Report No. 4170-JO

Jordan LExport Strategy and Export Promotionin Manufacturing IndustriesJune 1983

Country Programs Department IIEurope, Middle East and North Africa

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipients

only in the performance of their official duties. Its contents may not otherwise

be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

1979 1980 1981

1 Jordanian Dinar (JD) US$3.3270 US$3.3478 US$3.0654

1 US Dollar ($) = JD.301 JD.299 JD.326

9~

FOR OFFICIAL USE ONLY

ABSTRACT

Jordan's manufacturing exports have grown at a very rapid rate. Tneyare, bowever, still small and almost entirely focussed to satisfy the marketsof neighboring Arab countries. Some large industries have been established(phosphates, potash, cement) which will boost exports towards tne end of the

1981-85 Plan period but will not be able to sustain growth much beyond tnathorizon. In the long run, because of the smallness of the Jordan market,dynamic industrial growth will depend very largely upon the development ofexports.

Despite the recommendations of the previous and the current Five-YearPlan, inadequate attention has been paid to export strategy and exportpromotion in Jordan. The main focus of industrialization until the mid-197U'swas on import substitution under a regime of scarce foreign exchange. TheJordan Government has recognized that export promotion is needed not only toreduce the external deficit and strengthen the country's creditworthiness, butalso to stimulate local production and employment, and promote newtechnologies, profitability and quality of domestic production. The mainobjective of the report is therefore to analyze Jordan's export strategy andpromotion measures taken so far and to make recommendations on policles andmeasures required to maintain the growtb of Jordan's manutacturea exports inthe medium and the long term. The report also focuses on a new institutionalframework for export promotion to ensure an effective export drive.

The report outlines an export strategy based on assessment of thepresent competitLveness of different industries, on Jordan's comparativeadvantage in factor endowment and access to markets, and on identitiedinvestment opportunities in certain areas. The report turther outlines aproposed shift in incentive system to favor exports through rationalizing andreducing protection so as to stimulate the efficiency of domestic industries,to provide equal incentives for import substitution and exports inside theregion and differential incentives outside the region. It also makesrecommendations for strengthening of the institutional support for theexpansion of markets abroad and for the effective export marketing or Jordanproducts. Thougb the main burden of the export drive will fall on Jordan'sprivate entrepreneurs, the report addresses also the potential role of foreigninvestment with infusion of technical and management know-how and in expandingmarket access.

This document has a restricted distribution and may be used by recipients only in the performance oftheir offcial duties. Its contents may not otherwise be disclosed without World Bank authorization.

PREFACE

A Bank Economic Mission visited Jordan in May 1982. Thisreport is based on the findings of that mission which consisted ofMessrs. B. Walstedt (Chief of Mission, Consultant), G. Segerlund(General Economist) and M. Allen (Export Promotion Specialist, Consultant).

JORDAN

EXPORT STRATEGY AND EXPORT PROMOTIONII MANUFACTURING INDUSTRIES

Tabie of Conteots

Page No.

Summary and Conclusions 1 - ix

CHAPTER I. INTRODUCTION 1

CHAPTER II. FRAMEWORK FOR GROWTH 2

A. Jordan's Growth Dynamics 2B. Sources of Growth in Manufacturing 2C. Exports of Manufactures 4

(i) Recent growth 4(ii) International comparison 4(iii) Direction of Jordan's manufactured exports 9

D. The Five Year Plan (1981-85) and Beyond 11

CHAPTER III. OPPORIUNITIES, STRATEGIES, AND TARGETS 14

A. Introduction 14B. Present Competitiveness 14C. Factor Endowment and Comparative Advantage 17D. Markets 21E. Identified Investment Opportunities 26

F. Strategy, Priorities and Targets 28

CHAPTER IV. INDUSTRIAL PROTECTION AND EXPORT INCENTIVES 31

A. The Present System 31B. Alternatives for Eliminating the bias Against Exports 32C. Concluding Remarks 34

CHAPTER V. INVESTMENT PRCMOTION AND FINANCE 35

A. Introduction 35B. Investment Promotion 35C. Industrial Finance 36D. The Interest Rate 37E. Export Credits 38F. Export Credit Guarantee 39G. Export Credit Insurance 39

Table of Contents (continued)

Page No.

CHAPTER VI. PROMOTION OF INDUSTRIAL EXPORTS AND FOREIGN INVESTMENT 41

A. Introduction 41B. Trade Agreements 42C. Commercial Intelligence and Marketing Services 43D. Training and Technical Assistance 44E. Export Trading Companies 45F. Transfer of Technology 46G. Promotion and Logistic Support of Foreign

Investment in Jordan 47

CHAPTER VII. PROPOSAL FOR AN EXPORT AND FOREIGN INVESTMENT BOARD 49

A. The Need for a New Institutional Framework 49B. Objectives 5UC. Character of EFIB 51D. Staffing, Budget and Finance 52

ANNEXES

A. Jordan's Effective Exchange Rate Adjusted for Relative Price Levels 54B. The Dar Al-Handasab Project Profiles 58C. Nominal and Effective Tariff Protection of Manufactured Products b5D. Export and Foreign Investment Board Tentative Estimates

of Staffing and Budgetary Requirements 67E. Government Equity Participations in Mixed Enterprises 69

Statistical Appendix 72-7

Map

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SUMNARY AND CONCLUSIONS

i. Jordan's manufacturing exports have grown very satisfactorily butare still quite small and almost entirely focussed on neighboring Arabmarkets. Some big industries bave been created (phosphate, potash, cement)whicb will make an important contribution to exports towards the end of the1981-85 Plan but will not be able to sustain the same rate of growtb beyondthat horizon. The main objective of the report is therefore to analyzeJordan's export strategy and export promotion measures taken so far and toreacb recommendations on policies and measures required to maintain thegrowth of Jordan's manufactured exports in the medium and the long term.The required macroeconomic framework to assess the medium and the long termpotential for Jordan's exports bas been provided essentially by the Bank'sPlan Review Report.

Recent Growtb Dynamics

ii. Aided by grants and worker's remittances, Jordan during the lastFive-Year Development Plan (1976-80) achieved one of the highest investmentrates in the world, rising to 33 percent of GNP in 1980. Roughlyone-fourth of these investments went into manufacturing and mining. Thegross investments in these two sectors totalled JD 317 million at currentprices in 1976-80, of which more than two-thirds went into five basicindustries (phosphate mining, phosphate fertilizers, potash, petroleumrefining and cement). With the exception of phosphate mining, the hugeinvestments in basic industry were only partly or not all reflected incurrent outputs; their main impact would appear in the next plan period.Nevertbeless, manufacturing production grew by 16 percent per annum.

iii. The main impetus to growth came from the expanding local market,particularly for industries producing consumer goods and constructionmaterials (most important, cement but also steel reinforcing rods and steelpipe). There was also a six-fold expansion of manufacturing exports,albeit from a very low base and exports still represent almost 5 x of GNP.No less than 96 percent of these exports went to neighboring Arabcountries, with which Jordan has preferential trade relations. Exportsincluded such items as cigarettes, wooden doors, pharmaceuticals, soap,varnishes, steel pipe, and cement blocks and pipe. Whereas initially SaudiArabia was the major market, exports to that country have stagnated since1978, and during the last few years Iraq has emerged as Jordan's leadingcustomer for manufactured products, a fact not unrelated to major upgradingof the port of Aqaba and the highway links between the two countries.

iv. At a compound annual growth of 42 percent at current prices formanufactured exports (1970-79), Jordan places fourth among a group of 12"oewly exporting countries" whose average growth rate was 37 percent,almost twice that of a sample of 53 other developing countries. In judgingthis performance it is important to keep in mind (a) the completepredominance of neighboring oil-producing countries in Jordan's exports;

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(b) the relatively low value added in many of these exports; and (c) thefact that Jordan bad no true export industries in the sense that thepredominant portion of their sales would be for outside markets. This patternwill change radically, however, wben the resource-based phosphate and potashfertilizer industries come on stream. In seven out of twelve industry groups,manufacturing exports now account for 22 percent or more of the total output,and the growth in manufactured exports by JD 43 million in 1975-80 contrastswith an actual increase in imports of the same groups of manufactures(negative import substitution) by JD 11 million.

The 1981-85 Plan and Beyond

v. Investments in manufacturing under the Five-Year Plan are projectedto grow by 50 percent in real terms as compared with the previous Plan. Asbefore, the lion's share (no less than tbree quarters) would be for keyprojects in the five basic industries mentioned above. However, towards theend of the period, an increased share of the investments would be going intospecified medium-sized projects and subsequently a large mass of unidentifiedprojects in the private sector. Industrial output is expected to grow by ISpercent per year as compared with a projected overall rate of economic growthby 10 percent. Export of manufactures, apart from those contributed by majorprojects, would grow by about 4.5 times or by an annual average growth rate ofabout 35 percent in real terms; the increase in these exports, of JD125million between 1980 and 1985, compares with a projected increase inmercbandise trade deficit of JD260 million. As for the direction of exportgrowth, the Plan provides a few general indications: forward integration ofthe mining sector through production of phosphate and potash derivatives,special emphasis on industrial interlinkages with Arab countries and theinfusion of higher technologies and advanced methods of management as a way ofexpanding Jordan's industrial development options.

vi. It is hardly to be expected that, after 1990, it will be possible toexpand phosphate and potash fertilizer exports at the same rate as projectedduring the Second Plan. Hence, unless a solid basis can be created now forthe expansion of other manufacturing exports, there is a risk for a hiatusin Jordan's industrial growth--and in its economic growth in general--in theearly nineties. Nevertheless, to attain the Plan targets for manufacturedexports, will not be an easy task. It will require the elaboration of astrategy appropriate to Jordan's resource endowment and prospective markets,a radical shift in incentives to favor exports and major strengthening(virtually creation from the ground up) of the institutional frame for thepromotion of exports and foreign manufacturing investments in Jordan.

Present Competitiveness

vii. In the absence of a systematic study, the present competitiveness ofJordan industries in relation to imports can be measured only indirectly, bytheir degree of effective protection. By this approximate standard, Jordan'scompetitiveness appears to be low in those very industries (consumer goods and

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construction materials), on which her past industrialization was largelyfocused and which also figure prominently in ber exports to neighboringcountries. To the extent that Jordan products lack competitiveness at home,the gap will be correspondingly greater on overseas markets where freightsmust be absorbed, product quality and design often adjusted, and an initialmarketing effort undertaken. In terms of prices and production costs,Jordan's industries are competitive in the newly industrializing oil producingcountries of the Gulf Region but cannot generally compete with countries withan older and more developed industrial structure such as Egypt and Syria.However, competitiveness is not determined by price alone. A study of recentsuccessful exports indicates that merchandising in the widest sense (quality,delivery service, adjustment to local customs and taste, willingness to spendsome effort on a relatively small market and ability to follow up and complywith local regulations as in the case of pharmaceuticals) is extremelyimportant. Jordanian entrepreneurs bave developed substantial skillsand ingenuity in that direction. The penetration of the more distant anddemanding markets of the industrialized countries is also entirely possiblebut will demand a higher level of incentives and institutional support.

Comparative Advantage

viii. In the recent past, Jordan's labor market has been characterized bymajor inflows of foreign labor, particularly into construction and agricul-ture, but also into manufacturing, and major outflows of skilled labor andprofessional people to the Gulf States. The inflow of labor is expected tocontinue whereas the outflow of skilled people has been declining rapidly.Since the supply of skilled labor and of managerial and professional talentis increasing rapidly, a surplus is foreseen in many of these categories,

except blue collar supervisors and foremen. Hence, what has recently beena constraint on development should become a major comparative advantage forJordan.

ix. There is a strong enterpreneurial spirit and propensity towardsequity investment in Jordan. There is also an ample supply of industrialfunds and rapidly developing network of generally effective financialinstitutions providing botb loan and equity capital. Finally, there is ahigh degree of agreement on objectives and positive interaction betweenbusiness and government.

x. Relatively low interest rates have prevailed in Jordan for a longtime, and have up till recently not compensated savers for losses in the valueof money due to inflation. Combined with the exemption of import duties onmost machinery imports and various investment incentives, these low interestrates have provided a strong inducement to investment and a special inducementto capital-intensive production. While conceivably justified in the short runto promote an industrial take-off, the resulting low charges on investment donot represent a true economic advantage. Real interest rates, though possiblyremaining relatively low, should, therefore be maintained at more realisticlevels in the future.

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xi. Productivity in Jordan industry today, generally speaking, does notappear to be very higb. The proximate causes of low productivity are botbinternal to the plants (lack of experienced management, shortages of criticalskills, high labor turnover) and structural (too many establisbments in asmall market, lack of specialized services). An apparently poor capacityutilization could derive from both these types of causes.

xii. As in the case of production costs, investment costs are high,up to 50 percent higher than the level in industrialized countries. The majorreasons appear to be delays and overruns in the building of large industrialplants and relatively high wages in relation to labor productivities. Therelatively high investment costs for the physical component of projects inJordan are somewhat offset by the country's easy access to risK capital at lowcost.

xiii. Low productivity reflects the newness of industry in Jordan.The main thrust toward improvement would come from the planned exportorientation. Closer contact with the outside world, through Jordanmanufactured exports and foreign investments in Jordan, would sensitize firmsto trends in markets and technology and expose them to healthy competition.This would provide the necessary pressure for internal and external rationali-zation. It would also be helpful in sweeping away excessive bureaucracy.Complaints among industrialists against bureaucratic procedures are toowidespread to be ignored.

xiv. Jordan's comparative advantage lies in relatively skill-intensiveindustries for a range of products where sophistication in marketing wouldbe as important as efficiency in production.

Markets

xv. Primary focus on the regional market is justified by the easieraccess and greater compatibility of neighboring Middle East markets and bythe rapid expansion of imports in the region. The regional market is hugein relation to Jordan's industrial output, its imports are projected to growat a more rapid rate than internal production and some of the countries of theregion have not yet been adequately canvassed by Jordan exporters. But thereare also uncertainties. The boom in trade with Iraq is fueled, to a largedegree by transitional and political factors. In several countries preferen-tial entry for Jordan products was cancelled once domestic production in thosecountries was intitiated. Competition will become much tougher as othercountries in the region develop industrially, often along the same lines asJordan.

xvi. Today, Jordan's exports of manufactured products to industrializedmarket economies are negligible. This is in sharp contrast with othercountries in the region (Greece, Turkey, Israel and Cyprus). Within anyparticular product group, successful exporters among developing countries

have managed to identify segments of the market particularly susceptible totheir resource endowment and degree of advancement in technology andmarketing. This type of trade also appears to be characterized by high incomeelasticity. Jordan needs it not only as a means of keeping in touch withchanges in products and technology but also to overcome excessive dependenceon a small number of nearby markets.

Identified Investment Opportunities

xvii. The Industrial Programming Study undertaken for the Government ofJordan by outside consultants includes an inventory of pre-feasibility studiesof likely industrial projects. Ranking these projects according to economicreturns, 27 out of 46 project possibilities showed a return of 15 percent orabove. An outstanding characteristic of virtually all tne projects is theirstrong export nexus, with three quarters of the total exports going to Arabcountries east of Suez.

xviii. Examining successful projects for clues to comparative advantage,shows that many of them have iovestments in the range of JD 20-40,000 perjob. The proportion of skilled staff and workers varies widely around a modalratio of 36-37 percent. One half of the projects would introduce newtechnologies to the country. On the other hand, at the most one-third of theprojects would have important backward linkages, i.e. would draw a substantialportion of their inputs from other Jordan industries. Since Jordan has nopresumed advantage in the majority of industries producing basic industrialmaterials, it is important that it seek "external economies" in the downstreamindustries, through the clustering of industries drawing on the sametechnological and manpower resources or susceptible of using the same exportmarketing channels. In this context, it is important for Jordan to developcertain key industrial capabilities, e.g. a minimum presence in prototypemetal working and chemical processing activities. From this viewpoint, andwithout making a substantive judgment on the merits of the project, thefoundry project sponsored by the Pension Fund is a step in the right direction.

xix. If we exclude two very large projects (phosphoric acid and NPKfertilizers), one-half of the investment in the 25 remaining selected projectsis accounted for by six medium-sized projects with investments ranging from JD3.3 to 6.1 million. They are, in the order of relative size; chinatableware, handtools and implements, structural steel and hollow ware, garmentmaking, furniture, and pumps (castings and machining). These clearly deservepriority study, botb as the largest projects with prospective high economicreturns and as prototypes for other projects with similar characteristics interms of markets, technology, or capital-labor ratios. It should beemphasized that the satisfactory economic returns indicated by some of tneproject profiles should not be regarded as proof of feasibility (the almostuniversal experience with such studies is their optimistic bias) but rather asa starting point for more intensive exploratLon.

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xx. More generally, the Report recommends an extension and deepening of

the pioneering effort at project indentification undertaken in the IndustrialProgramming Study to explore more fully such aspects as comparative advantage,markets, and external economies. Sucb studies would also provide inputs forthe proposed recasting of the protection and incentives strucuture.

Industrial Protection and Export Incentives

xxi. The present system of protection and export incentives may bedescribed briefly as follows: Several categories of imports, in particularc.rude oil, fertilizers and pesticides and most items of machinery and equip-ment pay little or no duty. Altogether, 37 percent of visible imports, mainlyitems not produced in Jordan, were "zero-rated" in 1979. The weighted averagenominal duty on the remaining items was 23 percent; with full surchargesadded, the nominal rate rises to 39 percent. The effective rate of protectionis high; roughly estimated it is about twice the nominal rate. In contrast,there is no parallel support of industrial exports.

xxii. The Government of Jordan has tried to remove the most direct burcenof the protective system on the cost of exports by allowing temporary admis-sion of industrial materials and parts. In the near future, this will becomplemented with a duty drawback system more suitable to certain types ofexports. These measures would only put Jordanian exporters on an equalfooting with their competitors with respect to the available margin forprocessing. They do not give a special incentive to exports.

xxiii. The ideal protection and incentives system is one which allows theexchange rate to carry the main burden of the adjustment between the domesticprice level and the international level and import protection/export subsidiesare reduced to the minimum justified on infant industry grounds. Assuming itis justified on macroeconomic grounds, correction could be achieved through anexcbange rate adjustment coupled with a simultaneous reduction in importduties so designed as to leave import prices for manufactured goods unchangedbut providing a boost to manufactured exports. Such a re-arrangement wouldhave to be followed, as quickly as possible, by a reform of the present tariffwhich was never designed as a tool for industrial development. The new tariffshould be designed to promote new lines of production capable of generatingexternal economies.

xxiv. The major theoretical alternatives to exchange rate adjustment cumadjustment of import duties would be either export subsidies or investmentincentives specifically focussed on production for export (e.g. varying withthe proportion of the total output exported). In industrialized countries,export subsidies typically take the form of exoneration of value added tax onexported goods, a procedure sanctioned by GATT. In countries like Jordanwhich is not a member of GATT and which has no value added tax, the samepurpose could presumably be achieved by refunding to exporters other taxes.As is the case with investment incentives (mainly tax incentives), tne pro-motional effect of such measures is limited by the tax payments that wouldactually be foregone, particularly during the first five years or so of

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production since tax savings in the remote future would be beavily discountedby entrepreneurs. Under the actual situation in Jordan today, additional taxexemptions would not appear to be a particularly effective incentive fordevelopment.

xxv. It is recommended that a Royal Commission be appointed to revisethe tariff and ensure, in the most appropriate manner, equal incentives forexports and import substitution. In this context, consideration should begiven to differential incentives for exports outside the regional market overa predetermined period judged adequate to establish beachheads in thosemarkets.

Investment Promotion and Finance

xxvi. Up to now no Jordanian financial institution has been called upon toprovide major financing for a project focussed on the export markets. Thiswill change once the incentives and institutional frame has been adjusted tomake such projects attractive. Banking will call for knowledge andunderstanding of specific industries and skill in project evaluation ascompared with merely close acquaintance with the individual sponsor and hispersonal financial background. The critical elements of project appraisalare the study of markets and prices and the evaluation of investment costs.Industrial development is a recent tbing in Jordan; unhappy surprises are partof the normal learning experience of both entrepreneurs and financialinstitutions. Substantial capabilities for project identification and projectvetting are already in place, and the efficiency of the screening network isbound to improve as experience is gained in a competitive setting.

xxvii. Jordan has a highly developed financial infrastructure for a countryat its industrial stage. It is bowever extremely difficult to place issues ofindustrial shares due to long gestation period, feasibility studies and theshortcomings of financial reporting, the latter notwithstanding the effortsby the Jordan Financial Market to stimulate better practice. It should be anarea of priority concern for the government as well.

xxviii. Enough flexibility in the interest rate policy is advisable so as toensure a satisfactory positive real interest rate. This would improveallocation of investment and should also have a healthy effect upon theeconomy by increasing savings and causing them to be transferred from thehousing market and other speculative investments to more productive and lesscapital-intensive investments.

xxix. Though the availability of export credits is not a major issue inthe present export rediscounting facilities should be streamlined so as toincrease their usefulness. Insuring against commercial and political risks inJordan's export trade should also be considered.

Promotion of Industrial Exports and Foreign Investment

xxx. For Jordan, industrial growth depends strongly on the growtb ofexports. In order for industry to come of age, it has to at least maLntain

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its position in the regional market and open new markets for its productsoutside the region. Though the main burden of the export drive will fall onJordan entrepreneurs, foreign investors could provide a strategic infusion oftechnical and management know-bow and market access.

xxxi. Since Jordan exports in the past have been almost exclusively to theregional market and these will remain predominant in the immediate future,Jordan's first concern must be the preservation and hopefully extension of thepositions already acquired there. The main existing instruments to this endare the bilateral trade agreements with Iraq, Saudi Arabia and Syria. Bycontrast, the Arab Common Market agreement has had only limited impact onJordan's export trade as Jordan is the only country which bas implemented allthe provisions of the agreement with respect to its imports.

xxxii. The present dependence upon the bilateral agreements introduceselements of considerable uncertainty. In the recent past, changes inpolitical relations abruptly curtailed trade with Egypt and Syria; since thepresent trade with Iraq is governed as much by political as by economicfactors, it is natural that the numerous Jordanian exporters to that countryshould be worried about sudden shifts in trade patterns. Promotion ofregional trade requires greater certainty and stability in the ground rulesfor trade, and Jordan needs to exert further diplomatic efforts toward thatend. The ultimate goal should be the creation of an expanded Middle Easternfree trade area encompassing Saudi Arabia, Kuwait and others.

xxxiii. Independently of the arrangement of regional and world trade, inorder for Jordan 's export drive to succeed, the government must not onlyre-arrange industrial incentives as previously described but also providean entirely new dimension of institutional support for exporters and foreigninvestors. It is recommended that the responsibility for the planning andexecution of the institutional support be vested with a new Export and ForeignInvestment Board (EFIB) with strong private sector participation, with amajority of its directors elected from outside the government, and with itsstaff recruited according to private sector conditions and pay. The weight ofits operations would be in the field.

xxxiv. Possibly the most challenging and innovative function of the newboard, at least in the early years, would be its contribution to the marketingof Jordan products abroad. Most Jordan manufacturers have little marketingexperience abroad beyond the neighbouring states. Few have faced toughinternatioal competition. Only exceptionally are they strong enough to mountextensive marketing activities of their own. For a telling effort, they willneed outside support. Conversely, the existence of strong support facilitieswill motivate them toward finding new markets

xxxv. For reasons already stated, increased foreign investment inmanufacturing as well as efforts to marry foreign know how with local capitalare key factors if Jordan is to achieve its export goals. Considering theseveral attractive features of Jordan as a production and marketing base forthe Middle East, a substantial flow of foreign investment into manufacturingcould have been expected. This has not occurred because of the concernsregarding the smallness of the local market and the impact of

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volatile Middle East developments on Jordan's political and economicstability. The main tasks of EFIB in the field of foreign investment wouldbe (a) to promote Jordan as a manufacturing base, addressing forthrightly thevarious concerns of the foreign investor and (b) assisting foreign investorsin getting established in Jordan, facilitating their contacts with thegovernment and with local business people and helping them to handle variouslegal and administrative formalities.

I. INTRODUCTION

1. Jordan's manufacturing exports have grown very satisfactorily but arestill quite small and almost entirely focussed on neighboring Arab markets.Some big industries have been created (phosphates, potash, cement) whicb willmake an important contribution to exports towards the end of the 1981-85 Planbut will not be able to sustain growth much beyond that borizon. In the longrun, because of the smallness of the Jordan market, dynamic industrial growthwill depend very largely upon the development of exports.

2. Despite the recommendations of the previous and the current Five-YearPlan inadequate attention has been paid to export strategy and exportpromotion in Jordan. The main focus of industrialization until the mid-1970'swas on import substitution under a regime of scarce foreign exchange. TheJordan Government has recognized that export promotion is needed not only toreduce the external deficit and strengtben the country's creditworthiness, butalso to stimulate local production and employment, and promote newtecbnologies, profitability and quality in domestic production. The mainobjective of the report is tberefore to analyze Jordan's export strategy andpromotion measures taken so far and to reach recommendations on policies andmeasures required to maintain the growth of Jordan's manufactured exports inthe medium and the long term. The report also focuses on a new institutionalframework for export promotion to ensure an effective export drive.

3. The required macroeconomic framework (Chapter II) to assess themedium and the long term potential for Jordan exports has been providedessentially by the BanK's Plan Review Report!/. The report outlines anexport strategy based on assessment of the present competitiveness ofdifferent industries, on Jordan's comparative advantage in factor endowmentand access to markets, and on identified investment opportunities in certainareas (Chapter III). The Industrial Program study conducted by DarAl-Handasah Consultants for the Government has provided backgrouna on Jordan'spotential for industrial growth and exports of specific manufactured goods.Chapter IV and V outline a proposed shift in incentive system to favor exportsthrough rationalizing and reducing protection so as to stimulate theefficiency of domestic industries, to provide equal incentives for importsubstitution and exports inside the region and differential incentives outsidethe region. Chapters VI and VII contain recommendations on a majorstrengthening of the institutional support for the expansion of markets abroadand to the effective export marketing of Jordan products. Thougb the mainburden of the export drive will fall on Jordan's private entrepreneurs thefinal two chapters address also the need for foreign investors to provide astrategic infusion of technical and management know-how and market access.

1/ Jordan Review of the Five-Year Plan (1981-85) (Report No. 4129-JO),December 1982, World Bank.

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II. FRAMEWORK FOR GROWTH

A.. Jordan's Growth Dynamics

4. During the Five-Year Plan 1976-1980, Jordan managed to achieveone of the highest investment rates in the world, with gross investmentsincreasing from 25 percent of GNP in 1975 to no less than 33 percent in 19b0.This rate of investment was made possible by huge grants and loans fromfriendly Arab countries. Over the period as a whole, only 12 percent of grossinvestments were financed by gross national savings. This figure includesprominently savings remitted to their homeland by some 305,000 Jordaniansworking abroad, principally in the Gulf countries.

5. Almost half of these investments went into commodity producingsectors (prominently manufacturing and mining). Great strides were also madein education and training, the capacities of the main roads and the main portat Aqaba were greatly increased and per capita consumption of power more thandoubled. Only telecommunications were lagging but this situation will becorrected within the current plan period.

6. The gross investments in the mining and manufacturing sectorstotalled JD 317 million at current prices, of which more than two-thirdswent into five basic industries (phosphate raining, phosphate fertilizers,potash, petroleum refining and cement); the first three activities, ofcourse, are predominantly for export. This left roughly JD 100 million torother, predominantly private, investments in manufacturing. Given the factthat such a high proportion of the industrial investments was for capital-intensive production in basic industry, the growth in employment in ininiug andmanufacturing was modest - from 36,000 in 1975 to 49,000 in 1980. Thus, the13,000 new jobs created in manufacturing and mining represented only about 10percent of the total increase in employment. In contrast, both theconstruction sector and the social and personal services sectors (includinggovernment) added over 36,000 each to their manpower. Not only has the growthof employment in mining and manufacturing been modest but also its base issmall comprising only 12 percent of non-agricultural employment compared with47 percent in social and personal services sector.

B. Sources of Growth in Manufacturing

7. During 1975-80, the gross national product is estimated tohave grown at an annual average rate of 12.6 percent per year in real terms.Mine production grew by 24 percent per year and manufacturing by about lbpercent; these were clearly leading sectors with respect to growthperformance. Most of the momentum for the growth in manufacturing output wasprovided by the expansion of domestic demand for investment and consumption;one striking illustration is the growth in cement consumption by over20 percent per year. Rapid growth of exports also contributed to the increasein industrial production. The growtb in manufactured exports by JD 43 millionmore than compensated for an actual increase in import dependency by

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JD 11 million; the latter was a ratber normal consequence perhaps of theliberalization of trade and the limited possibilities for import substitutionin a small marketd/. The six-fold increase in manufacturing exports, albeitfrom a very low base, occurred in a system of protection and incentivesbeavily favoring production for the domestic market.

Table 2.1 MANUFACTURING PRODUCTION AND MANUFACTURED EXPORTS, 1979(JD Million)

ValueAdded Exports% of % of

Production Production Exports Production

Food, beverages, & tobacco 141.3 18 6.9 6Textiles and clothing 36.5 39 3.3 9Leather and footwear 4.6 42 0.1 2

Wood products 11.7 26 6.5 56Paper and paper products 4.4 45 1.1 25Petroleum refining 57.5 -21 - -Chemicals 20.0 34 7.0 35Rubber and plastics 9.9 26 2.7 27

Non-metallic mineral products 17.9 41 2.1 12Basic metals and metalproducts 36.0 27 3.5 10

Machinery and equipment 13.8 13 3.6 26353.3 18 36.8 13

Source: Dar Al-Handasab Consultants, Industrial Programming Study (The 1979Input-Output Table for Jordan)

8. (At the two-digit level of ISIC) Jordan did not have any true exportindustries in the sense that exports would account for the dominant share ofproduction in that industry. At the same time, the share of exports is by nomeans insignificant: in seven out of twelve industry groups they account for22 percent or more of the total output. As the table shows, production isheavily weighted in favor of consumer products, and the same holds true forexports. Major exports, however, include not only consumer goods like

1/ Import dependency is defined as the proportion of domestic demand for eachmajor group of industrial products covered by imports.

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cigarettes, pharmaceuticals and toiletries but also producer goods like woodendoors and window frames, cement blocks and pipes and steel pipes. However,this pattern is expected to be significantly changed with the large exportoriented fertilizer and potash industries coming on stream in 1982.

C. Exports of Manufactures

(i) Recent growth

9. Early in the 1970's the Government began to recognize that given thesmall internal market of Jordan, an inward looking import substitution policywould neither remove existing foreign exchange constraints nor lead to rapidindustrialization. From 1971 on, and particularly after 1976, the Governmenteased protective measures to liberalize imports, introduced greater freedoma inthe licensing of new industrial projects, and replaced import restrictions bytariffs. It also concluded and expanded preferential trade agreements withneighboring countries and initiated large natural resource based exportprojects. Liberalization was a natural consequence of the drasticallyimproved availability of foreign exchange. Growth of manufacturing exports,predominatly to neighboring countries was favored by the booming import demandin those countries as a result of sharply increased oil revenues, as well asadvantages in transport and delivery time and in marketing contacts.

10. Table 2.2 gives a view of the growth in manufacturing exports, bytype of product, 1975-1980. Growth occurred on a wide front, with pharma-ceuticals, toiletries, cigarettes, and wooden doors as the leading exportarticles. Through 1978, these exports got their main impetus from the boomingmarket in Saudi Arabia, accounting for nearly one-half of the total. In morerecent years, the most dynamic factor has been the steep increase in exportsto Iraq, channeled mainly through the state trading company in that countryand motivated by the interruption of its normal import channels and the desireof botb countries for closer economic co-operation. In global terms, Jordan'smanufacturing exports grew by 36 percent per year in real terms (compoundrate) in 1975-1980. In the latter year, Iraq accounted for 46 percent ofJordan's total manufacturing exports as compared with only 9 percent in 1977.

(ii) International comparison

11. It is of interest to compare Jordan's performance during the decadeof the 1970's with that of other developing countries. In judging thatperformance one would need to consider not only the rate of growth of exportsbut also the absolute level of exports achieved, on a per capita basis, or inrelation to the gross national product, or total exports, or some otherrelevant comparator. The data shown below are derived from a recent study of56 developing countries which were furtber subdivided into three groups: newly

Table 2.2: DOMESTIC EXPORTS OF MANUFACTURED PRODUCTS (EXCLUDING RE-EXPORTS), 1975, 1977 AND 1980(JD in thousands)

Contribution tothe Increase in

BTN No. Domestic ExportsMajor Items Exported. (1980) 1975 1977 1980 1975-80 I/ Major Items Exported 1980

% of Total

11-21 Food Products 764 988 2,112 3.1 packed olives, olive oil, fruit juices22 Beverages 240 278 493 .624 Tobacco and Cigarettes 766 1,000 5,110 10.1 mainly cigarettes

51-59 Textiles 827 953 2,396 3.7ex-41,42-43 Leather and products 399 76 171 -.560-62 Clothing 691 1,120 2,891 5.164-67 Footwear, etc. 194 468 395 .5

44-46 Wood products 25 3,148 5,699 13.2 carpentry & joinerv products (5,000)47-48 Paper and products 513 985 1,752 2.949 Printing and publishing 6 18 313 .7

28-38 Chemicals 1,663 5,643 12,007 24.1 pharmaceuticals (2,772), soap ndsoap powder (4,159) varnishes (2,300)

27 Petroleum products 329 722 23 -.740 Rubber products 10 33 130 .339 Plastic products 894 1,539 2,744 4.368-70 Non-metallic mineral

products 124 1,364 4,323 9.8 cement blocks and pipes (1,900)

73-81 Metals and products 717 3,140 4,495 8.8 steel pipes (2,300)82-83 Metal manufactures 15 872 171 .484 Machinery 237 423 1,590 3.185 Elect. Machinery &

Appliances 231 349 561 .886-89 Transport equipment 30 134 2,696 6.190-98 Miscellaneous

Manufacturers 48 94 1,63 3.7 furniture (1,100)

Total 8,723 23,347 51,709 100.0

I/ Ratio of increase in exports of a given product group to total increase in manufactured exports in percentage.

Source: Department of Statistics, External Trade Statistics.

industrialized countries, new exporting countries, and othersl/.

12. The results must, of course, be interpreted with some caution. Firstof all, the coverage is limited to SITC groups 5-8, excluding, however,non-ferrous metals, pearls and precious stones, as well as certain othermanufactures classifed under otber major SITC groups such as processed foods,tobacco products, wood pulp, etc. Secondly, there is a great deal ofvariation in the degree of processing: contrast, e.g., electronic assemblyindustries witb integrated steel production. Thirdly, as we shall see inCbapter III, exports of manufactures, other things equal, will be at a mucbbigher level in countries grouped togetber in a common market or free tradearea: Jordan's preferential trade relationships with Iraq and Saudi Arabia hasmany of the characteristics of a free trade area. Keeping these reservationsin mind, the table shows that the NEC's as a group had consistently highergrowth rates for manufacturing exports than the NIC's which, in turn,outdistanced the ODC's in eacb one of the sub-periods. Over the period as awhole, Jordan ranks No. 5 among the NEC's in terms of growth rate. Itadvanced from the eighth place in 1970-73 to the third place in 1973-75, andwas barely outdistanced by Cyprus for the same place in 1975-79. On anabsolute basis, however, Jordan does not rank equally well. Using the ratio

1/ Oli Havrylshyn and Iradj Alikani, Is There Cause for Export Optimism? AnInquiry into the Existence of a Second-Generation of SuccessfulExporters. World Bank Working Paper 1982. The autbors have detLned thenewly industrialized countries in the same way as in the OECD study "TneImpact of the Newly Industrializing Countries on Production and Trade inManufactures" (1979) with the addition of India. Listed in the order oftheir 1978 exports of manufactures (SITC 5-8), they include 12 countries,namely South Korea, Hong Kong, Spain, Singapore, Brazil, Yugoslavia,India, Israel, Argentina, Mexico, Greece, and Portugal. The new exportersof manufactures, also 12 by number, were defined as those who bad a fairlysmall export base in 1970, and wbose export growth in 1970-79 exceeded notonly that of the whole group of 59 developing countries but also thegrowth registered during the same period by the NIC's. Their relativeimportance as exporters is apparent from Table 1.3. By 1979, the topexporter of the NEC's, Malaysia, had overtaken the last one in the NICgroup, namely Portugal.

Table 2.3: COMPOUND ANNUAL GROWTH RATES OF MANUFACTURED EXPORTS: 1/

INDIVIDUAL NEW EXPORTING COUNTRIES (NEC) COMPARED WITHNEWLY INDUSTIALIZED COUNTRIES (NIC) AND A SAMPLE OF

DEVELOPING COUNTRIES (DC)

Exports

Exports Exports Exports as %

$ Million Annual Growth Rates $ Million $/Capita of GNP

1970 1970-73 1973-75 1975-79 1970-79 1979 1979 1979

Sri Lanka 4.2 110.8 -30.5 54.5 53.5 121.4 8 3.7

Cyprus 5.1 36.9 107.8 41.3 52.3 226.8 367 11.5

Thailand 32.2 96.4 14.0 39.3 49.4 1,195.8 26 4.4

Indonesia 12.2 70.9 18.7 27.8 49.3 448.2 3 .8

Jordan 4.2 37.3 51.5 40.4 41.7 97.0 44 3.6

Malaysia 2/ 106.4 48.2 38.4 32.8 39.9 1,556.7 118 8.2

Peru 2/ 14.9 24.2 31.5 48.2 39.6 214.4 13 1.4

Uruguay 17.6 31.8 51.8 36.6 38.8 373.0 128 5.1

Tunisia 34.8 34.0 41.5 37.7 37.3 604.1 97 8.3

Philippines 79.2 40.5 8.6 39.6 32.4 988.1 21 3.3

Colombia 58.3 74.1 -0.3 20.7 30.7 648.8 25 2.4

Morocco 47.2 40.1 21.9 24.4 28.8 460.0 23 3.0NEC Total 426.0 51.6 23.4 33.9 37.0 3/ 7,346.0 - -

Sample DCs4/ 1,792.0 25.8 15.4 17.0 19.5 8,899.0 -

NIC Total 7,641.0 35.6 18.5 23.5 26.2 62,145.0 -

1/ SITC 5-8, excluding non-ferrous metals (Div. 68) and pearls and precious

stones (667). Countries were ranked according to the 1970-79 rate of

growth in their exports.2/ 1979 values are not available for Malaysia, Peru. The $ value of exports

shown is for 1978 and the growth rate in the fourth column is for 1975-78.3/ The 1979 total NEC value is obtained by estimating 1979 values for

Malaysia, and Peru as 1978 value times (1.2); this estimate is also used

for the growth rates shown with a 1979 terminal year.4/ This sample of 56 developing countries, excludes all NEC's except Cyprus,

Malaysia and Uruguay.

Source: Ibid.

Table 2.4: DIRECTION OF MANUFACTURED GOODS EXPORTS FROM NEW EXPORTING COUNTRIES

Centrally-PlannedIndustrial Countries Capital-Suirplus NICs Developing Countries Economies1970 (1979) 1970 (1979) 1970 (1979) 1970 (1979) 1970 (1979)

Sri Lanka 64.9 (83.3) 2.3 (4.1) 10.4 (7.6) 11.3 (4.8) 11.1 (0.2)

Cyprus 1/ 14.4 (24.8) 29.5 (33.6) 5.1 (3.l) 42.1 (36.3) 4.9 (2.2)

Thailand 42.6 (60.2) 0.5 (5.5) 19.1 (23.4) 14.7 (9.0) 23.6 (1.9)

Indonesia 59.9 (29.2) 0.0 (7.2) 36.5 (44.0) 2.2 (19.5) 1.4 (0.1)

Jordan 0.3 (0.1) 70.4 (72.6) 0.9 (0.0) 28.4 (22.3) 0.0 5.0

Malaysia 2/ 33.3 (65.6) 2.2 (1.3) 42.5 (25.7) 21.8 (7.1) 0.2 (0.3)

Peru 2/ 40.4 (36.6) 0.0 (0.0) 15.8 (21.7) 42.7 (41.1) 1.1 (0.6)

Tunisia 42.3 (80.9) 8.2 (4.9) 1.0 (1.6) 34.2 (11.5) 14.3 (1.1)

Philippines 75.7 (79.1) 0.0 (0.7) 7.9 (13.3) 13.8 (6.9) 2.6 (0.0)

Uruguay 1/ 49.0 (56.4) n.a. (0.0) 39.8 (36.8) 6.3 (6.2) 4.9 (0.6)

Colombia 45.1 (29.8) 0.0 (0.1) 2.4 (3.3) 47.0 (65.8) 0.5 (1.0)

Morocco 58.2 (66.7) 2.0 (4.6) 2.4 (7.9) 30.0 (15.7) 9.8 (5.1)

All NECs 49.0 (57.9) 2.4 (6.0) 18.2 (16.1) 25.5 (18.7) 4.0 (1.3)

NICs 64.3 (62.2) 0.9 (5.3) 7.9 (7.8) 19.7 (19.1) 7.2 (5.6)

1/ The first year shown for Cyprus and Uruguay is 1975.2/ The second year shown is 1975 for Malaysia and 1977 for Peru.

Source: Ibid.

- 9 -

of manufacturing exports to GNP as the standard, Jordan placed ahead of onlyfive NEC's: Philippines, Indonesia, Morocco, Colombia and Peru. (Table 2.3)

(iii) Direction of Jordan's manufactured exports

13. Jordan's manufactured exports are highly concentrated to neighboringArab countries. In 1980 about 96 percent were directed to Iraq, Saudi Arabia,Syria and Kuwait. This is a completely different destination pattern comparedwith the average NEC wbose exports to the industrial countries account formore than one half of its total exports (Table 2.4). Cyprus and Lebanon areexamples of otber countries in the region similar to Jordan which have managedto diversify their exports more evenly between industrialized countries,capital-surplus countries and developing countries. We shall revert to thispoint in Chapter III.

14. Today, 45 percent of Jordan's exports of manufactured goods aredirected to Iraq, 27 percent to Saudi Arabia, 14 percent to Syria and 8percent to Kuwait. It clearly emerges from Table 2.5 that the quadrupling ofJordan's manufactured exports to Iraq in 1979 and the virtual doubling of itsexports to the same country in 1980 was the major factor behind Jordan'srecent strong export performance. From 1978 on, exports to Saudi Arabia bavestagnated. Since Saudi Arabia's total imports of manufacturers increased atan annual average rate of 25 percent at current prices in 1978-1980 it raisesa question whether, notwithstanding substantial preferences, Jordan has becomeless competitive in this free and open market economy. Annex A shows that aslight change in the relative purchasing power of the currencies is not aplausible explanation for this stagnation in trade.

Table: 2.5: JORDAN's EXPORTS OF MANUFACTURED GOODS BY MARKETS!!(US$ million)

1977 1978 1979 1980

Iraq 5.8 9.9 36.1 79.5Saudi Arabia 37.9 45.0 46.2 47.9Syria 10.4 11.0 18.8 24.2Other 10.7 25.6 15.8 23.0

64.8 91.5 116.9 174.6

1/ SITC 5-8, food products, and cigarettes

Source Department of Statistics.

Table 2.6: JORDAN EXPORTS OF MANUFACTURED GOODS TO THREE PRINCIPAL MARKETS, l177 AMD 1980 1/(US$ million)

1977 1980Iraq Saudi Arabia Syria Total Iraq Saudi Arabia Syria Total

Food .4 2.2 .1 2.7 4.7 1.6 3.1 9.4Beverages 0.7 0.1 0.0 0.8 1.0 0.6 0.0 1.6Cigarettes .4 1.9 0.0 2.3 12.5 3.5 0.0 16.0Non-cotton wool 1.0 0.0 .2 1.3 3.6 0.0 0.0 3.6Clothing 1.1 1.6 .1 2.8 6.6 2.2 .5 9.3Builders wood, prefab. .3 8.8 0.0 9.1 8.2 7.5 3.2 18.9Furniture 0.0 2.2 0.0 2.2 1.7 2.0 .7 4.4Paper & paper products .4 .7 1.0 2.1 1.7 1.2 2.0 4.QMedicine, soap & other chemicals 0.0 1.3 1.8 3.1 3.4 1.6 1.2 6.2Plastic products, nes 0.0 1.8 .6 2.4 3.4 2.6 1.5 7.5Other non-metal 0.0 1.9 0.0 1.9 .7 9.1 0.0 9.8Domestic electric appliances 0.0 0.0 0.0 0.0 2.3 1 . 3.3Other manufactured goods 1.4 15.4 6.6 23.4 29.7 15.4 11.1 56.2

Total 5.8 37.9 10.4 54.1 7Q.5 47.4 24.2 151.1

1/ Excludes re-exports.

Source: Department of Statistics, External Trade Statistics.

- I I -

D. The Five Year Plan (1981-85) and Beyond

15. The strategic goals of the new five-year plan (1981-85) include,inter alia, a reduction in the heavy dependence on external assistance anda vast increase in manufacturing and mining output. Compared to an overallgrowth rate for the economy of 10 percent per year, the output of themanufacturing and mining sectors is expected to increase by about 18 percentper year.

16. Within an overall framework of generally export-led growth for theindustrial sector the Plan also outlines a few specific strategies, notably(a) forward integration of the mining sector with special emphasis onphospbate and potash derivatives and (b) special emphasis on competitiveexport manufacturing and on industrial interlinkages with Arab countries.

17. The Plan projects investments in mining and manufacturing totallingJD 579 million at constant 1980 prices. Compared with the last Plan thiswould represent more than a 50 percent increase in real terms. A few largeprojects, namely, pbosphate mining, fertilizers, potash, cement and petroleumrefinery, would account for about three quarters of this investment total andprovide over 50 percent of the projected increase in output. Reflecting tbegradual completion of these projects, annual investments, measured in constantprices, would remain fairly stable, with some increased share at first forcertain specified medium-sized projects and subsequently for the large mass ofunidentified projects in the private sector. The projected investmentsand outputs outside the major projects are sbown below.

Table 2.7; FIVE-YEAR PLAN (1981-1985). PROJECIED INVESTMENIS INMANUFACTURING INDUSTRY AND NET OUTPUTS OUTSIDE THE MAJOR PROJECTS

(JD Million at 1980 prices)

Year Investments Net Outputs

1981 13.2 114.4

1982 21.4 138.5

1983 23.8 142.7

1984 23.3 148.9

1985 28.8 177.U

- 12 -

The increase io net output of JD 95.7 million over 1980 would correspond to anincremental investment of JD 110.5 million and a capital output ratio of only1.2. This figure would seem too low. Hence, somewhat higher investmentswould probably be required to achieve the Plan objectives in this areal/.

18. At the same time, the major question is not whether the industrialtargets can be reacbed for the private sector but how this sector could beexpanded at an even more rapid rate tban envisaged in the Plan. By 1985,investments in medium-sized and small industrial projects would still accountfor only 25 percent of the total industrial investments and there are no newlarge industrial projects on the horizon. Hence, unless private investmentsare stepped up beyond those envisaged in the Plan, there could be a hlatus in

industrial growth in the period immediately following the Plan2/.

19. In evaluating the need for an expanded industrial effort, it isuseful to view the manufacturing sector within the perspective of the overaLldevelopment of Jordan's balance of trade. To assist us in this analysis, wehave reproduced after having updated the base year, for reference only,balance of trade projections for 1981-1990, as carried out by the recent BankPlan Review Mission (Table 2.8). Even though, today, manufacturing exportsaccount for a small portion of Jordan's total foreign exchange revenues, andexports in most cases are rather marginal in relation to domestic production,the hoped for increase in manufacturing exports (outside the large basicindustries) of $260 million at constant prices between 1980 and 1985 is by nomeans negligible wben compared to the projected increase in merchandise tradedeficit of $860 million. Neitber, perhaps, can it be regarded as decisive.

20. It is only when we expand the planning horizon to 1990 that its truesignificance becomes apparent. According to Table 2.8, between 1985 and 1990,total merchandise exports are projected to grow by $1.0 billion at constantprices, i.e. by 77 percent. Although there may still be good expansionpossibilities in pbosphates and potash and their derivatives beyond 1985,these industries can hardly be expected to shoulder as high a proportion ofthe total load at the end of the decade as in the middle years. Any majorexpansion, moreover, would call for very sizeable investments in transportinfrastructure. To meet the certain challenge in the latter half of the1980's, it is, therefore, crucially important that growtb in manufacturingexports beyond 1985 be initiated from a base at least equal to the Second Plantarget.

21. Consistent with the country's economLc philosphy and with theflexibility required for successful export growth, the Plan emphasizes thatindustrialization would be based on individual initiative as distinguishedfrom government mandates. In this context, the Plan specifies the creation ofan institutional framework and investment climate which would assist the

1/ See World Bank Plan Review Mission Report No. 4129-JO Chapter II and IV.2/ Ibid, chapter II.

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Table 2.8: BALANCE OF TRADE PROJECTIONS, 1980-1990

(as $ million at constant prices)

Actual1980 1981 1983 1985 1987 1990

I. At 1980 Prices

Balance of Trade -1,841 -2,024 -2,498 -2,699 -2,b76 -2,770Exports and re-exportsof Goods 574 646 953 1,33b l,b65 2,343

Agricultural Products 64 67 74 79Mining and MajorManufacturing 158 182 372 537Other Manufacturing 180 208 278 442Re Exports 172 189 229 277

Imports of Goods 2,415 2,670 3,451 4,035 4,341 5,1L2Oil 381 444 590 778Capital Goods 833 896 1,215 1,281Other Goods 1,214 1,328 1,b4b 1,976

Source: Bank estimates.

private sector. It also envisages a strengthening of co-operation between hbeprivate and government sectors, as in joint ventures with foreign partnersJ.

22. With respect to the direction of industrial growth, the Plao stressesthe need for an infusion of advanced technologies and advanced metbods ofmanagement as a way of expanding Jordan's industrial development options. Itdoes not, bowever, contain a detailed blueprint or strategy for the expansion otindividual industries, a subject to which we shall turn in the next chapter.

1/ The private sector is defined in the Plan to include companies in whLch"the Government and its institutions hold equity sbares". It may in facthave the controlling voice. While this is different from the conventionaldistinction between the public and the private sectors, it clearlyexpresses the Government's preference for main reliance on the freeenterprise system. The Government's equity participations in mixedenterprises including participation by autonomous public institutions areshown in Annex E. On industrial strategy and industrial policies seeJordan: Plan Review Report No. 4129-JO Chapters II and IV.

14 -

III. OPPORTUNITIES, STRATEGIES, AND TARGETS

A. Introduction

23. The basic concern in this chapter is export strategy. Because ofthe smallness of Jordan's home market, this becomes virtually identical withindustrial strategy. To gain insights into industrial strategy, three typesof clues will be examined: the present competitiveness of different indus-tries, Jordan's comparative advantage in factor endowment and access tomarkets, and, finally, identified investment opportunties in certain areas.In the final section, these threads will be drawn together to provide theoutline of a desirable export strategy.

B. Present Competitiveness

24. , It is difficult to evaluate the present competitiveness of Jordanindustries with great precision. Imports are heavily protected. In theabsence of any systematic study of Jordan prices as compared with competingimports, the competitiveness of Jordan producers in relation to imports canonly be measured indirectly, namely by their effective protection-1 .Similarly on the export side, most of Jordan's manufactured exports are toneighboring markets where they enjoy a preferential position. We shallpresent indications of export competitiveness but since these are basedprimarily on interviews with a limited number of existing exporters, they donot carry the full weight of systematic survey.

25. Annex B shows that in fifteen industries for which import competitionis relevant and meaningful information available, the effectiveprotection varies from a high of over 100 percent (bakery products) to a lowof about 4 percent (industrial and other chemicals). For a first group offive heavily protected industries the effective protection averages 75 per-cent; in the next group of six industries, it falls to an average of slightlyabove 40 percent. In the final group of five industries, the average is11 percent but this is heavily influenced by the fact that the correspondingproduct groups include many articles not made in Jordan (e.g. in basic metals,chemicals, or grain mill products) as well as items like concrete reinforcingrods and cement, imports of which are subject to quantitative restrictions.

26. In Jordan protection is motivated by high differential between importprices and domestic costs. Jordan's price competitiveness appears on thisbasis to be low by international standards in those consumer goods industries,

I/ For several reasons, rates of tariff protection are only imperfect proxiesfor price and cost competitiveness. First they do not take into accountwhether a given Jordanian industry is taking full advantage of theactually available protection (respectively incurs the full cost penaltyof bigher prices for inputs purchased within the country). Secondly, inmany cases where protection is low, particularly for engineering products,there is no equivalent production in Jordan.

- 15 -

on which her past industrialization was largely focussed and whichnevertheless also figure prominently in her exports to neighboring markets.To the extent that Jordan products lack price competitiveness in the market athome, the gap will be correspondingly greater on overseas markets wberefreights have to be absorbed, product quality and design adjusted, and aninitial marketing effort undertaken. To date Jordan industries nave exportedpredominantly to neighboring countries where in addition to enjoyingpreferential entry they have an advantage in transportation costs and marketentry, and it is, for the most part, possible to measure their exportcompetitiveness mainly in relation to the industries of those countries and ofother neighboring countries. The mission was told repeatedly that in terms ofquality, design and marketing Jordan products were generally fully acceptedwithin the region.

27. In terms of prices and production costs, on the other hand,neighboring countries fall into two categories: those with an older and farmore developed industrial structure and at the same time far lower wages thanJordan (Syria, Egypt and Lebanon) and those with a more recent industrialhistory and higher, oil wealth determined wage and salary scales (SaudiArabia, Kuwait, the Gulf Emirates and Iraq). Generally speaking, in terms ofproduction costs, Jordan industries are more competitive in the latter markets.

28. This brings up a very important point. Jordan's exports arepredominantly consumer goods so far. With some exceptions, competitivenessis not determined by price alone. As shown by the selective illustrations inTable 3.1, merchandising in the widest sense (quality, delivery service,adjustment to local custom and taste, willingness to spend some effort ona relatively small market and ability to follow up and comply with localregulations as in the case of pharmaceuticals) is extremely important. Insome instances, trade agreements will provide opportunities for entry whichwould not be feasible strictly on competitive grounds. This is not to implythat Jordan producers would be capable of absorbing a large handicap inproduction costs, in fact, improvements in plant productivity and industrystructure are an urgent necessity. But given such progress and given anappropriate exchange rate or compensating subsidy (a point to be discussed inthe next chapter), Jordan producers should be able to do well in the regionalmarket.

- 16 -

Table 3.1; ILLUSTRATIONS OF EXPORT COMPETITIVENESS OF JORDAN MANUFACTURES

Processed foods (e.g. yoghurt, spaghetti, tomato paste). Mucbcheaper in Jordan than in Saudi Arabia.

Cigarettes. Jordan production costs are lower than in majorexporting countries. Among some sections of the market, there is ataste preference for Jordan (Turkish type) blends

Carpets. Not competitive in price with Far East or Eastern Europe.Production costs higher than in Syria or Lebanon. Yet, exports ofcertain better qualities of machine-made carpets to industrializedcountries viewed as entirely feasible.

Corrugating board. Would be competLtive in an Arab Common Market (if

no trade restrictions applied). Probably not competitive with, say,Cyprus. A foreign partner would be helpful.

Wall Tiles. Squeezed out of the Iraq market; marketing through tradecenter viewed as negative (cost raising) factor.

Sanitary Ware. Not competitive in production costs witb Taiwan orKorea. Consumer preference for imported product, particularlyEuropean makes. Dar Al-Handasah counselled against expansion in thisarea.

Teflon Pots and Pans..Cbaracterized by one observer as "tbe mostcompetitive industry in Jordan."

Polythene Bags. At least 20 percent more expensive than imports from

Taiwan. Some complaints about quality of domestic polythene sheets.

Pharmaceuticals. Prices in Jordan (controlled by the Government) arethe lowest in the region. Basic ingredients typically imported atworld prices. Pharmaceuticals are imported free of duty in most Arabcountries but Jordan manufactureres may have some edge throughquicker registration, a process that will often take 2-3 years.

Promotion is largely by visiting sales teams. Seems like a promisingarea, including exports to Africa.

- 17 -

C. Factor Endowment and Comparative Advantage

Overall View

29. Jordan is favored by a good quality, increasingly well trained andeducated work force. This is coupled witb an ample supply of funds forindustrial investment. Recent industrial growth bears token to vigorousentrepreneurship. Shortages of management skills will be overcome with thegrowth of university-trained people and with added industrial experience.Jordan is ideally located for exports to neighboring Arab countries. On thenegative side, exports to otber areas are hampered, to some extent, by bighfreights and infrequent connections, particularly by sea. Furthermore, water,fuel and energy are considerably more expensive in Jordan than in vLrtuallyany other country in the region; this is important mainly for industries wherethese elements form a major proportion of total production costs.

Manpower and Wages

30. In a sample of industries accounting for over half of totalproduction, manpower costs represent 30-40 percent of the total value added.Labor costs, therefore, have an important bearing both on comparativeadvantage and competitiveness. In order to understand the bearing of theavailability and cost of labor on Jordan's industrial strategy, it isnecessary first to look into trends in the demand and supply of labor.

31. The working population in Jordan has been growing at a rate of about6.2 percent per year in recent years as a result of demographic growth andstructures, and of the large influx of foreign labor, occupied mainly inconstruction and in the service trades. Among the JordanLan femalepopulation, the labor force participation rate has increased slowly andsurprisingly even dropped in 1979. Against a background of remarkableexpansion of female education in Jordan - e.g. one-half of the new entrants toJordan universities are women - it is quite possible that the growth of supplyof better educated females seeking employment will accelerate and overcome theperception of female job seekers and employers as to which jobs are"traditionally acceptable" jobs.

32. The influx of foreign labor (mainly Egyptians) is expected to growfrom about 120,000 today to about 150,000 by 1986. In recent years, there wasa substantial outflow of skilled labor, particularly to the Gulf States. Thisflow has been declining rapidly, from 20,000 per year in 1973-75 to only about5,000 in 1981. Increasingly, recruitment by the Gulf States is focussed onthe upper levels of skills, e.g. top professionals or supervisors with severalyears of experience.

- 18 -

33. Today, the labor market is tight, particularly in skilled occupa-tions. Paradoxically, this is true in spite of increasing unemployment(about 8.5 percent in 1979). The latter is explained by several factors.First, two-thirds of the unemployed are unskilled with less than thepreparatory level of education. It is likely that employers would often optfor a non-Jordanian at a lower wage and willing to accept more difficultworking conditions rather than hire an unskilled Jordanian. Secondly, jobseeker expectations may in some cases have been at considerable variance withthe realities of the labor market. Thirdly, frictional unemployment is highfor a number of reasons, e.g. there is an over supply of fresh graduates buta shortage of professional people with some years of practical experience.About one-third of the unemployed Jordanians were according to 1979 Census"first time job seekers". Finally, the unemployment among women bas increasedsharply in the late 1970s as the availability of "traditionally acceptable"jobs may not have kept pace with the rapidly growing supply of female jobseekers.

34. According to the Bank's Plan Review Report projections, the labormarket is likely to change during the 1981-85 Plan period and, increasingly

during the following five-year period.Y. On stated assumptions with respectto foreign migration, productivities and the outputs of the educational andtraining systems, the Plan Review Report projects a substantial excess ofjob-seekers in relation to available jobs, a surplus which would be largelyconcentrated in bighly skilled professional jobs, including managers andadministrators and in unskilled jobs. In contrast, there would be a reallymajor sbortage of blue collar supervisors and foremen. Some shortage ispredicted as well for skilled industrial workersl/. However, one shouldbear in mind the hypotbetical nature of these projected manpower imbalances and

I/ The Jordanian Government is engaged in a determined effort to increasethe supply of trained and educated people and to meet the demand forspecialized skills. The strategically most important shortages to-dayare in management and in middle level technicians, such as maintenancetechnicians and qualified technicians for the engineering or chemicalindustries. One of the chosen instruments to remedy the labor shortageis the Vocational Training Corporation - essentially a three-yearapprenticeship course which is expected to increase the annual intakeof students from 300 in 1978 to 8,000 by 1986.

2/ This "first iteration" of the demand and supply for labor, also showsvery substantial shortages of semi-skilled manual workers and unskilledworkers, almost exactly matched by projected surpluses of semi-skilledagricultural, office, and service workers. Unlike the situation forskilled occupations, one would expect these types of "ex ante" imbalancesto be largely compensated by the workings of the market coupledwith appropriate institutional assistance - unless it would be foundthat there is really deep-seated cultural resistance to work in industry.

- 19 -

tbat market clearing forces at work would ultimately prevent such imbalancesto materialize fully!!.

35. If these potential manpower imbalances materialize, they would haveseveral important implications for industrial development. First, the problemof recruiting and retaining managerial and professional staff should easeconsiderably; the turnover in this category might be expected to declinerapidly and the salaries may even come under some pressure. In fact, what isnow a constraint could become a major comparative advantage for Jordan.Secondly, and most important, the existence of this buman resource wouldpermit and, indeed, create pressure for the accelaration of the pace ofindustrial development. Thirdly, the sbortage of blue collar supervisors andforemen emerges as the really critical constraint on industrial growth and anarea, in whicb imports of manpower (from e.g. Egypt, India, Pakistan) mightbecome necessary. Fourthly, it becomes important for Jordan's industrialiststo stabilize and, where needed, expand their work force by paying good wagesand maintaining good labor relations. In this context, the development ofseveral industrial estates now in progress will be extremely helpful,particularly if properly co-ordinated with the supply of housing, workertransportation, and communal and recreational facilities.

36. The unit labor cost in Jordan to-day is not highly competitive.Although the Jordanian worker is well regarded, particularly in terms ofquickness in learning and adaptation, it appears that he may not be asproductive as many categories of immigrant labor. However, in unit laborcost terms the lower productivity bas been somewbat offset by relatively lowwage increases, as may be seen from the following figures for Jordan and somelikely competitors.

Table 3.2: AVERAGE WEEKLY EARNINGS IN MANUFACTURING!/

1980 1976-80JD X Increase

Cyprus 99.7 180Korea 70.2 183Jordan 41.3 7bEgypt 29.9 2/ 79 3/

1/ ILO and Bank staff estimates2/ 19793/ 1976-79

1/ Thus, in reality, there are some substitution possibilities among variousoccupational categories, wbile a variety of other factors may each providepartial adjustment (migration, educational enrollments, labor forceparticipation, etc.).

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Entrepreneurship and Management

37. There is a strong entrepreneurial spirit and propensity towardsequity investment in Jordan. As is true for most other developing countries,this is not always matched by complementary management skills. In fact, thereis an acute shortage of experienced business leaders and of financialmanagers, analysts, and accountants. As a result, there have been some fail-ures, particularly in the construction industry but also in many manufacturingventures. As an illustration, the Jordan Paper and Cardboard Factories bad tobe reorganized twice until a viable method of operation could be found.

38. In general, in Jordan, there seems to be a bigh degree of communityof objectives and positive interaction between business and government, withthe government firmly on record in favor of a free enterprise, market-orientedeconomy. At the same time, many medium and and small industrialists are saidto be either unaware of the total package of incentives available to them orreluctant to take advantage of them from fear of getting to closely involvedwith the bureaucrats (red tape, disclosure, etc.). The twin ideas of givingailing enterprises improved management and improved access to existingincentives are said to have inspired the recent creation of the privatelysponsored Jordan Management and Consultancy Corporation.

Productivity

39. The negative effects upon labor productivity of the talent drain tothe Gulf States, the shortages of certain skills and the high labor turnoverhave already been discussed above. Three otber factors of actuaL or presumedmajor influence on productivity should be mentioned. The first is therelative newness of industry in Jordan, the limited experience of itsentrepreneurs and managers and, most important, its relative isolation fromthe outside world. Closer contacts - through Jordan exports and foreigninvestments in Jordan - would sensitize firms to trends in markets andtechnology and expose them to bealthy competition. A second factor iscapacity utilization. Poor capacity utilization is extremely common indeveloping countries and is related both to the internal organization of thecompany and establishment and the industry structure (e.g. excess investmentsin certain sectors wbere entry is easy and/or prices artifically high, or atendency of manufacturers to acquire their own auxiliary facilities (such ashaving a captive diesel power plant) rather than relying on specializedsuppliers. Also, because of the many conceptual and practical problems inmeasuring capacity utilization, it would be hazardous, in the absence of asystematic survey, to evaluate the potential for improved capacity utilizationin Jordan industries to-day. The Dar Al-Handasah study found many firmsoperating on a single shift and still having substantial excess capacity.Witb full allowance for these difficulties in measurement and interpretation,it would appear that capacity utilization in Jordan industry is disturbinglylow. The third factor inhibiting productivity is excessive bureaucracy. Thisincludes difficulties in registering a business ("the 69 steps"), delays of upto nine months in clearing machinery tbrough customs, the virtual input-outputtable an industrialist had to prepare to benefit from drawback of customs

- 21 -

duties on certain exports, and, finally, the intricacies and illusions ofprice control. Apart from the damage done to industrial effiency, suchconditions will act as a strong deterrent to would-be foreign investors.

40. Considering the small size of the local market and the rather fever-ish industrial development in recent years under relatively high and somewhatirrational protection, one would infer a substantial need for industrialrestructuring and regrouping through mergers, specialization agreements,etc, Such restructuring is likely to be particularly important at themarketing stage if Jordan is to have any success in exporting to theindustrialized world. As an example of a situation requiring more effectivemarketing, there are at present some 100 makers of garments and shirts sellingdirectly to Iraq.

Investment Costs

41. This is an area of weakness for Jordan. For a plant of a givensize, the investment may be up to 50 percent higher than in an industrializedcountry. To some extent, this reflects the high freight on imported equipmentand the relatively high prices for steel and cement. In this respect, how-ever, Jordan is very similarly placed with neighboring countries. Anothercontributing factor are delays and overruns in the building of large indus-trial plants. Today, Jordan could be slightly behind Syria and Egypt inthis respect thougb one would expect Jordan's predominantly private enter-prise establishments soon to overtake state run establishments in those othercountries. Finally, in basic construction, Jordan is also at a disadvantagewith Egypt and Syria because of higher wages but has a clear edge over theGulf countries. The relatively high investment costs for Che physicalcomponent of projects in Jordan are somewhat offset by the country's easyaccess to risk capital of low cost.

D. Markets

42. Since so much of Jordan's trade is with the Middle East region, inneighboring markets, it is convenient to start with exports to this area. Itwas shown that, for a wide range of industries, neighboring countries couldtheoretically be regarded as a extensLon of the home market, and that for arange of industries (notably chemicals, wood products, and furniture,textiles, and paper products) exports in 1979 represented 34-48 percent oftheir total sales. Wbile these percentages may be even bigher for certainsubcategories (say, soaps or furniture), Jordan has yet to develop any trueindustrial export champions, for which the home market would be but a minorfactor apart from the industries.

43. The initial concentration on regional trade is natural Ln terms ofcomparative advantage; lower transportation and marketing costs, a commonlanguage, similar life styles and business conventions, etc. Forinternational parallels one could point to the highly developed trade betweenthe Scandinavian countries and within the South East Asia trading area and theCentral American Common Market. Thus it is worth noting that, within a groupof over 50 middle-income countries, five small countries in the Central

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American Common Market were prominent, both in terms of the ratio of theirmanufacturing exports to gross national product and in the proportion of thoseexports destined to "developing countries" - in this case predominantly theircommon market partners. (Table 3.3 and Graph 1).

44. It is in the interest of all the countries in the Middle East regionbut particularly the smaller ones that a Middle East Common Market become areality. Not only would this lead to a more rational allocation of resourcesand avoid wasteful duplication of investments. More important, it wouldstimulate competition, accelerate improvements in productivity, and permitrestructuring of industrial forces. When one discusses Middle East regionaleconomic integration in Jordan, three types of concerns come to the fore. Thefirst, and by far the most important one, is the political uncertainty. Withinthe last decade, there have been tremendous changes in trade relations, due topolitical factors, with such important partners as Syria, Egypt, and Iraq. Inthe face of such risks, it is difficult for industrialists to sink large fundsand efforts in a permanent export commitment. Secondly, it would appear that,in quite a few instances, preferential entry for Jordanian products had beenwithdrawn once rival domestic ventures had been started (e.g. mineral waterand paper in Saudi Arabia). Thirdly, while Jordan is abead of some of thecountries of the region in some industrial areas, it must expect tough compe-tition in the future, even within the framework of a regional trading area.As one example only, Kuwait is said to be planning a large pharmaceuticalsventure which would presumably vie with established Jordanian producers forthe regional markets.

45. This said, the regional market for manufactured goods at almost US$50billion is huge in relation to present and potential Jordanian exports (Table3.4). Secondly, there is no reason to challenge the judgement by DarAl-Handasab Consultants that domestic demand and imports for a wide range ofproducts in these countries are likely to grow at rates higher than the ratesof growth of local production (Section D, Summary Report, p. 10). Thirdly, asfar as Jordan manufacturing exports are concerned, the quite substantialmarkets of the smaller Gulf States and of near-by North and South Yemen arevirtually virgin territory.

46. As we shall see in the next section, Dar Al-Handasah Consultants havebacked up their judgement regarding the potential of the regional markets byidentifying a series of projects whose main markets would be there. A finalindication of this potential is the fact the Jordan's exports of manufacturedproducts to the region today amount to only about $25 per head of populationas compared with $85 for Lebanon and $122 for Cyprus, both of which countriesare reasonably similar to Jordanl/.

1/ Lebanon and Jordan have virtually identical populations and per capitaincomes. Cyprus, of course, has a much smaller population (about onesixth the size of Jordan) but, in return, a bigher per capita income(about three times that of Jordan).

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Table 3.3: DIRECTION OF MANUFACTURING EXPORTS, 1979

A. Developing Countries with Major Manufactured Exports Predominantlyto Destinations Otber Than Industrial Market Economies 1/

Sales predominantly to otber developing countries

E. Europe: Romania (52)

Africa: Kenya (86), Ivory Coast (59), Liberia (55)

Middle EastOil Exporters; Iraq (90), Saudia Arabia (75)

Asia, exceptMiddle East: China (70), Indonesia (65), Singapore (48) 2/

Central America: El Salvador (95), Guatemala (94), Panama (84), CostaRica (87)

Andean Group Ecuador (77), Chile (67), Colombia (64), Peru (56)

Soutb America,excludig Andean: Argentina (54), Paraguay (64)

B. Developing Countries with Major Manufactured Exports Predominantly toIndustrial Market Economies 1/

W. Europe: Portugal (82), Turkey (71), Greece (66), Spain (59)

Oil Exporters: Iran (82), Algeria (71)

Africa: Angola (80), Tunisia (82), Morocco (67)

Asia (exceptMiddle East,and Oceania Philippines (80), Korea (73), Sri Lanka (87), Hong

Kong (83), Thailand (65), India (58), Malaysia (68),Pakistan (57), Singapore (48) 2/

Carribean andCentral America: Jamaica (74), Mexico (80), Trinidad and Tobago (91)

South America: Uruguay (56), Venezuela (67), Brazil (49)

1/ Figures witbin parenthesis indicate percentage of sales to the indicateddestination. Include only developing countries whose exports exceed $100million.

2/ Singapore sold 48 percent eacb of its manufactured exports toindustrialized market economies and developing countries.

Source: World Development Report 1982, Table 12.

Exports of Graph 1: Per Capita Manufacturing Export Related to Per Capita GNPManufactured Goods

1979US$ Per Capita

* Singapore

~3000)

500

400

0 Korea

300

0 Romania

200

Kenya 0 Malaysia 0 Greece

Indonesia * Costa Rica100 I

Philipirines Tunisia 0(Mexico O ArgentinaMorocco * Jrda

* Jordan 18razil

0 O e Turkey

I I I_ I I I _ _500 1000 1500 2000 2500 3000 3500 4000 4500 GNP Per Capita

1979

World Bank-24347

- 25 -

Table 3.4: MANUFACTURED IMPORTS (SITC 5-8) OF JORDAN'S MOST IMPORTANTEXPORT MARKETS AND OTHER NEIGHBORING MARKETS, 1980

(US$ billion)

I. Most Important Markets

Saudi Arabia 24.8Iraq 7.1Kuwait 5.4Syria 2.3

39.6

II. Other Neighboring Markets

UAE 3.1YAR 1.5Babrain 1.2Oman 1.2Qatar 1.1PDRY .3

8.4

GRAND TOTAL 48.0

Source: U.N. yearbook of International Trade Statistics and Bank StaffEstimates.

47. While Jordan has started to penetrate the regional market, thecountry's manufactured exports to industrialized market economies is virtuallynil (.1 percent). In contrast, more than one-half of middle income developingcountries sell 50 percent or more of their manufacturing exports to theindustrial market economies (Table 3.3). The reasons for the low presence ofthe Middle Eastern countries in the places of greatest market opportunity arenot immediately clear. The proximate explanation is, of course, that exportsto the near-by oil-rich countries are simply more attractive. Yet, this begsthe question why certain other countries, similarly located geographically(e.g. Turkey, Greece and Israel) have been very successful in their exports toWestern Europe and why another country in the region such as Cyprus basmanaged to diversify its exports geographically, let alone the example of moredistant suppliers such as Hong Kong, Taiwan, Korea, Thailand and thePhilippines.

48. One key to export success is presumably that the market for anygiven product group is very broad and diversified. Successful exporters havemanaged to identify segments of the market particularly susceptible to theirresource endowment and degree of advancement in technology and marketing.

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A recent study of United States imports of selected manufactured products(china, cameras, typewriters, TV sets, leather, veneers, bardboard, tires andinner tubes, and five categories of rolled steel products) provides someinteresting insights. For every category, except steel, the competition withimports from developing countries came mainly from United States domesticproducers. In contrast, within a given product group, the articles importedfrom developing countries were not close substitutes for articles importedfrom developed countries, the latter being typically in a bigher qualityandprice range. In fact, within a given product group, they were described bythe author as "tminimally overlapping subsets". Demand for imports fromdeveloping countries was also shown to have high income elasticity. Theseconclusions, inter alia, point to the importance of detailed marketsurveys!!.

E. Identified Investment Opportunities

49. It would obviously be of great interest to compare our theoreticalfindings on export opportunities strategy with an analysis based on asexisting inventory of pre-feasibility studies and project possibilities.Fortunately, such an inventory exists, being an integral part of theIndustrial Programming Study undertaken for the Government of Jordan byDar Al-Handasah Consultants. A brief analytical review of these "projectprofiles" are found in Annex B. In that annex, we have ranked the projectsaccording to rate of economic return. Using a 15 percent return as an arbi-trary cut-off point, it was found that 27 out of 46 project possibilities metthat standard. This, of course, is not to be regarded as proof of feasibilitybut rather as a starting point for further exploration. It is fully recog-nized that a project idea is not a project until after a full feasibilitystudy has been made, a sponsor found and bids for the various components ofthe project received. Furthermore, the almost universal experience withpre-feasibility studies is that they tend to be on the optimistic side.

50. Two of these projects, for the production respectively of phosphoricacid and NPK fertilizers, account for a combined investment of JD 71.5 millionout of a total of JD 126 million. These large "key projects" would require aseparate, more intensive appraisal (as distinguished from a general diagnosis),and have, therefore, been excluded from our review. Six projects with invest-ments ranging from JD 3.3 million to 6.1 million account for roughly one halfof the remaining total. They are, in the order of relative size: chinatableware, hand tools and implements, structural steel and and hollow ware,garment making, furniture, and pumps (castings and machining). These clearlydeserve priority study, botb as the largest projects with prospective higbeconomic returns and as prototypes for otber projects witb similarcharacteristics in terms of markets, technology, or capital intensity. Onecurious result of the ranking according to economic returns, botb as comparedwith Dar Al-Handasah's list of (50) "priority projects" (based on a veryelaborate ranking system) and as compared with the existing industry structure

1/ Gene M. Grossman, Import Competition from Developed and DevelopingCountries. The Review of Economics and Statistics, May 1982

- 27 -

is that it greatly reduces the representation of medium-sized establishmentsemploying 50-99 persons to the benefit of both larger establishments andsmalles ones employing employing 25-49 persons. (Small establishmentsemploying less than 25 persons are represented in the project profiles).There is no ready explanation for this discontinuity; it may merit somefurther study.

51. One outstanding characteristics of the projects retained is theirstrong export nexus. Only one of the projects (solar panels) catersessentially to the domestic market. For the remaining projects, exportsaccount for one-half or more of the projected sales. In fifteen out oftwenty-five projects, they account for tbree-fourths or more of total sales.In terms of markets, it appears that nearly three-fourtbs of the total exportswould be to Arab markets east of Suez and other countries within reasonablegeographic distance. Almost universally the products included incorporateelements of individual design. In other words, these are not products, forwhich economies of scale and low production costs are necessarily decisive.

52. To examine whetber a relatively ample supply of skilled labor may beJordan's greatest comparative advantage in the region, common denominatorsamong the projects were examined, particularly in terms of capital-laborratios and the proportion of skilled staff and workers to total employment.Many of the projects selected have investments in the range of JD 20-40,000(US47-14,000) per job. The proportion of skilled staff and workers variesquite widely around a modal ratio of 36-37 percent. At the other end of thescale, some of the projects picked (and presumably an even higher proportionof the projects with economic returns below 15 percent) are quitelabor-intensive and possibly technology-poor, e.g. garment making, hand toolsand implements, travel goods. Furtber analysis is needed to explore why someproject with prima facie doubtful economic viability, say, travel goods on thegrounds indicated above, might not be good prospects on account of Jordan'sability to meet certain minimum quality standards, or the importance ofmarketing, or the prospects for attracting foreign partners with the requiredtechnical, production and marketing know-how, or any other reason.

53. On the positive side, one half of the projects, for which projectprofiles were made available, would be introducing new technologies to thecountry. On the other hand, at the most one-third of the projects would haveimportant "backward linkages", i.e. would draw a substantial proportion oftheir inputs from other Jordan industries. This is perhaps to be expected;because of the smallness of the market, the shortage of water, the lack ofmany natural resources and the briefness of its industrial experience, Jordanmay bave no comparative advantage in the majority of industries producingbasic industrial materials (e.g. steel, lumber, plastic raw materials) letalone major machinery and equipment industries. It is all the more importantthat it seek external economies in the downstream Lndustries (e.g. in metalmanufacturing), through the clustering of industries drawing on the sametechnological and manpower resources or susceptible of using the same exportmarketing channels (see Annex B). It is in this direction that one may hopefor an extension and deepening of the pioneering effort represented by theIndustrial Programming Study.

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F. Strategies, Priorities, and Targets

54. The consensus of opinion seems to be that, if Jordan is to maintainits growth momentum, a bigh rate of growth in manufacturing industries isindispensible. The following tentative conclusions emerge with respect to anexport-based industrial strategy:

(a) The local market is too small, in most cases, to support productionon an economic scale.

(b) The best opportunity for dynamic industrial growth is tbrougb exportsto neigbboring countries. Without regional integration orpreferential market outlets, Jordan has only limited potential forexports and thereby industrial development.

(c) However, excessive dependence on neighboring markets must beavoided. Jordanian industries need exposure to the world market tospread its risks and to keep its industries competitive with respectto technology, productivity, quality and marketing.

(d) A strong export orientation in manufacturing means a substantialstructural change in the economy. It calls for a major shift inincentives and vastly strengthened institutional support. Therequired measures will be discussed in the next four chapters.

55. There remains the question of industrial priorities./. First,over the relevant planning horizon (say ten years), Jordan cannot expect to befavored either by relatively low wages or by a current low cost of capital itcurrently enjoys. Instead, it must seek to develop a comparative advantage inskills, productivity, technology and marketing. Secondly, in the regionalcontext, it is almost certain that Jordan would not find it profitable todevelop basic industries such as steel, petrochemicals or ammonia. Instead,it will find ample scope for filling the crevices and gaps represented bymedium and small fabricating, supplying, and service industries. Thirdly, in

order to increase the country's industrial flexibility it is important todevelop certain key industrial capabilities. According to this line oftbought Jordan might strive for at least a minimum presence in activities sucbas metal working or chemicals processing. Up to a point, this is also anargument for concentrating resources upon certain clusters of industries whichwould generate "external economies" in manpower as well as in supporting

1/ Theoretically, in a free and flexible market economy with good access toentrepreneurship, management and consulting services, capital and manpowerwould flow, by natural selection, into those fields where the highestreturns can be expected. But, it is clearly helpful (perhaps evenindispensible) to this process that the Government anticipate themagnitude and direction of the change so as to provide a measure ofleadership and a proper focus for its infrastructural investments andsupport activities.

- 29 -

industries and services. Sucb clustering would also be consistent withtheobjective of fostering regional "poles of development"l/.

56. To wbat extent is it possible or desirable to translate the suggestedstrategies into quantative export targets? Export targets are an element inrational planning by private companies. It is logical that the Governmentshould be interested in the total impact of these individual businessdecisions, and use them as elements in national economic planning with respectto Jordan's aggregate exports as well as to their distribution among countriesand products. This kind of analysis will provide an input for trade negoti-ations and for the proper dimensioniog of various export support activitiesand infrastructural investments. It is important, finally, to measure per-formance against projections, whether as a spur to greater realism or to moredetermined efforts to increase exports in some areas. Though sucb exporttargets would be essentially indicative, the payment of certain exportincentives or bonuses could conceivably be tied to the achievement ofspecified targets by individual industries or companiesl/.

57. Formulation of export targets is outside the scope of this study. Itpre-supposes many judgements on macroeconomic developments, economic policies,and specific opportunities in individual industries and markets. Thefollowing may nevertheless be useful as indications of future growth;

(a) Between 1977 and 1980, exports of manufactures (excluding reexports)more than doubled.

(b) According to the Second Plan, manufactured exports, other than fromkey projects, would increase from JD 33 million in 1980 to JD 158million in 1985 (at 1980 prices), i.e. they would more thanquadruple. The Bank's plan Review Report considers that the Plantargets are reasonable and could be met if not exceeded.

(c) Interviews by the mission indicate that there are over 500manufacturers exporting some portion of their outputs, that manymanufacturers are planning to substantially increase the share ofexports in their total sales, and that new lines of export will bedeveloped from new projects.

1/ Such thoughts may bave inspired the inclusion of a substantial number oflight metal manufacturing projects in the list shown in Table 3.3. It isanotber matter whether the specific projects picked would really representthe best choices at this stage of Jordan development. As a preliminaryjudgement, some of them would appear to be too labor-intensive and/ortechnology-poor.

2/ In Korea export targets are set by product category for each firm througha bargaining process and exchange of information with governmentofficials. Firms that consistently fail to meet these targets, or areuncooperative in this planning process, may lose out in the allocation ofprotection, credit, import licenses and/or other hidden instruments thathelp to assure their profitability.

- 30 -

The potential and ambition for vigorous growth is clearly there. It will bethe task of the government to mobilize these energies through the right typeof incentives and institutional support.

- 31 -

IV. INDUSTRIAL PROTECTION, AND EXPORI INCENTIVES

A. The Present System

58. Jordan's present trade regime is characterized by high importprotection with no parallel support of exports. This regime bas bistoricalroots. Until recent years the main focus of industrialization in Jordan wason import substitution under a regime of scarce foreign exchange and littleattention was paid to exports. This is reflected in such vestigial controlsas import licensing and quantitative restrictions. More important, customsduties and other import fees historically account for a high percentage ofGovernment revenues. Several categories of imports - in particular crude oil,fertilizers and pesticides and most items of machinery and equipment paylittle or no duty. Altogether, 37 percent of visible imports - mainly itemsnot produced in Jordan - were "zero-rated" in 1979. The weighted averagenominal duty on the remaining items was 23 percent; with full surchargesadded, the nominal rate rises to 39 percent. The effective rate of protectionof the value added is high, roughly estimated it is about twice the nominalrate (For further details see Annex C).

59. Quite apart from the use of protection or other special measures atan industry level, a developing country has a powerful and simple instrumentfor promoting industrialization around the bome market, and through exports atthe same time, in the form of exchange rate policy. However, ratber thanusing exchange rate policy as an active instrument in promoting manufacturingexports, the Jordanian Government has set a higher priority to maintain astable exchange rate. As shown in Annex A, by pegging the dinar to the SDRand with a domestic price development only slightly above the average rate forthe industrial countries, Jordan bas maintained its relative purchasing powerratio approximately the same, both wi bhrespect to the basket of currenciesrepresented by the leading exportersl to the Middle East Region and withrespect to its own major markets in that same region. Sucb stability has twomajor advantages: it minimizes the danger of run-away inflation and itpreserves a climate favorable to the repatriation of migrant workerremittances and to foreign investment.

60. However, as far as the manufacturing sector is concerned the presentsystem bas two negative consequences. First, import substitution industries,in a small market and generally oligopolistic environment, are insulated fromforeign competition witb respect to quality, price, service etc., and arelikely to remain inefficient. Second, exports cannot be developed against tbedual bandicap of higb costs and the inberent bias of a high exchange rate/higbprotection system without offsetting subsidy.

1/ The results depend on the choice of base year; over the period 1975-1981the relative price competitiveness as measured by effective exchange rateadjusted for relative changes in domestic prices has deteriorated by 14percent compared with the leading supplier countries to Jordan's mostimportant markets. However, compared witb base years following 1975 therelative price competitiveness has been practically unchanged.

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61. The present system may be compared with the following more desirablearrangement of exchange rate, protection and export incentives;

(a) The system should be neutral as between import substitutionand exports.

(b) In the same industry, infant industry support should beavailable equally for exports and for import substitution.

(c) In certain circumstances, differential support of exports oninfant industry grounds would be justified, on account ofgreater initial investments in marketing and greater risks.This applies specifically to exports outside neighboringMiddle Eastern marakets.

(d) The exchange rate and protection/export subsidies would becombined in such a manner that the excbange rate would carrythe main burden of balance-of-payments adjustment and importprotection/export subsidies reduced to the minimum justifiedon infant industry grounds!!.

B. Alternatives for Eliminating the Bias Against Exports.

62. The most expedient way of arriving at a correct arrangement of theexchange rate and protection/export incentives may be through a three-stageprocess, involving the following steps:

(a) "Draw-backs" would be applied to imported inputs used in exportproduction. This would complement the existing temporary admission.A law instituting drawbacks has been submitted to the Jordanianparliament. These are particularly important in a country likeJordan where most manufactured exports would have a high quotient ofimported inputs.

1/ The true nature of protection and export subsidies, of course, lie in thedifferential support they provide to certain types of production. Theproposed ideal system, by allowing the exchange rate to carry the mainburden of balance-of-merchandise trade adjustment, would expose the "true"(differential) duties and export subsidies, otherwise stated the implicitinfant industry support. It is likely that, once the existing system hadbeen translated to the ideal system, some products would be shown to havenegative protection or subsidy, i.e. a tax. In some instances, this maybe intended: a country may find it easier, for political reasons, to taxcertain primary industries througb a higher exchange rate coupled witbhigb import duties on manufactured goods than to impose special taxes onagricultural land and minerals deposits.

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(b) While the draw-back system would put exporters under a free trade

regime, as far as thelr processing margin in dinars is concerned,it would leave intact the substantial bias in favor of import

substitution which arises from the effect of the exchange rate.Assuming it is justified on macroeconomic grounds, correction couldbe achieved through adjustment of the exchange rate coupled with asimultaneous reduction in import duties, so designed as to leaveimport prices for manufactured goods unchanged but providing a boostto manufactured exports.

(c) The import protection system would then be revised and combined withsome system of incentives for export production.

Below, the last two issues will be examined more closely.

63. Exports of manufactured products at present account for only about 5percent of total foreign exchange revenues. Even total merchandise exportsrepresent only about 15 percent of foreign exchange revenues. The major itemsin the balance of payment are, in fact, grants, workers' remittances, traveland income from capital. Even if one accepts the re-arrangement of duties andexchange rate on the import side as desirable (tbough mainly cosmetic), onecould not recommend an exchange rate adjustment solely because it wouldstimulate manufacturing exports, or at the limit, merchandise exports sinceeven the latter represent a relatively small proportion of foreign exchangereceipts. However, an exchange rate adjustment may also favorably affectseveral other items in the balance-of-payments. Thus, the effects of such anadjustment on the overall balance-of-payments deserves to be turther studied.

64. The obvious alternative or complementary measure to an exchange rateadjustment would be to subsidize manufacturing exports. Since such subsidieswould cost the Treasury less than the reductLon in import duties under the

exchange rate adjustment alternative, there is no relative disadvantage onbudgetary grounds. There is another possible objection, however. Directexport subsidies (including exemptions of direct taxes on export earnings)are subject to assorted pressures and may provoke retaliation measures.Under the GATT rules (Jordan is not a member), the use of subsidies to promoteexports is generally limited to preferential treatment with respect to invest-ment incentives, finance, technological support, and subsidized rents and feesin export processing zones, given symmetrically to non-exportLng enterprisesas well. In theory, these other measures may be preferable if the soleobjective were infant industry support of certain manufacturing industries.

65. In practice, the efficiency of one of the most widely used means ofstimulating investment, namely tax incentives is highly dependent upon theexisting tax burden. In Jordan, exoneration of corporate income tax couldbecome an effective tool of industrial development only if present tax

auditing and tax collections were improved. While this is one of theobjectives of the new income tax law, its implementation has not yet beentested. However, if the Government feels that such a system will becomeeffective, it may consider to exonerate taxable export income based on eitherthe relative share of estimated value added in domestic sales and exports ormore simply (but less satisfactorily) on the gross ratio between the firm' s

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domestic and export sales. Total tax exemption may apply for new exporters upto say 5 years with reduced exemption rates for established exporters. Turkeyfor example applies another corporate income tax system for industrialexporters. Exporters are allowed to deduct up to 20 percent of their annualexport revenue from taxable income during the first year. In subsequentyears, the deduction is 30 percent in increments of exports and 15 percent onthe original amount. One-fourth of these deductions are also provided totrading firms. Experience from otber countries shows that design of a simpleexemption system, which is easy to interpret, is critical for its success.Another possible measure would be to grant exporters of manufactured productsa refund of indirect taxes, a system used widely in the European EconomicCommunity with respect to value added taxes and also successfully adopted byTurkeylI. At the present moment, however, economy-wide indirect taxes donot figure prominently in Jordan's tax structure; hence exoneration from thesetaxes would not have much impact.

C. Concluding Remarks

66. The simultaneous reduction of import duties combined with an activeexchange rate policy was viewed in the above discussion essentially as amethod of eliminating the existing bias against manufacturing exports and notas a means of improving the balance payments. Should future studies indicatethat excbange rate adjustments would have a favorable effect on tne otheritems in the balance of payments besides manufacturing exports then it couldrepresent an appropriate as well as effective mneans of export promotion.

67. A desired substantial shLft in the balance of payments would normallyrequire considerable restraint in the growth of nominal wages and domaesticprices combined with adjustment in the exchange rate attuned to the expectedshift. The exchange rate, therefore, should be an important long-termconsideration both in the Government's strategic planning and in stimulatingthe performance of manufacturing exports. The above discussion demonstratedthat there are several ways of redressing the balance of incentives betweenimport substitution and exports but that substantive support of manutacturingexports is needed; the exact form should be the subject of further study anddiscussion that would take into account their overall impact on the economy.

1/ As to non-tax measures, export credit mechanisms (e.g. rediscount with theCentral Bank) can also be used. See para. 75-77 for more detaileddiscussion.

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V. INDUSTRIAL INVESTMENT AND FINANCE

A. Introduction

68. Up to now Jordan financial institutions had not been called upon toappraise and supply major finance for an export project. Jordan indus-trialists, with few exceptions, have not yet looked for markets outside theMiddle East. Once the incentives and institutional frame have been changed tomake sucb projects more attractive, this could change. It would also requirethe financial sector to promote projects focused on exports, to assist thesponsors of these projects at every stage of preparation and implementation,and to provide them with the most appropriate forms of finance at competitiverates. Increasingly, banks will require knowledge and understanding ofspecific industries and skill in project evaluation as compared with merelyclose acquaintance with the individual sponsor and his personal financialbackground.

B. Investment Promotion

69. It is a generally held view in Jordan that industrial investment isheld back more by lack of good projects than by any other factor. To remedythis situation, the National Planning Councll, with the aid of foreignconsultants, recently compiled and published forty-one profiles of industrialprojects which might be implemented in Jordan. While providing certaininteresting ideas and parameters, these profiles obviously were not intendedas substitutes for true feasibility studies. With respect to investmentcosts, the original estimates for key medium-sized projects in the 1981-86plan (cable manufacture, foundry, timber processing, sheet glass) were only afraction of the now projected costs. To a lesser, tbough still substantial,extent this also applies to the much larger phosphate fertilizer plant. Whatholds true for investment costs, no doubt is also relevant for the analysis ofmany other technical and economic parameters.

70. Wben citing these problems it is useful to remember that most indus-tries in Jordan are young; unhappy surprises are part of the learningexperience of both entrepreneurs and financial institutions. The IndustrialDevelopment Bank and the Pension Fund at the present moment have a substantLialnumber of projects in their pipelines. In light of this it is doubtfulwhether Jordan really needs a special project preparation facility.Substantial capabilities for project identification and project vettingalready exist within the Industrial Development Bank, the Pension Fund andsome of the larger companies such as the Jordan Fertilizers IndustriesCorporation and the Arab Potash Company. The efficiency of this screeningnetwork is bound to improve as more experience is gained in implementation ina competitive setting. However, the Government feels that the private sectorneeds to be more directly involved in identification of investmentopportunities. Establishment of merchant banks (already available in Jordan)and venture capital companies, which marry investment ideas with high riskcapital and package it for sale to the public, has proven to be a successfulvehicle in other countries. The Government in turn would provide for aregulatory and fiscal framework which would facilitate and encourage purchaseof corporate security. The Government could also provide direct financialincentives to the private sector for project identification through providinggrants for financing say 50 percent of the cost of a firm's feasibility study.

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c. Industrial Finance

71. In the immediate future a shortage of funds is unlikely to constrainindustrial lending. The inflow of foreign grants and workers' remittances haspropelled a growth in time and savings deposits by 46 percent per year between1975 and 19801'. When the recently created South Cement Company floatedshares for JD 11.25 million the issue was oversubscribed three times. Also,in the last five years, a great number of new industrial ventures have beenlaunched witb the equity provided by private subscriptions from the promoters,often professional men with limited business experience and privateindividuals of their acquaintance who have acquired their capital from realestate or trading, or work in the Gulf states in highly paid positions.Finally, a very important source of industrial finance is the casb flow ofindustrial and mining companies wbich totalled about JD 35 million in 1979(before debt amortization and dividend payments). Table 5.1 shows the plan'sestimated sources of financing for investments in mining and manufacturing for1981.

Table 5.1: ESTIMATED FINANCING OF INVESTMENTSIN MINING AND MANUFACTURING, 1981

(JD in thousands)

Institutions Medium-and Infra- Large sized Other 2/

Total structure Projects Projects Private

Budget 5,050 4,850 200 - -

Foreign Assistance 400 400 - - -Loans 61,150 1,150 54,000 2,000 4,000Self-financing 56,750 2,000 46,750 4,000 4,00UTotal 123,350 8,400 100,950 6,000 8,000

1/ This rate of increase is quite astounding considering that the real returnon time deposit rates has been quite negative. Savers can obtain a betterrate by opening a foreign exchange savings account; it is not known towhat extent this relatively new instrument is being utilized.

2/ No breakdown of the financing of "other private projects" is shown in thePlan. The mission bas assumed, somewhat arbitrarily, that theseinvestments would be financed by loans and equity in equal portions.

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72. Institutional finance for industry is provided by commercial banksand finance corporations, the Industrial Development Bank (loans and equity),the Pension Fund and the Social Security Fund (equity) and the Amman FinancialMarket (loans and equity). Lending to industry by commercial banks is encour-aged by the fact that credits to agriculture and industry are excluded in thecalculation of their overall credit ceilings. The typical form of commercialbank lending is the revolving credit (presumably mainly for working capital)but during the last few years the banks have also become active in medium-termfinancing through syndicated 1qans totalling JD 75 million for all purposesNovember 1978 - December 19811J. More recently, the floating of six impor-tant issues of bonds and shares, including financing for the fertilizer, glassand aluminum fabricating industries, was facilitated through underwriting,prominently by the Jordan Securities Corporation. Finally, a leasing companywas created witb IFC participation; it will provide a convenient form ofmedium-term equipment credit of particular benefit to medium and smallcompanies.

73. The Industrial Development Bank in 1981 granted 79 new loans for atotal loan amount of JD 8.25 million to the industrial and tourism sectors.Apart from providing long-term loan financing, and some equity financing,it is increasingly active in locating consultants and foreign partners forJordan industries, in training management (tbrough the Jordan Institute ofManagement) and in improving financial reporting standards. In the latterrespect, it is supplementing the work done by the Amman Financial Marketwhich describes itself as a combination of stock exchange and securities andexchange commission. During its six years of operation new share issuesregistered in the market have expanded from 9 issues totalling JD 14 millionin 1978 to 22 issues totalling JD 112 million in 1981, of which 7 industrialissues. By contrast, only two industrial bond issues were launched during thelast three years, both by the state cement company. The interest on long-termbonds (most recently 9 percent, fully tax-exempt) apparently is not sufficientto attract investors. The general perception is that even issues of indus-trial shares are extremely difficult to place, reflecting long gestationperiod, the lack of good feasibility studies and the shortcomings of financialreporting. This is notwithstanding the valiant efforts by the JordanFinancial Market to stimulate better practice and to force the disclosure ofadditional informationi.t

D. The Interest Rate

74. Reference was made above to the previous low lending rates la Jordan,specifically the (9 + 2) = 11 percent rates on loans by commercial banks,

1/ This total includes conversion of Eurodollar loans into loans denominatedin dinars at a substantial saving in interest.

2/ Weaknesses in financial management are also apparent in the rates of loancollections for IDB loans which, in three out of five recent years, undergenerally very favorable business conditions, represented only about 75percent of the amounts due.

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and the 6.5 percent rate on savings deposits. This low interest structure haspersisted for the last six years in the face of inflation averaging 11.Jpercent per year, and rising in some years as high as 14 percent. Hence, tnerate of return on savings became quite negative. Since 19bl, the Central Bankwas given the power to adjust interest rates which previously were fixed bylaw. In 1983 the lending rate on loans by commercial banks was slightlylowered to 10.5 percentP (8.75 + 1.75). In the meanwhile the inflationrate has dropped from 11.1 percent in 1981 to 7.4 percent in 1982 implying aswitch from a negative real interest rate to a positive one. In order toeffectively mobilize domestic savings and optimize allocations of investments,it is necessary for the interest rate policy to be flexible enough to ensure asatisfactory positive real interest rate.

E. Export Credits

75. Although export credits on favorable terms are often an importantfactor in international trade, this is not an issue in Jordan. Jordan's majorcustomers in Iraq, Saudi Arabia and Kuwait usually do not request credit onthe types of manufactures imported from Jordan. Secondly, the cost of loansin Jordan is generally below the terms offered by most other countries (evenwhere subsidized) for similar types of exports.

76. The Central Bank offers a special short term rediscount facility forcommercial loans to exporters, but it has hardly been utilized. To a largeextent this is due to the types of goods exported (e.g. phosphates areexported under long term contracts). In addition, the total costs for loansof loans of five months or more may exceed regular commercial bank loan rateswhen stamp taxes are added to the interest. There is also saLd to be anunusual amount of red tape. Finally, the commercial Danks have not publicizedthe rediscount program to their clients because of the above factors plus thefact the spread allowed the commercial banks (1.5 percent) is regaraed asunattractive.

77. Even though the export rediscount tacility is likely to findlimited use in the near future, this instrument could be streamlined inthree respects: eliminating red tape, extending eligibility to partnersnipsand sole proprietorships and (in connection with a future revamping of theinterest structure) eliminating the stamp taxes. Increasing the spreadallowed to the commercial banks may be considered for selected exports.

1/ The Industrial Development Bank charges 10-11 percent (incluaingcommissions) for lending to developed areas in Jordan (the interest rateis lower for underdeveloped areas: 8.5-9.5 percent.)

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F. Export Credit Guarantee

78. The principal objective of export credit guarantee schemes is toprovide collateral support to exporters applying for pre- and post-shipmentadvances from banks. Of immediate relevance to Jordan's manufacturingexports, credit for which is mainly on short term basis, is to make creditavailable liberally and under a simple operational mechanism. There should beno letter of credit requirement at the preshipment stage for: procurement of

raw materials, processing costs, packaging charges, and freight andinsurance. This is of particular importance for small exporters since theyinitially lack the essential production, marketing and quality control skillsto produce a consistently competitive export commodity and are, tberefore,considered high risk clients by the commercial banks.

79. An export guarantee scheme needs to be "tailor made" for each countrytaking into account e.g. the country's banking system, export commoditystructure and the role of the Central Bank. A study should therefore becarried out to further examine the prerequisites of such a scheme in Jordan.The study should include investigation of guarantee coverage and premium terms

to ensure that they are compatible with the country's competitors. Normally,export guarantee schemes cover the financing bank up to about 7U-90 percent otits loss against a small premium of less than 2 percent. The premiuu rate isbased on factors such as default ratio, guarantee period and prevailinginternational premium rates. Experience from other developing countries showsthat Central Bank involvement in an initiation phase of say 5 years to

administer the guarantee fund is of critical importance to establish userconfidence and also to facilitate the need for supervision and monitoring ofthe scheme. However, over time the Government may consider introducing exportcredit insurance and non-financial services. An expansion of services wouldcall for establishment of a separate export credit guarantee and insurancecredit corporation.

G. Export Credit Insurance

80. Credit insurance against commercial and/or political risks in foreignmarkets has not been a problem in Jordan since so few export credits have beengranted. 'This may change eventually when exports are extended to products andmarkets where credit is an important tool of competition.

81. In the immediately forseeable future, the transactions forming tneobject of such insurance would be too few in terms of both adminstrative costsand risk distribution -- to justify a special institutes dealing with exportcredit risks. However, at least for commercial risks, two potential sourcesfor such insurance may be available.

- The Inter-Arab Investment Guarantee Company, a Pan-Arab company nowbeing formed with headquarters in Kuwait, is expected to offerinsurance for exports to most, or all, of the Arao markets.Hopefully, this cover will be extended to exports outside the Arabcommunity. But this is yet to be announced.

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- Manufacturers or, more realistically, groups of manufacturers couldalso turn to one of the large London insurance companies that extendpolicies to cover the world-wide sales of their clients. Here again,tbough, premiums may be too costly until they can be spread over alarger volume of exports. It is a point worth exploring.

Coverage of political risks is usually state-sponsored and subsidized. ThePan-Arab insurance program cited above could possibly provide such coverage,at least for credit extended to other Arab countries. Otherwise, until agovernment sponsored program is feasible, exporters may have to avoidcountries where there are major political uncertainties.

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VI. PROMOtION OF INDUSTRIAL EXPORTS AND FOREIGN INVESThENT

A. Introduction

82. In Jordan, industrial growth depends strongly on the growth ofexports. In order for industry to come of age, it has to at least maintainits position in the expanding regional market and open new markets for Ltsproducts outside the region. Not only will this allow economies of scale. Itis also the only way to ensure steady improvements in products (design,technology, quality, delivery schedules) and to reduce costs of production.

83. To achieve these objectives, three types of Government action areneeded;

(a) To rationalize and reduce protection so as to stimulate theefficiency of domestic industries, to provide equal incentives forimport substitution and exports inside the region and differentialincentives for exports outside the region;

(b) To render institutional support for the expansion of markets abroad(e.g. through trade policy) and for the effective export marketing ofJordan products;

(c) To attract foreign investors to Jordan as this manufacturing base forthe region. This would at the same time provide a strategic infusionof technical and management know-how.

The first point bas already been dealt with in Chapter IV. Our concern inthis chapter is with the other two instruments.

84. Export marketing involves three distinct activities: identifying themarket, selling the product, and delivering it in an effective and timelyfashion. In Jordan, institutional support is needed in all three areas. MostJordanian manufacturers are not large enougb and financially strong enougb toinitiate their own marketing, and there are few local precedents or existingcbannels of distribution wbich would help would-be exporters.

The following activities merit priority attention:

(a) Promotion of a Middle Eastern Free Trade Area.

(b) Comprebensive commercial intelligence and marketing services.

(c) Training and counseling in marketing and exporting.

(d) The establishment of export trading companies.

(e) The attraction of foreign investors who would bring witb them newproducts.

These points of attack are not new; to varying degrees they are incorporatedin existing policy announcements and programs. Yet, implementation has been

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hampered by lack of funds and expertise, bureaucratic red tape and insuffi-cient government-industry cooperation. For this reason, it is a matter ofhigh priority to establish a new Export and Foreign Investment Board (EFIB)witb strong private sector participation which would assume major responsi-bilities in the export drive. This new board would be specifically instructedto provide commercial intelligence and marketing services as well as tradepromotion. To this end, its work would be divided between a beadquartersstaff in Amman and field offices at strategic places abroad.

85. A more detailed account of the objectives and proposed organizationof EFIB will be given in Cbapter VII. For the necessary background, it isdesirable, however, to review systematically certain major types of promotionand institutional support required to increase Jordan's manufactured exports,including promotion of foreign direct investment. One set of instruments,namely export financing, export credit guarantee, and export credit insurance,will not be covered here baving been discussed already in Chapter V.

B. Trade Agreements

86. Jordan's exports under the Arab Common Market agreement have beenvery limited. Although this multi-lateral agreement now covers eight Arabcountries,1/ Jordan's manufactured exports are highly concentrated in one ofthe member countries, namely Iraq. That trade in turn, is based essentiallyupon a bilateral agreement giving Jordan special quotas. All products betweenIraq and Jordan are exempted from custom duties and all trade restrictions arelifted.

87. Jordan bas also reached effective bilateral agreements with SaudiArabia and Syria. In the bilateral agreement with Saudi Arabia, Jordan'sexports of agricultural products are fully exempted from 2/3 of the currenttariff. Jordan is therefore in a good preferential position in the Saudimarket. However, Saudi Arabia tends to introduce tariffs on new productsorginating from their infant import-substitution industries. Jordan'sexports to Syria also enjoy preferential treatment under the 1975 agreementwhich exempts goods traded between the two countries from import duties andotber taxes.

88. With the exception of Iraq, Syria and Kuwait, trade with othermembers of the Arab Common Market has been either insignificant ornon-existent.

89. In the recent past, changes in political relations abruptly curtailedsizeable trade with Egypt and Syria; risk of similar changes in Iraq nowworries Jordanian exporters to that country. Promotion of regional traderequires greater certainty and stability in the ground rules for trade.Jordan needs to exert further diplomatic efforts toward that end. As aminimum, there should be several years advance notice before Common Marketbenefits are unilaterally witbdrawn. More important, countries now outsidethe Common Market must be persuaded of the great potential benefits of an

ll Algeria, Egypt, Iraq, Jordan, Kuwait, Sudan, Syria and Yemen Arab Republic.

43 -

expanded Middle Eastern free trade area encompassing, inter alia, SaudiArabia, Kuwaiti/.

90. In the meantime, new or improved bilateral agreements should beconcluded with individual countries in the region. Responsibility fornegotiating sucb agreements rests with the Government, principally theMinistry of Industry and Trade and the Ministry of Foreign Affairs. However,much of the prior consultations with manufacturers as well as market studiesand follow-up activities could best be handled by the proposed Export andForeign Investment Board.

91. Some manufacturers may not have been aware of preferentialopportunities open tbrougb existing bilateral agreements, otbers have eitherignored tbem, or been reluctant to test unknown waters, or bave assumed theywould not be competitive, considering transportation and marketing costs.Additional market study and promotion would seem justified, e.g., tbroughthe proposed EFIB regional office.

92. Jordan and otber developing countries have been offered veryfavorable tariff reductions on a long list of products--first by the EEC and,secondly, by the EEC countries plus otber industrial nations subscribing tothe Generalized Scheme of Preferences (GSP). As was shown in Chapter 2, andas other countries bave demonstrated, the opportunities are there. It may beexpected that Jordan manufacturers will seize them if backed by properincentives and adequate support services.

C. Commercial Intelligence and Marketing Services

93. Not many Jordan manufacturers have faced international competitionwithout preferential tariff or quota protection. And only an exceptxonal feware large enough or strong enougb to mount extensive marketing activities ontheir own. Yet, a substantial investment in time and money is essential inacquiring first-hand knowledge of foreign markets, international competitionand potential channels of distribution. Until sucb time as the manufacturerscan build their own marketing staff and acquire that experience, they mustdepend upon outside support. By the same token, the existence of strongsupport facilities will motivate them towards finding new markets abroad.

94. Advance market surveys is the normal first step in locating newmarkets. Sucb surveys tend to be costly and time-consuming, with resultssubject to errors in sampling and interviewing, let alone the risk ofnegative findings. With the quality of local market researchers questionedby some would-be users, and given the high cost of employing foreign market

1/ Regional joint ventures have often proven quite resistant to suddenchanges in the political and commercial relationships between twocountries. This is a reason for encouraging tbem, quite apart from theireconomic and commercial advantages in any specific case. A certain numberof regional projects are presently being sponsored by the IDB, the PensionFund and the Social Security Fund.

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researchers, Jordan should consider a less elaborate approach used effectivelyby some exporting countries. Under this approach, an experienced marketingspecialist, who might be supplied by or through EFIB, interviews agents,distributors and importers handling similar or related products in theforeign country being studied. The interviewees, being of the trade, wouldnormally be the most knowledgeable people on market conditions and on the

competitiveness of a given product. Their combined views can prove equalto even the most scientifically conducted market survey.

95. The marketing specialist's report would also show whether theinterviewees would be willing to distribute the manufacturer's product, andif not, the reasons why (price, quality, design, etc.). A preponderence ofnegative responses may suggest that the manufacturer either seek ways tocorrect identified flaws or deepen the survey conclusions, e.g. through aconsumer survey or a personal visit to the foreign market.

96. If the initial report is positive, the manufacturer would nextproceed to recruiting bis market representative. He would probably visitthe country, meet with interested agents, distributors and importers, evaluateeach one as a potential representative, and, at the same time, learn moreabout the market and the competition.

D. Training and Technical Assistance

97. Most of Jordan's manufacturers lack experience in internationalmarketing, especially in sophisticated markets against stiff internationalcompetition. An intensive course on how to organize marketing and overcomeinternational marketing problems would be welcomed by many companyexecutives. This course might be held once a year. It should be conducted bymarketing executives and specialists and combined with a briefing on EFIBfield and headquarters support services. There should also be trainingsessions on the more technical aspects of marketing and exporting forsubordinate executives as well as counseling of individual companies by EFIBmarketing and export specialists, as needed.

98. These training opportunities should be organized by EFIB and promotedby the Chamber of Industry. Expert advice on content and proposals for guestlecturers could be obtained from the International Trade Center in Geneva orsimilar training institutes in various countries. EFIB field representativeswhen passing through headquarters should give briefings on markets andcoupetitive conditions in their assigned countries. Interested manufacturerssbould be encouraged to request private interviews with the fieldrepresentatives on their marketing potential or problems.

99. The above training and briefing sessions would also give EFIBvaluable opportunities for motivating and assisting Jordan's export drive. Allthe sessions should be self-financed with perbaps some initial contributionsby the Ministry of Industry and Trade to help get the programs organized andstarted. The investment of time and money by all concerned will be repaidmanifold in improved marketing and exporting of Jordan's manufacturers.

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100. Jordan's continuing need for export marketing 8pecialists calls forestablishing courses of study in that subject at Jordan' s universities. Suchcourses are taught at many universities around the world, and these may serveas models for Jordan's scbools and also provide help in the form of visitingprofessors. Here again, the International Trade Center in Geneva may bebelpful in planning course content and lectures.

101. Practical guidance for manufacturers may be obtained through theInternational Executive Service Corporation in the United States and similarservices in some Western European countries. These agencies offer thetechnical advice and assistance of retired executives, experts in marketing,exporting, production, quality control, etc. Their services are available ata nominal daily expense and for periods of about three months. Many companiesin developing countries have found this sort of on-the-job training for theirpersonnel of inestimable value.

E. Export Trading Companies

102. As previously mentioned, most of Jordan's manufacturers are too smalland weak financially to mount a significant marketing effort of their own.Their best hope for participating in the country's export effort could betbrough export trading companies or export agents. Sucb intermediaries haveyet to be developed in Jordan'/ "Border traders," accounting for a goodshare of the trade with Saudi Arabia, approacb this concept on a veryunsophisticated small scale for a limLted geographic area. As exports to theoutside world grow, there will be a need for large commercial establishmentscapable of exporting large volumes of different manufactures to severalcountries, on their own account or on a commission basis. The volume andvarieties of goods bandled would often justify their using branch offices orsales representative in certain countries. Typically, they would perform allmarketing, warehousing, transporting and financing activities related to theexports, leaving the manufacturer to concentrate on production.-i.

103. EFIB can be an effective catalyst in bringing together manufacturersand trading companies to create such new instruments for export trading. Inaddition, some special incentives may be necessary for their creation.Logically, they should be allowed to sbare in some of the incentives citedearlier, e.g., exemption or reduction of taxes on export

1/ There are many import traders in Jordan, some with both "import andexport" in the company name. But our inquiries produced no commercialtrading houses doing significant export business. However, recently onecompany specifically for export trading has been registered in Jordan.

2/ Dar Al-Handasah's suggestion of "export consortia" or producers'cooperative marketing associations for aiding small manufacturers may notbe easily applicable to Jordan. Such consortia present many problems:agreeing on prices, quality control, trademarks, administration,financing, etc. Their record is better when handling a relativelyhomogeneous group of products.

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income. The cost to the Government would be no greater than if themanufacturers were performing these marketing activities on their own.

F. Transfer of Technology

104. Several case studies show that transfer of industrial technologycannot be neatly packaged or effortlessly bought or sold. It is sbown thatthe shipment of equipment and blueprints is only the beginning of what mustalmost always be an extended process of learning and adaptation. Case studiesalso sbow that firms in developing countries that bave successfully introducednew technologies have normally budgeted time and money for training andresearch. They also integrate new technologies into their operations througha series of small changes over a period of years. It is also shown that the

initial transfer of technology adds less to productivity than the sum of theseadaptive efforts. Therefore it is equally important for developing countriesto buy the industrial tecbnology they need as well as upgrade tneir owntechnical capability through training.-V

105. Export activity has proved to be a very important means of acquiringtechnological mastery. As a result of exporting, firms have virtuallycostless access to a vast range of information, diffused to them in variousways by the buyers of their exports. The resulting technological changes have

significantly increased production efficiency, changed product designs,upgraded quality and improved management practices.

106. The above discussion thus illustrates that technology is notsomething absolute and static. Therefore, technology cannot be easilydocumented in a codified "blueprint" form and transferred via, e.g., asupplier register of technology and expected to be effortlessly assimilated byusers. However, the establishment of a register in say the Chamber ofIndustry could itself stimulate active search for suppliers of foreigntechnology. A proven successful way of eliciting necessary effort fromsuppliers of technology is to give them an equity sbare in the enterprisesthey assist in. In otber countries local consulting firms in closecooperation with recognized international consulting firms in the field ofprocessing has also proven to serve as an effective transfer source oftechnology. Government action is also required to promote and maintain anenvironment conducive to technological effort, e.g., through establishment ofa standardization institute and through development of Jordan's human capital.

1/ "The Cost and Benefit of Infant Industries", Bell, M1., Ross-Larson, is. andWestphal, L., March 1983. Article for forthcoming symposium Lssue of theJournal of Development Economics. See also Dahlman, C. and Westphal, L."Technological Effort in Industrial Development - an Interpretative Surveyof Recent Research". In the Economics of New Technology in DevelopingCountries. Edited by Stewart, F. and James, J., 1982.

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G. Promotion and Logistic Support of Foreign Investment in Jordan

107. Increased foreign investment in manufacturing is a key factor ifJordan is to achieve its export goals. Sucb foreign investment may bringthe country new or better products, advanced technologies, new technical and

management know-how, and new market outlets. Such foreign partnerships wouldalso belp Jordan manufacturers improve their productivity and costs, qualitystandards, specifications, designs, etc. Participation may take the form of

joint ventures, licensing, or technical assistance contracts.

108. The initiative in obtaining foreign investor participation would come

from several sources in Jordan:

(a) Individual manufacturers usually seek foreign investors among the

leading manufacturers in the same line of products. The Director ofIndustry in the Ministry of Industry and Trade has been trying toferret out foreign sources of technical assistance or new processes.Unfortunately, there has not been sufficient qualified staff time forthis activity.

(b) IDB, Pension Fund, Social Security Fund and other public or privateinvestment groups promoting a new project usually depend on directcontacts with would-be investors in the Arab oil-producing countries

or in the industrialized nations.

(c) The Free Zone Corporation and the Industrial Estates Corporation seek

foreign manufacturers to establish plants in the free zones andindustrial parks. They bave depended mostly on widespreaddistribution of promotional pamphlets and on participation in trade

and investment missions and in foreign trade fairs and exhibitions.The Ministry of Industry and Trade and the Chamber of Industry relyon similar means.

109. Considering the several attractive features of Jordan as a productionand marketing base for the Middle East region, one would perhaps have expecteda substantial flow of foreign investment. This has not occurred. There maybe some lack of awareness of Jordan's attractions. Some potential investorsmay have been turned off by reports of bureaucratic red tape and

inefficiency. No doubt the concerns of greatest substantive importance arethe smallness of the local market and the impact of volatile Middle Eastdevelopments on Jordan's political and economic stability. In an intelligent

promotion of foreign direct investment, the latter concern has to be addressedforthrightly. Emphasis may be placed on Jordan's relative stability withinthe region. That fact, along with her economic and other attractions, may be

sufficient to offset potential risks, especially for investors seeking anentry into the large Arab market. Hosting visits by potential foreigninvestors would provide Jordan with opportunties, through EFIB, to stress thisadvantage. Another helpful condition would be the availability of politicalor war risk insurance to potential investors from their home countries.

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Jordan has entered a number of investment insurance agreements offereddeveloping nations by industrial nations and may wish to expand that number.

110. EFIB would be given the major responsibility for promoting foreigninvestment in Jordan in activities deemed desirable by the Government. Itssecond major task in this area would be to assist foreign investors inbecoming establisbed in Jordan, facilitate their contacts with thegovernment and with local business people and expedite legal andadministrative formalities.

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VII. PROPOSAL FOR AN EXPORT AND FOREIGN INVESTMENT BOARD

A. The Need for a New Institutional Framework

111. A new institutional framwork is needed to ensure an effectiveexport drive. In the past, too many support programs have been inoperativeor ineffective. Numerous industrialists, bankers and other private sectorleaders bave voiced their frustration at the government's failure toproduce requested programs and services. Even current and formergovernment leaders candidly criticize the slow progress in this area.

112. Some of the reasons underlying these critical attitudes areenumerated below:

(a) Little has been done to implement prior extensive studies andrecommendations for support of exports -- e.g., those by UNIDO in1970, UNCTAD in 1978-79, and by Dar Al-Handasah Consultants in1980-81. The latter report contains extensive evidence ofprevailing gaps and weaknesses as well as many detailedsuggestions for improvement.

(b) The 1981-85 Plan calls for action over a wide front, such as thestrengtbening of the export promotion section of the Ministry ofIndustry and Trade, a new attack on the issues and problems whichhave beset bilateral trade agreements as well as the Arab CommonMarket agreement, opening of new trade centers abroad and simpli-fication of export procedures. Finally, and most important, itrequires the Ministry of Industry and Trade to form a consultativecounsel in cooperation with the private sector which would"provide advice to and exchange Ldeas with the Ministry on themost viable ways of increasing domestic exports." It appearstbat, except as noted below, no substantive measures have beentaken in response to this mandate.

(c) Two years have elapsed since three committees of top levelindustrialists presented their lists of recommended actions orallyand in writing to an all-ministers meeting. Only one -- that onincome tax incentives for exports -- has progresssed through theCouncil of Ministers.

(d) Eacb year, the Ministry of Industry and Trade requestsmanufacturers of exported articles to complete an extensivequestionnaire covering tneir production, finance, exports, etc.As an illustration of its coverage this questionnaire of 23 pagesasks manufacturers to comment on "problems and suggestionsaffecting the company's exports" under 18 headings andsubheadings. Manufacturers tell us they have yet to see anyfollow-up action from all their work on these questionnaires.Against this background, they are extremely dubious of theGovernment's capability of implementing an effective exportsupport and promotion program.

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Several causes appear to be intervined in explaining the lack ofeffective action:

(a) a vision of how support programs were to be implemented was lacking,

(b) top level officials had no confidence in the caliber and experienceof the staff available to perform such support activities,

(c) relatively low civil service pay scales made it difficult to findbetter qualified staff,

td) the bureaucratic system presented many obstacles,

(e) finally there was insufficient public awareness and pressure foraction.

113. Considering these difficulties and the task ahead (a five-foldincrease in manufacturered exports in this decade), the mission recommends thecreation of an independent Export and Foreign Investment Board (EFIB) as ajoint undertaking by the private sector and the state to replace the presentinstitutional framework for export promotion. Only an institution of thatnature could be expected to attract the necessary dynamic leadership andhighly qualified professional staff, thus inspiring the confidence and supportof the business community as well as the general public.

B. Objectives

114. The twin objectives of the proposed Export and Foreign InvestmentBoard would be to support Jordan exporters and to promote and assist foreigninvestment in Jordan industry. The support of exports might be achievedthrough the following main activities:

(a) Advice to the government on policies and measures affecting exports.Assistance to the government on trade agreements, etc.

(b) Information services to Jordan firms with respect to markets,distribution channels, local regulations, etc. and to foreignbusiness firms and institutions with respect to the Jordanian exportpotential. This is likely to become EFIB's most important singlefunction.

(c) Export promotion including participation in fairs and symposia,visits by Jordan delegations to foreign countries and by foreigndelegations to Jordan, export trade directories, etc.

(d) Consulting and export management services. The consulting tasksmight include market research, selection of commercial agents,assistance in contract negotiation, etc. EFIB would also have exportmanagers or consultants for bire who would take the responsibilityfor initiating and co-ordinating all the export activities of theclient under relatively long term contracts.

- 51 -

In principle, the functions with respect to the support of foreign investment

in Jordan would be very similar, the main emphasis being on promoting Jordanas a possible base for production, bringing together would-be foreign andJordanian partners and helping foreign investors in getting established andfinding their way througb local regulations. Theoretically, one couldenvisage separating the export support and the foreign investment supportactivities as is done in many countries. One argument in favor of a singleinstitution, at this stage of Jordan's development, is that the link with aforeign investor would often be necessary or at least very helpful inpenetrating foreign markets.

C. Character of EFIB

115. The new board should be established as an independent entity with amajority of directors elected from outside the government and with its staffrecruited according to private sector conditions and pay. This is essentialto attract high quality personnel, to avoid excessively bureaucraticprocedures and to ensure, from the beginning, a high sense of commitment amongthe staff and a high degree of confidence among its clients. Initially, itmay be desirable to hire a limited number of foreign experts who would sharetheir knowledge and experience with Jordanian colleagues. One would expectthat the field representatives ("trade secretaries") would be recruited mainlyfrom the private sector and would generally return to that sector after acertain period of service. This would permit them to apply promptly theexperiences gained and allow a wider range of professionals to gain similarexperience.

116. It would appear that the work done at present by the EconomicCooperation Department of the Ministry of Trade and Industry falls aboutequally between the first three export support functions cited above whereasrelatively little has been done in the area of information services or inprocuring export consultancy and management services or assisting foreigninvestors. It may be expected that, in the future, the export servicingfunction would become the most important activity on the export side and thelogistic support of foreign investors increasingly important on the investmentside.

117. Compared with the present situation, the weight of operations wouldbe shifted towards the field. The field representatives would have to carry avery heavy load in conducting various types of preliminary market prospectingand in preparing for trade and investment missions, Jordanian participation intrade fairs, briefing and support of visiting Jordan businessmen and follow-uptaks resulting from these activities. Separately, they would be expected tosupply a flow of information on economic and commercial developments, onfinancial, legal and regulatory matters, and on major changes in specificindustries and markets of interest to Jordan exporters or would-be exporters.They would obviously have to be extremely well-qualified and provided withadequate support in the form of marketing assistants and secretarial help.The role of the headquarters staff would be to counsel with the government, toplan and orchestrate the export drive and to undertake certain specializedfunctions (support of foreign investors, export library and documentation,consulting and export management services).

- 52 -

118. Very tentatively, the field representatives might be about equallydivided between (a) the regional market, with one representative each for Iraq(including the present trade center operations), Saudi Arabia and Kuwait, theGulf States, and North and South Yemen, and finally, Syria, Turkey and Romaniaand, eventually, Lebanon and (b) the more distant markets, with one fieldrepresentative for East Africa, including Egypt and Sudan, one for North andWest Africa, and one or two for Western Europe.

119. It would be the task of a special organizing committee to recommendthe initial scope and work priorities for the new Board, specifying thecountry (geographic region) coverage, the industries where support would bemost effective and the division of tasks between the headquarters and fieldrepresentatives. As a standard of perfection, one would bope that the board'sactivities would be allowed to evolve gradually and pragmatically, expandingat a rate permitting the accumulation of in-house experience and dictated byproven needs and proven results. In this context, it is very important thatthe quality of advice and service tendered to Jordanian businessmen be of thehighest order so as to inspire their confidence and support from the verybeginning.

D. Staffing, Budget and Finance

120. While the main lines of EFIB's operations are reasonably clear, it ismore difficult to translate these into actual staffing patterns and capitaland operating budgets. The proposed staffing of about 50 and an annual budgetof about JD 500,000 at (end 1981 prices) indicated in Annex E gives only arough order of magnitude (in truth, a guesstimate) of the scope of operationsthat might be justified after an initial three or five-year trial period. Thebasis, on wbich this estimate was arrived at, is explained in the annex.

121. For in the financing of EFIB activities the following aspects shouldbe considered. Promotional efforts can only be expected to bear fruit over arelatively long time borizon. Many of the consulting and management jobs alsohave a large element of investment for the future and the benefits will accrueto a larger number of existing and potential exporters.. The servicing ofexporters would normally have an immediate pay-off. The consulting andmanaging jobs, therefore, would normally be paid in full by the clients,witbout ruling out some subsidies for small firms to help them get over thecertain initial "thresholds". In a country like Sweden, the state covers 50Xof the cost of promotional activites and 100% of the general informationalservices. It may be noted, however, that a relatively large portion of thepromotional activities, in the Swedish case, is focussed on the capital goodsindustries where possibly the results take a longer time to materialize thanis the case for consumer goods which are likely to predominate in Jordanexports.

122. It is hardly to be expected that, in Jordan, wbich is at the verybeginning of its export drive, individual firms would be able to contributeas high a proportion of the total cost of export servLces and export promotionas in Sweden. One would envisage that the Government of Jordan provide theinitial financing for EFIB's fixed assets and working capital plus a portion

- 53 -

of the annual operating expenditures. However,,direct Government financingwould, according to law, affect the proposed autonomous non-government statusof the EFIB. Other means of financing need to be examined; e.g. a smallspecial import levy (1/2 percent) to be funneled to the EFIB or if thefinancial arrangements for EFIB could be similar to those of the IndustrialEstates Corporation. After a starting period the sbare of operatingexpenditures paid by industrial members might be expected to increase rapidly

as the programmes get under way. TheLr payments would consist of bothmembership dues (suitably graduated according to the size of the firm and itsexport exposure) and fees for services rendered. From tne very beginning areasonably sophisticated planning, budgeting and control system sbould be

initiated with a view to evaluating the benefits and costs of major categoriesof operations as well as major individual programmes and actions.

- 54- ANNEX APage I

JORDAN'S EFFECTIVE EXCHANGE RATE ADJUSTED FOR RELATIVE PRICE LEVELS

1.1 The discussion first looks at suitable indicators of price and costmovements in Jordan and relevant comparator countries, then at the problem ofaggregating these indicators with a suitable system of weignts and translatingthem to a commqn denominator through exchange rates. Finally, the effectiveexchange rate- for Jordan adjusted for relative price levels ("real"effective exchange rate) is computed for the period 1975-81.

(i) Indicators: It is generally desirable to include more thanone indicator in the analysis--divergent movements between theindicators help pinpoint the main sources of change in thecost and price structure. However, in the analysis below onlythe consumer price index (CPI) was included due to lack ofdata for other indicators, such as export unit values,wholesale prices, GDP deflators, and unit labor costs. Onemajor disadvantage of the CPI is that its coverage includesnon-tradable goods. On the other hand, in many countries theCPI is directly relevant to direct or indirect wagedetermination and therefore plays an active role in the pricetransmission process.

(ii) Choice of Weights:./ As the primary objective is to examineJordan's competitiveness and export performance, the chosenweighting scbeme should reflect the importance of othercountries as export markets and export competitors. Thebilateral exports weight system reflects the importance ofother countries as markets to Jordan's exports and implictlycompares the Jordan exporting sector with the domesticproducers of the importing countries. The double weightingsystem reflects the importance of other countries as competi-tors for Jordan's exports in markets and commodities importantto Jordan. In the double weighting system the importance W ofcompetitor j to country x is given by summing, over all markets

1/ Effective exchange rate is defined as the ratio between a given currencyand a weighted average of nominal exchange rates of currencies of tradingpartners and/or competitors.

2/ For a fuller discussions see R. Rhomberg. "Indices of Effective ExchangeRates", IMF Staff Papers (1976, Vol. 20) pp. 88-112 and I.B. Kravis andR.G. Lipsey, Price Competitiveness in World Trade, NBER, New York, 1971.

- 55 -ANNEX APage 2

i, the share of i's imports supplied by j (the importance of jas supplier to market i) multiplied by the share of x'sexports to i (the importance of i as a market to x):

W =2gX MXJ~~~ ii JX11

X M

x i

where X, M denote exports and imports respectively

The bilateral weights were calculated based on the shares ofthe most important markets in Jordan's exports in 1980. The

countries included in the computation and the weights assignedto their currencies are as follows:

Saudi Arabia .669

Syria .276

Kuwait .055

In constructing the weights for the double weighting system a

group of competitor countries was first defined. This wasdone by identifying 12 product groups of manufactures of

importance to Jordan (at the two to four digit SITC level),and establishing, from the GATT trade system the mostimportant suppliers to Jordan's four most important exportmarkets in Jordan's most important export commodity groups. Alist of six competitor countries was selected by weightingeach occurrence by the importance of the relevant commoditygroup in Jordan exports. The final system of 'double weights'for each of the competitors was calculated by eachcompetitor's share in each market by that market's weight inJordan's exports, and then normalizing these weights to sum tounity. The resulting system of double weights for thecurrencies of the six competitor countries is as follows;

Germany .245

USA .245

Italy .171

France .149

UK .14

Belgium .05

- 56 -ANNEX APage 3

(iii) Exchange Rate Measures: Since the purpose of thecompetitiveness analysis is to assess the comparative standingof the home country's actual or prospective offer prices inthe representative market, it follows that the same set ofweights should be used for compiling the exchange rate indexas is used in aggregating the competitiveness indicators. Thelogic of this is straightforward--as far as the customers inthe partner country are concerned, it is irrelevant whether anincrease in offered prices arises from domestic price or costdevelopments in the home country, or from exchange ratechanges. A further point that should be mentioned is that theanalysis here is based solely on trends in the officialexchange rate. To the extent that there have been changes inthe level of export subsidization or taxation over time thesewill affect the effective exchange rate facing exporters andwill influence their pricing behavior in foreign markets.

(iv) Effective Exchange Rate Development for Jordan: Table A.1shows, with 1975 as a base that Jordan's exchange rateincreased by 8 percent compared with a weighted average of theleading suppliers to Jordan's most important markets.However, Jordan's effective exchange rate adjusted forrelative change in consumer prices shows an increase of 14percent greater than the same countries. Jordan's adjustedeffective exchange rate shows no change in pricecompetitiveness if 1977 is chosen as a base year.

Table A.1

Effective Consumer Price Index (CPI) Effective ExchangeExchange Rate Jordan vis-a-vis Rate Adjusted to

Jordan Leading Exporters 1/ Relative CPI

1975 = 1001976 105.0 111.5 109.5 106.91977 105.9 127.8 119.9 112.11978 104.3 136.6 129.9 110.01979 100.9 156.1 142.7 110.31980 100.4 173.1 162.6 106.81981 107.9 192.3 181.6 114.2

1/ Cermany, USA, Italy, France, UK and Belgium are the leading suppliers inJordan's most important markets and in its most important export commoditygroups.

- 57 -ANNEX APage 4

Table A.2 shows Jordan's effective exchange rate development in relation tothree important markets Saudi Arabia, Syria and Kuwait. With 1975 and 1978 asbase years Jordan's price competitiveness has deteriorated by about 10percent. With 1979 as a base Jordan's price competitiveness has beenpractically unchanged.

Table A.2

Effective Consumper Price Index (CPI) Effective ExchangeExchange Rate Jordan vis-a-vis Rate Adjusted to

Jordan Important Marketsy/ Relative CPI

1975 - 1001976 97.9 111.5 124.4 87.71977 97.0 127.8 138.4 89.51978 101.4 136.6 139.5 99.31979 103.0 156.1 143.2 112.21980 102.9 173.1 159.6 111.61981 95.1 192.3 165.8 110.2

1/ Saudi Arabia, Syria and Kuwait.

It is not surprising that Jordan has basically maintained its pricecompetitiveness in relation to its major markets. The currencies of SaudiArabia, Kuwait and Syria have remained strong and therefore Jordan has notsuffered any considerable disadvantage vis-a-vis them.

- 58 -ANNEX BPage 1

THE DAR AL-HANDASAH PROJECT PROFILESIntroduction

2.1 A preliminary inventory of 46 project possibilities together with abrief analysis of project parameters (investment, economic returns, foreignexchange savings, employment, etc.) may be found in the Dar Al-Handasan Study,Task 2.6 (June 1980). It is fully recognized by the consultants that aproject idea is not a project until after a full feasibility study has beenmade, a sponsor found and bids for the various components of the projectreceived. Furthermore, the almost universal experience with prefeasibilitystudies is that they tend to be on the optimistic side.

Project Ranking and Project Implementation

2.2 With the reservations already mentioned, we have ranked the projectsin the Dar Al-Handasah portfolio according to economic returns, using a 15percent return as an arbitrary cut-off point (Table B.1 below). Twenty-sevenof the projects meet this test. An indication is also given in the table of(a) the proportion of exports to total sales and (b) the combined net foreignexchange savings and earnings.

2.3 Four of the above projects are either being implemented (pbosphoricacid, foundry, garment making) or appraised by financial institutions (diecastings). The opportunities for vertical integration arising out of severalprojects should be particularly noted e.g. compound fertilizers withphospboric acid, wallpaper with PVC leather cloth, valves and fittings withdie castings, iron castings with electric motors (this would be a substitutefor an originally intended integration with pumps)1!.

2.4 More recently, other projects have been identified and are beingstudied by financial institutions; refrigerators, compressors (a Pan-Arabproject), ovens for the bakery industry, Teflon pans, PVC doors and windows(this would be the first factory of this kind in the world), and, outside themanufacturing sector, flowers and commercial fisheries.

1/ In the Dar Al-Handasah study, the pumps project showed an economic rate ofreturn of 17.3 percent as compared with 14.5 percent for an "electricmotors complex." Similarly, the investment in the PVC leather clothproject is listed as JD 1.50 million in the draft report, subsequentlyrevised to JD 2.72 million in the final report. The moral is not that thepreliminary estimates were far out of line but rather that the shape andeconomics of a project will change as a result of more intensive study andattempts to adjust to an optimal configuration.

- 59 -ANNEX BPage 2

Table B.l : INDUSTRIAL PROJECT POSSIBILITIES IDENTIFIED IN TtEDAR AL-HANDASAH STUL1Y: ECONOMIC RETURNS, EXPORT ORIEN&ATIUN AND

FOREIGN EXCHANGE EARNINGS 1/

Projected Proportion Combined NetEconomic Export Sales Foreign ExchangeRate of to Total Savings and

Project Return Sales EarnLngsZ X X of Value Added

Electric fittings 46.0 75 1.11Vehicle trailers 35.5 51 .97Compound NPK fertilizers 35.5 2/ 97 .97Non-ferrous die castings 34.8 85 .9b

Locks, keys, and hinges 32.9 60 .96Sodium silicate 30.8 70 1.41Solar panels 30.0 small 1.4bInfant foods* 28.8 90Hand tools and implements 27.4 80 1.00Wire cables 24.5 70 1.00Vegetable oils* 24.3 100Tableware 24.0 79 .88Wallpaper* 23.8 99Welding electrodes 22.4 8a 1.38Phosphoric acid 20.6 2/ 100 1.13Welding machines 20.4 100 .99Medical textiles* 19.9 65Saws 19.1 60 1.0UPumps (foundry and machining) 17.3 80 i.11Nuts, bolts, etc.* 17.2 90Furniture* 17.1 70Printing and packaging* 16.3 80P.V.C. leather cloth* 16.3 57Garment making 16.0 79 1.20Travel goods* 15.5 55Structural steel and hollow-ware 15.1 80/bO 1.12Plastic furniture* 15.0 70

* Individual Project Profiles were not available for project marked with anasterisk.

1/ Individual project profiles were not available to the maission for theprojects marked with an asterisk. Hence, it was not possible to computethe ratio of foreign exchange earnings to value added for these projects.

2/ The rates of return for these projects are raised substantially bypresumed large discounts in phosphoric acid and potassium chloride (NPKfertilizers) respectively phosphate rock (phosphoric acid). Thus, in theNPK project profxle, phosphoric acid was priced at JD 92 per ton comparedwith an assumed world price, f.o.b. Morocco of JD 116. The difference issaid to be justified by "lower handling and distribution costs" for salesto domestic users versus exports. In apparent contradiction, it wasassumed that the export prices for both phosphoric acid and NPK would behigher than prices f.o.b. Morocco, reflecting "the transport costdifferential to Asian markets". Further study of the relevant opportunitycosts is clearly needed.

Source. Dar Al-Handasah Consultants, Industrial Programming Study and ProjectIdentification in Jordan Interim Report, Tasks 2.5 and 2.6 (ProjectSelection) Tasks 2.7 and 2.8 (Market Studies and Project Profiles)and Task 2.9 Alternative Listing of Priority Projects, Table 3.24.See in particular, Task 2.5, Table 2.2.

- 60 -ANNEX BPage 3

Export and Foreign Exchange Benefits

2.5 The Dar Al-Handasah profiles provide valuable insight into the typesof industrial projects which might be viable in Jordan. An analysis of the 25projects of prima facie economic viability shown in Table B.1 reveals astriking export orientation! :

(a) Only one of the projects (solar panels) caters essentially to thedomestic market. For the remaining projects, exports account forone-half or more of the projected sales. In fifteen out oftwenty-five projects, they account for three-fourths or more of totalsales.

(b) For 13 projects, for which this information is readily available,72 percent of the total exports are projected to go to Arab marketseast of Suez, with another 18 percent going to Arab markets west ofSuez and 10 percent to other countries within reasonable transportdistance (Iran, India, Pakistan, Kenya, Somalia, and Turkey)!/.

(c) With one exception, none of the of the products included in this listwould be standardized commodities, for which prices andtransportation would be strategically important.

The net foreign exchange earnings in relation to the value added provides therelevant measure regarding the efficiency of any project in generating foreignexchange. Proximately, this ratio is determined by (a) the ratio of valueadded to sales in the project itself and (b) the proportion of local inputsused. If no local inputs are used, the net foreign exchange earnings (and/orsavings) would, under free trade, be identical with the value added. Amongthe 17 projects, for which such information is available, twelve show a ratio

1/ The NPK and phosphoric acid projects were excluded, in principle, from theanalysis that follows, although they were drawn upon to make certainpoints. These large "key projects" would require a separate moreintensive appraisal which falls outside the objectives of the presentreport.

2/ There is some doubt, perhaps, whether such a scattering of marketingefforts would be a reasonable proposition.

- 61 -ANNEX BPage 4

of net foreign exchange savings to value added of unity orslightly below!'.Higher ratios of 1.2 (garment making), around 1.4 (welding electrodes, sodiumsilicate, ad solar panels) and finally 1.7 (NPK fertilizers) point toimportant "backward linkages." A word of caution is necessary however.Strictly speaking, such indirect foreign exchange earnings should be creditedto the project only if sales to the project represent an additional marketrather than simply replacing an alternative export sale. In NPK fertilizerproject, the backward linkage (the use of local phosphoric acid and potash toproducing NPK) would lead to an equivalent reduction in exports. By way ofcontrast, the tableware project would be using possibly non-exportable clay.

Size of Project

2.6 In the above list of 24 projects, six project with total investmentsranging from JD 3.25 million to 6.10 million account for roughly one half ofthe investment total (For identification, see Table B.3 below). They are, inthe order of relative size: China tableware, hand tools and implements,structural steel and hollow ware, garment making, furniture, and pumps(foundry and machining). These projects clearly deserve priority study as thelargest ones with projected high economic returns and as prototypes for otherprojects with similar characteristics in terms of markets, technology orcapital intensity.

2.7 One interesting result of the ranking of projects according toeconomic returns is that it greatly reduces the representation formedium-sized establishments employing 50-99, both as compared with theexisting industry structure and the distribution for Dar Al-Handasah's "listof recommended priority projects". Similarly very small projects figure muchmore prominently in Dar Al-Handasah's priority list than in a selection basedstrictly on economic returns. This is shown in the following tabulation (inpercentage of total numbers):

1/ Logically, under free trade, the only way the net foreign exchangeearnings could be less than the value added would be if the value addedcontained an element of foreign exchange expenditure (e.g. payments toforeign staff). Purely as an example, the tableware project shows a valueadded of JD 3.2 million and net foreign exchange expenditures of JD 2.8million. But the project profile gives no clue as to what element in thevalue added would call for payments in foreign exchange.

- 62 -

ANNEX BPage 5

Table B.2: SIZE DISTRIBUTION, ACCORDING TO EMPLOYMENT, OFDAR AL-HANDASAH PRIORITY PROJECTS COMPARED TO EXISTING

ESTABLISHMENTS (ESTABLISHMENTS EMPLOYING 25 OR MORE ONLY) 1/

Employment Existing Dar-Al-Handasah Projects Project withPer Establishment Industry Priority Projects High Economic

(a) (b) Returns

100 or more 23.1 19.4 20.0 37.550 - 99 30.6 38.7 50.0 12.525 - 49 46.3 41.9 30.0 50.0

100.0 100.0 100.0 100.0Number of establishments

listed above 147 31 30 24

Number of establishmentsemploying less than 25 571 9 10 3

Clues to Comparative Advantage

2.8 What type of comparative advantage might account for Jordan'spresumptive export competitiveness in the projects shown? Size does notappear to be of primary importance. The investments in these projects (fixedassets plus working capital, as shown in Table B.3 below) vary from JD 0.5 -

0.6 million (nuts and bolts, infant foods) to JD 2.8 - 3.2 million (garmentmaking, vehicle trailers).

2.9 Another plausible determinant is capital intensity= . Classicaltrade theory suggests that a country's comparative advantage is determined

1/ The comparison above is limited to industrial type establishmentsemploying 25 or more persons. This is because the Dar Al-Handasah Studywas focussed on medium-sized and large establishments. Under "PriorityProjects", column (a) is derived from the summary shown in the InterimReport on Tasks 2.5 and 2.6, p. 29, whereas colum (b) is derived fromTable 2.2 of the same report. The reason for the difference between thesetwo sets of figures is not clear.

2/ The account that follows is limited to those projects for which separateproject profiles were available. These exclude projects shown with anasterisk in Tables 2.3 and 2.4. A major reason for the exclusion is thatthe revised investment cost estimates, according to the project profiles,are almost universally higher than the initial estimates recorded in Table2.2 of the Report on Tasks 2.5 and 2.6. The NPK project and thephosphoric acid project are excluded for reasons previously stated.

- 63 -

ANNEX BPae 6~

Table B.3: INDUSTRIAL PROJECT POSSIBILITIES IDENTIFIED IN THEDARTAL-HANDASAH STUDY: TOTAL INVESTMENT, INVESTMENT PE JOB,

PROPORTION OF SKILLED JOBS AND TECHNOLOGY CONTENT!

Total Investment ProportionInvestment Per Job Skilled Jobs

Project JD Million JD '000 %

Electric fittings 2.72 19.2 21Vehicle Trailers 4.70 23.2 51Compound NPK Fertilizers 16.82 400.6 52 (T)Die castings 3.04 15.8 44 (T)

Locks, keys and hinges 1.63 13.1 41

Sodium silicate 1.12 30.3 46 (T)Solar panels 1.37 9.5 35Infant foods* .60 16.7 25 (T)Hand tools and implements 5.90 28.5 16Wire cables 2.10 65.7 50

Vegetable oils 1.80 42.9 17China tableware 6.10 10.5 18Wallpaper* 1.15 28.7 30Welding electrodes 2.27 66.9 26 (T)Phosphoric acid 54.52 778.9 49 (T)

Welding machines .76 38.0 85 (T)Medical textiles* 2.48 20.3 34 (T)Saws .84 24.6 50 (T)Pumps (foundry and

machining) 3.25 23.2* 59 (T)Nuts, bolts, etc.* .50 29.4* 82

Furniture complex* 3.50 23.3 37Printing and packaging* 1.35 36.5 67PVC leather cloth* 2.72 68.1 36Garment making 4.55 7.6 15Travel goods* 1.20 40.0 20

Structural andHollow ware 5.91 33.8 39

Plastic furniture* .72 16.0 55

* Individual Project Profiles were not available for project marked with anasterisk.

1/ Projects marked (T) were deemed by the consultants to introduce newtechnologies to the country.

Source: Dar Al-Handasah, Consultants, Industrial Programming Study andProject Identification in Jordan. Task 2.5, Table 2.2 and IndividualProject Profiles.

- 64 -

ANNEX BPage 7

largely by the ratio in that country between the price of capital and theprice of labor. Other things equal, each country would then have its maximumcomparative advantage in lines of production falling within a certain range ofcapital/employment ratios. In the Dar Al-Handasah projects with high economicreturns, for which a profile is available, the investment per job ranges fromless than JD 10,000 (garment making and solar panels) to nearly JD 70,000(wire cables, welding electrodes and PVC leather cloth). Many projects haveinvestments in the range of JD 20 - 40,000 per job. Given the fact that wehave excluded projects in heavy, capital-intensive base industries, it is notclear whether a modal investment of JD 30,000 per job should be regarded ascapital-intensive or labor-intensive production (point to be explored).

2.10 Another possible indication of comparative advantage, namely theproportion of skilled staff and workers to total employment, varies quitewidely around a modal ratio of 36-37 percent. This seems quite a high ratio;it would be in line, however, with Jordan's efforts to utilize its majornatural resource (particularly in comparison wi h other countries in theregion), namely its supply of skilled manpower1V

2.11 One-half of the projects for which project profiles were availableand which had a high economic return, would be introducing new technologies tothe country. At the opposite end, some of the projects picked are quitelabor-intensive and possibly technology-poor (e.g. garment making, hand toolsand implements, travel goods),

1/ This point requires further exploration. How are skilled workersdistributed and how does the ratio of 36-37 percent of skilled workerscompare with industries in other countries and with existing industries inJordan?

- 65 -

ANNEX CPage 1

NOMINAL AND EFFECTIVE TARIFF PROTECTION OF MANUFACTURED PRODUCTS

3.1 The following information on nominal and effective rates ofprotection for different industries is extracted from the IndustrialProgramming Study by Dar Al-Handasah Consultants. The rates shown in the tablebelow do not iclude the 15.1 percent surcharge on imports. The universalapplication of the 15.1 percent surcharge on all imports will not affect theranking of sectoral protection levels, but it will increase tne overall level

of protection by that amount, for all importing industries.

- 66 -

ANNEX CPage 2

Table C.1: AVERAGE PERCENTAGE RATES OF INDUSTRIAL PROTECTION 1979(excluding 15.1 percent surcharge)

Effective a/ Nominal

Bakery products 103.8 29.0Paper and products 71.9 38.9Wood, cork, furniture 70.8 29.9Confectionary 67.2 30.1Products of rubber and plastics 60.8 21.7

Wearing apparel 47.6 32.0"Other" non-metallic mineral products 44.5 24.0Leather and footwear 43.5 24.3Textile manufacturing 39.2 22.6Pottery and glass .38.4 18.9Beverages 33.9 22.4

Grain mill products 15.8 8.7Fabricated metal products 12.4 11.2Basic metals 11.1 10.2Other mining 6.2 7.4Cement, lime, plaster 5.9 8.6Industrial and other chemicals 4.2 9.0

Agriculture and livestock products 1.3 5.7Printing and publishing -8.6 8.5Electrical and transport equipment -17.1 22.5Machinery, excluding electrical -26.5 2.5Prepared animal feeds (-40.1) * 1.0Petroleum refining (-59.7) * 26.4Other food products (-217.6) * 10.6Tobacco products (-326.6) * 88.0

* Individual Project Profiles were not available for project marked with anasterisk.

a/ The figures above are reproduced exactly as shown in the consultant'sreport. However, the effective protection measures for the items markedwith an asterisk may be meaningless - almost certainly so in the case ofpetroleum products and tobacco products. It is true that many petroleumproducts are sold in Jordan at prices well below the international levelbut, in this case, the crude oil is custom-processed by the refinery andthe losses arising from the difference between the Jordan price level andthe world level absorbed in the Government budget. Imports of tobaccoproducts are, with minor exceptions, prohibited. Possibly, the negativeprotection shown by the consultants results from the tax burden ondomestic production but this ignores the fact that the local monopoly canset prices undisturbed by foreign competition.

Source: Dar Al-Handasah Consultants, Industrial Programming Study and ProjectIdentification in Jordan. Task 2.5, Table 2.2 and Individual ProjectProfiles.

- 67 -ANNEX DPage 1

EXPORT AND FOREIGN INVESTMENT BOARD TENTATIVE ESTIMATES OF STAFFINGAND BUDGETARY REQUIREMENTS

Personnel Staffing and Salaries

The following personnel needs are envisaged for EFIB when fullystaffed:

Table D.l

Secretarial,Executive Tech- Clerical, Locally-hired

and nical Messengers Field Assistants TotalProfessional etc. Professional Clerical

President, ExecutiveDirector and SpecialAssistant 3 2 5

Hleadquarter-ExportPromotion 3 2 5

Headquarter-InvestmentPromotion 2 1 3

Field-Export &Investment Promotion 8 11 8 27

Country Data Bank &Commercial Library 1 1 2

Administrative Services 1 4 4 9

Total 18 5 9 11 8 51

4.1 The highly qualified executive and professional personnel will not befound easily and certainly not without paying relatively high salaries. Wecannot predict precise salary levels needed to recruit this calibre ofpersonnel. But in view of current prevailing salary pressures for top levelexecutives and professionals, we would not be surprised if an average salary inthe range of 10,000-12,000 dinars was found to be necessary for the 18 listedexecutive and professional officials. For the remaining 33 employees in thetotal staffing pattern, an average salary of 5,000 dinars may be assumed forinitial estimates of budget requirements. This gives an estimated total ofapproximately 360,000 dinars for personnel costs annually.

- 68 -

ANNEX DPage 2

Other Operating Costs

4.2 Assuming that the government will provide office space in Amman andthat the Embassies abroad will do likewise, we roughly estimate another200,000 dinars per year for all other operating costs (communications,transportation, utilities, supplies, etc.).

Total Costs

4.3 This total of 560,000 dinars does not seem so high when compared withDar Al Handashah's estimate of 1 million dinars as the total combined cost forthe Economic Cooperation Department in the Minstry of Industry and Trade andthe Trade Center Corporation. With EFIB absorbing over half of the combinedpersonnel in these two entities, the half-million saving there just aboutequals our initial estimates for all of EFIB. This may suggest that ourbudget estimates may be on the low side, especially with the 1981-85 NationalPlan calling for enhancing the export promotion-related staffs more than wehave shown. In any event, the initial budget estimate, no doubt, will getrevised several times with more facts and experience.

Capital Budget Estimate

4.4 EFIB's capital budget--covering office equipment and furniture forAmman headquarters and for each of the seven country or regional offices--isestimated roughly at 250,000 dinars. This may also require revisions whichmore facts and with confirmation of the ability of embassies abroad to takecare of some of the equipment and furniture needs.

- 69 -

ANNEX EPage 1

GOVERNMENT EQUITY PARTICIPATIONS IN MIXED ENTERPRISES

5.1 The Government's nominal equity share in mixed public-privateenterprises (including participation by autonomous public institutions) variesfrom less than 25 percent (in 22 companies) to between 25 and 50 percent (inseven companies) and to 50 percent and more (in five companies); and itsaverage participation in the enterprises' combined equity stands at 18.3percent (Table E.1). However, as far as the paid-up capital is concerned,average Government participation is 43.6 percent. In some companies, likeJordan Cement Co., Agricultural Product Processing Co., Jordan NationalMaritime Co. and Arab International Hotels Co., the Government originallyplanned to own only a portion of outstanding equity, but is at present thesole owner. In some others like Jordan Mineral Co., Jordan Glass Co.,Industrial Development Co. and Jordan Company for Tourism and Mineral Waterthe Government intended to be a minority shareholder but now holds a majorityinterest. In 12 companies the Government's share and its outstanding equityis the same as originally intended, and is marginally lower in only onecompany (Jordan Fertilizer Industry Co.).

5.2 The Central Government, in addition to equity participation in thecompanies listed in Table E.1, also has a substantial indirect participationin commercial and industrial activities through independent equityparticipations of some of the autonomous public institutions (e.g. PensionFund, Post Office Savings Bank, Social Security Corporation, JordanUniversity) as well as through some of the same mixed enterprises listed inTable E.1 (e.g. Industrial Development Bank). The Industrial Development Bankhas equity participations in 20 private and mixed enterprises (including 12 inTable E.1); the Pension Fund is part owner in 25 companies (including 14 inTable E.1); the Post Office Savings Bank is participating in 60 companies; theSocial Security Corporation has equity participation in five companies(including one in Table E.1); and the Jordan University has engaged, throughits savings fund, in eight companies (including 2 in Table E.1).

5.3 The control exercized by the Government over the corporations dependson the degree of ownership, the legal status and the sector in which thecorporation is functioning. Financial control is carried out by the Ministryof Finance, while functional control is carried out by the Ministry mostdirectly related to the function of the corporation. Moreover, the Governmentis represented in the governing board of these corporations and depending onits interest holdings and equity ownership participates in or supervises themanagement of the companies.

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ANNEX EPage 2

Table E.l: GOVERNMENT SHARE IN MIXED CORPORATIONS-a/

(Thousand JD)

Nominal Capital Paid up CapitalTotal Government Total Government

(Thousand JD) Share (%) (Thousand JD) Share (%)

1. Jordan Cement Co. 22,500 29.7 6,172 100.02. Jordan Refinery Co. 32,000 3.1 32,000 3.13. Jordan Phosphate Co. 10,000 89.0 10,000 89.04. Arab Potash Co. 63,000 51.0 25,436 97.85. JordanFertilizer

Industry Co. 40,000 25.8 25,725 24.16. Vegetable Oil Co. 500 11.0 500 11.0

7. Arab PharmaceuticalIndustries Co. 2,000 7.0 2,000 7.0

8. Jordan Tannery Co. 800 18.7 800 18.79. Jordan Hotels &

Tourism Co. 723 85.7 723 85.710. Jordan Electric Co. 6,660 9.0 4,657 13.111. Irbid Electric Co. 2,000 46.5 1,999 46.512. Holy Land Hotels Co. 600 83.3 600 83.313. Agricultural

Industries Co. 2,250 2.2 1,151 4.314. Jordan Mineral Co. 1,000 3.5 62 56.515. Jordan Glass Co. 3,500 15.4 104 38.516. Jordan Textile Co. 600 23.8 600 23.817. Tourism Transport Co. 300 8.3 169 14.8

18. IndustrialDevelopment Co. 250 28.4 230 30.9

19. Jordan DairyProduct Co. 1,750 1.7 1,750 1.7

20. Aqaba Hotels Co. 300 43.3 293 44.421. Jordan Ceramic Co. 2,000 1.2 2,000 1.222. Industrial

Development Co. 6,000 18.5 3,000 37.023. Agricultural Products

Processing Co. 600 41.7 250 100.024. Carton and Paper Co. 1,500 7.4 1,500 7.425. Housing Bank 18,000 5.5 11,500 4.326. Public Mining Co. 1,000 51.0 1,000 51.027. Jordan National

Maritime Co. 2,000 20.0 100 100.028. Arab International

Hotels Co. 6,000 8.7 322 100.0

(continues on next page)

- 71 -

(Table E.1 continuation) ANNEX EPage 3

Nominal Capital Paid up CapitalTotal Government Total Government

(Thousand JD) Share (%) (Thousand JD) Share (%)

29. Arab Mining Co. 111,000 1.0 320 100.030. Jordan Co. for Tourism

and Mineral Water 2,500 41.0 1,150 89.131. Livestock Develop-

ment Co, 55,000 1.0 325 100.0

32. Arab Investment Co. 66,000 .5 305 100.033. Arab Co. for

Maritime Transport 4,454 3.4 152 100.0

34. Jordan-Syrian Co.for Land Transport 8,000 50.0 2,500 100.0

35. Jordan-Iraqi Co. forLand Transport 7,500 50.0 3,750 100.0

36. Jordan-SyrianMaritime Co. 10,000 50.0 440 100.0

37. Jordan SyrianIndustrial Co. 20,000 50.0 700 100.0

38. Jordan Syrian FreeIndustrial Zone 5,000 50.0 412 100.0

39. Jordan Holiday-Inn Co. 2,400 16.0 634 60.6

Total 519,687 18.3 145,331 43.6

a/ Includes participation by autonomous public institutions.

Source: Budget DepartmentEnd of 1980.

- 72 -

STATISTICAL APPENDIX

Table 1: National Accounts Summary(Millions of Jordanian Dinar at Current Prices) 1/ 2/

Table 2: National Accounts Summary(Millions of US$ at Constant 1978 Prices) 1/ 2/

Table 3; Balance of Payments(Millions of US$ at Current Prices) 1/

Table 3A: Social Indicators Data Sheet

1/ These tables were prepared in a standardized format to facilitatecross-country comparisons. The presentation, therefore, may differsomewhat from the one used by the Jordanian authorities.

2/ Jordan's Department of Statistics has recently issued a new nationalaccounts volume, covering the period 1975-81, and containing somesubstantial revisions. The revisions have a very partial character;value added was adjusted upward in a number of sectors (e.g. quitesubstantially in construction, trade and business), almost proportionallythroughout the 1975-80 period, with a corresponding increase in privateconsumption as unique correction on the expenditure side (which seems tobe inconsistent with the correction of underrecorded constructionactivity). The revisions are undocumented and their origin unexplained.Furthermore, in the absence of corresponding data at constant prices, theinterpretation of the nominal revisions in terms of underlying volume andprice tendencies is impossible, the more so since none of the relevantactivity and price indicators available in other statistical publicationshave undergone revisions. Therefore there are reasons to view theserevised accounts with appropriate caution.

- 73 -

Table 1: JORDAN

NATIONAL ACCOUNTS SUMMARY

(Millions of Jordanian Dinar at Current Prices)

1976 1977 1978 1979 1980

1. Gross Domestic Product 404.7 481.0 589.1 712.0 869.0

2. Resource Gap (M-X) -247.1 -315.4 -340.2 -484.0 -492.03. Imports (g+nfs) 430.0 543.4 605.8 824.5 961.84. Exports (g+nfs) 182.9 228.0 265.6 340.5 469.8

5. Total Expenditures 1/ 651.8 796.4 929.3 1,196.0 1,360.1

6. Consumption 1/ 501.6 593.9 706.3 916.0 1,004.77. General Government 155.9 156.6 190.0 235.3 260.58. Private 1/ 345.7 437.3 516.3 680.7 744.2

9. Investment 150.2 202.5 223.0 280.0 356.3

10. Fixed Investment 138.0 197.0 229.1 294.5 350.011. Changes in Stocks 12.2 5.5 -6.1 -14.5 6.3

12. Domestic Saving -79.7 -95.8 -118.3 -205.0 -143.913. Net Factor Income 137.9 147.1 147.9 167.5 204.914. Current Transfer 4.1 -1.1 3.9 -3.6 7.915. National Saving 62.3 50.2 33.5 -41.1 68.9

Average Exchange Rates:16. Dinar per US$ 0.332 0.329 0.307 0.301 0.29917. Dinar per SDR 0.388 0.388 0.388 0.388 0.388

1/ Includes statistical adjustment due to differences in external data; l976: 17.2,1977: 17.1, 1978: -1.1, 1979: -1.0, 1980: -8.2

- 74 -

Table 2: JORDAN

NATIONAL ACCOUNTS SUMMARY

(Millions of USI at Constant 1978 Prices)

1976 1977 1978 1979 1980

1. Gross Domestic Product 1,649.9 1,748.6 1,918.9 2,127.7 2,360.82. Terms of Trade Effect 18.2 -16.5 0.0 -72.5 -73.13. Gross Domestic Income 1,668.1 1,732.1 1,918.9 2,055.2 2,287.7

4. Resource Gap (5-6) 903.4 1071.3 1,108.2 1,374.5 1,249.25. Imports (g+nfs) 1,572.0 1,845.7 1,973.3 2,341.5 2,441.96. Capacity to Import 668.6 774.4 865.1 967.0 1,192.77. (Exports (g+nfs)) 650.4 790.9 865.1 1,039.5 1,265.8

8. Total Expenditures 2,571.5 2,803.4 3,027.1 3,429.7 3,536.9

9. Consumption 2,009.3 2,084.8 2,300.7 2,581.3 2,605.910. General Government 630.0 555.7 618.9 646.2 650.711. Private 1,379.3 1,529.1 1,681.8 1,935.1 1,955.2

12. Investment 562.2 718.6 726.4 848.4 931.013. Fixed Investment 512.0 698.3 746.3 892.4 913.514. Changes in Stocks 50.2 20.3 -19.9 -44.0 17.5

15. Domestic Saving -341.2 -352.7 -381.8 -526.1 -318.216. Net Factor Income 545.1 519.1 481.8 481.1 524.717. Current Transfers 16.2 -3.9 12.7 -10.3 20.218. National Savings 220.1 162.5 112.7 -55.3 226.7

Dinar Deflators (1978=100)19. Gross Domestic Product 79.9 89.6 100.0 109.0 119.920. Imports (g+nfs) 89.1 95.9 100.0 114.7 128.321. Exports (g+nfs) 91.6 93.9 100.0 106.7 120.922. Total Expenditures I/ 82.4 92.3 100.0 113.4 127.223. Government Consumption 80.6 91.8 100.0 118.6 130.424. Private Consumption 1/ 81.6 92.6 100.0 114.2 127.225. Fixed Investment 87.8 91.9 100.0 107.5 124.826. Changes in Stocks 79.2 88.1 100.0 107.4 117.2

27. Exchange Rate Index(US cents per Dinar) .923 .931 1.000 1.020 1.026

1/ Calculated to include statistical discrepancy.

- 75 -

Table 3: JORDAN

BALANCE OF PAYMENTS

(Millions of US$ at Current Prices)

1976 1977 1978 1979 1980

1. EXPORTS (g+nfs) 551.0 692.4 865.6 1,132.9 1,572.82. Merchandise (fob) 206.9 249.2 296.6 281.3 574.03. Non-Factor Services 344.1 443.2 569.0 730.6 998.7

4. IMPORTS (g+nfs) 1,295.2 1,648.4 1,973.8 2,740.3 3,217.5

5. Merchandise (fob) 1,020.3 1,377.2 1,494.9 1,954.6 2,390.66. Non-Factor Services 274.9 271.2 478.9 785.7 826.9

7. RESOURCE BALANCE -744.2 -956.0 -1,109.8 -1,607.4 -1,644.7

8. Net Factor Income 415.2 446.7 482.5 557.1 685.9

9. Factor Receipts 449.7 510.7 570.8 686.3 919.210. Factor Payments 34.7 63.5 88.7 128.9 232.811. (M&LT Interest Paid) 8.0 15.0 24.0 40.0 58.0

12. Net Current Transfers 12.4 -3.4 12.6 -12.0 26.5

13. Transfer Receipts 15.4 5.5 14.8 8.8 34.014. Transfer Payments 3.0 8.9 2.2 20.8 7.5

15. CURRENT BALANCE -316.6 -512.7 -614.7 -1,062.3 -932.3

M&LT CAPITAL INFLOW

16. Direct Investment 10.0 11.0 56.0 26.0 31.017. Official Grant Aid 369.6 507.0 334.5 1,058.1 1,308.118. Net M&LT Loans (DRS) 71.0 190.0 189.0 193.0 232.019. Disbursements 91.0 214.0 223.0 250.0 308.020. Repayments 21.0 23.0 34.0 56.0 75.021. Other M&LT (net -105.3 -49.4 47.8 -25.7 -155.5

22. Net Credit from IMF - - -

23. Disbursements - - - -

24. Repayments - - - - -

25. Net Short-Term Capital -20.8 -2.9 6.3 10.6 3.826. Capital Flows NEI - - - 4.0 4.027. Errors and Omissions -40.9 51.7 102.2 20.9 -128.9

28. Changes in Net Reserves 32.9 -196.7 -120.4 -212.0 -356.1(-indicates increase)

h

- 76 -

Paz* lTABLE 3A

JORDAN ̂ -SOCIAL INDICATORS DATA SHUT

JORDAN REFERNCE GROUPS (WEIGETED AVE1RAARIA (THtSAND SQ. E.) - I"ST RICENT ESTIMTE)-

TOTAL 97.7 MIDDLE INCOHAGRICULTURAL 14.7 MOST RECENT NORTH ARICA & MIDDLE INCOKE

1960 /b 1970 /b ESTIMATE /b MIDDLE EAST LATIN AMRICA A CARDIBAIN

GNP PER CAPITA (US$) .. 380.0 1420.0tc 1253.6 1902.0

ENERGY CONSUMPTION PER CAPITA(KILOGRAMS OF COAL EQUIVALENT) 185.7 269.2 522.3 713.5 1239.4

POPULATION AND VITAL STATISTICSPOPULATION, MiD-YEAR (THOUSANDS) 1695.0 2299.0 3244.0URBAN POPULATION (PERCENT OF TOTAL) 42.7 49.6 56.3 47.3 65.7

POPULATION PROJECTIONSPOPULATION IN YEAR 2000 (MILLIONS) 5.8STATIONARY POPULATION (MILLIONS) 12.6YEAR STATIONARY POPULATION IS REACHED 2085

POPULATION DENSITYPER SQ. EM. 17.3 23.5 32.0 33.8 35.2PER SQ. KM. AGRICULTURAL LAND 132.4 163.6 212.7 420.9 92.5

POPULATION AGE STRUCTURE (PERCENT)0-14 YRS. 44.4 45.8 46.5 44.3 39.7

15-64 YRS. 51.5 51.0 50.8 52.4 56.165 YRS. AND ABOVE 4.1 3.1 2.7 3.3 4.2

POPULATION GROWTH RATE (PERCENT)TOTAL 3.1 3.0 3.4 2.8 2.4URBAN 5.2/c 4.5 4.7 4.6 3.8

CRUDE BIRTH RATE (PER THOUSAND) 47.4 47.6 44.4 41.2 31.4CRUDE DEATH RATE (PER THOUSAND) 19.9 15.5 9.7 12.2 8.4GROSS REPRODUCTION RATE 3.5 3.6 3.4 2.9 2.1FAMILY PLANNING

ACCEPTORS, ANNUAL (THOUSANDS) .. ..USERS (PERCENT OF MARRIED WOMEN) .. ..

FOOD AND NUTRITIONINDEX OF FOOD PRODUCTION

PER CAPITA (1969-71-100) 220.0 79.0 106.0 100.4 110.0

PER CAPITA SUPPLY OFCALORIES (PERCENT OF

REQUIREMENTS) 93.2 67.3 61.6/d 108.5 108.4PROrEINS (GRAMS PER DAY) 60.9 40.2 40.3Td 71.9 66.0

OF WHICH ANIMAL AND PULSE 14.6 10.7 11.07 18.0 34.0

CHILD (AGES 1-4) MORTALITY RATE 26.3 12.4 5.8 15.1 5.6

HEALTHI1VE EXPECTANCY AT BIRTH (YEARS) 47.0 54.1 61.2 56.9 64.2INFANT MORTALITY RATE (PERTHOUSAND) 135.5 97.5 69.3 104.3 64.2

ACCESS TO SAFE WATER (PERCENT OFPOPULATION)

TOTAL 21.3 .. 61.0/c 59.1 65.6URBAN 48.6 .. 66.067T 83.1 78.9RURAL 2.1 .. 50.0o7 39.8 43.9

ACCESS TO EXCRETA DISPOSAL (PERCENTOF POPULATION)

TOTAL .. .. .. .. 59.3URBAN .. .. .. .. 75.3RURAL .. .. .. .. 30.0

POPULATION PER PHYSICIAN 5804.7 3775.0 1956.4 4015.5 1617.3POPUILATION PER NURSING PERSON 1930.2/e 1477.5 821.0 1802.2 1063.5POPULATION PER HOSPITAL BED

TOTAL 557.0 1351.5 1186.8/d 641.7 477.4URBAN .. 1097.6 687.274 538.3 679.8RURAL .. 5543.6 .. 2403.3 1903.4

ADMISSIONS PER HOSPITAL RED .. 36.5 45.7/d 25.5 27.3

HOUSINGAVERAGE SIZE OF HOUSEHOLD

TOTAL 5.3 6.1 6.7/cURBAN 5.5 ..

RURAL 5.1 ..

AVERAGE NUMBER OF PERSONS PER ROOMTOTAL .. ..

6.5/c

URBAN .. ..RURAL .. ..

ACCESS TO ELECTRICITY (PERCENTOF DWELLINGS)

TOTAL 17.0 .. 66.0/c

URBAN 39.2 .. 90.07..RURAL 1.4 .. 30.07E

- 77 -

Page 2TABLE 3A

JORDAN - SOCIAL INDICATORS DATA SHEET

JORDAN REFERENCE GROUPS (WEIGHTED AVERAGES- HOST RECENT ESTIMATE) -

MIDDLE INCOMEMOST RECENT NORTH AFRICA & MIDDLE INCOME

1960 /b 1970 /b ESTIMATE /b MIDDLE EAST LATIN AMERICA & CARIBBEAN

EDUCATIONADJUSTED ENROLLMENT RATIOS

PRIMARY: TOTAL 77.0 72.0/c 102.0/c 88.7 104.3MALE 94.0 79.07h 106.o7T 104.5 106.4FEMALE 59.0 65.07/ 99.607 72.0 105.3

SECONDARY: TOTAL 25.0 33.0/c 74.0/c f 39.7 41.3MALE 36.0 41..07E 81.07` 49.3 40.4FEMALE 13.0 24.O0c 66.O7?! 29.0 41.8

VOCATIONAL ENROL. (% OF SECONDARY) 2.7 3.0/c 12.0/c 10.1 33.7

PUPIL-TEACHER RATIOPRIMARY 34.1 38.8/c 32.2/c 34.1 29.9SECONDARY 20.0 23.07T 20.67Th 23.7 16.7

ADULT LITERACY RATE (PERCENT) 32.4 .. 70.0 43.3 79.1

CONSUMPTIONPASSENGER CARS PER THOUSAND

POPULATION 3.7 6.7 19.6/d 17.8 42.8RADIO RECEIVERS PER THOUSAND

POPULATION 37.8 160.9 171.5 131.3 270.5TV RECEIVERS PER THOUSAND

POPULATION .. 20.0 52.8 44.1 107.7NEWSPAPER ("DAILY GENERALINTEREST") CIRCULATION PERTHOUSAND POPULATION 18.3 24.4 29.3/d 31.5 63.7CINEMA ANNUAL ATTENDANCE PER CAPITA 3.0 0.9 4.0 1.7 2.7

LABOR FORCETOTAL LABOR FORCE (THOUSANDS) 432.3 568.6 768.9

FEHALE (PERCENT) 5.0 5.6 6.5 10.6 24.4AGRICULTURE (PERCENT) 44.0 34.0 20.0 42.4 31.3INDUSTRY (PERCENT) 26.0 9.0 20.0 27.8 23.9

PARTICIPATION RATE (PERCENT)TOTAL 25.5 24.7 23.7 26.0 33.6MALE 46.7 45.5 43.4 46.2 50.4FEMALE 2.7 2.8 3.1 5.6 16.8

ECONOMIC DEPENDENCY RATIO 1.9 2.0 2.1 1.9 1.3

INCOME DISTRIBUTIONPERCENT OF PRIVATE INCOMERECEIVED BY

HIGHEST 5 PERCENT OF HOUSEHOLDSNIGHEST 20 PERCENT OF HOUSEHOLDS .. ..

LOWEST 20 PERCENT OF HOUSEHOLDS .. ..

LOWEST 40 PERCENT OF HOUSEHOLDS .. ..

POVERTY TARGET GROUPSESTIMATED ABSDLUTE POVERTY INCOMELEVEL (USS PER CAPITA)

URBAN .. .. 230.0/d 279.2RURAL .. .. 100.T0 178.6 184.1

ESTIMATED RELATIVE POVERTY INCOMELEVEL (USS PER CAPITA)

URBAN .. .. 206.0/d 403.6 518.0RURAL .. .. 135.07/ 285.6 371.1

ESTIMATED POPULATION BELOW ABSOLUTEPOVERTY INCOME LEVEL (PERCENT)

URBAN .. .. 14.0 22.1RURAL .. .. 17.0 30.9

Not availableNot applicable.

NOTES

/a The group averagea for each indicator are population-weighted arithmetic means. Coverage of countriesamong the indicators depends on availability of data and is not uniform.

/b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969and 1971; and for Most Recent Estimate, between 1978 and 1980.

/c East Bank only; /d 1977; /e 1962; /f Includes preparatory education ages 12-14 years.

May, 1982

-78 -

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too boopirole divided by rtca uowhor of bnd..POPULATI Of Oil VITAL STATISTICS

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lblo ouiro l-osra of fort)) - olAio of uoIt to t-Io PoPolorioo; A nnbl coiu fatopo oiiul dreoolvog qusrtretiffer.u. twfitoirc of urbt Aouo sp offeco coopo-bshitiy of dtof 0. totfbir nao sIs., A hondrts or lutgcr n.y or my our he foctudd to

ono uuro;1960. 1970. out 1960 dto. rho hoosobld for ststliscirlIpeooOfooti_ frootctru A-rerAo foubec o:fp paw Pe.r con-.roftl orbs. out rool - 50000run-

PoRolf io isreor286 - Corosot puutt projctious Ace boot on1960 br of pona P0 o tuI t o,. eatorura occupiot -coroiootota1 popoltioo by o. out oa Aoutrhoir -autliry sod fortility 00=0 deticc-n. rPoctioel. DOso1Logs antuo1 ruprnou stocuoro artProjootia poroetfrw for mototity rte. cupleof ohm- lo-ot tm- corpi:t port..tug cur p.-o.cr.oy so birth toocsootg with ccotpo s cotf force A osto foctritior iotour. of totoe -rfturbu. ou rursi -lor. sAt font. lif. to cpecroy atabiltif g or 77.5 Yeore. The Pars- Coovettoo..I dontliog with lercr otoo ._qostoers os porcoutoeatorforc f-toitiy .tto also bo.- flor- luvele ouiog dtocitu Io of totol. urboc. AMtotrunt doollfogs.o-psctvly.tertiliry o.courdig to I000w oot rot Psorrat fily Plouct. rofoeorefAch co.mury Io thou aotgued one of tbso. ot- ortcirtcoe of nortolity EDE0CATIONout fotility modoo for proJecti.s proposes. AdJ-sod Eurollteto 8sfi.

ff usr001fton-t a t ItOt ."s pcP.1tol too b"r is o.t gouh uloce Potery sobol- rur,t: notel out feet - Crus.t crul, otto ut tfneltbshto rar it equal to dbs trot Iao o abc the ag Irr..c. cetortncoo ttae or ohs prfnsoy lur Oprcantgoofesctvsin cr00 ot. This . ociocod oulyoffer fooilicy -ooc declto tr prinsy chool-ug. popltatiroo; crnaty iorlrteo chuldrec ogotd 6-t1th0 ropl--norte of- cto u rsprodorttoo rat.. .1.0.etch g-tirsff- r t b dtjrotd four diftferot Leogrics of.potery_. e.ooIIu; forof cew. -ol...o iceslf e=.oly. Thu ottfisr rolcu io sboc tto ih uroroo otiroto an_ tuteyeredtO sc

esi-tod -o thu boor. of rho proJacted chraoets-ritc- of oha poputotic" ito son prpilo Atu bol1n or shv rho offkicio orbs) og.Ior rho Yea 2088. oa trho rors of douse of fo-tility rote to -eploc- Sorotuo othul1- !,total, na tetfo no:.l. - Coqcoood onshore; .e.o..oy

nt b-oot.".etrrr oress tee oryusof sptor-e poitoto L toorurtoo;Yasr tstoi-uo pr ouois rearhdt - Th. Yoa whoa atstiooocy pcpulfctou p_rrdtw guonol. vorc.trot or toucher tcioitg Orut-crtor for Pop IIo

situ will be reachd. osou1y of 11 00 17 pear of -g; oroprocdooc croo.0. ore geut rally

Par o. b. - ltt-yesr ropIlt'ot per oqoore Oilonter (100 htorture) of Voratto_l _e1ctrttnoc(e o of "cotrI - V-cstonl otio lstoto1t oe; 1960. 1970 out1979 dtor. include techilcal tcord ritl.for cther yronehich oprsta totpout-

Per so.h.IIrotrlln - Creputed a h fcrogtour ol. loo culy or so topnrtnoos of a-cootry ioortitorn-coy t6, 17 1879 dtac. Proit-cetchar rot0o -drEtMr. cot oocdts - focal erdece eco Le.t

Pnuolartou Ago Strurtoro (ire...) Chittdo (0-lu y-r) , -oktcg-rgo (10- pri_ury ro:ed tay locel dirtied hy cuwor of te-her ic thehA ysoro). out rotfrtd (6) yours d out00) As porcestsgo of nit-ear popo- c--epootdp erlalstin 190 80 o 90dt.Adult literacy o-to(rocce-) - Literoto ado1co (shlo troes .. ant -ire)

yuuutoriou Crcuvh tote foorcout) - totol - 1too grrwh rarro of crust aid- pou .t.precgo of cr0I atolt populstioc sget 15 Yos .dou over.yourtpopluta for tO9SO-h0, 1960-70, sod 197-60.

popottio iooC. h _toot C orat) _- robs - A--Iu grthb -ot- of orhar popo- CONStSPIONP0tooIItoce fo 19)040, 1960-70,. ou 197040. P..e.-g. Ctru (p.r thorourt popooctioo - Poosoog.r rat .. crpoito uro

Crod Sfcc fft eI torhIbsus) -A_-colti-o birch. Pro tho....cd of wit-year C-csoc ieocltoght pur--; -1rldur awbulo1c.... h-urse artpopulatfso; 1960. 1970~.dso 1980 tot. atltrsryv_hilc~.

cruto oth fce19` 0 l'two=d)' - tocaldecb pe icoo f nit-your ..t..oetur .rruoP" trrlutc All ope to reciver for r-dfo,prpottirc 1960, , 17. ad 1990 told-tpc. t ... broutcsc tr geors1 ecblfc p00 chcucd cf pplrr; coe r

her oon-I -eProtucor portut If eh. uetuco roto og-epoifto fer- ousott ffort; dtac for roret py-r uy oc be rouorobluutor-ttiltypo-tw;utually ft ro-yr.. ..... gos e.ig Jo 1960, 197h,..ud 1980. bolooc1 .1diohod lcotg

Patrlloio- Acctoorco, A.ocol (thcor-ot) - or-usi ooehcr of acce Ptor TV Oecever (per th .w.. prctd oc TV r-orrir foro b-od-.trcrf bioth-..oIcrul teio outer -oece of o.tricr foatl Nisotg Pr'rn gcrl o tr 0 hccsdppooio :oltsutued TVY cerocer

Fsetty Plsouto-lse.- (rrst f -orrid ouno) -Pretoie cf nrriu.dgiorroourleaod to yusr. oh.. rugio-titoo of TV fore c . to ffect.ocac Lot rhtl-i.rrig r(05-44 -ur) h.r bee trh-rrucol tuvire- Oufue tcltcrfe lootrruulo b sorufe rir-

publi-roioc devrtod printily tc r...ortiog g .. roesloo It jorvoc.idertdFOOD ANDS NUTrcTION ccto 'dily' if it app.rsro to...at fouc fIn o ree.k.

Icduo of ford P-rd-rlic rer Pisoto (1918-7!itli) - butec of per roet cr -ocu Cfoen tAeol.. Actctsce.. rer Caric_pret -rr-Osr rc the orte ofP tidoclc cf .11 frod od ioo.Prct-itrce-lotreo tot - feed out ficleto :cIt tortoprho you, iorudlog sdoioolcro .vdr ivet iroL -orcleodsr Yea botlo. Cro-dltluoccvr prtnory good. (e.g. -rgorv... sod -bhIte ros.Itoted ot eugar) which are edible ood coccu.ico-ti.tol (e.g. cr0 e dnteoslrueoctted). dgffregtoe p-dotuitt of uc ror is booe.d cc LABORFORCfErutuo_o _rog ProIdr.r pclc r1tgbt; I160h) 107. s.d 1961 dora. Torol Lohr Y-.c (trh.o..ote)- -rrwro rtrepecot iociodcog

Pro.. cuios oorl of rslrto ...cct of rgtent)- Cooputud f row t= foreow tdotoeeplyed hoc rocloding hrcauoiro, tcofoce oct.-rofy qoi-oloc of rot sort oupliot -valoble to -ootr Pro rayirt. rooo ycyotc cO ol ogre. beclottiooe io -art... c_utrlac

p.r day. Arailalbr eopplieu r.oepriwe dcsertic prvd-tiro, uoc. o cocrupobll; 1960, 1070 tot 1960d tor. __S ocyorco, cut cbogso ic toroc N. c pliro -uIoda artiu bed, todo--ete(eru - Fusole lbor forar pruogef -oco ishr forer.q-stitioa osd to ford pr-rueio. to8t cI.e. iv tiuc'rihotb.!i toqotr Agriru)1rr (perret) b.uhr forrri t.f.om 8 , f--uty, hoettog tot

rots weuo eriatut b rIO bsoo or phyoiLctogIr 0001 fev roostL tor- fiohito t porco of torul la.borlolrro;190 1910_ 1 ro 19801 dart.vi'ty scthathrolorcsrdcnc boptrr.dhoy rigtgo., ago tdotrey (-urrro.. t hv fot ceoo. trcartico vfrcroou n tcd bcu ccpeolric.ou aitog 10 pe--o frr..uotra so brrrr,ocrst pow- g as. p.reutcog of cr-I itbvr fcree;

hoerd Oc;1645 190ot177 dut610."1970 ovd 190 totOur earic. rorply rOocof (re redy Pr oc.. . AY r.tci roco f pot c-ec- eurclruertivo 8cI--rrcc - rru. nlr. tot f-1tl - P-rtleOp-ie or

rot opply of,fvd per d.y. NRe oopply cf food iu doftrodtcchbre. R.- -rciryt rroorecr-prtod au coo. osr Mo frr1i lahr ferrcoqoonurfor all... trocl.o rotblishet by USDA prrvid. for alden p--otagou of forol, -.to .ot felot poclocerIoil tfsesrttry

ulcsru ol 10grn of total prccto" pr duy toO 20 cRoss of octa eod 16, 1970, cod 1980 laOs. Th.f.sro ba...d 00 (trw' p-rrlrpotlorrspole Prooi., of aiteh if Roso should Or tolea porcot. Thotootau.d- relrigg-- verroeo teP.pttio.. tot Ir. ctin trou. A

arte ar irono hso cloe ef 7 cr.0o crolprorel do I' grosf I wooctoos tro r. f csc-.Io ... vr-r.1acinat ovlutoto uo aert~ fc olo rt, PrpwtbP5ithoTrtfowc cuury tuto - curic of prpoicior octro 15 sot 65 cud .ryWe-nd Pout1 SocyI 196-5.17 out 1970 dct. to rho tota Ibvo f-v-r

Yur c isroersrl res uint u- polw-rIctr o,pply of fcct to-otrud loon i-1 ocrett 1.an p iwu Sto rw Par dup 19 ~ 615.1970 art 1977 docs. (SOMDtof TRIBUfTgIOp

Chid(sw 1_41 Doath Rto (per ch-aod) - A--oa deothu p.r thustI Prrdrooft tu of rt Mtl bc o ( he Or .. uh act kct) - R-to dce by rirboorcp roy0-b Ygoos to hitltoc to ohi. apt gc-p, f- oreat dr-uoytgroo- pS reot cirbr 0prcr ocu 5yca c .oror hO porcuo

one.. dotu derirtd fr.e life tubt_; 1960, 1870 art 19800 dtar. of h-oecIctI

HEALTH POVORTY TARGTS 00000Litfo A Y8000c or uiro (rar)d-tAvu-ug oreher of Your cf lifo -uotoig Th:. fv1l.ioug our tfre tr varyuproae oore f poverY I.veIo.

orbiro;16.17, et18 os sot h.odI owpeo io rotrberrtoIrortoulc too(u Xbotd) - Aouti dwacl o.f iofarco outer -r Pes Owrtead Abeclof.t or. ur oa 00 e stc -rbs. c roul -

ofAgoptronn iubirth; 160190 sod 19ff door Alcorlt _ reets bors luvo Lu that boron luo hls hchunitAccur to Osfo Vorr (oure tocf urroLocloc) - -rt1, urb, uod -rr1 - fN- o itrictouIyp deq-o tire plo .. so...tts1 cor-focd -equir-unru .1woc

her ofropola (c -o b uro,Lou r..ul wth .... e.ool,soeo to safe ffoctble..notoo wpply fo dlrt-o tru.t orf ace tor.ors croto...etd ho, -- ctsuica-r Etiatucd R.tutivo Pouo bcn byE UIS$ rec uic) - urbar tot .. l-I

-ho tr as that too. pooot-d buulir, pnig. out satirto nil)-t t rtEottic- p-vuty "con .E t ran.--thir ofcuAge ietai.per.ootags of rthto roopecrtr oposooo . o. rhbo aroooPrblt pOsO iecnc h oo p ra ow stootfo tbs ru1wfrantolo or eosu.tpIce . tccro cr0 no rhur 200 urre.. for-. chonor sap ho lvul ich udjos ucfor higher v-t rf livoog O.r oboorso

_onitoreta b.Org wiuthi -ot olo. a.c.o. of c~th.c.oon Ic o-Ir...aeo Uecina.d Proutuiro I-Aolonsotut Pcreocry buros LUo (!!roro)-orour=obte oc-s would tnoly tlhwo tbo hrutaifa or nebro of rho ho-occld ar rots. I-P. ..rotc popo lo(roo sot -ro1) whoar otlc

tdsthov to peud A diporop-tlo-tr part of tls tsp J. ftchiog rho poor'

A.c,n to Zoru teea orouofeotooi" - trua. obr r ri -rNuter of peopl e oo)obs.,ou rua) stord by uxorto dieprol s

pauaaeou hI roopcrir pepoiocto. fuc.et dispoo asp tyototd

uS wstu-oAts by wstu-bseo systa oe rho -t of pit povi t tnni-tar tnwItulnitu.

Foo..tit, . P.L. - -PopoL.iwr dti,dt by ott..ouf procfisfg phywi- fruonto. sot ff-Lt1 Dtot Dtisldaeiqailfiwd fw..a -diral boh1u or olatyle)XurncOluiatPuJeofu fe

FeuaBn nlsan Puo -Ppolro dtctd by cctae of peurtistag May 1962

IBRD 1212OR3>,2, / < , \| 316& / MAY 1983

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