Trade and the exchange rate

(File photo: Ameer Khalifeh/Jordan News)

Yusuf Mansur

The writer is CEO of the Envision Consulting Group and former minister of state for economic affairs.

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.
اضافة اعلان
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.
… 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.
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 movement forward.

Yusuf Mansur is CEO of the Envision Consulting Group and former minister of state for economic affairs.

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