The objective of this rapid impact assessment is to analyze the impact of the removal of fuel
subsidy on the competitiveness of the manufacturing sector in Jordan.
The study’s main message is that an impact, whether direct or indirect, will be realized albeit
it differs from one manufacturing activity to another. An indirect impact in the form of an
increase in costs of transportation and intermediate goods should not be understated.
Furthermore, indirect impact can result from the loss of competitiveness of the
manufacturing activity in the light of its ability to compete in the local and export markets.
Through selecting eight manufacturing activities as case studies, it is realized that the direct
costs are bearable. However, once adding the impact of the rise in transportation and
intermediate goods, these costs rise. With respect to the Manufacture of Structural Non-
Refractory Clay and Ceramic Production, it is the most affected manufacturing activity
among the selected activities although it uses heavy fuel which already has been liberalized.
This impact is further exacerbated by fierce local competition from Egypt and competition in
exporting markets by Turkey. The Manufacture of Bakery Products will be affected by the
lifting of the wheat subsidy as well as the removal of fuel subsidy. Despite the fact that this
activity enjoyed subsidized energy cost and wheat but the competitiveness position in
international markets is low and did not improve over time. Concerning the Manufacture of
Casting of Iron and Steel, the direct impact is less than expected since it depends on heavy
fuel which was liberalized. For the Manufacture of Wearing Apparel except Fur App., the
competitive position of this activity is deteriorating in the US market because of imports from
China. In addition, this activity adds low value since raw materials are imported and
production processes entail simple procedures. This renders this activity sensitive to any
change in costs that would ultimately add to this activity’s recent loss of competitiveness in
the international market. Moreover, as international oil prices increase, exports will be
negatively affected through the increase in transportation costs because of distance to
export markets. With respect to the Manufacture of Soap, Detergents, Cleaning and
Polishing Preparations, Perfumes and Toilet Preparation, exports are concentrated in one
market namely Iraq, and therefore growth rates of exports fluctuate based on the demand
from Iraq. This activity faces fierce competition in the domestic market from Egypt and Saudi
Arabia. Jordan enjoys a comparative advantage in producing the Dead Sea cosmetics which
are highly demanded around the world. However, it seems that this activity did not exploit
and develop the comparative advantage which enhances the value added. The Manufacture
of Pharmaceuticals Medicinal Chemical and Botanical products is one of the most developed
and diversified industries with a large share in the total exports of Jordan. Since this industry
is efficient, any small increases in cost may hinder further developments. Saudi Arabian and
Egyptian industries are increasingly becoming stronger competitors in the regional markets.
For the Manufacture of Basic Iron and Steel, in light of the growth in the construction sector
that Jordan has witnessed in the past several years, this activity possesses great potential.
Hence, the competitiveness of this activity in the international and domestic markets is well
developed. Concerning the Manufacture of Vegetable and Animal Oils and Fats, the
competitive position of this activity is low since exports are directed towards solely towards
one market (Iraq). Thus the industry faces low potentials unless it improves its production
process and marketing strategy in diversifying exports market.