Internal security risk has increased compared to the start of the war
Jordan will continue to see weak overall private consumption through Q3 2024 at least. B2C MNCs can expect to continue to see weak demand as tourism remains sluggish and inflationary pressures increase. Route-to-market disruptions in Amman may increase if protests continue to escalate, with security risk remaining high throughout H2 2024. Businesses can expect to see increased delivery times and higher logistics costs for the next few months.
Overview
Internal Security
Jordan’s role in intercepting dozens of Iranian drones targeting Israeli territory in April sparked public anger following the government’s response. The day after the attack, a statement was released stating that the military will continue to defend Jordan against any future incursions by “any party” in defense of “the nation, its citizens, and its airspace and territory.” Large-scale protests took place following the news, with authorities now sanctioning weekly protests after Friday prayers in an attempt to keep a lid on public anger. A member of government has stated that the intensity of protests are “raising alarms among decision makers in the government,” with regularly dispatching riot police placing a financial strain on public finances. Alongside this, the government has allegedly foiled an “Iranian-led” plot to smuggle weapons into the country.
Ties with Israel
Jordan has maintained a firm position against the possibility of a Palestinian exodus into the country. Protests have also continued in recent weeks, with demonstrators increasingly calling on the government to terminate all normalization agreements with Israel, including water and gas imports.
Red Sea
Jordan’s economy has not been immune to escalations in the Red Sea: the port of Aqaba receives nearly one-third of its imports through the Red Sea, also using it for more than 50% of its exports. Jordan is also one of the world’s largest exporters of potash and phosphate fertilizers—commodities that make up 17% of national exports and around 3% of GDP. An estimated 76% of potash output leaves the country through the Aqaba port. Aqaba also hosts Jordan’s only container port, which acts as a crucial hub for transit to elsewhere in the region. The port saw a 20% YOY decrease in container traffic during Q1 2024 amid ongoing tensions in the Red Sea. Alongside this, inflation increased 1.63% YOY in March 2024. Notably, food items such as vegetables and meat increased 4.4% YOY and 4.98% YOY, respectively.
Hospitality Sector
The war continues to have negative spillover effects on Jordan’s tourism sector. Owners of several tourism and travel offices have reported a severe drop in activity: inability to pay financial dues owed to the Social Security Institution, delays in salary distribution to employees in the sector, and growing fears of employee dismissal following a more than 95% drop in activity for certain offices.
Our View
The tourism sector will continue to see a significant slump throughout 2024, as security concerns remain elevated. While tourist arrivals from the region may see a slight uptick in H2 2024, tourism inflows from the West will remain subdued throughout the year. FrontierView expects Red Sea disruptions to last into Q2 2024, impacting Jordanian exports and imports and likely to result in further inflationary pressures into the rest of the year. Subsequently, both businesses and consumers will continue to feel the weight of targeted trade routes throughout Q3 2024 at least. Pro-Palestine protests will continue throughout Jordan in the coming months. Jordanian public opinion on ties with Israel will continue to call for halting all forms of “bilateral cooperation” (including the peace treaty, the gas agreement, and the energy for water agreement). While relations will likely be maintained, the implementation of various projects is contingent on the cessation of Israeli aggression in Gaza. An Israeli operation in Rafah risks heightened protest escalation in Jordan, with the possibility of acts of terrorism (while still unlikely) increasing.
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