ECONOMY-JORDAN: Dubai Crisis Casts Shadows On 2010
Surrounded by oil-rich nations Jordan has been able to make do with its modest resources over the years. In 2010, however, the country will have to face challenges associated with global economic slowdown and the crisis in Dubai.
'The economic situation, both in Jordan and globally, is a difficult one, with much uncertainty still looming, and an overall sentiment of lack of confidence,' says Tanya Khammash, head of equity research at ABC Investments.
According to the economist, in spite of the country’s heavy reliance on foreign direct investment (FDI) and the global liquidity problem, Jordan fared better than expected.
The effect of the Dubai financial crisis and the failure of Dubai World, the real estate company, on the Hashemite kingdom are hazy. But the United Arab Emirates (UAE), of which Dubai is one, is home to a large Jordanian expat population and there are economic linkages through various institutions and banks.
‘’Dubai World's main impact so far has been on the performance of the stock market in Jordan and on consumer confidence, although the bailout by Abu Dhabi [another of the seven UAE emirates] will undoubtedly have restored some confidence,' emphasises Khammash.
The Central Bank of Jordan requested that banks disclose the extent of their involvement with Dubai World and most banks confirmed that they were not connected to the crisis, relieving the market of fears of excessive exposure.
'In terms of specific investments in the kingdom by companies from Dubai, Jordan Dubai Capital has since announced that its investments in Jordan are strategic and that it, therefore, has no intentions to liquidate any of them. We also do not expect the situation in Dubai to impact Dubai Islamic Bank’s operation in Jordan,' reassures Khammash.
Khammash reveals that according to statistics issued by the Central Bank of Jordan foreign grants declined to 103 million US dollars for the period between January and October 2009 compared to 352 million dollars the previous year, while remittances slumped by 8.4 percent.
Youssef, a waiter tending tables in one of the downtown coffee shops surrounding the King Hussein mosque, explains that his cousin who used to work in the UAE was fired because of the financial crisis. 'Thank God, my other three cousins have been able to maintain their jobs in the Gulf and thus kept sending money to their families. Things turned out better than we initially expected,' he says.
Jordan’s economy is service-oriented and depends on industries, such as real estate and construction, financial services, and tourism. 'GDP growth has remained positive and, interestingly, more accentuated in the tourism sector as more Arabs opted for Jordan as a more affordable tourist destination,' says economist Youssef Mansour.
The economist underlines, however, that in spite of the progression witnessed in the tourism sector, other industries underperformed because of their difficulty in accessing financing due to lack of liquidity.
Banks in the kingdom have become more risk averse following the global financial crisis and credit crunch and have been tightening their credit granting policies, explains Khammash.
'Liquidity grew by less than three percent this year,' emphasises Mansour.
The Jordanian economy was also marred in the last two years by a series of pyramid schemes similar to the Bernard Madoff scandal.
Khammash agrees that a few large market players, especially in the real estate and construction sectors, seem to have faced financial difficulty as the banking sector tightened its restrictions on granting credit facilities. 'However, the Jordanian Central Bank has issued new regulations to encourage banks to adopt less conservative credit-granting measures,' she adds.
The Jordanian economy has slowed down, dropping from a 7.9 percent growth level in 2008 to 2.8 percent in 2009, according to Mansour.
Much of the country’s growth over the past few years has been attributed to the influx of Iraqis to the kingdom in the wake of the U.S. invasion of Iraq, excess liquidity in the Gulf countries and increased remittances, underscores Khammash.
Inflation, however, is perceived by many Jordanians as a major problem.
Nizar, a photographer-turned-taxi driver, says that the high cost of living forced him to abandon photography because he was not making enough money to feed his three kids. 'Inflation is increasing every year and can be felt mostly with regards to real estate prices and food items,' he complains, adding that much of his income goes towards rent.
'Inflation in Jordan is largely imported and can be attributed to the high oil and import prices,' says Mansour.
According to Khammash, inflation registered negative figures at 0.9 percent during the first ten months of 2009, but prices started increasing during the last quarter. 'For 2010, we expect inflation to be positive, as prices will rise compared to 2009, but maintain low expectation levels of around five percent,' she estimates.
In spite of last year’s low inflation levels, the last few years of galloping inflation has put pressure on poverty levels, which Mansour puts at 14 percent (the most recent study, however, is from 2006).
Khammash underlines, on the other hand, that as prices of property and construction materials soared, dovetailing the high costs of living costs, real estate became unaffordable to many, and trading volumes began to drop.
'Large projects were put on hold or cancelled, and prices of real estate in many parts of the kingdom experienced significant drops, estimated by workers in the sector at 20 percent, which led to real estate trading volumes falling by around 30 percent during the first ten months of 2009 compared to the same period last year,' she adds.
In the last quarter, things have started to pick up. According to Mary Debbas, sales manager at a property development company, there has been a noticeable spike in sales.
'Real estate clients seem to have restored their confidence levels and we have seen a return of Jordanian expats seeking to invest in their home country,' she concludes on a positive note.
© Inter Press Service (2010) — All Rights ReservedOriginal source: Inter Press Service
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