VZCZCXRO2657
RR RUEHDE RUEHLMC
DE RUEHAM #0670/01 0630615
ZNR UUUUU ZZH
R 030615Z MAR 08
FM AMEMBASSY AMMAN
TO RUEHC/SECSTATE WASHDC 1943
INFO RUEHAD/AMEMBASSY ABU DHABI 1199
RUEHLB/AMEMBASSY BEIRUT 2810
RUEHEG/AMEMBASSY CAIRO 3563
RUEHDM/AMEMBASSY DAMASCUS 3824
RUEHKU/AMEMBASSY KUWAIT 0864
RUEHMK/AMEMBASSY MANAMA 0658
RUEHRB/AMEMBASSY RABAT 0398
RUEHRH/AMEMBASSY RIYADH 1908
RUEHTV/AMEMBASSY TEL AVIV 1057
RUEHDE/AMCONSUL DUBAI 0403
RUEHJI/AMCONSUL JEDDAH 0798
RUEHJM/AMCONSUL JERUSALEM 4896
RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MILLENIUM CHALLENGE CORP WASHDC

UNCLAS SECTION 01 OF 03 AMMAN 000670 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB, NEA/ELA, NEA/EX 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ELAB PGOV SOCI JO
SUBJECT: RISING PRICES REINFORCE VIEW AMONG SOME THAT AMMAN IS THE 
MOST EXPENSIVE CITY IN MIDDLE EAST 
 
Sensitive but unclassified. Not for internet distribution. 
 
REF: A. Amman 605 
 ¶B. Amman 573 
 ¶C. Amman 551 
 ¶D. Amman 518 
 ¶E. Amman 407 
 ¶F. Amman 26 
 
¶1. (U) SUMMARY: Amman has recently been rated as one of the most 
expensive cities in the Middle East by the Economist Intelligence 
Unit.  Prices in Jordan continue to rise as a result of rising world 
fuel and food prices and Jordan's peg to the weakening U.S. dollar. 
Jordan's Consumer Price Average (CPA) was up .68 percent in January 
2008 from December 2007, and is expected to continue to rise 
following the elimination of fuel subsidies and a long and damaging 
frost in the agricultural region (ref E).  Real estate prices have 
also risen sharply over the last few years.  The government has 
sought to ease the impact of price hikes with eight to nine percent 
salary increases that have not been matched by all private sector 
employers.  The combination of quick retail price increases and some 
hoarding has meant that the long-term impact is unclear.  The 
government, however, has a clear and coordinated message about the 
need for economic reform, belt-tightening, and efforts to minimize 
the impact on the neediest.  End Summary. 
 
Most Expensive City in Middle East... or One of Them 
--------------------------------------------- ------- 
 
¶2. (U) In 2007, the Economist Intelligence Unit in its survey of 128 
countries reported that Amman is the most expensive city in the 
Middle East and ranked 72 worldwide.  This ranking put it ahead of 
Dubai (79), Casablanca (79-tied) and Abu Dhabi (85).  The survey is 
quoted frequently in Amman, although other surveys by the Financial 
Times and other business magazines have ranked Amman lower, behind 
Dubai, Abu Dhabi, Tel Aviv, and Beirut.  A February 15 editorial in 
an English-language daily suggested that Jordan is more expensive 
than other countries because of high sales and utility taxes.  Some 
Jordanian officials have blamed the high cost of living in Jordan on 
Iraqi refugees; the end of discounted Iraqi fuel in 2003; and a lack 
of generosity from Gulf neighbors who underestimate Jordan's 
contribution to their security (ref A).  A February 25 New York 
Times article further raised awareness of inflation in Jordan and 
the region. 
 
World Prices, Dollar Peg Hurt Import-Heavy Jordan 
--------------------------------------------- ---- 
 
¶3. (U) Jordan imports the majority of its goods and consumable 
items, and has been hard-hit by global increases in food and fuel 
prices.  A February 2008 study by a local economic analysis company, 
First Strategieh Consulting, explained Jordan's inflation was a 
function of increases in price- and income-inelastic commodities and 
services, particularly food and fuel.  Jordan has been further 
impacted by its peg to the dollar (1 Jordanian dinar = $1.41).  This 
peg affects buying power since Jordan imports far more goods from 
Europe than from the U.S. (ref C).  Rania Aklouk, administrative 
manager at a major local importer of mechanical tools, said that the 
falling dinar has resulted in her customers buying cheaper Chinese 
products instead of European equipment.  Additionally, the Chinese 
currency is also pegged to the U.S. dollar, so there are no price 
fluctuations for Jordanian customers. 
 
¶4. (U) The Department of Statistics issued its monthly Consumer 
Price Average (CPA) on February 10 and reported a .68 percent 
increase from December 2007 to January 2008, led by a 5 percent 
increase in vegetables and 3 percent increase in beans.  The CPA is 
up 5.7 percent from January 2007, with the largest increases in 
dairy (26 percent), beans (25 percent), and cereal (20 percent).  A 
two-week frost in late January and early February destroyed 50 
percent of Jordan Valley produce and will also raise prices (ref D). 
 The January increases do not yet reflect the significant fuel price 
increases which followed the lifting of fuel subsidies in February 
(ref A).  Prices for bottled heating fuel will not be liberalized 
 
AMMAN 00000670  002 OF 003 
 
 
until April.  The March CPA will begin to reflect these rising fuel 
and produce prices, and will likely increase again. 
 
Rising Real Estate and Rents 
---------------------------- 
 
¶5. (SBU) The January 2008 edition of the online Global Property 
Guide reported that 120 square meter (1,291 square feet) apartments 
in Amman cost an average of $151,000 to buy, and rent for $1,213 per 
month.  According to the guide, these purchase prices and rents are 
higher than nearby Beirut and much higher than Cairo, but 
significantly lower than Dubai where comparable apartments 
reportedly cost $490,000 and monthly rents are $3140.  The guide 
noted that Jordan's 15.4 percent real estate transaction costs, 
including sales costs, agent's fees, legal fees and registration, 
are the highest in the region.  Sameer Jaber, a consultant who owns 
multiple rental properties in Amman said that condominiums that cost 
him $80,000 five to seven years ago now cost $250,000. 
 
¶6. (U) A September 2007 real estate sector analysis by Capital 
Investments reported land prices in Amman had doubled between 2004 
and 2006.  The report noted the cheapest apartments for sale in 
Amman rose from $36 per square foot in 2004 to $52 per square foot 
in 2007, an increase of 45 percent.  The report said that rising 
land and housing prices are a function of population growth 
(including the influx of Iraqis); Gulf liquidity, regional 
instability (which makes Jordan more attractive as an investment); 
reform in the mortgage market; an investment promotion law which 
helps commercial projects; and a 2010 tenants' law deadline which 
will end rent control for the 50 percent of Jordanians who are 
renters. 
 
Government Takes Action with a Limited Budget 
--------------------------------------------- 
 
¶7. (U) The Government of Jordan is well aware of the pain of rising 
prices, and has sought to lessen the impact by providing civil 
service pay raises which will cost $175 million, adding funds for a 
social safety net, lowering taxes on food commodities, and 
supporting parallel markets (refs E and F) to allow producers to 
sell directly to the poorest consumers at lower costs.  The 
government-run grocery store network, the Civil Service Consumer 
Corporation, has also announced it will limit price increases in 
2008, and has purchased large vehicles to provide mobile outlets to 
remote areas.  King Abdullah has also dubbed 2008 "The Year of 
Housing," and the government plans to construct 200,000 homes for 
needy Jordanians over the next five to ten years priced between 
$28,000 and $42,000 with a $141 monthly mortgage.  In 2007, the 
Overseas Private Investment Corporation (OPIC) invested $60 million 
in an International Housing Sector Fund to support affordable 
housing, and is considering a second project to provide mortgage 
financing for public sector employees (Ref B). 
 
Organizations Vary in Their Ability to Raise Salaries 
--------------------------------------------- -------- 
 
¶8. (SBU) Business owners and non-governmental employers express 
frustration over what they perceived as very generous government 
raises which resulted in their own employees expecting similar eight 
to nine percent raises.  One leading NGO director regretted that she 
did not have the budget for such generous raises but was able to 
raise the daily transportation allowance.  Some Qualifying 
Industrial Zone (QIZ) factories began offering monthly food 
allowances of approximately $11 for Jordanian workers.  After its 
employees staged a four-hour sit-in on February 24, United Nations 
Relief and Works Agency (UNRWA) provided salary increases that 
matched the government's - $63 for employees earning more than $420 
monthly and $70 for employees earning less.  Mazen Saba, Country 
Operations Manager for DHL-Jordan, explained Jordan has a very 
price-sensitive labor market, with skilled employees moving quickly 
and easily to positions with a higher salary.  He asserted that 
short-term donor contracts have been especially damaging to the 
price of labor since employees expect the same salary on an annual 
basis as they received form a three-month development project. 
 
AMMAN 00000670  003 OF 003 
 
 
 
Raising Prices, Changing Operations and Lowering Profits 
--------------------------------------------- --------- 
 
¶9. (SBU) Marwan Hejazen, Country Commercial Officer at DHL-Jordan, 
told econoffs that business owners are blaming fuel prices for the 
follow-on rise in the price of their products, but some retail price 
increases have in fact been much higher than fuel price increases. 
He accused business owners of taking advantage of an opportunity to 
raise profit margins.  Further evidence of quickly changing prices 
can be seen in the stickers which are now cropping up on Amman 
restaurant menus to cover regularly-changing prices. 
 
¶10. (SBU) Faraj Baseel, Country Manager of Aramex, a regional 
transportation company headquartered in Jordan, said his firm is 
seeking to switch from cars to scooters for some intra-Amman 
deliveries to reduce fuel costs.  He noted he has had to offer 
scooter drivers higher wages than car drivers because Jordanians are 
not yet used to scooters, which only became legal a year ago and are 
perceived as riskier.  The Ministry of Transportation (MoT) 
announced 23 percent higher tariffs for taxis and other 
transportation services. 
 
¶11. (SBU) Ahmed Al Bashiti, Director of Jordan In-bound Tour 
Operators Association, complained that all tourism related 
businesses have been raising prices - tour guides, hotels and 
especially buses, which have already risen 20 percent.  He explained 
that because tours are priced and booked one year in advance, tour 
operators will sell out in 2008 and will not make any money.  Abeer 
Ziadeh, an analyst at Capital Investments, agreed that Jordan is a 
more expensive destination than other options in the region. 
Bashiti predicted that 2009 tours will have large price increases to 
recoup losses from increases in salaries and operations in 2008. 
Hotel owners were quoted in Arabic-language dailies that their costs 
of operations have sky-rocketed with 40 percent increases in 
electricity, 26 percent for water, and 200 percent for gas, as well 
as staff salary increases. 
 
¶12. (SBU) COMMENT: Rising prices and the state of the economy are 
the dominant topic of conversation across Jordan.  With projected 10 
percent inflation for 2008 and continuing oil price increases, the 
price hikes and the complaints may be only a hint of what is likely 
to come.  Post does not yet have a realistic picture of the 
long-term impact of fuel increases since many consumers stocked up 
on fuel before the changes went into effect, and may not actually 
feel the effects on their pocketbook until later.  People also 
wildly overestimated price increases and shop owners were quick to 
raise prices, so any further increases may be limited, causing the 
pendulum to eventually swing back and stabilize.  The 
security-minded government is certainly sensitive to the impact of 
rising prices on citizens and has not forgotten the violent protests 
in 1996 after the government more than doubled the price of bread. 
Likewise, the government has had a clear and coordinated message 
about the need for economic reform, belt-tightening, and GOJ efforts 
to minimize the impact of price hikes on the neediest, an approach 
which may have led to the recent resignation of outspoken Central 
Bank Deputy Governor Faris Sharaf who told the press Jordan had "a 
runaway budget" and accused Jordanians of living beyond their means. 
 END COMMENT. 
 
Visit Amman's Classified Website at 
http://www.state.sgov.gov/p/nea/amman 
 
RUBINSTEIN