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Identifier
Created
Classification
Origin
02AMMAN2363
2002-05-13 13:53:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Amman
Cable title:  

JORDAN QIZ UPDATE APRIL 2002

Tags:   ETRD  EINV  ELAB  JO 
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						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