Development prospects in Jordan

 RETURN T·':) No. E 167 REPO . OTC ..";'<.: .. ~ ~ ESK CONFIDENTIAL \VfTH!N ONE \fJ~EK 67092 This report is restricted to those members of the staff to whose work it directly relates. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT DEVELOPMENT PROSPECTS IN JORDAN June 25, 1951 Economic Department Prepared by: A. Basch  TABLE OJ!' CQl.TTE'!"'TS Pa2'e ~TO. DE"i.TELOp!rnrrTT PROSPTIC'T'S pT JOF.DAN • i - iv BACKGROmlJ ECO:"'Ol'cIIC K PORT all JORDAN :Basic Statistics I. Introductio • ,. • ,. 1 II. Poll tic~'tl Structure 2 '. • • • III. Social Structure. • • • • • :3 IV. Agriculture • • • • • • • . . :3 V. fUneral and Industrial Production • • • • 5 VI. Public Finance • , . • • 6 VII. Money <1~nd Banking • • • 8 VIII. Foreign Trade '. • • 8 IX. Balance of Pa,;rments. • • • • • • 10 x. Develo~)ment Plans • • 12  Development Prospects in Jordan 1. The present Hashemite Kingdom of Jordan combines the former Kingdom of Transjordan and the newly annexed territorius of Arab Palestine. Its population is estimated at 1.) million. This figure includes the inhabitants of former Transjordan (490,000) and Arab Palestine (450,000) anct 350,000 refugees from territories now occupied by Israel. The terri- torial shifts and the large number of refugees have changed the economic 1/ position of the former Kingdon of Transjordan. - As the new country cannot produce enough goods to supply even the elementary needs of the population, which is nearly three times that of 1946, it depends on foreign assistance. This situation could be changed only i f the country's resources can be developed so that more food ror local consul'Tlption or cOmIilodities are pro- duced for export thereby providing foreign exchange for needed i~orts. 2. The influx of refugees and the incorporation of Arab Palestir:e adversely affected the balance of trade. The former exnort surplus of agr5.- cultural products (Wheat, barley, millet, fresh fruits and vegetables) was reduced and in some commodities eliminated, while at the same time the in- creased population reqQtred greater imports of food and other conSwtier goods. The balance of trade deficit reached ~ 8.1 million in 1948 and ~ 7.2 -million in 19u9. In 1949 the deficit "[as only partially covered by a U-.K. subsidy to the Arab legion of ~ J million, and by U.N. relief expenditures of ;, 1 million. The remaining balance of payments deficit of I, 3.5 million was Y For details see the attached "Background Economic Re-port on Jordan.!f met by drawing on the country's sterling balances, 1'.'11ich had been in- creased by the large amounts of capital imported by refugees from Palestine (about ~ 12 million had been imported since 1948)0 By January 1951 the sterling balances were dra',m dov'm to ~ 3.8 million so that no sUbstantial foreign assets are nov: available to meet balance of uayments de£'ici ts of the C01mtry. In 1950 as a result of strict import restrictions cutting imports from ~ lh.6 million to ~ 10.8 million, the trade deficit lvas reduced to Is 6 mi1l:l.on. The U.K. subsidy to the Arab legion was increased to b 5 til1ion, and the country again received ~ 1 million from U.N. for relief expenciitures and another 1:1 1 million loan from the U.K. for the settlement of the refugees. Thus, the 1950 balance of uayments on current account was likel~r to end v\r:ith only a small deficit due to the increased assistance from the U.K. 3. The development potentialities of Jordan appear to be rather limited. Agricultural production could be increased chiefly by irriGation and ,"later conservation. Some light industries (for instance, food process- ing) might be developed and mineral resources -- particularly phosphates and the Dead Sea minerals - might be exploited. The U.N. Econotlic Survey Mission estimated that a development program prepared by the Government of Jordan would require an outlay of ~ 42 million; this amount does not in- clude development of minerals. Of the total program, b 20.5 million repre- sent projects on the Yarmuk and Jordan Rivers. It is not clear whether these projects can be carried out without an agreement iTith the other  -i11- riparian powers. other expenditures on aericulture amount to ~ 10.6 million. 'ihe amount envisaged. for industrial development is b 5 million, of w~ch ~ 4 million is for a proposed sugar factory. Finally, a';)out ;, 6 million is to 'be s'Jent on transport development. In the field of minerals a pronisinl! start was made a few years ago in the Dining and export of phosphate roc!<:; however, no mining ta.kes 'Dlace at present. The Dead Sea contains large quantities of various Eline:rals; the most important of them frOic'l the cOrJnercial noint of view are notash, bromide, anci magnesium. In 1930 the Palestine Potash Company was given a 75-year concession to exploit these resources. Doth the Palestine Govern- ment and the Government of Transjordan lvere to receive annual royalties 1/ together VITi th a share in the net profits of the Comnan~r. - The nlant of the Company suffered sUbstantial damage during the vmr and it is not known whether any arrangement with the Company for a joint exploitation is being prepared or whether the Jordan Government is ,lanning to exploit the Dead Sea minerals on its own. l~. The Droposed amount of development expenditure can hardly be handled on a regular loan basis and the L:1Dlementation of tl1is '1rosra11l will, therefore, depend on special assistance.. Wi th regard to developr:1ent of industries and the role of an industrial development bar.k, it is fe&sible that some light industries l:'ight be developed simultaneousl: r vitl1 the (;crry- ing out of the major development :1rogram. An industrial develo'~::nent oank might be helpful to promote such industries and to assist in their iniJvial !I In 1937 Transjordants share in these royalties CL'"!lounted to ~ 75,000. Another source, however, gives a figure as high as ±, 1 million.  _1'17' _ financing. No anpraisal of industrial possibilities is possible, ho~'·!ever, without a detailed investigation on t~1e snot. 1. :oreover, it is impossib~.e at this stage to arrive at any assessment of hOVI much fo:;.~eign capital could be provided on a loan basis for such a bank or projects until an assessment can be made of the country's creditworthiness. Such assess- ment is not possible so long as it is not knmm hm'f the overall nroblem of rehabilitation of the cOUJ.'1try Yfil1 be solved. Development of Jordan's re- sources cannot be treated separately from the basip problem of rehabilita- tion of the country's economy and its adjust.ment to the ne~·r cond:!.tions createci as a result of the war with Israel.  BackerOUc"ld Economic Re"port on. Jordan Asia Division Eco~omic Department June 23, 1951  BASIC S~ATISTICS Total area 23.5 million acres (36,670 sq. miles) Of which cultivable 1.,4 II II ;populatign East Jordan 490,000 West Jordan 450,000 Refugees 350,000 Total 1,290,000 Currency Unit Jordanian dinar (JD) Exch~e rate JD .0357 ~ US$l ; JD 1 = US$2.8 : JD 1,000,000 :: US$2,800,OOC Principal Crops (100O tons) ~ 12.lQ Wheat 136 126 Barley 56 51 Millet 15 n.a. Pu bli c Fi nance :::m,J..e:et Estimates em million} 1949-50 1950-51 Revenue 10,,3 Expenditures 11.6 Deficit -1.3 (million Palestine Pounds) Forei.e:n Trade 1948 ~ 12.iQ. EXports and re-exports 11 '4.8 2.5 5 .. 6 Imports :JJ 10.6 12.8 10.8 Deficit -8.1 -7.2 ":6.0 ~lance of PaYments (JD rUllion) ~ Trade Deficit -7.2 !nvi si 1)1613 (net) 2,,4 DefiCit -4~8 11 Not including imports and re-exports b~r concessionaires (Iraq PetroleUlll Company, Trans-~\rabian Pipeline Company. and the British Army).  I• I FTRODUCTI 01;,' The Hash~oite K1n2dom of Jordan includes the former Kingdom of Transjordan (East Jordan) and the ne,",l~r annexed territories of Arab Palestine (West Jordan). Jordan borders on Israel, Syria, Iraq, Saud~ Arabia, and the Dead Sea and has access to the Red Sea through the northernmost tip of the Gulf of Aqaba. The largest part of the country, roughly speak1r~ all land east of the Hedjas Railway, consists of desert. The total area is estimated at 36,670 square miles, of which East Jordan has 34,740 square miles and West Jordan 1,930 square miles. The countl"'lJ today has a population of 1.3 million which inclucles 490,000 and 450,000 for East and West Jordan respectively, and nearly 350,000 refU?ees from territories now held by Israel. There are three districts in West Jordan and four provinces plus a desert area in East Jordan. Jordan is one of the poorer c01mtries of the Mid(lle East, ,,,ith a level of national income well below that of neighboring Israel, Lebanon, or Syria. Jordan depends, at present, almost entirely on ~ricrtllture. v-rhich could be developed by fuller utilization of the ex.iatin/!' ",ater resou.rces. This "Tould require a certain measure of internati011al COOi)eration as Jordan shares most of its rivers 1I!i th neig.-hborinf.' countries. Apart from phosphates and the minerals of the Dead Sea (potash, bromides. magnesium), the country does not seem to have mineral resources of great importance. The ex.isting small industries are based almost entirel;)r on t!-:e processiI4": of agricrtlltural ~roducts.  - 2- The Palestine war has affected the country1s economy unfavorably in more than one 1J.lay. The trebling of the population, not accompanied by a comparati ve increase in productive resources. has detel'iorat ed the pros- pects of the country's viability. Trade 1ffith Israel, \oJhich in T!lany respects is Jordan's most natural market, has ceased almost completely as has transit through Haifa, the country's nearest modern port. il7ithout foreign a!'l~::i.stance Jor:lan 'Ionld not have been able to carry the burden of the . . .rar anc1 of its aftermath. This assistance took t\'TO forms: A SL1.bsidy by the tT .K. for the army, which covers almost the entire militar;r budget of the co,11ltry, and the support of refugees coming fro~ United Nations sources ann recently also from the U.K. II. POLITICAL STRFCTlJF.E After '''orld 1tlar I the present terri tory of Jordan '!tras incluc.ed in the 3ritish Mandate for Palestine. In 1923 Great Britain recognized the existence of an independent gover~~ent in Transjordan under the rule of the Em:1.r Abdullah, who in 1946 assumed the title of King. The U.S. d.id not recognize the ne,\,l country until January 1949. Jordan has been a mem- ber of the Arab League since its inceution (March 1945). Its memoership in the U.:1. ha.s been barred by three vetoes by the tT.SoS,R. The applica- tion for membership in the! .M.F. and I .:B.R.D .. , made in June 1950, is ce- ing considered by the t\<ro organizations.  By a decision of the Jordanian Parliament on April 24. 1950. Trnns- jordan and the Palestine area occupied by JordAn force~ '!irere amalgrunated "in one single state. It Jordan is now a constitutional monarch;7 ruled 'by King Abdullah of the Hashemite Dynasty. Parliament consists of two houses, in which Palestinians and Jordanians have equal representati~n. The Senate is appointed by the King, while members of the Chamber of Deputies are elected for four years '':71 th the vote restricted to males. Executive power rests with the Xip~ and the cabinet headed by the Prime Minister; the cabinet is responsible solely to the King. III.. SOCIAL STRUCTTJRE East Jordan is largely tribal and almost half of its population is still to some degree nomadic. Public health facilities are underdeveloped and edueational opportunities a.re limi teo_. l-To serious minority problems exist here, since the mass of the population is uniforml:, Arab and HusUm. The population of West Jordan. on the other hand, is comJosed of small-town tradesmen, artisans. white-collar workers and settled farmers. standards of education and health are somewhat higher here than in the rest of the country. This area has a certain religious minority problem created by the sizable communities , of Christian Arabs. I V. AGRI CULTURE Since a considerable part of East Jordan is desert and West Jordan is hilly and partly eroded. the cultivated portion amounts to only about  -4- 1.4 million acres, or 5% of the total land area. About 100.000 acres (7% of the cultivated land) are irrigated, mainly by small tributaries of the Jordan river. It is possible to develop irri- gation on a larger scale by more fully utilizing the Jordan and the ~armuk. Because these rivers are shared by Jordan with adjoining countries -- Israel, Lebanon and Syria -- a certain J:leasure of international ~reement in this respect would be necessary. The rest of the cultivated land depends on rainfall which ranges from over 20 inches a year in West Jordan to 8 inches in some of the margi- nal crop areas of East Jord,an, where crop failures are frequent. Over two thirds of the cultivated area is under cereal production -- wheat and barley in winter and millet and maize in m~mer. .Annual wheat production has been around 100,000 tons, and that of barle;t around 40,01")0 tons on the average of the last ten years. These crops are f.:rOllTn n'lainly in East Jorda.n and before the Palestine "7ar provide~ a total export ~urplus of about 30,000 tons annually. They now supply only 4o-5~ of the needs of Jordan's present increased population. Other main crops are fruit, ve~etables, and tobacco. Livestock is importa.nt in vie~'l of the partly pastoral character of the country's economy. It is estimated at about 350,000 sheep, 400,000 goats, and 100,000 head of cattle. The reliability of these estimates is affected by frequent heavy losses fro'11 droughts and by the 'Q.ncontrolled movements of flocks across the frontiers.  - 5- v. }uNERAlt A"~D, rWSTRIAL ?RODUOTIOn The known mineral resources of the country consist of phosphates, bitumen,. and the mineral salts of the Dead Sea (potash, bromides, magn?- siurn). A certain amount of salt is also produced from eround-ir)'ater brine. Before the Palestine t'Tar, the Dead Sea minerals were e:x:ploi ted by the Palestine Potash Company t an .AnR'lo-Jetltish enterprise 'l>lhich in 1930 was given a 75-year conces~ion.. The Governments of Palestine and Tra,nejordan received royalties, and in 1947 the latter countryt g share is reported to be around ~ 1 million. !l Since the war the work has stopped ann the in- stallatlons remaining in Jordanian territory have nearly been completely destroyed and dismantled. Phosphate deposits had been operated by the Transjordan Compa~y, a small Italian-Jordanian enterprise and small exports took place via Haifa. Recently exploi to,tiOD. has stopped because transportation cosh via 3eirv.t appear to be prohibitive. Such industries as exist are based on processing aeri~~ltural raw materials and food stuffs. They are lare-ely carried out at home or in small ,vorkshops. Flour milling, olive 011 pressing, weaving and the manu- facture of tobacco and Cigarettes are the most important industries. 11 Another source give~ TranFjordan's share in royalties received in 1941 only at ~ 75,000.  -6- VI • P]1J3L! C FINAlmE Until the end of the financial year 1945-46 Transjordan had a uni- fied budget, which included expenditure on police and defense. The pro- portion of revenues consisting of grants from the British Government in- creased ~radual1, and amounted in 1945/46 to over 6~. Since 1946 defense expenditures were no longer included in the ordinary budget, but a special army budget was created, which was 1I!hol1y financed by the British Government in the form of subsidies to the Arab Legion. The estimated ordinary budgets provided for expenditures and revenues balanced at g 1.1 million in 1946-47 t 2.1 million in 194 7-48, 2.5 million in 1948-49. Actual surpluses of ~ O.s million a-~ually were achieved in all these years, partly because of the introduction of a pro- gressive income tax which increased local revenues. Some of these su-~luses were apparently used to stabilize arrlcultural prices. The following table shows the budget estimates for 1949/50 and 1950/51.  -7- :Budeet Estimates (in thousand of Jordanian D1na,rs) 1249:;=50 Ordinary 2.951 ),188 Extraordinary 1,451 2,408 Arab Legion 3.500 5,000 Eritish loan (for econ. devel- opment) 1,000 East Jordan grant to West Jordan Total 7.902 11.596 Balance from preceding year 869 Ordinar~y revenues 3.527 4,315 Eritish loan (for aeon. devel- opment) 1,000 British subsidy to Arab Legion 5,000 East Jordan grant to ':lest Jor1an Total 7.896 10.315 Sufplus (+) or Deficit (-) ( - ) 6 (-) l, 281 According to the U. s. Gove'l:'nment !'3ource from 'tThieh the above table was taken, in 1950/51 some JD 2 million or about l8~ of the total budl!et estimate was allocated. to agencies concerned "ri th direct ann indirect social and economic development. At present Jordan has no external public debt 11 and nothin~ is kn01'ffi about the existence of an internal one. 11 No details are kno,,,n with rerard to the TJ .K. ;, 1 million loan for economic development.  -S- Until 1945the currency of Transjordan was the Palestinian potL~d. On July 1, 1950, a new monetary unit, the Dinar, was introd11ced, equal to one pound sterling. The currency la~'r provides for lOO~ cover of the notes issued by sterling. At the same time Jorda~ rejoined the sterlin~ area, which it previously was compelled to leave in connection with the termina- tion of the Palestine mandate. B,y the time the Palestinian pound was re- deemed some ;'P 9.2.5 million had been issued. The smallnesfl of this circu.- lation is explained ~, the self-sufficiency of the peasant and nomad economy and, by the preference for gold coins. The follo"ring banks are operating in Jordan: The Ottoma~ Bank, which performs certain functions of a central bank in relation to the government (although currency matters seem to be largely handled by the Jordan Currency Board in London); the Arab Bank, the Arab National Ea~~t the British Bank of Iran and the Mid~le East,and the Agricultural Bank, controlled and financed by the government. No figures are available regarding bank deposits in Jordan: they are believed, ho\tJ'ever. to be very small. VIII • FOREIGF TRADl1 Jordan's foreign trade as a r1.1le registers a substantial deficit. In prewar years annual trade deficits were about one half of total imuorts.  -9- Slncethe end of the war they have risen steadily reaching a peak in 1948 when imports exceeded exports and re-ex~orts four times. This is explained by the increased import needs caused by the influx of refugees anCl bv the decreased export surplus resulting from a larger domestic consumption of food. In 1949 the trade deficit was somet'That smaller. Although imports continued to rise, there was a marked improvement in exports and in re-erports. The former found new markets in Turkey, Italy, and. Belgium. The latter, directed mainly to Syria. Lebanon, and partly also to Israel (in spite of the official boycott) have been encouraged by greater ava,ilabili ties of sterling in Jordan than in the other two countries and by the fact that while Jordan's ovm tariffs are comparatively 10\'1', custom duties in neighbor- ing countries are often avoided by smu<"pling. The provisional trade statistics for 1950 indicate, ho",ever, that more rigid import controls recently introduced have reduced the trade defiei t to I. 6 million. Imports were curtailed from 1. 14.6 million in 1949 to 1. 10.8 million in 1950 while exports (includi~ re-exports) declined from ~ 5.6 million to 4.8 million. The following table sho~"s Jordan t s foreign trade balance from 194 7 to 1949.  - 10- (in thousands of ~) 2.2.49 29~ l2li1 Exports 1,053 72F! 506 Re-exportsl/ 1.*50~ :1*28, _l2L 5,55S 2,512 871 'ImportsY 12,757 10,604 6,231 ,Transit 4S 143 1,367 Deficit 7,199 (1,092 5,360 J/ Not including ;imports and re-exports by concessionaires (Iraq Petro- leum Company, Trans-ll,r1:lb1an Pipeline Company, and the British Army),. Source: Jorden, l'1inistry of Commerce, Customs, Excise ,Trade and 'Industry, 1949. Jordan' sexports consisted, d,uringthe IBst two years, IDBinly of fruit anovegetables but in 1949 SUbstantial qu~mtit1eB of wheat and barley were also exported. Imports include a great variety of goods with food, clothing and motorcars as the largest items", In 1948 a.nd 1949 an estimeted 20% of the imports originated in the U.K., 18% in Syria and Lebanon, 9% in Iraq, 7% in the U.s., 6% in Italy end about 5% in Egypt. IX. BALANCE OF PAYMENTS The following is an estimate of the Jordanian Balance of Payments in 1949.  Jordan: Balance of Payments. 1942 (;,p million) . Ourrsmt Account Receipts Payments ~ Oommercial Trade ' !I 5.612.8 --7.2 U.K. Subsidy 2J 3.5 3.5 Profits of the Palestine Ourrency Board 0~3 0.3 Uli Relief Expenditures ' 1.0 1.0 Other Invisible Items 1.1 3.5 _2.4 11.5 -4.8 Qapital Account Official Capital }·fovement (net) (Reduction in sterling ba.lances) 3.5 Errors and Omissions . 1.3 4.8 li Not includin~ imports and re-exports by concessionaires. 2J For thefiacal year 1949-50 (ending March 31). Sources: Eased on official trade statistics and other estimates obtained from: UIT, Final ReDort of the Tn! Economic Survey Mi ssion in the MidQle East, December 1942. 1MF. Jordan: A Preliminar:r :trote on its :Economv and Finance, Marc...1J. ' 1- ' 1921 • J. Baster. Note on Economic Aspects of UFRWA Operations in ior4an. February'28, 1951. The main feature of the country's balance of payments i!'l the large gap arising from the deficit in the merch~~di~e trade. In recent years. the large trade deficits have been met only to a limited extent by invisible receipts, such as the U.K.'s subsidies and U.~. relief expenditures; the rest of the deficits have to be covered by drawin~s on the country's sterling balances.  - 12- In 1949 the main item among invisible receipts ",as the U.K. fa subsidy which for the fiscal year 1949-50 (ending Ma.rch 31), amounted to itP 3.5 million. Another important source of receipts in 1949 was U.r' .. re- lief expenditures estimated at ~ 1 million. Of the ~p 4.8 million deficit, about i.P 3.5 million was covered by drawings on the country. s sterling balances; the remainder \ITas presumably met by other capital movements, on which no data are as yet available. y In 1950 the U.K. subsidy was increa.sed to .. 5 million and the U.K. provided . 1 million for the resettlement of refugees. The U .1:J'. relief expenditures amounted again to ~ 1 ~illion. These pa3~ents covered probably most of the balance of payments deficit. The Government of Jordan has recently constituted a Development Board, its members consisting of four state officials under the chair~a~ ship of the Hinister of Public 1'Torks. The functions of the Board have not yet been defined in detail, nor has the Board yet met. :But. presumably, it will be charged 1;li th dra"'in~ up plans for the economic development of the country and lIJi th the superviston and execution of these plans. A group of economists and technicians from the U.}J. have gone to Jordan under the U.}T. Technical Assistar.ce Pro~ram for a period of from 6 to lR months in order 11 It is reported that for the year 1951 the British subsidy for the Jordan Army has been increased to ~ 6.5 million.  - 13- to prepare a five-year development plan for that country. The fol1mrlng table shows Jordan's tentative development plans as reViewed by the Final Report of the U.N. Survey Mission in 1949. Jordan: Development Plans Capital Cost Water Conservation and lrri~ation ~JD l.oool. yarmuk Canalization project 1.5,000 Jordan Canalization Project 5.500 20,.500 Agri cuI t UTe Education and Research 243 Farm Mechanization 120 Seed Improvement 112 Hortieu.1tural Development 8.565 Afforestation 1 • .524 Animal Husbandry 93 10,657 Roadsr '710 miles 4.200 Rail,,,ays:' 277 miles 1.500 Harbor: Port of Aqaba 10 Airport: Awnan 200 5.910 Industr;v Soap Factory 500 Sugar Factory 4,000 Oement Factory 500 Grape Juice Factory 10 5.010 Minerals n.s. .. Grand Total (not including mineral development) 42,077 Sourcet Final Report of the U'''" Economic Survey Mission, December 1949.  - 14_ No leg! slation has been passed on these plans until nO"1 and a thorough survey of the development possi bili ties of the country ,.,ill have to precede any further decir,ions.