Jordan's economy hit by soaring oil prices

Unlike many of its neighbours in the Middle East, Jordan has no oil and is almost entirely dependent on foreign energy to satisfy domestic demand.

As crude prices have soared, Jordan's reliance on foreign oil has become increasingly costly, and its practice of providing fuel subsidies for its citizens was no longer sustainable. On 8 February, Jordan lifted most of its oil subsidies in a move that it is estimated will save the country $187 million in 2008.

However, in the wake of removing the subsidies, the price of some fuels in Jordan jumped 76% overnight, creating a ripple effect across the kingdom's economy and leading to soaring prices for basic foods such as cereals and dairy products.

Jordan's Department of Statistics estimated that inflation accelerated to 14.1% in March, up from 12.5% in February. The government had predicted that inflation would be between 8% and 9% for 2008.

Necessary move

Jordan's government chose to reduce fuel subsidies not only to help lower its costs, but also as part of its overall strategy of liberalising its markets, says H.E. Samir Al Rifai, CEO of Jordan Dubai Capital. He acknowledges that the impact of these measures is 'very challenging' at the moment and will remain so until the country finds ways to use more renewable sources and becomes more energy efficient.

Al Rifai also concedes that Jordan is seeing higher inflation across every sector, but he believes that despite the impact of surging prices, the kingdom's economy is 'forging ahead' and will maintain its current upward track as its new reforms take hold.

Economic reforms taking shape

Jordan has implemented a number of structural and economic reforms in recent years that have helped attract greater foreign investment. These reforms, along with private sector-led trade growth, have resulted in a more open economy and created diversity in exports and investments, Al Rifai says.

One positive impact of high oil prices is that Jordan is seeing increased investment from the oil-producing countries in the region. 'Investments from the GCC alone this year are expected to reach $4 billion; that's a $2.5 billion increase from last year,' Al Rifai notes.

The result is more employment opportunities and a higher standard of living for Jordanians. 'Economic growth in 2006 reached 6%, which was recognized as a significant success, especially considering the challenges we face in our region,' he noted.

Future growth sectors

In addition to direct foreign investment, the tourism sector is expected to play a key role in fuelling Jordan's economic growth. 'The rise of tourism in 2008 will add thousands of new job opportunities, lowering unemployment rates, as well as pumping millions into the Jordanian economy,' Al Rifai said.

Industry has experienced an enormous boost in investment so far this year, primarily due to increased infrastructure and real estate projects, much of which can be related to increased tourism, as well as to international companies establishing offices in Amman.

Al Rifai predicts that the IT sector will account for several thousand new job opportunities in the coming year, as well as increasingly drawing in revenues from international outsourcing. In addition, energy infrastructure, real estate and financial services remain promising sectors, attracting investments locally, regionally, and internationally.

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