QIZ MANAGERS COMPLAIN ABOUT GOJ LABOR CRACKDOWN

UNCLAS SECTION 01 OF 03 AMMAN 008341

SIPDIS

SIPDIS

STATE PASS TO USTR SAUMS, ROSENBERG, KARESH
STATE PASS TO DOL JAMES RUDE

E.O. 12958: N/A
TAGS: ELAB ETRD GTIP KTEX JO BG
SUBJECT: QIZ MANAGERS COMPLAIN ABOUT GOJ LABOR CRACKDOWN

REF: A. AMMAN 3401

B. AMMAN 6886

C. AMMAN 8318


1. (SBU) SUMMARY: U.S. garment buyer representatives, QIZ
estate owners, and factory operators have started to complain
in recent weeks about the state of Jordan's QIZ industry.
Contacts say they are losing revenue as costs rise and
machines sit idle with no workers available. Some owners
have halted growth plans and others are terminating space
rental contracts.


2. (SBU) Citing the lengthy delay imposed by the Ministry of
Labor (MoL) in processing foreign work visas, the recent rise
in the minimum wage, and plans to double the annual foreign
worker permit fee, many in the QIZ business community are
planning to leave Jordan. Estate owners and factory
operators say they were committed to hiring Jordanians in the
long-term, and were willing to work with the GoJ to attract
more local workers. But actions by the GoJ to restrict the
flow of foreign labor and raise the cost of doing business
are hitting the companies hard. With no trained, local labor
pool available, many say they are looking at expanding or
setting up operation in Egypt. COMMENT: These complaints
clearly represent only the business owners' side of the
story. For its part, the GoJ's long term vision for the
sector is not yet clear; GoJ decision makers continue to
grapple with the immediate problems at hand and have yet to
reach a consensus about the future. END COMMENT AND SUMMARY.

BUYERS HESITANT TO PLACE ORDERS
--------------


3. (SBU) Business stakeholders characterize the GoJ's
response to the foreign worker exploitation issue as ruinous
for business. Representatives from Jones NY, Inc., the sole
American buyer with a permanent social compliance presence in
Jordan, say they see little long-term vision or clarity in
GoJ decisions related to QIZs. A still-existing informal ban
on Bangladeshi work visas (reftel A),an expected doubling of
the foreign worker permit fee, and rumors of radical wage
re-definition (overtime, meal and lodging deduction amounts)
in the labor reform bill expected to be introduced in
Parliament, all make it difficult for Jones to complete cost
analysis for 2007 orders. As a result, Jones representatives
say they are unsure what orders they can place today for 2007
delivery.


4. (SBU) A government that "makes decisions just like that"
contrasts starkly with the long-term commitment and approach
that his company has taken to Jordan, complained Kesava
Murali, Jones lead compliance officer, in a October 31 phone
conversation. NOTE: Jones NY also purchases for a number of
other American buyers including Wal-Mart. As a result, it
accounts for nearly 15% of all QIZ textile exports. END NOTE.
Murali contrasted GoJ actions that he described as
misdirected, over-reactive, and hurting the entire industry,
with his company's slow and methodical approach in coaxing
factory owners to improve worker hours, benefits, and
collective bargaining capability rather then cancel orders
when they find problems. According to Murali, the GoJ needs
to start thinking about how to nudge some bad players onto
the right path, and incorporate gradual change in a
transition to a complete Jordanian work force "or there won't
be a QIZ sector in Jordan in one year's time" for a Jordanian
work force to enter.


5. (SBU) Murali said individual GoJ decisions that target
individual actors, or are explained and implemented as part
of a larger strategy are not an issue. But when the
government decides it needs to clean up, it cannot be
haphazard and punish everyone, Murali argued. He criticized
the GoJ's decision to start moving workers randomly from
factories with citations to ones with few or no citations,
and creating a 'Golden List' that gives listed factories
easier access to foreign labor without fully vetting them.
In addition, not publicly declaring a worker visa ban - but
enforcing one nonetheless - punishes everyone rather than

AMMAN 00008341 002 OF 003


just "the bad apples." The lack of a pro-business, long-term
vision for the sector that addresses rising costs and labor
shortages is also disturbing to Murali. For these reasons,
Murali continued, Jones is now looking at operations in
Egypt, not Jordan, as a place to grow business.

FACTORIES: NO ONE TO MAN THE MACHINES
--------------


6. (SBU) A shortage of affordable labor remains the biggest
complaint raised by most employers about Jordan's booming
economy. With the Ministries of Labor and Interior
admittedly taking deliberate steps to slow down the entry of
foreign workers, the almost complete dearth of local, skilled
textile workers has become an even more acute problem for the
QIZ textile sector given its size (almost 90% of the $1
billion QIZ exports to the US and 80% of the $1.2 billion of
total exports to the US) and heavy reliance on foreign labor
(60% plus of the 60,000 employees). According to projections
from the Ministry of Industry and Trade, the sector requires
an additional 8-10,000 workers to meet growth demands, while
replacement of current foreign workers whose visas are
expiring is close to 30,000. According to factory owners,
government action to cut off foreign labor is only
exacerbating the labor problem.


7. (SBU) The GoJ's decision to limit the number of foreign
workers in the sector is forcing many factories to operate at
50% capacity or less. The MoL's plan to consider raising the
cost of foreign worker permit fees is forcing many factory
operators to consider leaving. According to Muhammad Mansoor
Khawaja, a Pakistani investor in the QIZs who has lived in
Jordan for seven years, "this is the beginning of the end."
As proof, he named at least four factories that were freezing
expansion plans in the Al-Tajamouat QIZ, with others moving
their management to Egypt at the invitation of Egyptian
government officials, to explore options there "where the
bureaucracy was a lot less and investors are respected."


8. (SBU) R.F. Edirisinghe Athulla, a well-respected Sri
Lankan factory operator whose company EAM Maliban has
invested $25 million in a modern factory in the Ad-Dulayl QIZ
estate told EconOff October 24 that the labor shortage was
having a major impact on business. He cited the same four
companies in the Al-Tajamouat QIZ who intend to leave Jordan.
Athulla also believes the labor shortage is a byproduct of
bad government policy implemented over the past five years.
With an official unemployment rate of 15% in Jordan and with
the government having spent close to $60 million in
vocational training program, he said the results of Jordanian
labor placement efforts in QIZs are abysmal. NOTE: In recent
discussions, the GoJ has begun to recognize that a revamping
of the entire vocational training centers (VTC) system is
required to improve the employability of Jordanians. END
NOTE.


9. (SBU) Athulla argued the GoJ should provide benefits such
as transport, lodging, and housing to entice Jordanians to
work in QIZ factories. Asked why this was the state's rather
than the factory's responsibility, Athulla responded that his
factory, like many others, was placed in remote QIZs in hopes
of developing the local economy there. Unfortunately, the
growth of the factories has far outstripped the local labor
pool. Few Jordanians have moved in to fill the void.
Athulla says the factories alone cannot provide incentives to
draw in workers from other regions. If the government builds
housing, his factory would provide meals for Jordanian
workers. Yet the government has proposed doubling the
foreign worker permit fee to pay for such benefits. Athulla
sees this as another short-sighted strategy as it will slowly
kill businesses and force investors to leave.

ESTATE OWNERS: PLENTY OF ROOM IN THE INN
--------------


10. (SBU) In a November 1 meeting, co-CEOs of the
Al-Tajamouat QIZ, Halim Salfiti and Ramiz Manneh, cited
numerous actions by the GoJ that they say are causing the

AMMAN 00008341 003 OF 003


closure of factories representing 8,000 jobs in their QIZs,
half of Al-Tajamouat's total capacity. According to Salfiti
and Manneh, failure to attract more Jordanians to the sector
has stunted growth over the past year. As a result, their
QIZ has had no new construction, and up to 30% of available
work space and dormitories currently sit empty. Factory
owners who usually sign 3-year leases are now trying to
cancel contracts, operating month-to-month, or, in a
best-case scenario, signing only 6-month extensions.


11. (SBU) Salfiti said though he understands the GoJ wants
more Jordanians to work in the sector, a complete shut-off of
foreign workers is not the answer. His estate has a
three-member team dedicated to finding Jordanian workers.
The process is difficult, and requires discussions with
outlying village mayors and with families with employable
daughters, as well as bringing in parents to tour the
factories and see working conditions. Jordanians must also
be convinced to participate for the first time in an
industrial-based economy with a focus on ethics, team
dynamics, efficiency, and on-time delivery. As a result, the
team recruits and retains about 40 Jordanians a month while
the need reaches well into the thousands. Salfiti welcomes
government support in attracting Jordanian workers but says
more than training and transportation is needed.


12. (SBU) According to Salfiti, the government's short-term
ban on foreign workers is an "over-reaction that has created
a major problem." In a tour of several factories with
Manneh, EconOffs saw that the major factories in the estate
were operating at 50% capacity or less. Hundreds of sewing
machines and worker lines sat empty. Discussions with
factory managers affirmed Salfiti's comments that many were
planning to leave if the difficulty in obtaining foreign
workers is not eased or if costs continue to rise. Manneh
pointed to the cascading effect of factory operators leaving
as the departures also hit supporting businesses owned by
Jordanians, including phone calling card stores, small
groceries, and restaurants catering to QIZ workers.


13. (SBU) COMMENT: Representing 80% of Jordan's $1.2 billion
plus in annual exports to the U.S., the concerns of textile
manufacturers must be taken seriously. It is hard to gauge
how dire the situation in the QIZs really is, but there is no
doubt that a number of businesses are considering pulling up
stakes and re-locating to potentially lower-cost locations.
Post cannot yet judge whether this is a harbinger of a
significant outflow of solid foreign investors, or merely
'good riddance' to investors who were not willing to pay a
fair wage to bring in Jordanians to the workforce.


14. (SBU) While the buyers of garments produced in Jordan are
happy with the quality, time delivery, and current price of
the goods, labor shortages and rising costs are a growing
burden. The GoJ will find it difficult to strike a balance
between allowing more foreign workers to meet short-term
demand while enticing Jordanians to work in the long term.


15. (SBU) As the GoJ thinks a long term strategy through, the
Embassy will continue to urge the GoJ to actively engage
business stakeholders and develop a longer-term strategy for
the sector, and assist the GoJ to build a growing, diverse,
competitive and business-enabling Jordanian economy in which
workers' rights are fully respected.
HALE