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Even with Mideast Conflict, Money Talks in Jordan’s Industrial Zones

August 14, 2006
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Arabs throughout the Middle East are upset over Israel’s conflict with Hezbollah. But when it comes to Jordan’s qualified industrial zones, money talks. The Hashemite Kingdom now has a dozen of them, stretching from Irbid in the North to Akaba 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 zones must contain 35 percent added value — and 8 percent of that added value, in the form of parts or production, 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 indicate 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 program. Most of that consists of garments, though jewelry and electronic components are also made by workers in the zones.

Jordan’s largest privately owned zone is Al-Tajamouat Industrial City, located 11 miles south of Amman. Al-Tajamouat accounts for 30 percent of Jordan’s free-zone exports to the United States and 36 percent of the $800 million that foreigners have invested in the zones 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 percent of its appraised value must have been produced within the zone. The breakdown must not be less than 11.7 percent from a Jordanian zone and 8 percent from Israel — 7 percent for high-tech goods. The remaining content, to reach the 35 percent threshold, may come from either a Jordanian zone, Israel, the United States, West Bank or Gaza Strip.

The Jordanian and Israeli manufacturers may each maintain at least 20 percent 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.”

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

“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 percent of Sachdeva’s workers are Jordanian. Most of the remainder are Sri Lankans, Indians, Bangladeshis, Pakistanis and Nepalese, who send at least 90 percent 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 United States “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,” Sachdeva said. “The sailing time from Hong Kong to Jordan is 15 days, while from Israel, it’s half a day.”

Kasht said Al-Tajamouat represents a $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 Kmart. Now we’re exporting to Banana Republic, Liz Claiborne and Gap. The country is ready to move to the middle and upper niche markets.”

In addition to U.S. exemptions, imported raw materials to the zones are exempt from Jordanian customs duties, restrictions on project ownership 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.”

According to Nsour, Israeli investment in Jordan’s zones comes to 29 million dinars, or $40.6 million, though this pales in comparison to Taiwanese investment of $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.”

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,” Nsour said. “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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