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‘Competitiveness of local industries suffering due to high energy costs’

By Dana Al Emam - Feb 17,2015 - Last updated at Feb 17,2015

AMMAN — The industrial sector is struggling with “high” energy costs in light of the absence of cheaper efficient alternatives, sector leaders said this week.

In phone interviews with The Jordan Times, industrialists said the sector, which contributes over 90 per cent of national exports and employs around 50 per cent of the workforce in the private sector, should receive “real” support from the government.

“Genuine” partnership between the private and the public sectors, “reasonable” fees and collection methods, along with “stable and supportive” sector-regulating legislation are among the sector’s major demands. 

Fuel prices 

The prices of oil derivatives in Jordan are higher than international prices, according to Musa Saket, board member of the Amman Chamber of Industry (ACI) and the Jordan Chamber of Industry, who said allowing large factories to directly import fuel, could cut some costs.

Saket told The Jordan Times that local industries “will not be able to cope with any additional hikes in energy prices”. 

Factories and industrial institutions, he said, should be given “privileged” electricity prices to encourage production.

“Electricity forms over 25 per cent of production inputs,” Saket noted, adding that the average number of local workers in each industrial firm is around 13, while some firms employ an average of three workers.

ACI President Ziad Homsi agreed, noting that the “large” accumulative hikes in energy prices, which nearly doubled electricity tariffs over the past 10 years, have negatively affected the competitiveness of local products.

He said several factories have not renewed their ACI subscriptions since 2012, expecting layoffs in the sector if electricity costs do not drop.

Competitiveness of local products 

Homsi called for exempting “struggling” industries, such as iron and plastic, from additional hikes, noting that free trade agreements Jordan has signed with Arab countries and Turkey require boosting the competitiveness of local products especially since these countries’ industries enjoy cheaper energy costs.

“Some of Jordan’s neighbouring countries have reduced electricity prices by 20 per cent, while in Jordan the rates increased by 15 per cent, which created a big gap in production costs,” he noted.

ACI Vice Chairman Fathi Jaghbir voiced similar sentiments, noting that governments with “genuine willingness” to support industry reduce electricity tariffs for the industrial sector. 

Official support  

Jaghbir criticised the lack of official medium- and long-term planning for the sector, calling for the “immediate” suspension of any increases in electricity tariffs, as the JD20 million per year, which the government is expected to collect from the 7.5 per cent hike imposed on the industrial sector, will not be of “great benefit” to it.

He highlighted the need for an “effective” partnership between the public and private sectors in order to achieve the aspired development rates, describing the current situation as one with “zero private-public partnership”.

Moreover, Jaghbir criticised the government’s “constant complaints” of the budget’s inability to support the sector.

He urged the government’s economic team to look into investment opportunities in the sector, noting that most public support is allocated for the financial sector instead.

Financial facilities

Banks’ murabaha (an Islamic finance and investment instrument) and interest rates are as high as 11 per cent, which could discourage lending, according to Saket, who said some banks’ lending programmes offer a 6.5 per cent interest rate, but the loans have a “low ceiling”.

Jaghbir called for supporting the sector with “soft loans” with minimal interest rates, adding that the government should be partially included in repaying the loans.

Homsi agreed with Saket and Jaghbir, pointing out that over 18,000 industrial establishments across the Kingdom employ some 263,000 workers, many of whom could be subject to layoffs without “real official support”.

Industrial exports in 2014 exceeded $5 billion (around JD3.5 billion), according to Homsi. 

Legislation environment 

Local laws do not allow factories to establish renewable energy projects yet, although they are approved and implemented internationally, according to Saket.

“We discussed these ideas with the government, but no implementation measures were taken,” he said.

Saket highlighted the need for legal stability, especially since several laws governing industry and investments have witnessed “several changes over the past few years”, voicing hope that the recently passed investment and income tax laws do not undergo any changes “for at least two years”.

Homsi described laws governing renewable energy in the sector as “unclear”, noting that small- and medium-sized enterprises, which form up to 97 of the sector’s institutions, will not be able to finance renewable energy projects.

Officials at the Ministry of Industry and Trade were not available for comment despite repeated attempts by The Jordan Times to contact them.

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