Investing in a Profitable Future

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Chaarvi Modi finds out how trade ties between the two emerging economies can be turned into a highly profitable venture.

India characterises its relationship with Jordan as one built of warmth, goodwill and mutual respect. Despite being geographically separated by a considerable stretch of land, the two have maintained a symbiotic relationship in terms of trade, commerce and culture in multilateral fora over several decades. Since the establishment of official diplomatic ties post India’s independence in 1947, the two have attempted to exploit, in parts, the bountiful potential of their bilateral trade. Yet, vast pockets of the bilateral relationship remain unexplored. The future of Indian investments in the Hashemite Kingdom can only be defined as bright.

Interdependence

Jordan, home to the world’s first Qualifying Industrial Zone (QIZs) in Irbid – in collaboration with its neighbour Israel – took no time to realise the benefits of the scheme, and soon these free trade zones proliferated to stabilise the economy. Goods produced in these areas can directly access markets in the United States and other regions that the nation has agreements with, free of tariff restrictions or quotas. Great availability of labour is an added advantage to the nation. Textile and garment factories dominate most of these QIZs as they make for lucrative business. Jordan majorly earns from exports of its booming textile industry. Sixty-five percent of investment put into these QIZs is textile/apparel related. Over 30 percent of Jordan’s total exports are from the textile and garment manufacturing sector.

About twenty garment industries across Jordan are owned by Indian businessmen with an estimated investment of over $50 million. This is a win-win situation for both India and Jordan because these industries have generated employment for about 2,500 people. In return, Indian businesses get the advantage of operating at low interest rates, significant capital subsidy, and flexible labour laws. Indian entrepreneurs, thus, gain easier access to markets in the European Union (EU), Arab region, Canada, and the US because of Jordan’s accord with these gigantic textile consumers.

The trade between the two countries has grown rapidly although the balance of trade has been in favour of Jordan during the last few years. Currently, India’s share of Jordan’s overall imports of textile and clothing is only three percent. Hence, there is a huge untapped potential for increasing exports of these items to Jordan.

Countries of the Gulf are essential to India’s foreign policy due to India’s dependence on them for petroleum and petroleum products. However, Jordan is one nation that fulfils India’s domestic requirements of phosphate fertilisers and rock phosphates due to its lack of self-sufficiency in the sector. India also imports potash, lead, aluminium and phosphoric acid, while it exports engineered goods, electrical machinery & equipment, organic & inorganic chemicals, aircrafts & parts, and manmade filaments. In 2008, India was Jordan’s largest export partner and ninth largest importer, while subsequent years saw a drop in phosphate exports. It has been accepted by both the governments that there exists a vast potential for expanding trade between the two countries in sectors such as leather, information technology, pharmaceuticals, construction material and the automobile sector.

Irritants in Bilateral Ties

India is deemed to be the largest market for the consumption of phosphates, but the true potential of this area can only be tapped if deals to boost bilateral trade with Jordan are renewed. The sale of potash from Jordan to India has also slowed down in recent times, which Jordan attributes to internal and external factors. External factors are attributed to the global economic slowdown, India’s fluctuating prices, alleged corruption in the Indian political scene, and devaluation of the Indian currency. The volatile climate that prevails over the labourers in Jordan is often a hindrance. Several labour strikes take place demanding increased wages, improved health insurance coverage and better working conditions. Jordan has attempted to tackle several of these problems to protect its flourishing trade environment.

In 2008, Better Work Jordan - a partnership between the International Labour Organisation and the World Bank’s International Finance Corp - was launched with the goal of improving compliance with labour standards in the apparel-manufacturing sector. The Jordanian government has also taken steps to train unemployed youth for the industry, while also setting up an inclusive five-year economic plan to resurrect its economy. However, more needs to be done in other sectors of trade also to protect its overall interests that sustain its economy. The timing of such reforms and initiatives taken by the Jordanian government is particularly important to establish itself as a superior market and economy, while the rest of the region, including Syria, Turkey, Iran, Lebanon and Egypt, undergo rough political turmoil and civil unrest of varying degrees. Therefore, these are areas that need urgent improvement so as to enhance India’s trade with the Kingdom for mutual benefit.

Unlimited Joint Venture Opportunities

Jordan has expressed its wish in the past to increase joint venture opportunities with India in the pharmaceuticals and agricultural equipment sectors to enhance the bilateral trade relationship. In the past, the largest and most successful joint venture has been the Jordan India Fertilizer Company (JIFCO) - a collaboration of the Jordan Phosphates Mines Company Ltd (JPMC) and Indian Farmers Fertiliser Co-operative Limited (IFFCO). This company was established on March 6, 2008 in Amman, under the ‘Free Zone’ system with the aim of setting up a Phosphoric Acid Plant of 1500 tonnes per day with P2O5 capacity at Eshidiya in Jordan. A minimum of 70 percent of this output will be exported to India and used as feedstock for IFFCO’s fertiliser operations. In this company, IFFCO and its affiliates hold 52 percent equity, while JPMC holds 48 percent. The project cost is estimated at around $767 million.

JIFCO’s fertiliser export to thousands of Indian farmers will improve the productivity of agricultural production, and help ease India’s food shortage. It is important to the global food chain. The project will also have a substantial developmental impact on the Jordanian economy as the construction and operation of the plant is expected to directly generate 600 to 1000 new jobs in South Jordan, where the average income is much lower than in the rest of the country.

Jordan and India, two developing nations, have a lot to gain from each other. There are several sectors where one country makes up for what the other lacks. However, with more and more government initiatives and by tackling the current problems that hinder the growth of their relationship, trade ties between the two emerging economies can be turned into a highly profitable venture.



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Author

Chaarvi Modi

Chaarvi Modi is a freelance writer and a final year undergraduate student at the School of Liberal Studies, Pandit Deendayal Petroleum University, Gandhinagar.

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Diplomatist Magazine was launched in October of 1996 as the signature magazine of L.B. Associates (Pvt) Ltd, a contract publishing house based in Noida, a satellite town of New Delhi, India, the National Capital.

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