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A new $500 million potash production plant will increase the overall production capacity to 2.5 million tons per year from two million tons currently, per Nabih Salame, Chairman of the Board of Directors of Jordan-based Arab Potash Company (APC), whose annual sales of roughly $634 million correlates to approximately 4 percent of global potash production, and which sports a nifty ttm ROE of 60% as it targets growth markets at home as well as in China, India and Malaysia.  Potash prices made headlines this summer (and continue to do so as global food prices spike once again) during miner BHP Billiton’s attempted hostile takeover of Canada’s Potash Corporation (a 28% shareholder in APC).  While technically a chemical concoction (consisting of potassium carbonate if not other compounds) used as an agricultural fertilizer (it contains essential plant nutrients), “potash, for all intents and purposes, is food,” according to Vincent Andrews, agriculture analyst for Morgan Stanley.  “Because without potash you are not making corn and soybean and without corn and soybean you are not making chicken or beef and that’s what people want to eat.” 

Spot potash prices ballooned over $1000/metric ton back in 2008 but fell to $300 last summer and have dallied sideways for much of this year around $340-375–buoyed by rumors of declining inventories and then quickly hampered by suggestions that major producers are barely running at half capacity.  Yet per one report, Patricia Mohr, a commodity market specialist at Scotiabank Group in Toronto, noted recently that “some recent sales at higher prices are starting to materialize for the coming months.  Belarusian Potash Co. (BPC) sold some product to Brazil at prices rising to $410 for December delivery, and Canpotex followed suit with December and January deliveries to Brazil in the same price range.  On top of that, demand has strengthened in southeast Asia, allowing Canpotex to sell 150,000 tones of standard and granular product around $405 and $420, respectively. China’s Sinofert also signed a three-year supply agreement with Canopotex for more than 1 million tonnes each year, a sign that China wants to secure longer-term supplies because it believes demand will rise.  This demand could continue to grow.”

Worth noting finally is APC’s competitive advantage in an industry that already has considerable barriers to entry given the expense involved in potash production.  Per NBK Capital, due to the firm’s extraction technique (APC mines surface brine deposits, utilizing solar evaporation, which is significantly cheaper than conventional mining of deep marine deposits) “it remains one of the world’s lowest cost potash producers, enjoying production costs roughly one quarter of producers in Western Europe, for instance.  Moreover, the bank noted, “long term secular drivers” (food/feed/[bio]fuel) underpin its bullish outlook for fertilizer.


Per its Central Bank (CBJ), Jordan’s net foreign reserves rose 40% in 2009 to a record $10.87 billion–roughly equal to eight months of imports–while deposits in the country’s banking sector rose 11% in December from the previous year’s numbers for that month. The CBJ attributes the growth to its enduring policy of permitting a relatively wide interest rate differential against the dollar in favor of the dinar. Last November, the Bank’s Governor defended the dollar-dinar peg, reiterating that the policy, which was adopted in 1995, is vital in “boosting confidence in the national currency as an attractive tool for deposits.” IMF officials agreed, citing the fact that increased reserves allowed the CBJ to cut interest rates during the economic crisis, inject liquidity into the financial system and push private banks into lowering lending rates to help fuel growth. The rub of the matter, however, lies in the degree to which banks in turn invest the increase in expanding credit facilities. The theory states that if banks cut their interest rates on loans, applications by the private sector to fund new projects will also increase (as well as the finance of exports and the purchase of imports), which consequently spurs investment. However, many experts point out that there has been a paradigm shift in lending such that banks, spooked by risk, will only extend rate cuts to certain clients. Until that paradigm changes, look for output gaps–in Jordan as in elsewhere–to remain relatively high.

Per, the Foursan Group, an Amman, Jordan-based private equity firm that already manages the Jordan Fund, announced the launch of its second fund, Foursan Capital Partners I, a multi-country, multi-sector private equity fund that will target investments in “accelerated growth companies in Jordan and surrounding countries in the Levant and North African regions” and is targeting a final closing of $200 million in 2010. Specifically, “the fund will invest in private companies in a range of attractive sectors including financial services, food and beverage, education, aviation, pharmaceuticals and healthcare.”

This on the heels of a report earlier in December in which Imad Ghandour, Executive Director of Gulf Capital, an Abu Dhabi-based PE group, mentioned that there was between $11-13 billion of capital raised by Middle East private equity firms still “waiting to be deployed.”

Standard Chartered puts Jordan’s expected growth at 3.5% in 2009, compared to 5.2% in 2008 (annual growth between 2004-2007 was high at above 6%). Long known for its political stability and strong leadership, Jordan has seen massive investment in the real estate and tourism sectors of late. Moreover, investment has been one of the key drivers of Jordan’s growth, due primarily to improved investment laws. To that extent, the Gulf states and affluent Iraqis have invested heavily in the real estate and tourism sectors. In fact, investment is the second largest contributor to GDP. And while the nation’s current account deficit is the main concern, the bank noted, said deficit is expected to ease in the coming year given that over 20% of the import bill is from oil and that Jordan is the 23rd largest importer of wheat in the world. Finally, while remittances may slow due to a global slowdown, they are likely to remain relatively strong. However, Jordan’s largest export partner is the United States, and demand for its top export (clothing) will naturally wane.

One popular sector to invest in may be financial services. Business Intelligence Middle East notes:

[Jordan’s] banking sector is strong due to the conservative management by the central bank. Supervision has been key. Non performing loans (NPLs) are low, 4% of total loans, liquidity ratio is at 138%, and the asset to deposit ratio is less than 80%.

Jordan’s government can be commended for its foresight during the recent boom years, from 2004-2007, when annual growth was around 6%. Privatization, the reduction of foreign debt, and the elimination of fuel subsidies will help the nation’s economy as global economies begin to recover from the financial credit crunch. That said, its fiscal expansion in light of a budget deficit (budget spending will be up by 18% in 2009 and includes a 36% increase in the monthly minimum wage) will keep its deficit from shrinking.

Frontier markets are smaller, more undeveloped and riskier than emerging markets, and Friday index provider MSCI Barra announced that not only will it consider upgrading Kuwait, Qatar and the United Arab Emirates to emerging markets from frontier markets (expect a final decision by June 2009), but that it will further consider downgrading Argentina and Colombia to frontier markets from emerging markets “unless significant improvements in the relevant capital flow restrictions are observed” by December (despite Moody’s announcement that Colombia’s debt rating will be raised just one notch below investment grade).  As far as definite downgrades, MSCI said that it will reclassify Jordan to a frontier market from its current designation as an emerging market starting this November, because of the small size of the nation’s market and the lack of liquidity.

More than $3 trillion is benchmarked to the MSCI International Equity Indices, and the MSCI Emerging Markets Index is one of the most widely used indices to gauge the performance of emerging equity markets.  The iShares MSCI Emerging Markets ETF tracks the performance of the index.


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