Why Jordanian imports rose sharply

Published December 12th, 2000 - 02:00 GMT

The latest figures produced by the Jordanian Department of Statistics, covering foreign trade during the first 10 months of this year, indicate that national exports rose by 7.2 percent, and reexports rose by 6.8 percent over the same period of last year.  


These are obviously healthy rates of growth, confirming that the export sector is leading the economic growth in the country by growing faster than other sectors of the economy. However, the imports made a 22.7 percent jump during the same period.  


Some analysts and observers showed alarm at this revolution and wonder why imports made this great and exceptional jump, causing trade deficit to deteriorate further by increasing around 37.1 percent over the corresponding period of 1999.  


The picture becomes even dimmer when we use absolute figures in dinars, instead of percentages, because each one percentage point of imports is equal to 2.5 percentage points of national exports, i.e., the rate of growth of exports must rise at more than double the rate of growth of imports in order to maintain the same level of trade deficit.  


As things turned out, the position is quite the opposite. Growth rate of imports during the first 10 months of 2000 exceeded three times the growth rate of exports, which means in absolute figures that for each extra dinar of exports, the imports rose eight dinars.  


One wonders whether this sharp rise in imports is a good and welcome sign, indicating that the recession is finally over and that the standard of living is rising, or it is an economic problem which must be analyzed to find solutions and perhaps alter or modify the current trade policy adopted by the government, if there is a trade policy at all.  


Analyzing the growth of imports and identifying its components may alleviate the fears felt in the first instance due to a much higher volume of imports than expected. I have found that one third of the rise in imports—or 167 million Jordanian dinars—is solely caused by the rise in the price of crude oil from $13 in 1999 to $19 in 2000, along with other imported fuel derivatives. This, of course, is a paper not real growth, and nothing can be done about it.  


The second third, or around JD166 million, is represented by a net increase in the importation of machinery related to agriculture, industry and construction, telecommunication and electrical transport equipment, and the like. The rise in imports of these items is an indication of a higher volume of investments. It is not meant for private or public consumption.  


The last third of growth in imports, or 7.5 percent, is normal and acceptable because it is matched by the growth of exports, the growth of population, and the slight improvement in the standard of living, as reflected in the volume of private consumption. It has to be taken into account that a major part of this rise resulted from more imports of raw materials needed by the industry.  


It goes without saying that an unwarranted rise in imports is definitely a negative phenomenon from an economist's point of view, but it is not so if the rise is not real or is meant to serve more active investment or the industry that increased its output.  


In all cases, Jordan has taken a strategic decision to open up to the world markets in both imports and exports. This decision, it seems, is final and not subject to revision or reversal. We may need some time to absorb all the consequences, negative and positive, of such a revolutionary step.  


On a final note, the rise in the commodity trade deficit should not be alarming as long as the current account of the balance of payments is in surplus due to more exports of services. Much less if the official reserve of foreign exchange at the Central Bank is on the rise as well. — ( Jordan Times )  


Fahed Fanek

© 2000 Mena Report (www.menareport.com)

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