Around 90% of Jordans apparel exports are to the United States

Around 90% of Jordan's apparel exports are to the United States

Jordan's US$1.34bn garment sector continues to expand despite the turmoil in much of the Middle East, with growth forecast at 10% in 2015. Yet while the industry is growing, jeans manufacturers have been complaining about water shortages and rising costs.

Around 90% of exports are to the United States, according to the Jordan Garment, Accessories and Textiles Export Association (JGATE), driven by a US-Jordan free trade agreement (FTA) that came into force in 2001 and allows Jordanian-made garments to enter North America – including Canada as of 2012 – duty free. 

The sector has rapidly expanded, with exports surging from US$500m in 2007 to US$1.34bn, according to JGATE and government export figures.

"We have around 85 to 100 companies. Most are foreign owned, particularly from India, as well as Pakistan, Turkey, and Hong Kong," says Dina Khayyat, chairman. "They entered because of the FTA with the US. As the cost of production in Jordan is not very competitive compared with say Vietnam or Bangladesh, most went into items with high customs duties, such as man-made fibres and sportswear, which is in high demand."

Major retail buyers include US department stores such as Target, JC Penney, Kmart, and Walmart, and brands Sara Lee, Calvin Klein, Hanes, Banana Republic, Gap, Levi Strauss, Under Armour and Nike.

"Four or five factories have recently increased their production facilities by either expanding their own main branch factories or opened up a satellite unit," adds Khayyat.

While the sector employs some 56,000 people, just 30% are Jordanians, the rest migrant workers, mainly from south Asia, according to JGATE figures. To bolster local employment, the government has introduced a scheme helping manufacturers set up smaller production lines in rural areas, with buildings provided rent-free for five years.

"These satellite units should increase Jordanian employment as well as shift production lines to areas with high unemployment," says Khayyat. 

Labour conditions

The sector has also been working to improve labour conditions through Better Work Jordan, an initiative that is part of the Better Work global programme, working with the International Labour Organization (ILO) and the International Finance Corporation (IFC), of the World Bank. It has worked with 65 Jordanian factories, including clothing manufacturers.

After the tragedies in Bangladesh in 2012 and 2013, "buyers are concerned about working conditions, upgrading training and issues like fire safety," explains Khayyat.

A collective bargaining agreement was recently hammered out and formalised this year between JGATE, the government, factory owners and labour leaders. "All workers have to use one unified contract, to know what to expect from Jordan, and it is translated into four languages. This has been done twice over the past four years, which has been efficient for owners and workers, while reducing strikes," she adds.

The monthly minimum wage is JOD110 (US$155) for garment sector employees, but manufacturers are feeling rising commodity prices. 

"Labour is about 45% our costs. We take care of migrant workers' food and accommodation, and these are increasing running costs," says Sanal Kumar, chairman and managing director of Classic Fashion Apparel industry Ltd Co, which exported US$300m of clothing to the US last year. It employs 15,000 people and production has grown 20% this year compared to 2014.

Despite these successes in the US market, and Jordan's relatively low costs, the sector has not been able to effectively exploit the geographically closer European market.

"Even if Jordan had a duty free agreement with the European Union, labour costs are too high. There's no we way can meet or beat the price in Bangladesh. But with clothing a US$130bn market in the US, and Jordan exporting around US$1.5bn, that is just 1%, so there's huge potential for Jordanian factories to do business with the US," explains Kumar.

Water shortages and rising costs

Yet while the sector is growing, Jordan is one of the most water scarce countries on earth, and manufacturers may soon be forced to change production lines, for instance avoiding denim.

"A couple of factories that were making jeans might shift away from that line, as they have been complaining about water shortages and rising costs," says Khayyat.

The sector is trying to bring extra value to production but lacks local raw materials, with everything imported.

"We don't have vertical integration of any items, with most factories importing the fabric and accessories. We are trying to develop supportive items, such as the packaging materials and polyethylene bags, but that is it," says Khayyat. There are no spinners or fabric producers due to water scarcity.

With the country's sole port, Aqaba in the south, being redeveloped and under serious pressure due to high traffic following the closure of borders with Iraq and Syria, exporters have had to resort to other ports, particularly Haifa in Israel.

Production for the 6.4m local market is limited, and is not included in JGATE or government figures. And while smaller factories can and do produce for the local market and neighbouring countries, they "have been impacted more than the other manufacturers due to the Syrian crisis" and its pressure on logistics, says Khayyat.