Economy needs long-term vision, not slogans 25/10/2022

The words gig economy, innovation, and entrepreneurship are thrown around and discussed almost daily in the media and policy corridors in Jordan. They are also touted as the three musketeers, the saviors of unemployment in Jordan. However, given that there is little on the ground in terms of government support for all three, it may be that there is a sinister motive for using such slogans.

The gig economy describes a labor market that relies heavily on temporary and part-time jobs that are filled by independent workers/freelancers rather than permanent, full-time employees. Gig workers have the flexibility and while some workers may prefer this mode of employment, they have little to no job security. Examples of gig workers include rideshare drivers, food delivery drivers, self-employed consultants, and craftspeople.

Innovation, on the other hand, is the practical implementation of ideas that lead to the introduction of new products (goods or services) or improvement(s) in offering goods or services. While related to the invention, innovation and invention are not the same. Innovation is about implementation and may not require an invention. Furthermore, innovations may require significant support from (policy, funding, procedures, etc.) and interventions (such as publicly funded research and projects) by the state, especially in nascent economic systems.

Entrepreneurship refers to an entrepreneur, who is typically the owner of a business enterprise who gathers the economic resources to create an enterprise, assumes all risks and uncertainties and his payment is profit. The concept of entrepreneurship goes back to the works of Richard Cantillon and Adam Smith, in the late 17th and early 18th centuries, and later to  Jean-Baptiste Say, in the 19th century, who provided the definition. Works on entrepreneurship were further elaborated on in the 20th century by Joseph Schumpeter, Carl Menger, Ludwig von Mises, and Friedrich von Hayek, among others.

So, according to the definition of entrepreneurship, a small shop or fruit stand is an enterprise, and its owner/manager is an entrepreneur. Anyone can become an entrepreneur and they may succeed or fail. In fact, the failure rate is quite high, which is why most people (especially those that are risk-averse) opt to work for others.

So where is the sinister move that I alluded to?  Let us go back to the mid-1990s when another catchphrase was invented: “culture of shame”. According to the culture of shame principle, Jordanians are too proud to work in menial jobs and prefer cushy office jobs, preferably, public sector employment, where they are endowed with authority, job security, few work hours, health insurance, and social security coverage. But then who would not prefer that?

Jordanians, I had argued at the time, are no different or better genetically than any other people in the world; all people would prefer the same when offered the opportunity. The result, however, was that a good ready-made, and easily at-hand excuse became available to policymakers to justify the rising unemployment rates and the futility of policies in addressing such an embarrassing policy failure. All they needed to be done was to blame the victim: even though jobs are available, Jordanians are too proud to work.

In the mid-1990s, the term entrepreneurship emerged in Jordan and started to gain prominence. But while it is important to have enterprises and entrepreneurs in society, the concept should not be used to explain high unemployment rates and the failure to produce a job-creating economy.

In a way, the term is being used to say that Jordanians want to be employees, rather than employers; that they lack the initiative to start their own ventures. Hence, the government is not at fault for the high unemployment rates, people are.

Innovation started appearing in the common lingo and dialogue in the new century. It is underpinned by a primary claim that Jordanians are not innovative; that they are traditional, and do not seek new ways to do things.

Again, this is a case of blaming the victim. Where is the role of the government in innovation? In all the countries that have been innovative and shown great success, government support had plenty to do with the success. On the other hand, in Jordan, would-be innovators have little to no access to capital, a dearth of legal protection when it comes to intellectual property rights, and an unstable legislative environment where laws and by-laws are changed frequently and whimsically.

The current arguments claim that Jordanians are at fault, and not a government that relegates such an important task to aid programs and projects, which last for a few years and are then uprooted.

Sadly, one has yet to see one aid-funded project with focus on innovation that has lasted beyond its initially stipulated lifetime because the government adopted it and decided to fund its permanence.

Back to the gig economy, which is gaining in popularity, with youths encouraged to engage in it as a solution to their 50 percent unemployment rate.

Is it a solution? Does not a country need a core workforce that gains and builds skill and specialization over decades of work? Does not a country need institutions that hire graduates and workers on a full-time basis so they can move from youth to adulthood? Is the solution for all of us to work part-time, have no proper medical insurance, and have no job stability?

Of course not, but this is what is being espoused by the thought leaders with the blessings of policymakers as the solution to the economic downturn and the rising unemployment.

Slogans come and go, but they will not whittle down the unemployment rate. They are, simply, easy to use when one is buying time to conclude his or her term in office.

The country does not need to change capitalism; it needs to become a capitalist.

Published in Jordan News:

https://www.jordannews.jo/Section-36/Opinion/Economy-needs-long-term-vision-not-slogans-23610

Not hiring engineers 18 10 2022

Engineering degrees are highly sought in Jordan, demanding in terms of academic rigor, and costly. But in terms of employment, recent data shows they are not rewarding. In fact, about one-third (even close to 40 percent in some fields) of engineers are unemployed.

What is the cause of this and how can the situation be remedied?

Jordanian engineers are among the best in the region and can hold their own in any advanced country. As students, they are selected from among the brightest, and are well-trained, whether locally or in developed countries. The Engineers Association only grants membership, which is a license to work as an engineer, to graduates of accredited universities.

The road toward engineering degrees is fraught with steep requirements: high scores in the General Secondary Education Certificate Examination (Tawjihi), higher university fees than most other majors, and longer years of study. Yet, there is an abundance of engineers. 

There are close to 190,000 engineers in Jordan, which means that one out of 10 persons in the national labor force is an engineer; recent estimates show that their numbers grow at close to 8 percent per year. Additionally, there are over 40,000 at universities in Jordan and abroad that will be vying to join the labor market soon.

Since the 1970s, Jordan has been a supplier of engineers (mainly civil engineers) to the oil-rich GCC countries. Currently, there are 26,000 engineers working there: almost three-quarters work in Saudi Arabia, 20 percent in the UAE, and the remainder in Qatar, Kuwait, and Bahrain.

Their employment generates an inflow of remittances to the Jordanian economy. However, employment and remittances vacillate with the rise and fall in oil prices, thus almost making Jordan an oil-dependent economy without oil.

Unemployment among engineers, at 32 percent, is higher than the national unemployment rate of 22.3 percent. Architectural engineering suffers the highest unemployment rate (38 percent), followed by civil engineering (34 percent), and electrical and mechanical engineering (31 percent and 30 percent respectively).

Not only is the government in Jordan unable to affect the demand for engineers overseas, but it is also, due to cuts in capital expenditures, hardly hiring locally. Also, the private sector has suffered what may be the longest economic depression in recorded history. And, the economy in Jordan has not been able to boost productivity since 1988 — the real income per capita in Jordan remains lower than that of 34 years ago.

This also means that production is a low value-added, and requires little to no skill. In addition, Jordan suffers from growing joblessness because the bulk of economic growth is basically in the construction sector, which attracts unskilled guest workers, and hardly creates jobs for skilled Jordanians. Therefore, engineers are worse hit by the depression than most.

The fact that many engineers are unemployed can be easily explained by the dearth of high-value-added production and products, which require highly skilled workers, especially engineers, to produce. Without demand from the private sector, the engineers’ human capital and its potential will be wasted further.

To move into high-value-added production, the government must play a major, and necessary, role. It must support new projects, entrepreneurship, startups, and innovation, activities that are currently relegated to programs that are funded by foreign aid.

The government must also set the direction of change and use all the tools available to drive the economy toward greater productivity, innovation, R&D, value-added, and resilience.

It should borrow and assume more debt to grow product complexity in a mission-driven approach, and use all fiscal and monetary tools to drive and cause the change that puts the engineers to work.

Published on Jordan News:

https://www.jordannews.jo/Section-36/Opinion/Not-hiring-engineers-23301

Spread, growth, and credit 11-10-2022

Well-known economist Irving Fischer once said that it is good for a bank to be prudent, but it is bad for the economy if all banks become prudent.

One indicator of prudence is the spread (difference) between the lending and deposit rates that banks pay and receive. Another is the ratio of domestic credit to the private sector as a percentage of the GDP. There are other measures, of course, but I will stick to these two simple ones, and ask the following questions: Is the spread between the interest rate on loans and deposits high, and if it is high, then by how much? Has lending expanded to spur growth or moved in tandem with it? And how, based on these two indicators, did the private banks react to economic growth rates in the past two decades?

Let us look at the past quarter century, 1997-2021. Official data shows that during a period of low economic growth (1997-2003), domestic credit to the private sector as a percentage of the GDP was 72 percent, and the spread was 4.8 percent. During 2003, a year of uncertainty and regional turmoil, the spread was extremely high: 6.2 percent. There is no evidence that banks may have caused the slow growth rates; however, clearly, banks reacted with great trepidation by raising the spread and reducing lending.

On the other hand, during 2004-2009, the domestic credit to the private sector as a percentage of GDP rose to 83 percent and the spread decreased to 4.2 percent. Interestingly, the average growth rate of the real GDP during this period was close to 8 percent. Hence, the growth that was spurred by the invasion of Iraq and resulted in an influx of wealthy Iraqi immigrants caused greater lending and a lower spread rate.

With the growth rate slowing down slightly in 2008, amidst an unjustified fear of a bubble (which later resulted in a self-fulfilled prophecy), and the resultant prudent policy adopted by the private banks, the domestic credit to the private sector as a percentage of the GDP dropped from 92 percent in 2007 to 78 percent in 2008, and then to 73 percent in 2009, the year Jordan entered, by own design, into the Global Credit Crisis — note that the world by then had announced in Istanbul that it exited the crisis.

One cannot but be surprised that no one was later held accountable for causing Jordan to unnecessarily jump into the crisis.

Enter the last period for which data is available (2010-2021). During this period, the domestic credit to the private sector as a percentage of the GDP became 73 percent, and the spread increased to 4.6 percent. The highest spread was in 2010, a year that witnessed a collapse of the growth rate from 5.3 percent in 2009 to 2.2 percent in 2010.

Another peak emerged in 2016 when the spread became 5.1 percent. Note that the Arab Spring had little to no effect on the spread. In 2020, the COVID year, the spread fell to 3.4 percent and the domestic credit to the private sector as a percentage of the GDP increased from 77 percent in 2019 to 83 percent.

The austerity programs of the IMF led to increased taxes and reduced public expenditures. At the same time, private expenditures were squeezed due to a tight monetary policy.

Given that, consistent with unregulated capitalism doctrines, only big businesses have the capacity to borrow, micro and small enterprises will not be able to obtain credit. Consequently, a combination of tight fiscal and monetary policies will reduce potential growth to a trickle.  Solution: there needs to be a complete shift in economic governance if the economy is to turn around.

Published on Jordan News:

https://www.jordannews.jo/Section-36/Opinion/Spread-growth-and-credit-22992

التجارة الخارجية وسعر صرف الدينار- 05 10 2022

 تروي آخر أرقام التجارة الحديثة قصة متناقضة متشابكة الصعود والهبوط. ومع ذلك، كما هو الحال في معظم القصص الجيدة، فإن بها رسالة قد لا تكون بائسة تمامًا، وهو ما أستعرضه هنا.

 بالمقارنة بين السبعة شهور الماضية بالأشهر السبعة الأولى من عام 2021، فان الصادرات والواردات ازدادت بشكل كبير بالمقارنة بين الفترتين، وهنا يجب على المحلل الحصيف أن يبحث في مصادر النمو، خاصة وأن قيمة الدينار الأردني أخذت بالارتفاع مع ارتفاع الدولار الأمريكي في الآونة الأخيرة مما رفع من أسعار الصادرات مقارنة بمنتجات أولئك الذين يستخدمون عملات أخرى، وجعل الواردات أقل كلفة.

 نمت الصادرات الوطنية (باستثناء إعادة التصدير) بنسبة 47 في المائة، من 3.2 مليار دينار أردني في الأشهر السبعة الأولى من عام 2021 إلى 4.7 مليار دينار أردني في نفس الفترة من عام 2022. (القصة ممتعة وإيجابية حتى الآن، فكل دولة ترغب في زيادة صادراتها...)

 

فمن الناحية الأخرى، ارتفعت الواردات بنسبة 39 في المائة، اي بقيمة 8 مليار دينار أردني خلال الأشهر السبعة الأولى من عام 2021 إلى 11مليار دينار أردني خلال نفس الفترة من عام 2022. وبالنظر إلى أن الواردات تعادل ضعف حجم الصادرات تقريبًا، من المتوقع أن تؤدي مثل هذه الزيادة في الواردات إلى زيادة العجز التجاري (محسوبًا على أساس الصادرات ناقص الواردات)، وهو ما حصل، حيث ارتفع العجز التجاري بحوالي 34٪ خلال فترة التحليل من4.76 مليار دينار أردني إلى 6.37 مليار دينار أردني. (لكن القصة لم تكتمل بعد...)

 صحيح أن الدول تفاخر بتطور تنوع وقيم صادراتها خاصة حين تتجاوز قيمة وارداتها، مما يعني ازياد قوة عملتها مع ارتفاع الطلب عليها وتحسن ميزان مدفوعاتها وارتفاع نسب التشغيل والأجور فيها لتصبح أكثر قدرة على المنافسة عالميًا. ولكن، لكي تحسن من تنافسيتها فإن القدرة التنافسية لأي دولة تُقاس بصادراتها من المنتجات ذات القيمة المضافة، وليس المواد الخام، مثل النفط والسلع الأساسية الأخرى. يأتي حوالي ثلثي الصادرات الوطنية في الأردن من البوتاس الخام والفوسفات الخام والملابس (تذهب الغالبية العظمى إلى الولايات المتحدة، مع القليل من القيمة المضافة المحلية). إذا أردنا إضافة الصادرات من المنتجات الكيماوية والأسمدة (وكلاهما يعتمد على البوتاس والفوسفات)، عندها يصبح المجموع 84 في المائة من الصادرات الأردنية. ولا بد من التنويه هنا ببعض من التحسن في خليط الصادرات  فقد نمت صادرات الأردن من للمواد الكيماوية والأسمدة من  17 في المائة في الأشهر السبعة الأولى من عام 2021 إلى 22 في المائة في نفس الفترة عام 2022، مما يعني زيادة في القيمة المضافة لصادرات الأردن.

 ولكن من ناحية اخرى هنالك انخفاض ملحوظ في الصادرات الدوائية، من 7.4 في المائة إلى 4.4 في المائة خلال فترة المقارنة. هنا  يجب على صانعي السياسات التوقف والنظر في معالجة هذا الامر ولعدة أسباب، منها أن صناعة الأدوية هي صناعة ذات قيمة مضافة تصل لمائة بالمئة تقريبا، كما أن الأردن كان رائدًا إقليميًا في مجال صناعة الأدوية، وخرّج سوقه شركة عملاقة مثل شركة الحكمة التي أصبحت شركة عالمية مدرجة في بورصة لندن وتقيم بالمليارات.

 دعونا ننتقل الآن إلى مسألة ارتفاع قيمة الدينار، وتأثيره على التجارة الخارجية. صحيح ان الدينار الأردني مرتبط بالدولار الأمريكي منذ بداية عام 1995، لذا، كلما ارتفع الدولار يرتفع الدينار معه أيضا بالنسبة للعملات الأخرى. ومن ثم، كان ينبغي أن تصبح صادرات الأردن أكثر كلفة، وهو ما كان سيعني انخفاضًا في الصادرات وليس زيادة! لم تتأثر صادرات الملابس، حيث تم تسعير البضائع بالدولار وبيعها إلى الولايات المتحدة. أما بالنسبة للفوسفات والبوتاس، فلم ينخفض الطلب على صادراتنا، رغم ارتفاع سعر الصرف، بسبب زيادة الطلب العالمي نتيجة اندلاع الحرب الروسية الأوكرانية. (يسرد تحليل الواردات قصة أخرى.)

 ارتفعت قيمة واردات الاردن من النفط الخام من 15.5٪ إلى 19.2٪ خلال فترة المقارنة، وذلك نتيجة لصعود أسعار النفط وليس بسبب ارتفاع ملحوظ للنشاط الاقتصادي في الأردن، وازدادت نسبة الواردات من المركبات والآلات من 15.3 في المائة إلى 17.9 في المائة نتيجة ارتفاع أسعارها بسبب تعطل سلاسل التوريد وانطلاق التضخم العالمي، ومع انخفاض الأسعار العالمية مؤخرا وتصاعد قوة الدولار، من المرجح أن ترتفع كمية الواردات مع انكماش كلفتها.

 وفي خضم تنامي كل هذا الشراء، زاد الأردنيون وارداتهم من المجوهرات والمعادن النفيسة من 406 مليون دينار (5٪) إلى 982 مليون دينار أردني (9٪ من الواردات)، وهو ما قد يعني زيادة اكتناز الأردنيين للذهب كمخزن للقيمة وهو ما قد يكون دليل على ارتفاع وتيرة التحوط والاحساس بعدم الثقة، وهو خلل هام لا يمكن معالجته إلا من خلال تصرفات ونهج حوكمة يدعو الى المزيد من الثقة بالحكومة، وبالتالي الايمان بأمن وأمان البلد.

 يمكن للمرء أن يتعلم الكثير عن الاقتصاد الأردني من خلال بيان صحفي صادر عن دائرة الإحصاءات العامة لا يتعدى صفحتين حول التجارة الخارجية. الأهم من ذلك، أن بعض القطاعات التي أكدت عليها رؤية التحديث الاقتصادي كمحركات للنمو، مثل الأدوية، تعاني بالفعل من منافسة غير عادلة في الخارج، وبعض التحديات في الداخل (احدها المدفوعات الحكومية المتأخرة لشركات الأدوية والتي فاقت 100 مليون دينار).

 يمكن تحقيق النمو بسهولة، وهو ما حصل مرات عديدة في السابق نتيجة لتغيرات المنطقة، لكن الطريق إلى التنافسية والتنمية شاق ويتطلب المضي قدمًا وبضع عقود من العمل الدؤوب نحو هدف. كما لا يتطلب التركيز على بضع قطاعات، فهذه موضة قديمة (حسب الأدبيات الاقتصادية)، بل يجب إشراك جميع القطاعات في التوجه نحو مهمة تحقيق التنمية.

Trade and the exchange rate 04 10 2022

Recent trade figures tell a mixed story, one of ups and downs. Yet, as in all good stories, this one has a message that is not completely dystopian.

Both exports and imports have increased significantly in the past seven months relative to the first seven months of 2021. A prudent analyst should always look into the sources of growth, especially since the value of the Jordanian dinar has been rising with the US dollar in recent months, thus making exports expensive relative to the products of those using other currencies, and rendering imports inexpensive.

National exports (not counting re-exports) grew by 46.8 percent, from JD3,196.6 million in the first seven months of 2021 to JD4,691.6 million in the same period of 2022. So far, the story is pleasant; any country would like to increase its exports.

Imports, on the other hand, increased by 38.9 percent, from JD7,959.3 million during the first seven months of 2021 to JD11,057 million during the same period of 2022. Given that imports are approximately two and a half times the size of exports, such an increase in imports would be expected to increase the trade deficit (calculated as exports minus imports). The trade deficit increased about 34 percent in the period of analysis, from JD4,762.7 million to JD6,365.4 million. But the story is not complete yet.

It is true that nations are filled with pride when the value of their exports expands beyond the value of their imports, which strengthens the currency and balance of payments of a country and means, among other things, that the nation has grown globally more competitive.

But, hark: competitiveness of a nation is measured by how much it exports of value-added products, not raw materials, such as oil and other basic commodities. Around two thirds of the national exports come from crude potash, crude phosphate and garments (the vast majority to the US, with little local value added). If we are to add exports of chemical products and fertilizers (both based on potash and phosphate), the total becomes 84 percent of Jordanian exports. There is a bit of good news here: exports of chemicals and fertilizers have grown from 17 percent in the first seven months of 2021 to 22 percent in the same period of 2022, which means an increase in value added of Jordan’s exports.

But there is a marked decline in pharmaceutical exports, from 7.4 percent to 4.4 percent during this period. Policy makers should remedy this for several reasons, chiefly because the pharmaceutical industry is almost completely a value-added industry, and Jordan was a regional leader in pharmaceuticals.

Now to the matter of the rise in the value of the dinar. Pegged to the US dollar since the beginning of 1995, whenever the dollar rises, the dinar also rises. Hence, our exports should have become more expensive, which would have meant a decline in exports, not an increase! The garment exports were not affected, since the goods are priced in dollar and sold to the US. As for phosphate and potash, demand for our exports did not decrease, despite the exchange rate increase, because of the increase in global demand due to the Russia-Ukraine war.

A quick analysis of imports bears another tale. The value of crude oil imports increased from 15.5 percent to 19.2 percent, due to the increase in oil prices. That of vehicles and machinery increased from 15.3 percent to 17.9 percent, as supply chains were disrupted and global inflation took off. As global prices decline and the dollar gains more strength, such imports are likely to increase further.

And in the midst of all this purchasing, Jordanians increased their import of jewelry and precious metals from JD405.9 million of imports (5 percent) to JD982.3 million (9 percent of imports), which could mean that Jordanians are increasingly hoarding gold as a store of value. This could be remedied through a growth in trust in government.

One can learn a lot about the Jordanian economy from a two-page press release about foreign trade by the Department of Statistics. Most importantly, some of the sectors underscored by the Economic Modernization Vision as growth drivers, such as the pharmaceutical, are already suffering from unfair competition abroad, and some challenges at home (delayed government payments for medication is one of them). Growth can be easily achieved, but the road to competitiveness and development is arduous and requires moving forward.

Published in Jordan News:

https://www.jordannews.jo/Section-36/Opinion/Trade-and-the-exchange-rate-22692