This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 04 AMMAN 005830 
 
SIPDIS 
 
E.O. 12958: DECL: 07/16/2015 
TAGS: ECON PGOV EAID KPRV PREL JO
SUBJECT: TRANSFORMING THE ECONOMY OF MA'AN 
 
Classified By: Charge d'Affaires David Hale for reasons 1.4 (b) and (d) 
 
¶1. (C) SUMMARY: The GOJ drive to better integrate the restive 
southern city and region of Ma,an into King Abdullah,s 
vision of a reform-oriented Jordanian state and society is 
having perhaps its most visible impact in the economic 
sphere.  The GOJ is making substantial, if cautious, efforts 
to attract a private sector-led industrial base to create an 
alternative to increasingly unmet Ma,ani expectations of 
secure government jobs.  However, the economic transformation 
that the GOJ is trying to create in Ma,an faces many 
obstacles, chief among them socially ingrained attitudes 
towards work in a modern economy, and perceived grievances of 
Ma,anis aainst the government.  Efforts to attract new 
industry seem doomed to partial success at best, while the 
privatizations of Ma,an,s two core "commercial" employers 
are a significant gamble.  That the GOJ is rolling the dice, 
however, says much about its ideological commitment to the 
free market. END SUMMARY. 
 
------------------------------------- 
GOJ TRIES TO JUMPSTART DEVELOPMENT... 
------------------------------------- 
 
¶2. (C) Ma,an has traditionally relied on the government 
sector as the basis of its economy.  Since the beginning of 
the kingdom of Jordan, young men of the area have been 
heavily recruited in to the GOJ - especially in to the 
Jordanian Armed Forces (JAF) and state security services, 
where they were highly valued for their personal loyalties to 
the Hashemite family.  Many of those who did not go into 
government service went to work for the Jordan Phosphate 
Mining Corporation (JPMC), the state-dominated industrial 
giant of Jordan,s southeast, and its state-owned appendage 
the Aqaba Railway Corporation (ARC).  The money remitted to 
Ma,an from people in government and quasi-government service 
- and that available to pensioners - has been sufficient to 
sustain a healthy sector of small merchants who supply 
consumer goods to Ma'an residents and to the heavy transport 
traffic passing through the city.  Ma,anis have participated 
in that traffic as well, and own 1,500 of the estimated 
15,000 trucks based in Jordan.  Finally, a small segment of 
the society has retained its old ways, pursuing herding and 
small farming in the area around the city. 
 
¶3. (C) The unsustainability of this economic model in the 
face of rising population growth has been apparent ever since 
the late 1980s, and especially as Jordan began to liberalize 
its economy in the 1990s.  The stagnation of the government 
sector has meant growing unemployment and consequent 
disaffection among Ma,anis.  It took the 2002 riots in 
Ma,an, however, to finally galvanize the GOJ to take 
sustained and directed action to correct this problem.  Since 
2002, the GOJ has pressed for employment-generating projects 
to be placed in the city - often in the face of economic 
logic. 
 
¶4. (C) This GOJ drive and the obstacles to it are evidenced 
in a new industrial park recently established by Jordan,s 
state-owned Industrial Estates Corporation (JIEC).  The park, 
whose infrastructure is now in place, has received no 
response to its tender for a private developer (advertised 
since January and likely to be reworked and re-released some 
time this month), nor has there been any indication of 
interest from any potential investors in factories for the 
estate.  Amer Majali (protect), CEO of the JIEC, concedes 
that attracting business to Ma,an is "a difficult task."  It 
is a task, moreover, that runs counter both to the advice of 
USAID-funded consultants, who recommended that Jordan open no 
further industrial estates for the next five years, and to 
the expressed preferences of the JIEC,s Board of Directors. 
The latter, said Majali, initially rejected the proposed 
industrial estate; after royal pressure was brought to bear 
to proceed with a job-generating scheme, the board grudgingly 
approved the project. 
 
¶5. (SBU) In the absence of outside interest, the JIEC is 
casting around for a way to fill the vast empty plot of 
newly-completed roads, sewage systems, and electrical 
connections.  Majali says that the corporation has pressed 
hard for the Ma,an estate to be granted the status of a 
Qualifying Industrial Zone under the U.S.-Israel free trade 
agreement.  (NOTE: The Cabinet has approved JIEC's effort to 
secure Israeli and then U.S. agreement to the designation of 
the plot as Jordan's 14th QIZ.)  The JIEC is also pricing its 
lots substantially lower than it has done for other QIZs, and 
it has secured for investors a 100% tax break on income 
earned in the estate for a period of twenty years.  And in a 
move apparently designed to attract the attention of Iraqi 
and Syrian investors, JIEC lobbying succeeded when Jordan's 
Cabinet agreed to facilitate Jordanian residency for 
investors in the Ma'an estate.  Majali also intends to 
promote the estate in China as a good base for regional 
exports - and the JIEC claims to have realized recent 
successes with Chinese consumer appliance manufacturers. 
Clearly stretching to grasp any ray of sunshine, Majali notes 
the high quality of sand near Ma,an and postulates that 
several medium-sized glass factories and glass product 
assembly plants might thrive with relatively little up-front 
investment - perhaps even with local money. 
 
----------------------------- 
...BUT SOCIETY IS AN OBSTACLE 
----------------------------- 
 
¶6. (C) The idea of attracting industry to Ma,an is not, 
however, a new one.  Glass production in particular figured 
heavily into the last attempt by the GOJ to jumpstart the 
Ma,an economy.  The detritus of this project, a massive, 
vacant glass factory, stands prominently in the town,s 
southeast.  The factory, which was built at a cost of around 
$30 million (primarily in GOJ money and coerced Bank of 
Jordan loans) and which employed 350 workers, operated from 
1984 to 1993 without ever approaching profitability.  Now, as 
part of the ongoing drive to develop Ma,an and in line with 
the GOJ,s new strategy of fostering private sector-led 
growth, the GOJ is soliciting interest in the factory from 
private investors and has received a $2.5 million offer from 
an Italian investor (without assuming the tens of millions of 
dollars of the company,s debt - the offer was provisionally 
rejected by the Jordanian judge acting as the company,s 
bankruptcy trustee).  GOJ sources are optimistic that such an 
infusion of cash and expertise will be exactly what the 
factory needs to begin production, but private sector 
leadership may not be enough to make the factory a going 
concern.  While Jordan Glass Industries did formerly act as a 
poster child of everything wrong with state-led development 
(from the use of a glass-making procedure obsolete even on 
the day it was installed to the appointment of maladroit 
government bureaucrats as its management), a study of the 
factory made by U.S. consultants in 1994 zeroed in on the 
extreme difficulty that the factory had had in "training and 
motivating the local work force," citing this problem as the 
primary reason behind its failure. 
 
¶7. (C) While Mohanned Jarrah offers hope for the city,s 
future, the operational director of the USAID-funded Injaz 
junior achievement program agrees with this assessment of 
Ma,an,s current workforce as an obstacle to economic 
progress for the city.  Generalized vocational training 
offered locally by the GOJ has not found many takers, perhaps 
as a result of a lack of opportunities to use it; the GOJ has 
turned its attention to fostering entrepreneurship but 
encountered resistance. Injaz, which offers training to 
secondary school and university students in the skills 
necessary for success in business and entrepreneurship, made 
the establishment of programs in Ma,an-area schools a 
priority soon after the organization was formed in 1999 - 
only to find that the Ma,an staff of the Ministry of 
Education refused to approve Injaz programs in any Ma,an 
schools.  Only in 2002, after successful programs were put in 
place in nearby Hussainiya and Wadi Musa and a Ma,an-area 
school principal agreed to launch the program at her school 
without the approval of the MOE Ma,an office, was the logjam 
broken. 
 
¶8. (C) When these Injaz participants graduate, however, they 
will face an environment most likely to hold them back, or 
push them to move to the capital.  The experience of the 
Middle East Microcredit Corporation (MEMCC), a self-funding, 
successful NGO providing microfinance throughout the south of 
Jordan, exemplifies the barrier that the old ways pose to 
development of a modern commercial society in Ma,an.  MEMCC, 
which opened its office in Ma,an at the beginning of 1999, 
was forced to close after only two years in operation because 
of its inability to overcome what the NGO,s general manager 
terms "issues of enforceability of law and of tribal 
tendencies."  MEMCC, which has a write-off rate of 
approximately 4% of its loans from its branches throughout 
southern Jordan, wrote off almost 40% of the loans from its 
Ma,an branch.  Tribesmen herding sheep acquired through 
MEMCC microloans fired automatic weapons in the direction of 
approaching MEMCC loan officers; one loan officer was told by 
a knife-wielding grocer that "if Bush wants his money, he can 
come and get it himself."  Following MEMCC practice of giving 
management of each branch of the microfinance program to 
locals, a member of the locally prominent al-Ayyan family was 
appointed as branch manager; when he was fired for 
mishandling the branch's funds, all members of the al-Ayyan 
family who had received microloans from MEMCC (and there were 
many) refused to pay them back. 
 
-------------------------------- 
TRANSFORMING THE PHOSPHATE GIANT 
-------------------------------- 
 
¶9. (C) With large-scale outside investment unlikely and 
indigenous growth stymied by societal attitudes, the GOJ's 
hopes for development of Ma'an are thrust back upon the 
traditional pillars of Ma,an,s economy: mining and the 
railway.  In line with its ideological commitment to reducing 
the government role in the economy, the GOJ has shown itself 
ready to transform - and divest the government's shares in - 
both companies, politically tricky though this feat may be. 
The GOJ,s efforts to restructure the Jordan Phosphate Mining 
Corporation will be particularly critical, and it has already 
scored some quiet successes there.  JPMC, traditionally the 
"employer of last resort" for the Ma,an area, has for years 
hired employees based on appeals made by their 
tribally-influential relatives, and as of the beginning of 
2003, the company boasted 6,500 employees.  The cost 
structure created by JPMC,s hiring practices ensured that 
the company would endure long periods of unprofitability even 
at times when world phosphate prices were high; cyclical 
downturns required substantial interventions by the GOJ to 
keep the company afloat.  While a recently-concluded two-year 
early-retirement program has cut JPMC,s rolls to 4,500 
employees, JPMC Chairman Naser Madadha says that he believes 
that the company could produce at its current levels with 
only 2,000 employees.  Still, after taking a large loss in 
2003 (the first year of the early retirement program), JPMC 
became profitable again in 2004 on the back of high world 
phosphate prices and reduced payroll expenses. 
¶10. (C) The GOJ has plans for an even more ambitious change 
in JPMC's operating philosophy, however.  Madadha, an 
ex-general and scion of a southern (Keraki) family, was 
placed in his current position one year ago with a mandate to 
prepare JPMC for privatization; the GOJ wants to sell off 40% 
of its 67.5% stake in JPMC (i.e., 27% of the company,s 
overall value) to a strategic investor by the end of 2005. 
The GOJ may have trouble in luring potential partners.  Saudi 
Arabia,s Ma,aden has announced plans to begin large-scale 
mining of phosphates in an area relatively close to the 
Jordanian border; Madadha worries that Ma,aden,s superior 
cost structure will drive down phosphate prices throughout 
the region and allow it to undercut JPMC in India, JPMC,s 
primary market. 
 
¶11. (C) Another negative for potential investors is the 
political minefield that surrounds the company.  When the 
Potash Corporation of Saskatchewan (PCS - current strategic 
partners in Jordan,s Arab Potash Corporation) made an 
abortive offer for the company in late 2003, Jordan's 
Parliament took the position that JPMC, as a strategic asset, 
should not be given away to foreigners who will lay off 
Jordanian workers.  While a potential strategic partner might 
be able to reinstate a more draconian version of the early 
retirement scheme and the setup of Ma,aden operations across 
the border might draw away further staff, both eventualities 
would likely lead to a brain drain of more experienced 
employees rather than a trimming of deadwood.  If the GOJ is 
able to find a strategic partner - and there are indications 
that it may be on the verge of finding one - that partner 
will find the task of sustaining profitability to be a 
difficult one. 
 
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DIVESTING THE PHOSPHATE RAILWAY 
------------------------------- 
 
¶12. (C) Finding a partner for the Aqaba Railway Corporation, 
which employs 700, will likely be even more difficult.  The 
ARC, which began operations in 1975, has long been slotted 
for privatization, but the railroad presents several glaring 
defects to any potential investor.  Chief among these is the 
symbiotic relationship between JPMC and the railway, which 
runs between JPMC,s three primary phosphate mines and the 
industrial port at Aqaba.  The route of the narrow-gauge 
track puts ARC in a relationship of total dependence upon the 
JPMC, and a previous attempted privatization of the railroad 
in 2002 was scuttled because of the failure of ARC and JPMC 
to conclude a contract setting long-term rates for ARC,s 
service to JPMC. Under the current arrangement, the two 
quasi-governmental entities adjust rates every quarter. 
 
¶13. (C) Executives at the ARC, currently four months into a 
year-long restructuring process managed by an outside 
consultant, claim that an agreement with JPMC this time 
around is a "sure thing" and that they will be able to launch 
their planned six-month process for divestiture of the 
government stake as soon as the restructuring has concluded. 
The ARC made a (very small) profit in 2004 for the first time 
in history and seems exhilarated by it; refreshingly (for 
Ma,an), railway staff are supportive of innovative ideas on 
how to expand their business from the transport of phosphate. 
 ARC Director General Hussain Khreishan talks excitedly - as 
does the king - about running a steam train to convey 
tourists from Aqaba to Jordan,s Wadi Rum desert area, where 
T.E. Lawrence once camped; the experience would come complete 
with a band of local Bedouin paid to "attack" the train. 
 
¶14. (C) A more ambitious proposal, backed by Jordan's 
leadership, would replace the railway,s track with standard 
gauge, extend it to Aqaba,s container port, and set up a dry 
port/truck depot in Ma'an, to which ARC,s trains could bring 
containers - cutting out the most arduous fifth of container 
trucks, journey to Amman and decongesting Aqaba. 
Construction of the new land port itself, which would employ 
300 people once in operation, would cost JD 55 million ($77.5 
million), exclusive of the costs of an entirely new track, 
new facilities in Aqaba, and new train cars suitable for 
containers. 
 
¶15. (C) The one innovation that ARC is not talking about, 
however, would be the most beneficial commercially: a 
reduction in staff to a reasonable level, which would greatly 
increase the likelihood of year-on-year profitability.  The 
problem is the same as at JPMC: ARC jobs are seen as 
guaranteed by the GOJ, and Ma,anis would react badly to any 
GOJ failure to honor its perceived guarantees.  In the case 
of ARC, which will have to get Parliament,s approval to 
change the law under which it was created, angering Ma,anis 
would likely mean that their representatives in Parliament 
would block privatization entirely, as they have often 
threatened to do in the past. 
 
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COMMENT 
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¶16. (C) For reasons of culture and expectations, Ma,an is a 
difficult place to do business.  Nonetheless, building or 
attracting business seems to be the only way out for a city 
that has seen its traditional economic base - governmental 
and quasi-governmental employment - stagnate.  Faced with a 
choice between continuing jobs and handouts (for which the 
GOJ has increasingly limited resources) to Ma'an and pushing 
for the creation of sustainable bases for economic growth, 
the GOJ has commendably chosen the latter. 
 
¶17. (C) But the risks associated with this course of action 
should not be minimized.  Ma,anis associate privatization 
and reform with the smooth-talking (and largely Palestinian) 
West Amman merchant class whom they so resent, and they tend 
to view the competitive, results-oriented working environment 
of the private sector as something to which - given their 
noble past - they should not be forced to stoop.  The GOJ 
projects to attract and modernize business risk more than 
just the money that the GOJ and associated entities are 
putting into them; they risk stirring up a volatile populace 
at a time at which the GOJ is particularly weak in relation 
to a disproportionately southern-dominated Parliament.  That 
the GOJ is so actively pursuing its economic reform drive 
here, even at the risk of alienating a core constituency, is 
testimony to the depth of its commitment to reform as the 
only way forward - even in Ma,an. 
HALE