Thomas White Global Investing
Jordan
Jordan Stamp
September 16, 2011
A Postcard from the Middle East and Africa
Jordan: Large-scale railway paves way for regional trade hub

International train at Amman

The “International Train,” a passenger train plying between Damascus and Amman, operates on the century-old Hejaz railway line, Jordan’s only major rail link even today.

In the 1900s, the Hejaz railway line was constructed by the Ottoman Empire to make the Islamic hajj pilgrimage easier to undertake. And the railway line still holds historic importance for most of the countries through which it passes – including Saudi Arabia, Syria and Turkey. But, for modern day Jordan, the Hejaz line is, even today, the country’s only major railway link.

Indeed, other than a key freight rail connection and a passenger link operating on the Hejaz line, Jordan is nearly devoid of key railway links. With a $5 billion railway project in place, though, the country is gearing up for change.

For years, the import-reliant Jordan has had to depend heavily on its roads to import resources and goods. According to Jordan Times, the Kingdom only has about 315 miles of rail track. This is in comparison with around 140,000 miles of rail track in the U.S., which operates one of the largest railway networks in the world. The lack of adequate rail track has led to high import costs and a clogging of Jordan’s highways. According to a Financial Times report, each day up to 4,000 trucks traveled along a Jordanian highway to Saudi Arabia and Syria in 2009. Still, reducing this road congestion through new roads can be a costly and long-drawn affair.

By comparison, railways have a better “track record” so to speak, proving to be a more economic, fuel efficient option that keeps highways unfettered. According to an Association of American Railroads report, U.S freight railroads were four times more efficient than trucks in 2009, with a single freight train capable of carrying the load of over 280 trucks. The report went on to say that even if 10% of the long-distance freight can be shifted from trucks to railroads, it would save over a billion gallons of fuel per year, proving that freight railroads are also more fuel efficient than trucks.

With these advantages in mind, in 2009 Jordan’s transport ministry proposed the construction of a rail network that would cover over 990 miles and cost around $5 billion. Jordan’s railway project is set against the backdrop of a prospective railway boom in the Middle East and Africa region, with plans already underway in Saudi Arabia and Syria. Jordan’s rail network will initially provide a freight rail link from Jordan to Syria, Saudi Arabia and Iraq, and ultimately, create a passenger rail connection to Lebanon, Turkey, Iran, Iraq, Syria and Saudi Arabia, among others.

Importantly, according to a Jordan Times report, the railway is expected to create 5,000 jobs and provide an 11.1% annual return on investment. The government will contribute part of the funds and invite tenders from private setups to raise the rest of the money for the project. Saudi Arabia-based financier Islamic Development Bank (IDB) is also conducting fundraising talks with global financing giants including the World Bank and the European Investment Bank. Other institutions that are likely to contribute funds include France’s Agence Francaise de Developpement, Japan’s Bank for International Co-operation and Germany’s development bank, KfW. According to media reports, although sourcing funds overnight will not be possible, Jordan should be able to find the financing required over a reasonable period.

Construction of the project is slated to begin in the first quarter of 2012. And, once complete, the benefits will extend beyond job creation, and the reduction of import costs and dependence on roadways. According to the Jordan Times, the IDB said the proposed rail project will not just spur economic growth within Jordan but also spread to neighboring IDB member countries. In fact, it is hoped that the railway will make Jordan a regional trade hub.

But, the most important advantage that Jordan hopes to gain from its rail project is improving its membership chances to join the Gulf Co-operation Council (GCC). Since 1981, oil import-dependent Jordan has been keen to become a member of the GCC, a political and economic alliance between the six oil-rich Gulf countries of Saudi Arabia, Kuwait, the United Arab Emirates, Oman, Qatar and Bahrain. Jordan’s planned railway network, which will also connect some GCC members with Jordan, could strengthen its relationship with the GCC and add value to its membership request.

Jordan’s foreign minister said the country will open “formal accession talks” with the GCC this month. With an economy that is struggling, it perhaps has never been more critical for Jordan to attain GCC membership. This could potentially expose Jordanian products and services to member countries’ markets and stimulate cross-border trade and investment. In an announcement this May, the GCC said it was considering Jordan and Morocco’s requests to join its ranks, adding to the growing importance of Jordan’s rail project.

For now, though, Jordan’s GCC membership request is a wait-and-watch game. But the country’s rail project, although still in the planning stages, is taking shape. And against the gloomy backdrop of fierce protests for economic and political reform, the railway not only provides the conduit for goods and services, but offers Jordan a pathway for economic recovery and improved status on the global stage.

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