JORDAN'S TRANSPORT SECTOR DURING AND AFTER AN IRAQ

C O N F I D E N T I A L SECTION 01 OF 03 AMMAN 001550 SIPDIS E.O. 12958: DECL: 03/11/2013 TAGS: ELTN EWWT MOPS ETRD IZ JO SUBJECT: JORDAN'S TRANSPORT SECTOR DURING AND AFTER AN IRAQ WAR REF: A. AMMAN-STATE/TREASURY EMAIL OF 12/4/02 ¶B. 02 AMMAN 6535 Classified By: Ambassador Edward W. Gnehm, reasons 1.5 (b,d) -------------- SUMMARY -------------- ¶1. (c) The GOJ paints a gloomy picture of predicted heavy losses to the transport sector during hostilities in Iraq, totaling over $44 million monthly as a result of higher insurance charges and decreased business volumes. Following war, though, the consensus opinion is that the sector will enjoy a boom, followed by sustained increases in business over a 3-5 year period as Iraq's commercial sector re-opens and a new Iraqi government starts to rebuild infrastructure. A short, successful military campaign that opens the doors for rebuilding Iraqi infrastructure and commerce will help minimize the short-term economic and social pain in Jordan from an Iraq war - pain that will be disproportionately felt by Jordan's 13,000 truckers and by transport sector-dependent local economies in the southern reaches of the kingdom, notably Ma'an and Aqaba. End summary. -------------- COSTS OF WAR -------------- ¶2. (c) Transport Ministry officials have made gloomy calculations for the costs to the transport sector and to government revenues in the event of war in Iraq (ref a). According to Transportation Ministry Secretary General Ala'a Batayneh, all elements of Jordanian transport - sea, air, and land - will incur substantial monthly losses during a war. Most of these costs will result from lost business as a result of the area being declared a "war risk" zone for insurance purposes. Such a designation, Batayneh said, would cause shipping lines to stop calling on Aqaba (with knock-on effects on truckers) and would similarly sharply curtail air traffic to and over Jordan, all because of increased insurance costs. ¶3. (c) In addition to insurance-related losses, Batayneh said the GOJ expects all cargo traffic (both domestic exports and transit traffic) to Iraq to cease once war starts, with the expectation that the border will be closed and truckers will in any event be unwilling to make the trip. Such a loss of traffic would, Batayneh said, force the GOJ to support out-of-work truckers with a "social safety net" until business could resume. According to Batayneh, the total MONTHLY cost to the sector would amount to $44.46 million, while the total MONTHLY cost to the central government would be at least $5.2 million, excluding additional social safety net payments. -------------- WAR IMPACT ON LAND TRANSPORT... -------------- ¶4. (c) Private sector contacts share this gloomy assessment. Mahmoud Zoubi, Chairman of the Association of Owners of Transport Vehicles (which represents Jordan's 11,000 independent truckers),said wartime losses would devastate the sector, putting most of his members out of work and impacting the "90% of Jordan's population" that relies directly or indirectly on transportation. (According to Zoubi, the best-case scenario for Jordan would be an Iraq free of sanctions but still ruled by Saddam, who has "benefited every Jordanian citizen.") Representatives of Jordan's largest trucking companies, however, are somewhat less concerned. Salim Naber of the Odeh Naber Transport Company, which handles virtually all specialized and oversize cargo to Iraq, told us that even during a war there is likely to be enough business to keep truckers employed at current levels, due to the need to transport humanitarian supplies and still-pending OFF contract shipments to Iraq. Similarly, Mohanned Qudah, Director of the Jordan-Syria Land Transport Company, said his business would be virtually unaffected by war, though the increased availability of underemployed private truckers would give him more opportunities to subcontract for business between Damascus and Amman. -------------- ...AND SEA -------------- ¶5. (c) Captain Mohammed Dalabieh of the Shipping Agents' Association said that inbound cargo was unlikely to be severely affected by war risk designation and higher insurance charges, as those charges would either be passed on to end-users (Jordanian consumers or relief agencies) or would be absorbed by the shippers to maintain relations with Jordanian importers. Exports, though, could be affected - particularly phosphate and potash, where increased charges would likely translate into higher per-ton charges for the cargo (during the Afghan war, $4/ton was the increase). Raw materials like phosphate and potash, Dalabieh said, are extremely price-sensitive, with increases of even 50 cents hurting competitiveness. Increased charges on the order of $4 could make Jordanian phosphate uncompetitive and thus hurt the Phosphate company's operations as long as war risk designation remains in place. (Note: phosphates and potash together represent Jordan's largest export sector, totaling over $320 million in each of the last three years, or 25-30% of total exports. End note.) ¶6. (c) Local shipping operator Amin Kawar was more sanguine - he does not believe import or export cargo will be affected even during war. He said both insurance companies and shippers had a great deal of discretion in applying insurance charges, and would likely absorb most of the increased costs in the short term to maintain normal business. He said QIZ shipments would not be impacted, as there is excess capacity for container export out of Aqaba, and since QIZ containers are relatively high-value goods ($50,000 per 40-foot container),even paying the estimated increased shipping charges of $150 per container would not affect exporters' bottom line. -------------- POST-WAR BOOM IN AQABA... -------------- ¶7. (c) While there are variations in opinion over damage to the transport sector during combat operations, there is a broad consensus on the likely "boom" in the sector once the war is over and Iraq opens its markets and begins to rebuild its infrastructure, and aid agencies continue to care for displaced populations and to alleviate hunger and poverty in Iraq proper. Even Zoubi, whose constituents benefit most from the current arrangement, would not discount the opportunities after regime change. ¶8. (c) GOJ and private sector contacts attribute a number of factors to the prospective boom: First and foremost, Aqaba will, they believe, once again become a "natural" port for Iraq. Iraqi ports, they believe, are underdeveloped after 20 years of warfare and sanctions, and cannot possibly handle the volume of imports expected to flood into the country after the war. Similarly, Mediterranean ports like Lattakia, Tartus, and Beirut are relatively small, inefficient ports that will be able to handle some, but by no means all, of the import activity. By contrast, Aqaba is a relatively large, much more efficient port, that was built up in the 1980's with the Iraq market in mind. Aqaba also has spare capacity both in its general cargo and container terminals, so it should be able to handle a significant increase in business. And even after the initial boom, and taking into account likely increased port activity in the Gulf geared toward the Iraqi market, Aqaba should continue to be a significant port for Iraq, particularly for high-value and oversize cargo from Asia, owing to its efficiency and reputation - a sort of "branding". -------------- ...AND TRUCKING -------------- ¶9. (c) This increase in port activity will by definition lead to an increase in land transport opportunities. An initial boom followed by a sustained rise in transit cargo activity should keep Jordan's land transport fleet of 13,000 (11,000 independent plus 2,000 company-owned) fully occupied for the foreseeable future. Zoubi and Qudah both noted to us that, prior to 1990, Jordan was handling 4 million tons of transit cargo to Iraq annually, a number that fell to 500,000 tons under sanctions. With this as a baseline, the sector should be well-employed. ¶10. (c) Indeed, the one worry here is that, in the short term, there will not be enough trucks in Jordan to handle the increased transport demand. The initial boom, say private sector contacts, is likely to outstrip the ability of Jordan's aging trucking fleet to deliver humanitarian supplies AND rebuilding materials AND normal commercial cargo. The World Food Program, for instance, has been shopping for contracts to supply 3,000 trucks just for its projected operations following the war. This is in addition to what is expected to be "normal" business. These worries extend to the logistics side of import operations - while the port has the spare capacity, some contacts are not confident that the road and loading infrastructure in Aqaba can handle the increased traffic (though the recent completion of a secondary freight highway around the outskirts of Aqaba should alleviate some of that strain). This bottleneck will likely slow delivery times in the short term, until truckers adapt to the increased business volume by cutting down delivery times and increasing the number of runs they make each month. -------------- COMMENT: SHORT WAR = EARLY RECOVERY -------------- ¶11. (c) The transport sector is a primary revenue generator for Jordan's economy. In addition to directly supporting 13,000 truckers and their families - most of them politically conservative East Bank tribal types - the sector also supports thousands of families in aviation, tourism, port operations, and the like. To the extent that war dampens activity in the transport sector, it will not only make those thousands worse off, it will have knock-on effects throughout the economy. Reduced exports could threaten jobs at the potash mining company, for example, and pass-through insurance charges on inbound cargo that affect retail prices would effectively tax consumption. This could have an important impact on government revenue and ultimately contribute to a downward spiral in economic activity. ¶12. (c) Equally importantly, losses to the transport sector would be felt disproportionately in different parts of the country. Transport and mining dominate the economies of the southern cities of Ma'an and Aqaba, for example. They would therefore feel the economic pain much more deeply - pain that could compound already high social tensions and anger toward the government that, in Ma'an at least, has already led to violent clashes (ref b). ¶13. (c) The key to minimizing damage to Jordan's economy and rejuvenating the sector will be a short, successful war in Iraq that starts aid and commerce flowing into Baghdad and allows the new Iraqi government to start contracting for infrastructure supplies. The losses from war should be reversed in short order once commerce and rebuilding begin. Whatever their feelings about the relative merits of Saddam or USG policy, many Jordanians are at the point where they simply want to put the uncertainty behind them. As Salim Naber told us, "if you're going to hit him, hit him hard and get it over with." GNEHM