To understand Jordan’s economy you have to understand two things. First you have to recognize that Jordan doesn’t have oil. It isn’t one of the big winners among the Arab countries who happened to have huge oil reserves under their desert. Second, Jordan’s society is built up on the desert economy of two hundred years ago. What I mean by this is that, without oil the Arab community of Jordan has to negotiate their existence with trade as they did hundreds of years ago. They used to live in oasis spots now they have cities, but the trade with people east and west of them is what supports them.
Today the people east of Jordan are the Saudis and the people west of them are Israelis and then, of course, there is the rest of the world to trade with too. There are just under six and half million people living in Jordan and there isn’t enough water. Along the western boarder with Israel there’s the Jordan River and the Dead Sea, but with little arable land and little water, the cities are located where water is available and they have become overcrowded.
To promote trade Jordan has a sizable banking sector and six free trade zones in six different cities and has many free trade agreements. Currently Jordan has trading agreements with the United States, Singapore, Canada, the European Union, Tunisia, Malaysia, Lebanon, Pakistan, Libya, Algeria, Turkey and is planning to enter into agreements with he Palestinian Authority and Iraq. Jordan is also a member of several group trade agreements: the Greater Arab Free Trade Agreement, the Agadir Agreement and the Euro-Mediterranean free trade agreement.
Aside from trade, Jordan has developed a small industrial base built on the few natural resources in their territory: potash and phosphate. There is fertilizer production as well as manufacturing of inorganic chemicals, cement, pharmaceuticals, clothing, petroleum refining and tourism. The labor force is about 1.9 million people and there is 14 percent unemployment. Along the western boarder of the country along the Jordan River there is a modest amount of fruit and vegetable farming.
A Plan For Nuclear Power
The big checks against economic growth are lack of water, lack of oil and an influx of Syrian, Palestinian and Iraqi refugees. Without remittances from expatriated Jordanians and foreign assistance from wealthy Arab states like Saudi Arabia Jordan’s economy would face difficulties. There are plans to build nuclear reactors for electricity generation, which could support industrial growth, but nuclear reactors use a great deal of water for cooling and water is in short supply. Desalinization of water from the Dead Sea, which is saltier than ocean water. Jordan imports 97 percent of its energy, so nuclear energy will be economical and less vulnerable to regional and international energy price cycles.
The nuclear project is designed to build at least one reactor by 2019 so for at least the next five years the economy will continue to face steep energy costs that drain away about 20 percent of the GDP. Since Jordan’s GDP is about $40 billion, that means their foreign energy imports cost about $8 billion. A quick look at Jordan’s negative trade difference between imports of $18.6 billion and exports $8 billion reveals about $10.6 billion, which could be positively affected by closing off foreign oil imports. After all, a country with few natural resources, not enough water and a growing refugee population could use a means of balancing its trade deficit.
The region within Jordan that previously was the heart of small scale domestic industry was the West Bank section, which was lost to Israel in the 1967 war. Small businesses that made soap, olive oil and cigarettes were a mainstay of the population and were easier to accomplish because the West Bank was near fresh water – the Jordan River. After 1967 industry shifted to Amman and regions near the few natural resources that are mined in Jordan – potash and phosphate. Refining of petroleum, a small amount of hydroelectric power and cement production are now the center of Jordan’s heavy industry. Industry represents 30 percent of the economy or about $13 billion a year, agriculture represents less than 3 percent of the economy and services fill out the remaining 67 percent, but occupies about 78 percent of the work force.
Jordan is a liberal buffer state sheltering Saudi Arabia from the Levant and all it’s complex politics. As a constitutional monarchy, Jordan has to find ways to shift tribal support into a modern social system. Since 1999, King Abdallah II has implemented modes political and economic reforms, privatizing state-owned companies and eliminating some fuel subsidies. Since 2011 the government has approved two economic relief packages that were especially targeted to improve middle class and poor living conditions. As long as Jordan is dependent on Saudi foreign economic assistance the country will be kept from realizing its full economic potential. The pieces of a more liberal and independent economy are developing, but until the nuclear program is completed, Jordan will remain in need of outside regional assistance.