Jordan’s construction

Jordan’s construction sector is still facing the challenges associated with the economic slowdown, though there are some signs that the building trade is starting to lay the foundations for a return to growth.

Construction has been one of the main pillars of the economy, with more than 1600 building companies employing an estimated 100,000 workers and contributing 4.5% to GDP in 2009.

Data issued by the Department of Statistics at the end of June showed that while the economy as a whole expanded by just over 2% in the first quarter of the year and many sectors posted growth well in excess of this figure, the construction industry retreated 2.44% compared to the same period in 2009.

Though the real estate sector is starting to pick up, with residential sales in the first half of 2010 up by 17%, this increase in demand has yet to flow on to the construction side, with economist Jawad Anani saying that the majority of sales were of completed apartments, with low investment demand for new projects.

“There is no physical evidence that construction activity grew over the past months,” Anani told local media on July 6.

There are some signs, however, that momentum may be building in the construction sector, with figures released by the Central Bank of Jordan on July 7 showing an increase in credit made available to the industry. Though the bank’s report said there had been an 8.2% drop in loans being granted to individual clients, total lending levels were up 2.5% in the first five months of the year.

However, while individuals may find it hard to get a loan from local banks, the country’s construction sector does not appear to face the same restricted access to lending. Of the 2.5% increase in the level of credit extended by banks to the end of May, the largest single beneficiary was the building industry, which saw a jump of 19.4% in loans, far in advance of the 4.1% increase in credit provided to the industrial sector.

If sustained, this rise in credit availability could signal a return to growth for the building trade, which even last year was one of the best clients of local banks. According to figures released by the Association of Banks in Jordan in June, the construction sector received more than 9% of total loans last year, second only to the trading sector. In line with global trends, 2009 did see a fall off in lending across the economy, with most banks seeking to consolidate their positions and build deposits rather than extend their loan portfolios.

This relatively flat lending activity came despite the CBJ cutting interest rates to near record lows in February, a move it said was designed to “enable the national economy to accomplish higher growth rates following its tangible slowdown in 2009”. While the reserve’s rates cut may have stimulated growth in some sectors, the benefits seem to have taken longer to reach the construction industry.

The slow pace of recovery has prompted builders to lobby the government to provide some relief, with the Jordan Construction Contractors Association (JCCA) calling for new state works projects to be included in the 2011 budget.

The government put on hold all new state construction projects for this year in an effort to rein in the deficit and give it time to reassess priorities. Though the move may have helped reduce the red ink in the state accounts, according to Ahmad Tarawneh, the president of the JCCA, the halt in new state work has been a major challenge for the sector.

“The suspension has caused major damage to the construction sector,” Tarawneh told the local English-language paper The Jordan Times on July 4.

Though state officials have said there will be a capital works component in next year’s budget, there has been no indication of what projects will be funded.

The JCCA has also taken the government to task over the contracting out of major construction projects to foreign firms, which the association claims offer little or no subcontracting work to local companies. “They are not giving business to local contractors, preferring to bring foreign companies to implement their projects,” Tarawneh said.

Though the construction sector may not enjoy the normal levels of public orders for the remainder of the year, the private sector may offer more hope. With demand apparently growing in the real estate sector, the existing housing stocks are being depleted, with the market approaching the tipping point of demand exceeding supply. Once that point is reached, some predict in the next 18 months, the market should once again see a flurry of new development activity.