of the petroleum refinery are underconsideration. The GUovernmLent.s policy for all these Umaj LU rJe C C ha-racterized by prudent enthusiasm, though it appears at present that more atten-tion is paid to financi4a prof4tahility UllOd tU the conom.icL bni accringL

from suchi projects.

59. In comparison with export earnings from phosphate rock, exportCds LILLLL1C J. i Ulil ULLLL i IUUt1 Li it~, c LLU i1dXL [VULy bIILd L 1. UeIIMIL XApJUL Lb * dCLUULLLtU

for JD 1 million in 1973, but are expected to decline somewhat in 1974 and1975 since duorestiLc UdemandU will most UL ikielv contLinue to grow andf1 required newproduction capacity will not be available before 1976. Cigarette exportsestimated at about JD 500,000 in 1973 could be increased gradually, sinceJordanian cigarettes enjoy a good market reputation and have free access toother Arab Common iMarket countries. Wet batteries come next in importance,accounting for about JD 400,000 in 1973, with a little effort and marketorganization, earnings from export of batteries could increase at about 15 to20 percent a year. Paper-board exports in 1973 exceeded 2,200 tons, valued

- 24 -

at over JD 1,o A other paper prodticts to-ether earned a sinmil .1 S i- I J mount1he paper-board factory expects to increase its output from 3,000 tons in1973 Lt 6) ons i n 197 4 as a resullt of its recent reorganization and4 im

proved arrangements for su poly of raw materials. If this expectation material-- _ _ ___t_1 _ .- - i_ 1 ._ 1 - - - 4_ av ra_ I e Ieve' 41 r som 1 -

l S. Z ' , T 11 iC I I) L i CCe-b b L dcU X lIlU f 1 L J Lt5 [1 L J V U IJL L . C V C l £ LL VL-t5I L11pC L-

hoard ep:orts could bring Jordan an additional JD 250,000 in 1974. No furtherincrease i's art iCip d L fCoU [ I 1'7 /J 1cUU I 7 dS LIth LdeLUL V Would be opUeratLL1at full capacity. Other manufactured exports, e.g. leather, footwear, fabrics,

1 £.~~~~~~~ ~~~ ~ l Tn CCf flflCS l_Ifl I'garmenets, etc., whichi aCCoUULUU I ex C21JU I L,tj WUL Lia UUUL J UJU ,0UUU ILL 17 haive room for growth, which may be conservatively estimated at 15-20 percentper year. There is likely Lo be some scope for uevelopment of exports Ofprocessed food and agricultural products in the long run as the projects foragricultural development mature. At present, tnere are only very few industriesbased on domestic agricultural produce; flour milling and allied industries,such as baking and pastas; oil pressing, candies; tobacco products, etc. Themain 1imitation to deveLopment is in the inadequate quality and quantity ofraw materials supplies. Total projected growth earnings from industrial exportsexcluding pliosplhates up to 1976 would average at 15 percent.

Medium- and Small-Scale Industries

T,hce scope for development of medium and small-scale industries isiairly substantial, but the realization of this potential will depend on thee:xtent of freedorn, encouragement and assistance available to them. In theexisting policy framework, the level of protection available through tariffs)and the administrative licensing svstem is often more than adequate, but-rowth of new enterprises and expansion of existing tirms is perhaps somewhatHndi capped by the existing fear in government circles of "excessive" compe-tition which led in snme cases to formal restrictions on new ventures.

t,l, The Government has. hitherto paid rather limited attention to thef-inarncial problems of small-scale enterprise. Medium sized establishments

a;ve fared better, in the context of the limi,ted domestic market, and have'ent(-ited considerably from the Government's policies for prom