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Atlas of Jordan

Myriam Ababsa

Chapter seven - Jordan’s Rentier Economy


Myriam Ababsa

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The economic boom of the 1970s

1The creation of the Kingdom in 1949 on both banks of the Jordan River led to the development of farming and industry in Jordan, bolstered by major hydraulic works in the Jordan Valley. However, after the 1967 defeat by Israel and the occupation of the West Bank, Jordan had to restructure its economy and move back to the East Bank of the Jordan River, with nearly 300,000 impoverished Jordanian refugees from the West Bank. The most highly educated refugees were able to migrate to the booming Gulf countries with their rampant exploitation of huge oil deposits. From the 1970s, a huge influx of money from expatriates’ remittances poured into the country and changed significantly towns and lifestyles. Yet these investments were not very productive since they were concentrated in the real estate sector, the education sector and on imported consumer goods.

Structural adjustment and social crisis in the 1980s

2Despite Iraqi oil imports at a nominal price. Jordan’s industrial and energy dependence continued to grow, fuelled by rapid population growth and changes in consumption patterns. The lack of productive investment was exacerbated by the rise of poverty and youth unemployment.

3The drastic drop in oil “revenues” following the fall in the price of oil in the early 1980s led to an unprecedented economic and social crisis. While Jordan was unable to pay its foreign debt, from 1980 to 1989 unemployment rose from 3% to 20% (Rivlin and Even). Public debt reached 189% of GDP in 1989. To reverse this crisis, Jordan drew support from the International Monetary Fund (IMF) in February 1989. The structural adjustment policies imposed by the IMF in the form of the privatization of state companies, the freeze on recruitment in public administration (the country’s largest employer), and the drastic reduction of subsidies on commodities and petrol had a serious impact on the entire population and especially the most vulnerable populations in the south and the east, in the governorates of Ma‘an, Kerak and Tafila. Nine days after the announcement of the first adjustment measures, riots broke out in these governorates, lasting three days; (from April 19 to 22).

4The social and political consequences were significant. Due to the hunger riots in the south, the king was forced to restart the democratic process and the first elections since 1957 took place in 1989, marking the victory of the Islamists (who won 20 out of the 80 seats).

The Peace Economy (1994-1999)

5When King Hussein decided to follow public opinion and support Saddam Hussein after the invasion of Kuwait in 1990, Jordan was isolated internationally and over the period of one month 300,000 Jordanian graduates were expelled from the Gulf. They reinvested their money in Jordan, mainly in real estate, creating the residential neighbourhoods located west of the Fifth Circle in Amman (Sweifieh, Deir Ghbar and Abdoun). After the Wadi Araba peace agreement with Israel in January 1994, Jordanian expatriates were once again welcome in the Gulf (fig. VII.1). Jordan signed several trade agreements, particularly with the United States in 1995, allowing the country to double its exports of manufactured goods through the creation of Qualifying Industrial Zones (QIZ) in 1997. The products of these QIZs are exported duty free to the United States, they are made by isolated Asian workers and a minority of Jordanian workers and financed by Arab and Israeli capital (20 % or the third of the value added). To gain investor confidence, the Jordanian Dinar was pegged to the US dollar in 1994 at the rate JD 1 = $ 1.41.

Figure VII.1 — The evolution of Jordan’s GDP growth rate compared to the Arab World 1990-2009.

Figure VII.1 — The evolution of Jordan’s GDP growth rate compared to the Arab World 1990-2009.

6A policy to combat poverty was launched during the 1990s, reducing the percentage of poor in the population from 24% to 13%. But these policies are not related to employment and therefore cannot stop the rise of real poverty (see Chapter 8).

Liberalization and Privatization (1999-2009)

7In 1999, King Abdullah II began a liberal programme to privatize the public sectors (water and telecommunications) and to attract foreign investment via free trade zones and special economic zones. Jordan joined the WTO in 2000.

8Jordan’s economy boomed in 2005-2006 as market capitalization doubled in the Gulf, oil reached over $ 100 a barrel, and capital was invested by Gulf countries in Jordan and Syria after the assassination of the Lebanese Prime Minister Rafiq Hariri. In 2006, foreign direct investment reached a record $ 2.7 billion. Property prices doubled between 2003 and 2006 (the public considers this to be the fault of wealthy Iraqi refugees) and major real estate projects were launched in Amman (creating a new Abdali downtown) and Aqaba (several gated communities and marinas). The Ministry of Mega-projects was formed in 2006 to bring water from Disi to the capital and to build the Red Sea - Dead Sea Canal (see Chapter 10).

9With an average growth rate of 3.2% from 1996 to 2000, Jordan’s economy then gathered speed with its annual growth rate rising to 6.6% from 2001 to 2007, and 7.9% in 2008. The most dynamic sectors were real estate (residential and commercial) and services (financial services, tourism and health). This growth was reinforced by low inflation throughout the first decade of the twenty-first century (around 2.8% from 1996 to 2000, around 3.4% from 2001 to 2007). However, the rise in world oil and food commodity prices has resulted in high inflation since 2008 (5% in 2010, 6% in 2011).

10In February 2008, Jordan cancelled subsidies on petroleum products (which still represented 5% of GDP in 2005). This measure had to be accompanied by a social safety net at a total cost of $ 1.1 billion, for fear of social risks arising from these price increases and the economic crisis.

Global Crisis and the Arab Spring (2009 - 2012)

11The global economic crisis hit Jordan in 2009, with a one-year lag. Growth fell from 5.3 % in 2009 to 2.3% in 2010, then 2.6 % in 2011 (fig. VII.2). The public deficit widened, reaching 8.5% of GDP in 2011, having narrowed in 2010 (5.4% of GDP down from 8.5% - with aid - in 2009). The consequences of crude oil prices rising to over $ 95 a barrel were worsened by the sabotage of Egyptian gas pipelines that supply Israel and Jordan, which forced the government to use diesel power plants running on heavy fuel in January 2011. This cost Jordan 2.5 million euros per day in 2011.

Figure VII.2 — The evolution of Jordan’s GDP.

Figure VII.2 — The evolution of Jordan’s GDP.

12In January 2011, the government defused protests resulting from the dual context of the economic crisis and the Arab revolutions in the Middle East by announcing an increase in civil servants’ salaries ($ 340 million), of basic foodstuffs (bread, sugar and oil) and fodder (+ $ 169 million), and $ 141 million in grants for gas cylinders. These measures cost 2.5 percentage points of GDP (Klein 2011). Public service and defence budgets remain very high for the sake of social peace (9% of GDP on defence). The government is committed to mega projects, such as Disi which cost JD 963 million in 2010 (Chapter 10).

13In March 2011, Jordan was invited to submit a membership request to the Gulf Cooperation Council, marking the strong economic ties between Jordan and the Gulf. This relationship exists thanks to the hundreds of thousands of Jordan’s elite who grew up in the Gulf and who contribute to its vitality. However, the Arab Spring led to protests against the major projects initiated by the government accused of corruption. The University Bus Rapid Transit project was suspended. In December 2011, the Mayor of Amman was arrested, as was the Director of Mawared. The public began to demand re-nationalizations in January 2012 and the political context was very tense. By September 2011, tribal leaders from the south and east were demanding the creation of municipalities and blocking roads in order to be heard.

Table des illustrations

Titre Figure VII.1 — The evolution of Jordan’s GDP growth rate compared to the Arab World 1990-2009.
Fichier image/jpeg, 140k
Titre Figure VII.2 — The evolution of Jordan’s GDP.
Fichier image/jpeg, 75k

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