Jordan: Improving prospects (page 2 of 2)

The growth in clothing sales has been at the heart of Jordan's export renaissance. They now account for 30% of Jordan's total exports compared to just 3% five years ago. The value of clothing exports, mainly to the US, grew by 50% alone in the first eight months of the year. The IMF has warned that this growth is likely to halt in 2005 and then only grow at a reduced annual rate of 7.5%. This is its best case scenario. Potentially, the IMF suggests, clothing exports could drop by as much as 75% in 2005, widening Jordan's current account deficit by 2.2%.

This seems unlikely. Jordan's free trade deal with the US will offer some protection to Jordan's exporters, as they will not have to pay American trade tariffs. However the impact on their market share from low cost producers such as China should not be underestimated. After the lifting of restrictions on 29 apparel categories to the US market in 2001 China's market share went from 9% to 51% in terms of volume in just two years. The impact from the end of the MFA is unlikely to be so sudden nor perhaps as straightforward. Several US textile companies have already petitioned for further tariffs to be imposed against Chinese imports. Nonetheless it underlines the need for Jordan's exporters to move quickly up the value chain.

In spite of the challenges posed by the end of the MFA, Jordan's outlook is improving. The economy now has a firm macro foundation and government policy continues to move in the right direction. Jordan's geopolitical importance suggests that donor flows will continue to provide economic support. Moreover Jordan's economy has shown remarkable resilience in recent years in the face of a series of external shocks. As 2004's performance demonstrates the economy has much potential.