QIZ evaluations

Praktike, the honors-nominated commentator whose own blog ironically enough does not allow comments, muses about QIZ's today.  He suggests that they have done well for Jordan ("QIZ's have been used to seemingly great effect in Jordan", and "But if this is true, QIZ's may already be doing some good in the social arena by bringing more women into the workplace. And greater financial independence will inevitably lead to calls for greater women's rights."), while noting that Jordan remains politically repressive anyway. 

No argument about the latter, but on the former, I would recommend reading Pete Moore, author of the recent Doing Business With the State (Cambridge University Press) examining the political economy of business lobbying in Jordan and Kuwait, who has written on the subject of Jordan's Qualified Industrial Zones in  MER Online and Middle East Policy.  Short version:  the QIZ's have had an underwhelming, arguably negative, net economic impact on Jordan. 

Slightly longer version (from July 2003 MER Online):

"Officials at the WEF meeting were quick to highlight QIZ achievements. Jordan's exports to the US have risen from less than $20 million in 1999 to over $200 million by 2002. More than 20,000 jobs have been created in the QIZs, with a reported 70 percent of the jobs going to women.    ....  however, the real QIZ story bears unpleasantly little resemblance to the slogans.         

"The much touted peace dividend has turned out to be a bait and switch for ordinary Jordanians. Unemployment remains high (around 20 percent of the labor force), population growth is rapid, and despite peaks and valleys, per capita income has essentially remained locked at its 1984 level. In the face of these pressures, professional and working-class Jordanians have seen prices steadily rise in tandem with Israeli-Palestinian  violence. By 1997, the RBC collapsed, as continued violence in the Occupied Territories soured Jordanian public opinion on the peace process. Exchanges with Israeli businesses made easy targets for the protests and boycotts of secular and Islamist opposition groups.Even Jordan's weak and dependent official business representatives went along with opposition boycotts of Israeli-attended trade fairs.

"Behind the official QIZ numbers, there are other numbers and trends that went without comment at the WEF meeting. For instance, more than 80 percent of the firms located in Jordan's 12 zones (two new zones were approved at the WEF meeting) are South Asian textile and luggage manufacturers. Nearly half of the 20,000 workers are not Jordanian. Though a minimum wage of $3.50 per day is official policy, QIZ managers commonly express ignorance as to whether this is actually enforced by QIZ firms. Complaints about working conditions and lack of government action to increase domestic employment are on the rise. Given Israeli closures of the West Bank, QIZ exports do not currently include Palestinian components. Moreover, manufacturers struggle to ensure that Israeli contributions meet the minimum 7 percent. Jordanian QIZ managers report that Israeli inputs commonly amount to little more than labels, zippers and packaging added during export at the Israeli port of Haifa. Since much of the cloth is imported and wages are extraordinarily low, QIZ firms find it difficult to meet the 11.7 percent domestic content requirement, and thus there have been calls to lower the threshold. What all of this means for Jordan  is that while (mostly foreign) QIZ investors, owners and managers may realize nice returns, the zones have backfired as contributors to productive development, employment growth or Israeli-Jordanian normalization. These outcomes are ominous for Washington's larger free trade designs.
.....

            

"Jordan's experience with US-led free trade, peace and development is a model of warning  for the rest of the region. The effort to link trade and peace negotiations in Jordan has failed. Joint Arab-Israeli business ventures have been shallow, freer trade has yielded minimal developmental returns and the Jordanian public continues to reject normalization in favor of a comprehensive political settlement. Jordan's experience underlines the fact that trade alone cannot transform a country's political, social and economic institutions, especially in line with the controversial directions Washington desires. Instead, the evidence shows free traders seek to exploit already resident resources (in the caseof Jordan, cheap labor, minimal labor standards and easy access to the US) and ensure an exclusive distribution of rewards."

I'm no economist and claim no expertise whatsoever on the QIZ's but Moore's analysis seems pretty convinicing to me, and resonates with what I've heard from some Jordanian economists. 

Comments

[Vikash Yadav]

Dear Abu Aardvark,

I can't comment on Jordan's QIZ, but I don't think that the Egypt-Israel-US Free Trade Agreement is actually a good example of the potential of genuine free trade to spur economic and social change. The impetus for Egypt's decision to sign the deal is a desire to avoid real competition with China and South Asia once US quotas on the managed textile trade are lifted in accordance with WTO provisions in January 2005. In other words, the Eg-Is-US Free Trade Agreement is an attempt to avoid real free trade and genuine competition through a duty-free back door. Hence, it is unlikely to really spur the textile industry here in Egypt, since the main aim is just to keep the industry from losing its existing market share to the Asians. Moreover, with continued bitter animosty between the Egyptians and Israelis we should not expect to see a dramatic jump in the output of Egypt's QIZ. So we should not be surprised if the results are also underwhelming and marginal on the sluggish and uncompetitive Egyptian economy and repressive society.

Best,
Vikash Yadav
AUC Egypt

[Issandr El Amrani]

There is one big difference between Egypt's and Jordan's QIZ deal: the Egyptians have said that they will not change their laws to allow for foreign labor -- they want to use Egyptians. So at least that aspect of it will be markedly different.

[the aardvark]

Vikash and Issandr - thanks for the insights on this. It sounds like the economic circumstances, at least, are a bit different in the Egyptian-Jordanian case.

I wonder if the foreign labor exclusion that Issandr mentions - if it really turns out that Egypt can get that and enforce it - would change the dynamics at all? That would seem to eliminate some of the specific resentments in the Jordanian case, but probably not impact some of the bigger ones.

Here's a question: if I read Vikash correctly, the Egyptian QIZ may stand to benefit existing Egyptian firms far more than Jordan's did for Jordanian firms. Or am I misreading that?

[the aardvark]

Praktike has a response to Pete Moore at the same link as above, as an update - basically that Moore is reasonably convincing on the economic analysis but doesn't prove the causal link to political repression. Sounds about right to me. I would probably say that Moore and his co-author show pretty convincingly that the Jordanian QIZ didn't cause greater democracy or freedom, but can't really show that it had a net negative effect either (without jumping down a whole long causal chain where you'd have to consider other things).

[Jamal]

I'm admittedly being lazy here in not doing a bit of my own research beyond reading a couple posts and links, but the impression I am getting is that the QIZ's for Egypt are merely being built to protect Egypt's existing position in a few industries (textiles?) in advance of changes being caused by WTO rules coming into effect shortly. Am I correct in my assumption that there is likely to be no net economic gain from these things, that signing on was only seen as a necessary evil to prevent economic damage? The labor laws would be neatly explained by this as well if it is true. Am I basically right here or somehow off-base?

[Vikash Yadav]

Yes, I think you're basically right. I am currently reading a student's MA thesis on privatization in Egypt in which the student cites the case of the Kafr al-Dawar Spinning and Weaving Co., which employed 350,000 people in 2003. At least according to the Ministry of Public Enterprise document that is cited, most of the employees do not perform any known task.
Thus, some skepticism regarding the competitiveness of the textile industry is probably warranted. Whether the industry can be made more competitive merely through the creation QIZs is doubtful.

[praktike]

Well I would guess that without some kind of help, the repeal of the quotas would wipe out Egypt's textile export industry almost completely. So maybe this is the best they can hope for. Still, it does seem like a pitiably small way to try to build a lasting peace in the region.

[praktike]

Interesting article on QIZ's here from the Daily Star.

http://www.dailystar.com.lb/article.asp?edition_id=10&categ_id=3&article_id=11297