Jordan's Economic Outlook

Here is a link to an excellent full report my friend authored on the risk profile for investment in Jordan.

This is the executive summary:
[CLICK ON THE IMAGE TO OPEN A READABLE VERSION OF THE EXEC SUMMARY].


I definitely recommend reading the full report, by his firm PIRC, if you have any interest in economic development especially in the Middle East.

Iraq Exports Need to Grow

As the Memri Economic Blog reported, Iraq’s central bureau of statistics announced that total Iraqi exports of oil and goods rose by $11.9 billion from 2006 to 2007. ($41.26 billion in 2007 compared with $29.36 billion in 2006). However, $10.92 billion of that increase (92%) was due to crude oil. Since then oil exports have further increased, not just in value but in quantity, thanks in part to the improved security situation.

But, as I pointed out in my previous entry, the oil sector doesn't and won't employ many people (less than 1% of the population at best), so gains in oil production do not translate to increased employment. In a 2006 estimate the CIA estimated unemployment of 18-30%, while the Brooking Institution estimated 25-40% last year. In some villages it is much higher, and it has become clear that without employment there cannot be stability.

US administered microgrants are a small start, nurturing small service-sector businesses and restaurants, as are the small US sponsored "Industrial Zone" for vehicle maintenance, but neither can be expected to generate exports. Instead those service jobs will depend on the health of the oil industry and will suffer the swings of the market, more so when the US departs. At some point in the future we can expect the world to shift away from hydrocarbons, at which point Iraq better have an alternative money maker. The only other serious sector at this time is government, either employment by the Government of Iraq or payments from the US to stand guard (i.e. Sons of Iraq).

This article reports that one large company, Diyala Food Company, shut down, releasing thousands of employees. This is particularly sad when you consider that the US buys hundreds of millions of dollars of food for its military in Iraq, none of it from Iraq. The US should find a way to leverage its forces' huge logistical demands in Iraq, for everything from construction supplies and housing trailers to food. That would create companies that would be able to continue functioning after the US withdrawal.

The US and the Government of Iraq should consider the South Korean example. Before the Korean War the north was actually wealthier than the south due to greater natural resources. Since then, South Korea has experienced one of the fastest economic growth rates in history, largely due to heavy government sponsorship of large companies in key industries for export. There are many differences between Iraq and South Korea, large oil reserves in Iraq being one of them, but also similarities that may be instructive and which I will attempt to further explore on this blog in the future.

Oil sector won't save Iraq by itself

Yes, Iraq will have a budget surplus thanks to the oil sector, as much as $50bn. That's of course good news as it gives the government options, and is an indication of lessening attacks and corruption in that sector.

The oil sector in Iraq, however, has always traditionally accounted for over 95% of foreign exchange earnings, but even in 1997 employed only 0.6% of the population, according to the 2004 Journal of Economic Perspectives. (sorry the full text isn't available free). That split is typical of the oil industry: high capital, low employment.

Therefore it is unreasonable to expect the oil sector to provide enough jobs to promote security, even if it were to fully recover, and beat persistent corruption. So the question then is what will the GOI (Government of Iraq) do with the money. The right thing would be to invest heavily in industry and education to promote the economy and keep people from the temptation of accepting free-lance insurgent work. Supposedly the insurgents were offering over $500 to place an IED, which is a good deal if you're hungry. We need to start thinking of security as an economic competitor as well.

Big four sectors in Iraq in 1997:
government (20.15&)
wholesale and retail trade (19.3%)
agriculture (18.35%)
unemployment (17%)

funny military pictures

These are old but still funny military pictures.

My favorite is of the Australians bicycle jousting. Coalition troops are forbidden alcohol in Iraq and Kuwait (although some gets smuggled in), so that was probably done sober.

Many US troops receive a four-day pass sometime during their tour to Qatar, where drinking is permitted on the US air base at the designated bar. Upon reporting in soldiers are issued a ration card for up to three drinks a day. Across base the British have their own bar, the Muff, where the ration card is not strictly enforced but a host of other eccentric rules are. For example, wearing your reflective belt inside earns you a $20 penalty, as does not saying please and thank you to the bartender.

Iraq Private Sector Falters

The Coalition can do more for the recovery of Iraq by buying more supplies in Iraq instead of in surrounding countries.

The New York Times reported August 11, 2008 in this article that "the number of Iraqi government employees has nearly doubled since 2005, while private enterprise has failed to flourish amid the damaged infrastructure."

The article does not mention that Coalition Forces import nearly all of their supplies from surrounding countries, namely Kuwait, Turkey, and Jordan, instead of using their massive logistical requirements to incubate Iraqi businesses. The imports amount to hundreds of 40-foot refrigerated trucks, flatbeds, and tankers per day, such as those operated by the company Agility, which celebrated sending its 100,000th truck into Iraq for Coalition Forces almost a year ago, in November 2007.

In addition to hiring contractors to import materials including food, fuel, water, spare parts, and construction materials, Coalition Forces hire foreign companies under the LOGCAP contract to provide "field operations such as dining and laundry facilities, housing, sanitation, waste management, postal services, and morale, welfare and recreation activities; and other operations, including engineering and construction, support to communication networks, transportation and cargo services, and facilities maintenance and repair.

What if we purchased some of these materials from the Iraqis? If they built the Ziggurat of Ur over 4100 years ago, surely they can construct brick barracks today. We should be looking at ways to actively build industry in Iraq, even if it means loaning billions of dollars and creating free trade zones on our bases. The goal is not to save money, although we might, but rather to create jobs and a viable economy that will keep growing after we leave.

This article highlights a recent initiative to incubate Iraqi operated vehicle maintenance businesses on Anaconda, one of the largest US logistical bases in Iraq, and demonstrates that the security obstacles are not unsurmountable. Vehicle maintenance is not enough, however, as those jobs won't last when the US departs; Iraq needs to build exports.

Access to the world market is a necessity, and the formation of the Iraqi Trucking Network is a positive step, although of course they need something to ship, and its area of operation seems to be limited (the article says it operated successfully between Fallujah, Al Asad, Taqaddum, Ramadi and Jordan: all Sunni dominated areas in Al Anbar province).