Jordan’s Losing Industry

By Yusuf Mansur

 You could not imagine my glee, and bewilderment, when I read a headline claiming that the profit of the Jordanian industry was up by 57 per cent in the first half of this year compared to the same period last year.

As it turned out, the numbers below the caption immediately dispelled my joy; most in the manufacturing sector has lost money, the so-called profit was due to the earnings of the two major mining companies.

The profits of the industrial sector in the first half of 2010 were JD122.2 million; in the same period in 2011, they reached JD191.8 million. In other words, profits were up by JD69.6 million or 57 per cent, which is what the newspaper caption claimed.

However, when one looks at the potash and phosphate mining companies, one quickly emerges with the following numbers: The Arab Potash Company profits were JD70.2 million and grew to JD128.7 million, and those of the Phosphate Mines Company grew from JD34.7 million to JD64 million. In other words, the profitability of these two companies was up by almost JD88 million.

In still other words, the increase in the profitability of the industrial sector was due to a fraction of the increase in profitability of these two companies, which exceeded the increase in profitability of the whole sector. This also means that the rest of industrial sector lost JD18.4 million.

In terms of sales, those of the industrial sector grew by JD193.1 million, which is primarily due to the growth in the sales revenues of the two companies (JD193 million). This means that sales of other industrial companies either remained the same or decreased.

As for assets, which indicate an increase in direct investment, those of all industrial companies increased by JD145.7 million, while the assets of the two companies increased by JD163.4 million during the period. This means that industrial companies, other than these two mining entities, decreased their assets by JD17.7 million.

So the view of the industrial sector, outside these two mining companies is actually dismal: It lost JD18.4 million, witnessed stagnant and falling sales, and is shedding its assets. Faced with rising energy costs, lack of a clear overall economic vision and falling competitiveness of the entire economy, the industrial sector is hurting.

But from a purely institutional economic perspective, the story becomes even more alarming. Mining companies are usually low value-added companies. Countries should brag about the profitability of the manufacturing sector, which creates more value than the mining sector where a country’s wealth is extrapolated and exported with little value added.

Furthermore, where the manufacturing sector typically consumes inputs from others, the mining sector depletes the nation’s resources. Add to this the fact that the two mining companies are basically owned by non-Jordanians, and you start to wonder where the profits go.

The answer: To non-Jordanians of course. This elicits more and more questions related to the political economy of Jordan and our success in reform.

The upshot is that Jordanian industry is the mirror of the stability and success of the modernisation and stability of the legislative environment in relation to the business environment as a whole. The manufacturing industry, more than any other sector, requires an adroit economic leadership and a stable business-friendly environment.

In the age of economic dialogues, the woes of the manufacturing sector should be underscored, analysed and addressed.

This commentary was published in The Jordan Times on 20/09/2011