VZCZCXYZ0017
RR RUEHWEB

DE RUEHAM #0226/01 0271219
ZNR UUUUU ZZH
R 271219Z JAN 09
FM AMEMBASSY AMMAN
TO RUEHC/SECSTATE WASHDC 4301
INFO RUEHBJ/AMEMBASSY BEIJING 0175
RUEHEG/AMEMBASSY CAIRO 3890
RUEHKA/AMEMBASSY DHAKA 0165
RUEHTV/AMEMBASSY TEL AVIV 1499
RUEHJM/AMCONSUL JERUSALEM 5318
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAHLC/DEPT OF HOMELAND SECURITY WASHDC

UNCLAS AMMAN 000226 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB/TPP/ABT, NEA/ELA, NEA/RA 
STATE PASS TO USTR (SFRANCESKI) 
STATE PASS TO USAID 
COMMERCE FOR ITA/OTEXA MARIA D'ANDREA 
DHS FOR CBP 
 
E.O. 12958: N/A 
TAGS: ETRD ECON KTEX EAID JO
SUBJECT:  Jordan's Garment Industry Hurting - High Production Costs 
and Low Sales Are to Blame 
 
REFS: A) 08 AMMAN 3359 
      B) 08 AMMAN 3267 
      C) 07 AMMAN 4993 
      D) 07 AMMAN 4038 
 
SENSITIVE BUT UNCLASSIFIED 
 
¶1.  (SBU) Summary: Jordanian exports from the Qualifying Industrial 
Zones (QIZs), which are predominantly apparel, fell almost 17% to 
$946 million in 2008.  Since 2007, at least twenty garment factories 
in the QIZs have closed down; four have downsized; and five decided 
to expand operations in other countries instead of Jordan.  While 
this trend is in part attributed to the worldwide financial crisis 
leading to decreased apparel orders, the private sector has 
continued to cite high production costs in Jordan as a contributing 
factor.  Shipping and logistics industries have also been affected, 
with Maersk seeing a 40% drop in its shipping business since 
mid-2008 due to reduced apparel orders.  End Summary. 
 
QIZ Exports Decrease 16.97% 
--------------------------- 
 
¶2.  (SBU) According to Jordan's Ministry of Industry and Trade 
(MOIT), QIZ exports, which are predominantly garments, totaled $946 
million in 2008, representing a 16.97% decrease from $1.14 billion 
in 2007.  NOTE: While Jordan has 13 designated QIZs, only six QIZs 
with about 90 garment companies actively export, including 
Al-Dulayl, El-Zay, Al-Hassan, Al-Tajamouat, Cybercity, and Karak. 
END NOTE.  Of the total QIZ exports, MOIT reports that $665.86 
million was shipped to the U.S. under the QIZ agreement; $237.97 
million was shipped to the U.S. under the FTA agreement; $19.69 
million went to Israel; $898,117 was exported to other Arab 
countries; and $21.9 million went to other countries. 
 
QIZ Factories Closing Down 
-------------------------- 
 
¶3. (SBU) MOIT also informed Econoff on January 25 that at least nine 
garment factories in the QIZs closed in 2007, including:  Pacific, 
Al-Safa, Expo, Al-Manar, Honorway, Asia Star, MB/Rolex, Cotton 
Craft, and Sari International.  Another 11 factories closed down in 
2008, including United Garment, Diamond Needle, Irada, Al-Kamal 
Embroidery, Caliber, Group Talent, New World, Jordan Dragon, Silver 
Planet, Formosa Jordanian Garment Industry, and Jerash Manufacturing 
Company. 
 
¶4.  (SBU) The CEO of Jordan Garment, Accessories, and Textile 
Exporters' Association (JGATE), Dana Bayyat, noted on January 21 
that at least four apparel companies have also downsized, including 
Embee International Garment, Hi-Tech, Jordache, and Century Wear. 
Another four which had planned to expand operations in Jordan ended 
up going to Egypt instead, including Needlecraft, Hi-Tech, Classic 
Fashion, and Jordache.  Eam Maliban also expanded its operations in 
Sri Lanka instead of Jordan, claiming that the high cost of 
transporting and treating waste water for its denim business had 
become prohibitive in Jordan.  Bayyat lamented the lost investment 
and employment opportunities due to the high cost of doing business 
in Jordan.  She believed the garment sector was in critical 
condition. 
 
¶5.  (SBU) Over half of the closed factories were in the 
privately-run Al-Tajamouat QIZ, where they employed over 6,200 
workers and exported over $135 million annually.  Bayyat noted that 
the problem may have been that Tajamouat rented the land and 
buildings, unlike Al-Dulayl QIZ which required investors to buy the 
land and has thus seen fewer factories close.  Halim Salfiti, 
Chairman and CEO of Tajamouat Industrial City, regretfully admitted 
that Tajamouat may have made a mistake in providing buildings and 
land for rent, which had the initial benefit of attracting investors 
but also made it easier for companies to pack up their machines and 
leave when business took a downturn.  Salfiti said Tajamouat has 
tried to lower rent prices for current tenants in order to retain 
them but rent only accounts for about 2% of factory costs.  Although 
some of Tajamouat tenants have suffered from the impact of the 
global financial crisis, Salfiti noted that the closure trend 
started in 2007 before the crisis fully hit and was more likely due 
to labor problems and rising production costs in Jordan (refs C and 
D). 
 
 
¶6.  (SBU) Salfiti said that he now has over 800,000 sq. ft. in empty 
building space and is having a hard time finding new tenants, 
although he did just sign on Palestinian garment factory Al-Bayareq. 
 Tajamouat has attracted some storage firms and local industry 
manufacturers of office chairs and food stuff, but Salfiti said the 
scale of operations is much smaller.  For example, whereas a garment 
company would use 107,000-161,000 sq. ft., local industries are 
looking for 10,000-32,000 sq. ft.  He noted it has been easier to 
rent out the ground floor factory space than the upper levels, which 
he is now thinking to market as a suitable outlet for call centers. 
 
 
Transport Industries Feeling the Pain 
------------------------------------- 
 
¶7.  (SBU) Maersk Logistics Jordan, whose clients are 90% apparel, 
indicated to EconOff on January 19 that its shipping business had 
decreased 40% since mid-2008 due to the closure of some garment 
factories and decreased apparel orders.  In September 2008, Maersk 
began offering a direct shipping line from Aqaba to the U.S. east 
coast to improve business.  Although the service costs more than 
shipping out of Haifa due to the direct vessel, it takes less time 
(i.e., 14 days from Aqaba to N.Y.) and involves less risk of strikes 
and political unrest than the Haifa route, according to Maersk. 
 
 
Optimism and Calls for Government Support Remain 
--------------------------------------------- --- 
 
¶8.  (SBU) Despite the tough times, Bayyat expressed optimism for the 
future, particularly with new designations of QIZ satellite 
factories that could increase Jordanian employment (ref A).  She 
argued that the apparel industry was still young in Jordan and 
needed some government support to survive (ref B).  In particular, 
she highlighted the desire to have the government waive worker 
permit fees, cover the cost of transportation for Jordanian workers 
to the factories, or pay for training of new Jordanian employees. 
Salfiti also mentioned the desire to have the GOJ eliminate or 
reduce the 25% income tax and heavy municipal taxes for private QIZ 
operators, noting that the government-run QIZs are exempt from such 
taxes. 
 
¶9.  (SBU) MOIT Secretary General Montaser Okla indicated to Econoff 
on January 25 that 2009 would bring better export figures for the 
garment sector.  MOIT reported that five new garment companies (Beks 
Textile, Central Clothing, M.F. Textile, Falcon, and Al-Falak 
Textiles) opened in 2007, and two (Free Zone and Kadbi) opened in 
¶2008.  Cammy Wu, General Manager at the Richpine factory in 
Cybercity, also noted that Ann Taylor recently indicated it would 
begin working with Richpine, after initially planning to contract 
outside Jordan.  Such new orders tend to give a ray of hope to the 
garment industry in Jordan, which is relying upon its good 
reputation and high quality to maintain competitiveness during this 
difficult period. 
 
Visit Amman's Classified Website at: 
http://www.state.sgov.gov/p/nea/amman 
 
Beecroft