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Even with Mideast conflict, money talks in Jordan's industrial zones
JTA / August 13, 2006

By Larry Luxner

AMMAN, Jordan — Arabs throughout the Middle East are screaming with rage over Israel's war against Hezbollah. But when it comes to Jordan's QIZs, money talks.

QIZ stands for Qualified Industrial Zone, and the Hashemite Kingdom now has a dozen of them, stretching from Irbid in the north to Aqaba in the south. These clusters of factories — churning out everything from jeans to jewelry — have become the key to Jordan's spectacular growth in exports to the United States.

But there's a catch: in order to qualify for duty-free, quota-free entry into the lucrative U.S. market, products manufactured in Jordan's QIZs must contain 35% added value — and 8% of that added value in the form of parts, components or raw materials must come from Israel.

This Israeli content requirement helps "build mutual interest between people from both sides of the border," says Maen Nsour, CEO of the Jordan Investment Board in Amman.

"There also has to be a Palestinian percentage. It's a way to economically integrate these three entities," Nsour told JTA. "When you have common economic interests, that will reflect positively on the political relationship. That was the original intention when this scheme was devised, and the numbers indictate that the program has worked."

In fact, Jordanian exports to the U.S. have jumped from $48 million in 1998 to $1.2 billion last year, thanks almost entirely to the QIZ program. Most of that consists of garments, though jewelry and electronic components are also made by QIZ workers.

Jordan's largest privately owned QIZ is Al-Tajamouat Industrial City, located 18 kilometers south of Amman. Al-Tajamouat alone accounts for 30% of Jordan's free-zone exports to the United States and 36% of the $800 million that foreigners have invested in the QIZs to date.

Some 40,000 people — half of them Sri Lankans — work at Al-Tajamouat's 42 factories, earning 110 dinars (around $160) a month.

According to the Tel Aviv-based consulting firm Elyon Ltd., to qualify a product in the QIZ, at least 35% of its appraised value must have been produced within the zone. The breakdown must not be less than 11.7% from a Jordanian QIZ and 8% from Israel (7% for high-tech goods). The reamining content, to reach the 35% threshold, may come from either a Jordanian QIZ, Israel, the United States or West Bank / Gaza.

The Jordanian and Israeli manufacturers may each maintain at least 20% of the total production of QIZ-manufactured goods, excluding profits.

"In the beginning, lots of people were anti-QIZ, asking us, 'why would you want to deal with Israel?' But it's not like it used to be," said Janset Kasht, business development manager at Al-Tajamouat. "This has proven to be a success story. The QIZs have created over 19,000 jobs for Jordanians, 12,000 of those jobs in the last six years."

Ravish Sachdeva, manager of the Ivory Garment Factory, employs 954 workers — 70% of them women — in the cutting and stitching of pants for a variety of U.S. clients including Gloria Vanderbilt and JC Penney.

"It's all because of the duty-free factor. That's the main reason we're here," said Sachdeva, who relocated here from India four years ago. "The duty factor is our only weapon against China."

In fact, only 20% of Sachdeva's workers are Jordanians. Most of the remainder are Sri Lankans, Indians, Bangladeshis, Pakistanis and Nepalese, who send at least 90% of their wages home and scrape by on the rest.

Last year, the Ivory Garment Factory reported revenues of $24 million. Its owners have no qualms about buying zippers, buttons and other components from Israeli suppliers.

"Free trade [with the U.S.] is the main advantage, as well as the Israeli component, because in certain categories, you need to buy from Israel. And we want to buy, because the quality of Israeli products is quite good, and they deliver fast," said Sachdeva. "The sailing time from Hong Kong to Jordan is 15 days, while from Israel, it's half a day. Just bring a truck over the border and you save all that cost."'

Kasht said Al-Tajamouat represents $350 million investment from a dozen countries including India, Pakistan, China, Hong Kong, Taiwan, South Korea and the United States.

"Jordan has established itself in the region as a garment hub," she said. "We started with mass production, making low-end items like $5 T-shirts for Wal-Mart and K Mart. Now we're exporting to Banana Republic, Liz Claiborne and The Gap. The country is ready to move to the middle and upper niche markets."

Under U.S. law, goods produced within QIZs enter the United States duty- and quota-free. In addition, imported raw materials to the QIZs are exempt from Jordanian customs duties, nor are there restrictions on project owernship or foreign-currency transactions.

"I believe the QIZ was a great tool to create jobs for Jordanians, but it's also helped us understand the Israelis more, and to open a dialogue with them," said Kasht, who was trained by the U.S. Agency for International Development before coming to work at Al-Tajamouat. "There's a meeting every year on the Israeli side of the border between Jordanian manufacturers meet with their Israeli suppliers, and they treat us with the highest respect."

Kasht added: "Politics is always politics, and we leave that to the politicians. But we as human beings understand each other. And this program has helped the Jordanian economy boom."

On the other hand, she said, "there was no proper planning. The demand for local workers was tremendous, but Jordanians don't want to work in factories. And when they do, they're not 100% committed. We are all in favor of replacing the foreign workers in order to maximize the benefits of this program for our country, but we want to do it gradually. We need proper training programs and campaigns to attract local workers."

According to Nsour, Israeli investment in Jordan's QIZs comes to 29 million dinars ($40.6 million), though this pales in comparison to Taiwanese investment of 71.5 million dinars ($100 million).

Nsour said that in 2004, Jordan imported $164 million worth of goods from Israel.

"Of course, certain issues have to be resolved," he said. "Sometimes there are delays and exaggerated security measures like the banning of important Jordanian products and the movement of Jordanian businessmen. We urge the Israelis to do whatever they can to ease these controls."

An end to current hostilities, both in Lebanon and in the Gaza Strip, would also help increase trade by making Jordan more attractive to foreign investors.

"King Abdullah has been extremely active in trying to bring the Israelis and Palestinians together," said Nsour. "You can always find people who oppose this, but at the end of the day, what we care about is Jordan's best interests. This is why I emphasize that Israel and the Palestinians must reach a conclusion to their conflict."

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