Smart sanctions will hit Jordan

Jordan has enjoyed a modest economic upturn over the past 18 months, but now faces a difficult period due to the imminent lifting of trade sanctions against Iraq.

For Jordan has been the main conduit for the United Nations' oil-for-food programme as well as the illegal sanctions busting trade in oil across the Iraq border. Now that the sanctions against all non-military trade seem set to be lifted within a month, Jordan is left with an economic problem, and no obvious means of filling a big hole in its domestic earnings.

Things had been getting much better for Jordan. In the year 2000 the economy achieved 4.7% real growth in GDP, reversing several years of falling GDP per capita income.

But in fact the Palestinian Intifada since last September was already taking its toll on the outlook for 2001. Tourism, which accounts for 8.5% of national GDP, has taken a knock with Western tourists wary of venturing into the region.

Hotels in Amman are currently apprehensive about occupancy rates this year, reports The Jordan Times. And the closely associated wholesale and retail sectors are expected to fall by 4-5% against 2000 figures, according to the Arab Bank.

Construction activity, which saw an 8.4% boom in the first half of 2000, has come falling back to earth with investors rapidly scaling back new projects, despite lower interest rates.

However, agriculture and manufacturing are having a good year. Good weather will boost agricultural output by 10 to 12% this year, and manufacturers expect a 5-6% rise in output on the back of improved demand from Iraq due the lifting of sanctions.

All the same, the country will suffer a big blow from rising energy prices because once Iraq can sell all its oil output at world price levels, Jordan will loose its black market supply of oil at bargain prices. Rising energy costs will therefore be a further blow to the domestic economy which is already reeling under the slowdown in tourism.

A recent Arab Bank study concluded that with population growth of 3% and GDP projections in the range of 2-3%, the most likely conclusion was that per capita growth in Jordan would fall in 2001.