Jordan and the West Bank & Gaza Country Risk Report

Published 25 March 2015 | Quarterly

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Jordan and the West Bank & Gaza Country Risk Report

Core Views

  • Jordan's political risk profile is improving, and King Abdullah II is more secure in his position than at any point since the start of the Arab Spring in 2011. However, we stress that threats to the country's stability will remain elevated as long as conflict continues across Iraq and Syria, while high youth unemployment and the government's uncompromising approach towards the domestic Islamist opposition raises longer-term risks.

  • We are more positive towards the Jordanian economy than at any point since 2010, with lower oil prices and signs of progress on the government's infrastructure investments set to boost economic activity throughout 2015. We forecast real GDP growth of 3.6% this year, compared to an annual average of 2.7% between 2010 and 2013.

  • We believe that the Central Bank of Jordan (CBJ) will take advantage of weaker inflation and higher foreign exchange reserves to cut interest rates at least once more over 2015, after a 25 basis points reduction in early-February. We forecast the discount rate to reach 3.75% by the end of the year.

  • Jordan's twin deficits - in the budget and current accounts - will narrow over the coming years, to 2.9% and 3.3% of GDP respectively by 2019. Lower oil prices, progress towards energy diversification, and government efforts to increase revenue will drive these improvements.

  • Given the progress made in Iraq and Syria by radical jihadist group Islamic State (IS), and with Syrian President Bashar al-Assad ensconced in a third term in office, the security risks confronting Jordan are set to remain prominent over the coming years.

Key Risks To Outlook

  • Maintaining consolidation measures will be key to persuading international donors to speed up their assistance to the country. However, actual delivery of funds has been slow in the past, and there could be a risk that the coming years turn out to be poor ones for Jordan in terms of foreign grants. This would once again raise fears over the possibility...

Table of Contents

Executive Summary - Jordan
11
Chapter 1
13
SWOT Analysis
13
Domestic Politics
14
Gas Deal To Go Ahead Despite Jerusalem Tensions
14
The USD15bn natural gas deal planned between Israel and Jordan will ultimately be concluded, despite rising tensions between the
The USD15bn natural gas deal planned between Israel and Jordan will ultimately be concluded, despite rising tensions between the
two countries linked to unrest in Jerusalem
However, the agreement could be subject to delays, and the Jordanian monarchy will pay a
political price for its growing commercial ties with Israel
Table: JOrdan - POLITICAL OVERVIEW
14
Long-Term Political Outlook
15
Further Reforms On The Horizon-
15
Following a series of political and economic reforms by the government in recent years, we maintain that Jordan's long-term political
Following a series of political and economic reforms by the government in recent years, we maintain that Jordan's long-term political
outlook is among the most stable in the region
Nonetheless, we highlight that the social uprisings that emerged in the region at the
start of 2011 are indicative of the threat that low living standards and lack of political freedoms - both features that Jordan shares with
start of 2011 are indicative of the threat that low living standards and lack of political freedoms - both features that Jordan shares with
countries such as Egypt and Tunisia - pose to long-term political stability
Chapter 1
19
SWOT Analysis
19
Economic Activity
20
Falling Oil Prices To Give A Fillip To Economy
20
We see Jordan's economy growing by 3
Lower oil prices will boost
private consumption, while construction activity is likely to remain fuelled by the government's investment projects
However, regional
instability and disruptions to trade will continue to put pressure on Jordanian exporters
table: JOrdan - Economic Activity
20
Balance Of Payments
23
Twin Deficits Narrowing As Energy Situation Improves
23
Jordan's twin deficits - in the budget and current accounts - will narrow over the coming years, to 3
9% of GDP respectively
by 2018
Lower oil prices, progress towards energy diversification and government efforts to increase revenue will drive these
improvements
table: JOrdan - Current Account
24
Monetary Policy
25
Inflationary Pressure Easing In 2015
25
Jordanian consumer price inflation (CPI) will continue to head lower over 2015 as lower international energy prices outweigh the impact
Jordanian consumer price inflation (CPI) will continue to head lower over 2015 as lower international energy prices outweigh the impact
of a normalisation in food prices
table: JOrdan - Monetary Policy
26
Banking Sector
26
No Rapid Rise In Profitability
26
Profitability and lending activity in the Jordanian commercial banking sector will remain constrained by headwinds over the coming
Profitability and lending activity in the Jordanian commercial banking sector will remain constrained by headwinds over the coming
quarters
0% and
6
Regional Outlook
27
MENA Oil Importers: Good News At Last
27
Cheaper oil will boost economic activity for net oil importers in the Middle East and Africa region over the coming years and ease
Cheaper oil will boost economic activity for net oil importers in the Middle East and Africa region over the coming years and ease
pressure on these countries' fiscal and current accounts
We believe that lower energy prices will provide a supportive backdrop for
subsidy reform in Egypt, Morocco, Jordan and Tunisia, although Lebanon will remain unwilling to pursue such measures
Chapter 1
31
The Jordanian Economy To 2023
31
Exports Driving Long-Term Growth
31
Stable export growth and an expanding private sector will underpin Jordan's economic progress over our 10-year forecast period
That
said, remittances (mostly from Saudi Arabia) will also be a key factor driving growth, highlighting the extent to which expatriates will
said, remittances (mostly from Saudi Arabia) will also be a key factor driving growth, highlighting the extent to which expatriates will
remain key to the economy through 2023
Nevertheless, a growing young population, combined with limited employment opportunities,
could pose downside risks to our long-term outlook, especially if progress in reforming the economy remains subdued
Table: JOrdan - Long-Term Macroeconomic Forecasts
31
Executive Summary - West Bank & Gaza
33
Chapter 2
35
SWOT Analysis
35
Domestic Politics
36
Growing International Recognition Will Not Bring Statehood
36
International recognition of a Palestinian state is gathering momentum, a trend that will continue over the next decade and deepen
International recognition of a Palestinian state is gathering momentum, a trend that will continue over the next decade and deepen
Israel's diplomatic isolation
Long-Term Political Outlook
37
Monumental Obstacles To Statehood
37
Over the next decade, the Palestinian territories will continue to face extremely challenging political obstacles, both internally and
Over the next decade, the Palestinian territories will continue to face extremely challenging political obstacles, both internally and
externally
We remain sceptical about the potential for a negotiated settlement or unilateral declaration of independence to bring peace
and stability
Chapter 2
41
SWOT Analysis
41
Economic Activity
42
Slow Gaza Reconstruction Will Leave Growth Weak
42
We remain downbeat on the economic growth prospects for the Palestinian territories and forecast real GDP growth of 3
4% in 2015,
compared with an annualised rate of 6
The reconstruction of the Gaza Strip - where economic capacity has been
severely impacted - will proceed at a slow pace, and high political uncertainty will continue to present a key downside risk to economic
severely impacted - will proceed at a slow pace, and high political uncertainty will continue to present a key downside risk to economic
activity
table: WEst Bank & Gaza - Economic Activity
42
Chapter 2
45
West Bank & Gaza Economy To 2023
45
Long-Term Growth Outlook Far Below Potential
45
We forecast steady, moderate real GDP growth in the West Bank & Gaza based on our assumption that Israeli restrictions on the
We forecast steady, moderate real GDP growth in the West Bank & Gaza based on our assumption that Israeli restrictions on the
movement of goods and people into and out of the territories will not change significantly over our 10-year forecast period
These
hindrances will negatively impact gross fixed capital formation, exports and government spending, leaving private consumption to
hindrances will negatively impact gross fixed capital formation, exports and government spending, leaving private consumption to
continue underpinning the economy
Table: WEst Bank & Gaza - Long-Term Macroeconomic Forecasts
45
Chapter 3: BMI Global Assumptions
49
Global Outlook
49
Warning Signs Growing
49
Table: Global Assumptions
49
Table : Developed States , Real GDP Growt H, %
50
Table : BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
50
Table : Emerging Markets , Real GDP Growth , %
51

The Jordan and the West Bank & Gaza Country Risk Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in Jordan, West Bank and Gaza. It is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.

An influential new analysis of Jordan, West Bank and Gaza's economic, political and financial prospects through end-2019, just published by award-winning forecasters, BMI Research.

Key Uses

  • Forecast the pace and stability of Jordan, West Bank and Gaza's economic and industry growth through end-2019.
  • Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
  • Assess the critical shortcomings of the operating environment that pose hidden barriers and costs to corporate profitability.
  • Contextualise Jordan, West Bank and Gaza's country risks against regional peers using BMI's country comparative Risk Index system.
  • Evaluate external threats to doing business in Jordan, West Bank and Gaza, including currency volatility, the commodity price boom and protectionist policies.

The Jordan and the West Bank & Gaza Country Risk Report by BMI Research includes three major sections: Economic Outlook, Political Outlook and Operational Risk.

Economic Outlook:

How will the Jordan, West Bank and Gaza' economic policy-making and performance impact on corporate profitability over 2015-2019?

BMI provides our fully independent 5-year forecasts for Jordan, West Bank and Gaza through end-2019 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.

Economic Outlook Contents

The Jordan and the West Bank & Gaza Country Risk Report features BMI's forecasts with supporting analysis for 2015 through to end-2019, set against government views and BMI's evaluation of global and regional prospects.

Key Areas Covered:

Data:

  • Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
  • BMI's comprehensive Risk Index system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.

Written Analysis:

  • Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
  • Balance of Payments - trade and investment, current and capital account.
  • Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
  • Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
  • Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
  • Foreign Direct Investment - approvals, inflows and climate.
  • External Debt - debt profile (short and long-term plus public and private sector obligations).
  • Global Assumptions - forecasts for each year to end-2019 covering: major commodities, growth in key regions, inflation, and interest and exchange rates, in the United States, Japan, China and the eurozone.

Key Benefits

  • Rely upon BMI's 100% independent forecast scenarios for Jordan, West Bank and Gaza and underlying assumptions - we take no advertising and are privately-owned.
  • Exploit the benefits of BMI's comprehensive and reliable macroeconomic database on Jordan, West Bank and Gaza, sourced and fully maintained by BMI from an extensive network of private sector, government and multilateral contacts.
  • Gain key insights into the current and future direction of government economic policy, which could significantly affect your company's business prospects, from BMI's team of analysts and economists.

Political Outlook:

What are the political risks to doing business in Jordan, West Bank and Gaza over the next 5-years?

BMI's Jordan, West Bank and Gaza country Risk Index evaluates the short- and medium-term threats to political stability.

Political Outlook Contents

  • SWOT Analysis for the Jordan, West Bank and Gaza Market - Political Strengths, Weaknesses, Opportunities and Threats facing Jordan, West Bank and Gaza.
  • Political Stability and Risk Assessment - BMI's Risk Index assesses explicit short- and long-term risks to political stability; latest positioning and trends for Jordan, West Bank and Gaza's risk are compared with regional and global averages.
  • Current Administration and Policy-making BMI assesses the threats to the continuity of economic policy, and likely changes to the business operating environment.
  • Long-Term Political Outlook BMI examines the structural risks to the stability of Jordan, West Bank and Gaza’s political system and the dominant public policy issues likely to affect decision-makers, and outlines scenarios for how the state could evolve in the medium to long term.

Key Benefits

  • Benchmark Jordan, West Bank and Gaza's risk profile against its neighbours, the global and regional average, allowing easy comparison of risks between key business markets.
  • Identify, evaluate and anticipate political and security risks to the business environment, and to your company's current operations and future plans.
  • Gain valuable insights into government and policy-making, through BMI's specialist team of analysts and economists, and their network of private and public sector sources.

Operational Risk

What are the current operational risks and difficulties associated with doing business in Jordan, West Bank and Gaza?

The Operational Risk section gives an evaluation of current risks and difficulties associated with operating in the market. It also provides a brief overview of the regional Operational Risk Index which benchmarks Jordan, West Bank and Gaza against its neighbours.

Operational Risk Contents

The chapter provides a summary of the main threats in the country, within:

  • Labour Market Risk (Education; Availability of Labour; and Labour Costs)
  • Logistics Risk (Market Size and Utilities; Quality and Extent of the Transport Governance)
  • Trade and Investment Risk (Economic Openness; Government Intervention; and Legal Risks)
  • Crime and Security Risk (Crime; Terrorism; and Interstate Conflict risks).

The report also drills down in greater depth to address key issues in one of the following segments most critical to the market:

  • Transport network, economic openness, cost and availability of labour, crime risks, bureaucratic environment, market size and utilities, and interstate conflict.
  • Assess your company’s exposure to country specific operational and business risks, using BMI’s insight on the current dangers of operating in the market.
  • Evaluate Jordan, West Bank and Gaza’s risk profile against its regional peers, helping you understand the market’s strengths and weaknesses in relation to other countries.

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Testimonials

The sections that I find most interesting and useful are the macroeconomic data and forecasts for the country, top export destinations and economic activity. The indicators/analysis of these areas helps us orient our thinking, our assumptions and, consequently, our decisions in the commercial area.

Country Manager, DHL Express