US embassy cable - 02AMMAN2363

JORDAN QIZ UPDATE APRIL 2002

Identifier: 02AMMAN2363
Wikileaks: View 02AMMAN2363 at Wikileaks.org
Origin: Embassy Amman
Created: 2002-05-13 13:53:00
Classification: UNCLASSIFIED//FOR OFFICIAL USE ONLY
Tags: ETRD EINV ELAB JO
Redacted: This cable was not redacted by Wikileaks.
This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 AMMAN 002363 
 
SIPDIS 
 
SENSITIVE 
 
COMMERCE FOR 4520/ITA/MAC/ONE/PTHANOS 
STATE PASS USTR FOR NED SAUMS 
STATE PASS USAID FOR MSCOVILL 
 
E.O. 12958: N/A 
TAGS: ETRD, EINV, ELAB, JO 
SUBJECT: JORDAN QIZ UPDATE APRIL 2002 
 
REF: A. AMMAN 1616 
     B. ANKARA 3379 
 
SUMMARY 
 
1.  (sbu)  QIZ exporters and park managers are cautiously 
optimistic for a strong 2002 export season.  Production is 
steady throughout the QIZ's, orders are on the rise, and new 
investment interest is beginning to trickle in once more. 
With the apparent passing of the immediate crisis in the West 
Bank, concerns about border access have been muted.  Park 
managers continue to worry about competition from Turkish 
QIZ's, particularly as these new QIZ's might impact their own 
efforts to diversify out of the textile sector.  Park 
managers would no doubt welcome the chance to take advantage 
of Turkish participation in the initiative, provided that 
this would entail Turkish and/or Israeli investment in 
high-end economic sectors in Jordanian QIZ parks.  End 
summary. 
 
PRODUCTION STEADY, ORDERS UP 
 
2.  (sbu)  QIZ-related exports from all of Jordan's 
QIZ-designated industrial parks are up in 2002. 
January-April exports from Al Hassan QIZ in Irbid total $67.6 
million, up from $50.8 million for the same period in 2001. 
In a similar vein, January-April exports from Al Dulayl QIZ 
total $14.4 million, compared to total year exports of $17.8 
million in 2001.  According to most of our QIZ business 
contacts, orders are coming in at a steady pace.  Many of the 
larger exporters are booked through the end of the fall, 
while smaller companies are booked through the summer.  We 
have nearly completed a survey of all QIZ exporters to guage 
predicted 2002 export volumes.  If company predictions hold 
(as they did for 2001), QIZ-related exports could easily top 
$500 million for 2002.  Of that, we can expect QIZ exports to 
the US to be in the $325-375 million range. 
 
INVESTMENT STILL A MIXED BAG 
 
3.  (sbu)  On the investment side, a number of larger 
companies in each of the four major parks have begun 
ambitious expansion programs.  While new investment interest 
remains relatively low, some park managers are starting to 
get expressions of interest again following the complete 
silence heard after the recent escalation of violence in the 
West Bank.  On the other hand, we are hearing this spring of 
the first QIZ business failures.  We have confirmed two 
closings (one in Irbid and one in Amman), and have heard 
rumors of a third (also in Amman).  The companies that have 
ceased operations were smaller QIZ "sub-contractors," 
processing orders for larger QIZ exporters in the same zones. 
 With the business downturn that plagued the sector after 
9/11 and into the beginning of 2002, larger companies stopped 
contracting out orders, putting these smaller companies at 
risk. 
 
OPERATIONS BACK TO NORMAL 
 
4.  (sbu)  Concerns reported ref a regarding access to 
Israeli inputs and transportation routes have largely melted 
away with the easing of tensions in the West Bank.  Exporters 
and park managers believe the threat is still there, but 
agree that it has not yet materialized.  Partially to help 
allay those fears and partially to spark business in Aqaba, a 
USAID-funded expert is looking into the possibility of 
establishing a dedicated direct shipping route from Aqaba to 
New York or Miami, primarily for QIZ exports.  Two major US 
shipping lines have shown initial interest, provided QIZ 
exporters can send sufficient volume through the port.  If 
the plan materializes, the dedicated route could shave 
several days off shipping times from Aqaba to the U.S. east 
coast, making Aqaba more competitive with Haifa and 
potentially reducing political risk for exporters. 
 
TURKISH QIZ'S STILL A SORE SPOT 
 
5.  (sbu)  Park managers and investment promotion officers in 
the GOJ are resigned to the prospect of Turkish QIZ's, though 
they are still worried that such a scheme will draw potential 
investors away from Jordanian QIZ parks.  They recognize that 
the garment sector is unlikely to be affected, but are still 
concerned that Turkish zones could "steal" investors in 
higher-tech sectors away from Jordan.  This is particularly 
worrying to GOJ investment promotion officers, who are 
already having a tough time diversifying the QIZ parks out of 
the textile sector. 
COMMENT 
6.  (sbu)  As during previous crises, QIZ exporters and park 
managers have shown a pragmatic, gritty ability to weather 
political and economic storms nearby and quietly go about 
improving on past successes.  Absent further major 
disruptions, exporters should be able to come close to their 
$500 million mark.  In addition, we are beginning to hear 
that buyers are looking at Jordan as an alternate sourcing 
base in the run-up to 2005, when textile quotas will be 
eliminated world-wide.  Many top exporting countries have in 
the past been allowed to "borrow" quota from future years to 
increase output in the current year.  As 2004 approaches, 
though, it will be harder for major garment-producing 
countries to "borrow" quota as they have done in the past, 
since quotas will themselves be eliminated in 2005.  The 
additional restrictions imposed by borrowing done in 2002 and 
2003 may further restrict quotas in big producing countries 
in 2003 and 2004.  If this happens, we might expect a 
short-term shift into Jordan of many of the orders cut off by 
more severe quota restrictions in those years, making QIZ 
prospects even more rosy. 
 
7.  (sbu)  As for the angst over Turkish QIZ's, we expect 
that Jordan might actually welcome the development, provided 
it can benefit from some of the new relationships.  If 
Turkish participation generates interest in the initiative 
from more specialized sectors, or if Turkish investors see 
Jordan as a place to do some of their QIZ processing, 
Jordanians may welcome the expansion of the initiative. 
Barring such developments, we expect Jordanian officials and 
park managers to turn a cold shoulder to visiting 
Turkish/Israeli delegations looking at Jordan as a model to 
set up shop elsewhere. 
Gnehm 

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