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Jordan Industrial Policy
Like most nations with ambitious development plans, Jordan
pinned its hopes on growth, particularly in the export of
manufactured goods. Although high tariff and nontariff barriers
sheltered selected industries from competition from lower cost
imports, both nominal and effective rates of protection generally
were low by the standards of developing economies. On the one hand,
effective protection was high for paper and wood products,
furniture, and apparel. On the other hand, imports of machinery,
electrical equipment, and transport equipment were effectively
subsidized. In view of its sustained high level of import of
manufactured goods, observers viewed Jordan's pursuit of importsubstitution industrialization as moderate.
Jordan's import policy theoretically was designed to promote
domestic manufacturing industries by ensuring their access to
cheaper imported capital goods, raw materials, and other
intermediate inputs rather than by granting them monopoly markets.
The government believed that development of a domestic
manufacturing base had to be led by exports because Jordan's small
population could not generate enough consumer demand for
manufacturing plants to achieve economies of scale or scope. In
some cases, consumer demand was too low to justify building even
the smallest possible facility. Domestic consumer demand alone was
insufficient to support some manufacturing industries despite the
relatively high wages paid to Jordanian workers; the high wages
resulted in increased product costs and diminished export sales of
manufactured goods. In the late 1980s, according to a Jordanian
economist, the country continued to experience constant returns to
scale despite its significant exports. Essentially, Jordan was
still in the first stage of industrial production, in which the per
unit costs were high because of limited output.
The relative contributions to manufacturing expansion made by
domestic demand growth, export growth, and import substitution were
difficult to assess accurately. Growth in domestic demand
stimulated almost 60 percent of manufacturing expansion, export
growth contributed a moderate 12 percent, and import substitution
contributed nearly 30 percent. But exports accounted for about 33
percent of the growth of intermediate goods (fertilizers and other
inputs) industries, and about 25 percent of the growth of consumer
goods industries. In contrast, external demand contributed
virtually nothing to growth in the metal products, iron and steel,
rubber, and glass industries; import substitution, domestic demand
growth, or a combination of the two accounted for all domestic
manufacturing growth, resulting in self-sufficiency. In the case of
the furniture, apparel, textile, and industrial chemical
industries, however, either increased domestic demand, increased
foreign demand, or a combination of both led to simultaneous
domestic manufacturing growth and increased imports.
In the 1970s and early 1980s, the government concentrated on
developing the first tier of the manufacturing sector--the
production of chemicals and fertilizers--because, unlike consumer
goods, these commodities appeared to have guaranteed export
markets. The government followed this policy although the second
tier of the manufacturing sector--the production of consumer goods-
-had significantly higher value added. The government strategy was
to increase value added in exported commodities by producing and
exporting processed commodities, such as fertilizers from raw
phosphates and metal pipes from ore and ingots. Because some other
Middle Eastern and West Asian nations had adopted the same
strategy, competition for markets increased at the same time that
demand slumped. Jordan suffered from declining terms of trade as
the value of its processed commodity exports fell relative to the
value of its consumer and capital goods imports.
In the late 1980s, therefore, Jordan was reassessing its
industrial strategy and searching for potential areas of
comparative advantage in exporting light-manufactured goods and
consumer and capital goods that had higher value added. Consumer
goods were protected in many foreign markets, and Jordanian exports
as a percentage of output in the consumer goods sector ranged only
between 2 percent and 9 percent, as opposed to a range of 12
percent to 35 percent in the extractive industry based
manufacturing sector. Accordingly, Jordan hoped to take advantage
of its educated work force and increase the manufacture of capital
goods that were either technical in nature or required engineering
and technical expertise to manufacture. Those types of products had
more appeal in foreign markets. To promote such development, the
government established the Higher Council for Science and
Technology, which in turn founded the private-sector Jordan
Technology Group as an umbrella organization for new hightechnology companies.
Throughout the 1970s and 1980s, the profitability of some
capital goods industries, measured as a ratio of both gross output
value and of value added, fell steeply compared to profit ratios in
the commodities and consumer goods sectors. During the same period,
profitability of the natural resources sector declined minimally,
while profitability of the consumer goods sector rose. The capital
goods sector had been much more profitable than the natural
resources sector; but by the late 1980s, the two sectors were
equally profitable. The main cause of the plunge in profitability
among capital goods apparently was price inflation of imported
intermediate inputs. Especially affected, for example, were the
electrical equipment and plastics industries--precisely the type of
technical industries that Jordan envisaged as important to its
economic future. The drop in profitability was not irremediable,
however, and government officials continued to be optimistic about
prospects in technical industries, particularly those that were
skill intensive and labor intensive rather than capital intensive.
The pharmaceuticals and veterinary medicines industries were
examples of the new direction of industrial development policy. The
government-established Arab Pharmaceutical Manufacturing Company
exported more than 70 percent of its production in 1987. A halfdozen other drug and medical equipment companies were garnering a
large share of the Middle Eastern market in the late 1980s.
Engineering industries also were a development target. In 1985 this
manufacturing sector accounted for about 9 percent of manufacturing
value added, 14 percent of total manufacturing employment, and
about US$5 million in export sales. About 95 percent of the sector
was devoted to basic fabrication of metal sheets, pipes, and parts.
Jordan also exported in limited quantities more sophisticated
products, such as domestic appliances, commercial vehicles,
electrical equipment, and machinery; eventually it wanted to
produce and export scientific equipment and consumer electronics.
Another developing industry was plastic containers and packaging,
of which about one-quarter of output was exported.
The strategy to boost manufactured exports ultimately had to
take into account the low manufacturing productivity growth of the
1980s. Average annual productivity growth was estimated at 2
percent to 3 percent, and in 1986 it was a mere 1.4 percent. In
several specific sectors, productivity was actually falling.
Because this low or negative growth occurred at a time when labor
productivity was increasing rapidly, it was attributable to some
combination of insufficient investment and stagnant domestic and
foreign demand. Jordan's average industrial capacity utilization,
according to a UN report, was about 57 percent, but varied widely
according to industry. Pent up consumer demand for some products
was great enough so that any increase in capacity could be
translated automatically into increased production and sales.
Capacity utilization was almost 100 percent for certain chemical
and consumer goods factories, indicating that more investment might
be warranted, whereas capacity utilization in the production of
certain household furnishings and building products was very low,
suggesting suppressed or little demand. Spare production capacity
meant that manufacturers would be able to meet sudden demand
surges. In 1987, following a period of declining production, Egypt
agreed to import construction materials and output of cement and
metal pipes jumped 32 percent and 48 percent, respectively.
Production of paper and cardboard also increased about 36 percent
as the packaging industry developed, but production of detergent
dropped 8 percent and production of textiles dropped 13 percent,
leaving spare capacity. The variability of capacity utilization
indicated the problems that the government had to confront in
forecasting domestic and foreign demand for manufactured goods.
Data as of December 1989
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