AN OVERVIEW OF JORDANIAN MANUFACTURING SECTOR IN LIGHT OF CURRENT REGIONAL POLITICAL SITUATION

Abstract

The turmoil in the Arab region and the so-called "Arab Spring" have overwhelmed many aspects in the region. The Jordanian economy has been affected mainly by the situation specifically in regard to the manufacturing sector. Several challenges have hindered the economic growth and the profitability of organizations within the sector. Such challenges include the massive immigration of refugees, the instability in import and export, the drop in demand, and the environmental uncertainty. Therefore, it has been suggested that more research is required to investigate the situation and develop solutions that might assist companies to overcome these obstacles. Similarly, companies are required to implement and improve practices such as business strategy and performance management system in order to have a better business conducts.

Full text

International Journal of Economics, Commerce and Management
United Kingdom Vol. VI, Issue 5, May 2018
Licensed under Creative Common Page 373
http://ijecm.co.uk/ ISSN 2348 0386
AN OVERVIEW OF JORDANIAN MANUFACTURING SECTOR
IN LIGHT OF CURRENT REGIONAL POLITICAL SITUATION
Almothanna Jamil Abu Allan
Faculty of Economics and Management, University Putra Malaysia, Malaysia
mth.abuallan@yahoo.com
Nor Aziah Bt Abu Kasim
Faculty of Economics and Management, University Putra Malaysia, Malaysia
Mazlina Bt Mustapha
Faculty of Economics and Management, University Putra Malaysia, Malaysia
Sabarina Binti Mohammed Shah
Faculty of Economics and Management, University Putra Malaysia, Malaysia
Abstract
The turmoil in the Arab region and the so-called “Arab Spring” have overwhelmed many aspects
in the region. The Jordanian economy has been affected mainly by the situation specifically in
regard to the manufacturing sector. Several challenges have hindered the economic growth and
the profitability of organizations within the sector. Such challenges include the massive
immigration of refugees, the instability in import and export, the drop in demand, and the
environmental uncertainty. Therefore, it has been suggested that more research is required to
investigate the situation and develop solutions that might assist companies to overcome these
obstacles. Similarly, companies are required to implement and improve practices such as
business strategy and performance management system in order to have a better business
conducts.
Keywords: Jordanian Economy, Manufacturing Sector, Environmental Uncertainty, Economic
Growth

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Licensed under Creative Common Page 374
INTRODUCTION
Jordan has implemented several structural reforms through privatization and liberalization in
sectors which included education and health in the past ten years. The Jordanian government
has also introduced social protection systems and reformed subsidies with the aim of creating
conditions for the public-private partnerships in infrastructure. In 2015, the government identified
steps towards enhancing the investment climate and ease of doing business which can lead to
better outcomes (“Jordan’s Economy,” 2017). However, the Jordanian economic growth has
been hindered during the years 2010 till 2016 due to several reasons. This decline was largely
attributed to the turmoil caused by the Arab Spring which started in 2010 (“Jordan’s Economy,”
2017). Furthermore, the unprecedented influx of several thousands of refugees as well as the
instability in import and export were the main reasons that burdened the Jordanian economy
(“Jordan’s Economy,” 2017). After years of steady growth, the average growth rate in the years
of 2010 till 2016 was 2.2% compared to the average growth rate of 7.4% for the years between
2004 and 2009 (“Jordan’s Economy,” 2018).
Similarly, the size of exports has significantly declined by 6.0%, 6.6%,and 4.2% during
the period 2014, 2015 and 2016 respectively (“Jordan’s Economy,” 2018). In addition, the
unemployment rate increased to 15.3% in 2016 compared to 11.9% and 13.1% during the
period 2014 and 2015, respectively (“Jordan’s Economy,” 2018). This drawback was attributed
mainly to the political conflict in the surrounding countries. The closure of export routes was also
among these influential factors in the Jordanian economic decline.
The high level of unemployment rate and slow economic growth in Jordan are
repercussions from the Syrian crisis and the immigration of over than 655,000 Syrian refugees
in 2016. Jordan’s main challenge is its inability to open new jobs that stimulate its economic
growth (“Jordan’s Economy,” 2017). The tight fiscal and monetary policies are expected to
continue, for Jordan is working towards fiscal sustainability and a lower debt-to-GDP ratio. For
example, the Central Bank of Jordan (CBJ) increased the policy rates during the period 2016
and 2017, respectively to maintain the JD-USD deposit rate spread and tackle rising
dollarization (“Jordan’s Economy,” 2017).
OVERVIEW OF THE JORDANIAN MANUFACTURING SECTOR
The manufacturing sector is the second biggest industrial sector in Jordan after services sector.
The manufacturing sector contributes 18.17% to the GDP in 2016, while the services sector
contributes 66.76%, the industrial sector contributes 10.77%, and the agriculture contributes
4.3%to the total GDP in 2016 (“Jordan: Economy,” 2018). The main manufacturing exports in
Jordan include garments and textiles, pharmaceutical products, jewelry, electrical appliances,

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machinery and equipment, furniture, chemicals, minerals and plastic products. The countries
which receive imported goods from the Jordanian market are from the surrounding Arab
countries (44%), North America (28%), Asia (21%), EU (3%) and other (3%) (“Economy of
Jordan,” 2016).
According to the Economic Complexity Index (ECI),the manufacturing sector was the
86th largest export economy in the world in 2015. The top export destinations are the United
States, Saudi Arabia, India, Sudan and Iraq (“Economic Complexity Index,” 2015). The
manufacturing sector is considered as one of the important economic sectors that support the
Jordanian exchange rate and increase the budget of the government with USD 1.4 billion as
taxes annually (Jordan Chamber of Industry, 2016). It further contributes 90% to the total
national export, and it is also the second most significant source of jobs after the public sector in
2015 (Fanek, 2015). The total number of manufacturing companies reached 2,000, and this
sector employed 20% of the labor force in 2015 (Fanek, 2015). Nevertheless, statistics indicated
that uncertainty in the region has negatively affected Jordan’s economy in general and the
manufacturing sector in particular (Al sharif, 2017).
CURRENT SITUATION OF THE MANUFACTURING SECTOR IN JORDAN
The Arab Spring which has occurred in the Middle East since 2011 has caused a lot of changes
to the region (Yoel & Erez, 2013). Specifically, there are high levels of uncertainty that threaten
the future of these countries as well as the business organizations that import and export
products from and to these countries (Fanek, 2016a). Many researchers (e.g., Fanek, 2015b; Al
sharif, 2017; Obeidat, 2014) have described the current situation as challenging, unpredictable,
competitive and turbulent.
The Jordan Free Zone Investor Association (2015) has reported that the Jordanian
manufacturing sector is adversely affected by the unrest stemmed from countries in the Middle
East region. For instance, due to the unstable condition in Iraq and Syria, exports were on a
declining trend (Obeidat, 2014). Iraq and Syria are considered Jordan’s largest export partners
within the greater Arab trade zone (Al sharif, 2017). For example, the exports to Iraq, one of the
main importer countries, have declined. In 2013, the exports to Iraq reached 1.38 billion USD,
while in 2014, 2015, and 2016 the exports dropped to 1.28 billion USD, 749 million USD, and
497 million USD respectively. The loss of land routes to the Mediterranean has forced the
companies to ship freight via the Suez Canal, rather than transport overland to Syrian or
Lebanon ports for transshipment which resulted to weigh heavily on Jordan’s manufacturing
sector (“Jordan’s industrial,” 2018).

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Accordingly, the turmoil across the Middle East has resulted in an increase in costs and a
decline in profits for the manufacturing sector (Fanek, 2015; “Jordan’s industrial,” 2018). There
was a sharp decrease in the manufacturing export in 2015, and the government has since been
striving to draw down debt and bridge the current accounts deficit (“Jordan’s industrial,” 2018).
Under this circumstances, the Jordanian manufacturing companies have experienced a sharp
decrease in profits and needed to manage learning, change, and innovation to survive (Fanek,
2015). This is also accompanied by some other sharp reductions in the foreign grants by 28.3%
and an increase in the budget deficit by 59.1 % in 2015 compared to 2011 (Fanek, 2016a).
In addition to the fact that the manufacturing sector is primarily affected by the instability
in the Arab region countries, the sector has also been affected by other factors such as the
intense competition from other countries (such as Turkey and Gulf countries), the increase of
cost, and the decrease of demand. The increase inthe cost of transportation and delivery of
goods has been mainly driven by the use of alternative modes of transportation such as Air
Freight. Due to the competition, companies were not able to increase their prices due to the
increase in cost. Besides, unstable countries such as Iraq and Syria has also shown a sharp
decrease in demand (Obeidat, 2014). All these factors have led the companies to look for
strategies that enable them to survive and to reduce the cost in order to stay competitive
(Fanek, 2016b).
Manufacturing industry, which is the main source of Jordan's export, has also been
strongly affected by the neighboring instability in the region. The manufacturing sector in Jordan
expected low sales because of slumping demand which resulted in a sales decrease of 12% in
the manufacturing sector in 2015 (Fanek, 2015b). Fanek (2015b) stated that this is a significant
decline that not only could reduce industrial profits, but could also reverse the expected profits
into definite losses. Furthermore, the industrial output registered a negative growth 1.1% in
2015 and industrialists were obliged under fierce competition to reduce their prices in the same
period by an average of 13.6%, yet they were unable to maintain their share of the market
(Fanek, 2015a). If the reduction of prices were never a relevant option, the prices would have
been raised to increase profits (Fanek, 2015b).
CONCLUSION
This paper has reviewed the Jordanian economic within the current turmoil situation. In specific,
the Jordanian manufacturing companies have been facing many challenges resulting from the
turmoil in the surrounding countries. These companies have lost a significant market share in
the neighboring countries, and the operational cost of transportation has become a bottleneck to
their trade work. In such situation, research studies are highly required to find solutions and

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improve the current status of the manufacturing sector. Similarly, companies should implement
practices that can help them overcome these obstacles. Such practices might include
implementing an effective business strategy such as prospector and defender strategies which
are suitable strategies in such situation, implementing balanced scorecard as performance
management system which has always been a significant tool for monitoring organizational
performance.
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