Jordan Times
Friday, July 6, 2007
Study belittles impact
of Iraqis on inflation, growth in Jordan
Ibrahim Saif, director of the Centre for Strategic Studies (University of
Jordan) and David M. DeBartolo, Georgetown University Fulbright Scholar studied
the impact of 2003 Iraq war on growth and inflation in Jordan.
In the study, Saif and DeBartolo explored Jordan and Iraq’s trade relationship,
the changes in Jordan’s consumer price index, and Iraqi investment in Jordan in
order to differentiate between the economic challenges posed by the Iraq war in
general and by the Iraqis in Jordan in particular.
The writers found that the Iraq war has contributed significantly to inflation
in Jordan because of rising food and real estate prices. The displaced Iraqis in
Jordan, on the other hand, have contributed far less to inflation and growth in
Jordan than is often stated.
Following is a summary of the study
AMMAN — The popular perception in Jordan is that the approximately 800,000
Iraqis who have fled their home have single-handedly caused rampant inflation.
The research tells a different story.
The Iraq war, in a broad sense has, in many ways, caused Jordan’s inflation rate
to rise — but the presence of the Iraqis in Jordan has relatively little to do
with it. It appears instead that the end of subsidised fuel from Iraq, high
international oil prices, exports of domestic food supply, rising costs of food
imports, and unfavourable exchange rates have done far more to spur inflation in
Jordan over the last two years.
The breakdown of inflation by governorate supports this conclusion. If the
Iraqis in Jordan have been a main cause of inflation, then inflation in Amman
(where most Iraqis are located) should have outpaced inflation in the rest of
Jordan. But contrary to expectations, inflation in Amman from 2002-2005 and in
2006 was lower than inflation in Jordan as a whole.
Inflation in Amman for these periods was also lower than inflation in the
governorates of Balqa, Irbid, Mafraq, Jerash, Ajloun, Kerak, and Tafileh.
Higher inflation in rural areas is only half of the issue. Whereas business is
brisk in Amman’s restaurants and hotels, which have benefited handsomely from
the Iraqis’ spending, rural areas have seen little of that economic growth.
Rural areas have borne the brunt of the negative economic consequences of the
Iraq war, and have received little in return.
Though the war temporarily disrupted Jordan’s exports to Iraq, Jordanian
producers now send more goods to Iraq than they did before the war began. Though
Iraq’s relative importance as an export destination has paled in comparison to
America, Iraq remains an essential market for Jordanian goods. Trade statistics
for 2006, however, show exports to Iraq declining.
If Iraq proves not to be a sustainable market for Jordanian exports because of
ongoing instability, Jordan’s already serious trade deficit would worsen and
Jordanian producers and workers would suffer.
The newfound importance of the American market for Jordanian exporters
(especially those in the Qualifying Industrial Zones) means that Jordan’s
relationship to the US is more important than ever. America is Jordan’s most
important export destination, and any disruption to that relationship would have
serious affect on Jordan’s manufacturing sector and overall economic situation.
At the same time, as long as most workers in Qualifying Industrial Zones (QIZs)
continue to be non-Jordanians, Jordan will be failing to take advantage of its
unfettered access to the US market.
The 2003 war meant the end of subsidised oil coming from Iraq to Jordan.
Jordan’s growing manufacturing sector, growing population and high international
fuel prices all mean that Jordan is paying more for fuel than ever before.
In 2005, spending was nearly a fifth of its national income on fuel imports —
double the levels it had sustained in the late 1990s. The rising oil prices had
a major negative impact on Jordan’s balance of payments. High fuel prices will
have a negative impact on the economy as a whole compared to its potential.
However, in 2006, the level of fuel imports appeared to stabilise at about 19
per cent of the gross domestic product, suggesting that Jordan has reached a
plateau in terms of its energy imports relative to the rest of the economy.
Inflation has increased swiftly in Jordan since 2003, but not because of rising
housing prices. Instead, dramatically rising food and fuel prices have caused
most of the inflationary increase.
Food prices have risen largely because Jordan has been exporting fruits,
vegetables and milk to Iraq while imported food has become more expensive.
American soldiers in Iraq consuming Jordanian tomatoes appears to be
contributing more to Jordan’s inflation than the Iraqis in Amman.
Inflation has been driven by two sectors (food and fuel) in which the government
has relatively recently cut its consumer subsidies. Whereas in the past the
Jordanian government would have absorbed much of the cost of rising
international fuel and food prices, today Jordanian citizens are being forced to
bear that burden.
Iraqis in Jordan have had an impact on the national budget, since some of them
have enrolled in Jordanian schools, used Jordanian hospitals, and consumed
government-subsidised fuel and water. This added spending, among other reasons,
made Jordan’s 2007 budget an expansionary one. It is unclear whether this path
is sustainable and, if not, what consequences that will have or what tradeoffs
must be made.
Iraqi investment in Jordan since 2003 has been significant, but Jordan’s
economic growth over the past three years appears to be due largely to other
factors. Iraqi investment pales in comparison to investment that has come from
other Arab sources.
Iraqi capital invested in the manufacturing sector in Jordan has been one of the
factors behind that sector’s rapid growth, but not a decisive factor. The
construction sector, often associated with major Iraqi investments, actually
contributed relatively little to Jordan’s overall economic growth.
Iraqis have invested over JD200 million in the Jordanian stock market, and they
have registered capital of over JD100 million. All this indicates that while
there were some adverse economic ramifications as a result of the Iraq presence
in Jordan, their presence was also associated with some positive outcomes that
resulted from their direct investment.
The fact remains that the Iraqi presence in Jordan and the impact of the war on
the Jordanian economy was overstated, both in terms of its negative and positive
effects.
It is unsurprising that many Jordanians would associate the very visible arrival
of almost a million Iraqis in Jordan with the serious economic issues that
arose, at the same time, more broadly as a result of the Iraq war.
But it is important to emphasise that the Iraqis in Jordan are not responsible
for most of the economic challenges that Jordanians are currently facing, and
their return to Iraq would do little to alleviate inflation in Jordan.