Jack and the peace dividend

Scott McCulloch is Editor of Families in Business magazine.

Spot an opportunity and see it through could be the Khayyat family motto. But 'one door closes and another one opens' seems more apt for the canny family behind Meatco, Jordan's masters of survival and economic opportunism

A mild look of bewilderment on Jack Khayyat's face must have betrayed a belly full of hope when the 25-year old graduate from Jaffa first set foot in Jordan's dusty capital city Amman. For it was 1958, a relatively placid year in a turbulent decade that saw Jordan annex the West Bank, lose a king to Palestinian gunmen and wave goodbye to withdrawing British troops.

There are the Bible stories, lost cities, Lawrence of Arabia – Jordan has romantic associations up to its eyeballs. But what about Jack who graduated with honours from the the American University of Beirut in 1956, armed with a degree in agriculture?

Times were good. King Hussein, Abdullah's grandson, took over in 1953 and reigned over a period of prosperity, much of it as a result of international aid and tourist interest in the West Bank and Jerusalem. So in 1958 Jack started his own company, Khayyat Agricultural & Trading Co, which would later become Middle East Agricultural & Trading Co, or Meatco, as it is called today.

Building an empire
Back then, as now, Jack had sought fresh, unexploited opportunities. He began importing day-old chicks by air from Holland and distributing them to local farmers. Veterinary products were also arranged and special feed concentrates, procured from the US, primed the poultry industry, if not the birds, for take-off.

It flew. But chickens, it seemed to Jack, were like rabbits. "The poultry industry is a fast growing one," he recalls. That's what you get when you wade into the commercial waters of breeding, hatcheries and feed mills. Jack hatched an idea: he hired an agriculturalist to teach Jordan's farmers better techniques.

By the 1970s Jack controlled 60% of his chosen market. His blood may not have been blue, but as Jordan's 'Poultry King' it was spiced from the delectations of 'Quick Meal Broasted Chicken' – his first diversification strategy and Jordan's first fast food chain. Irrigated olive groves and canned food operations soon followed on a parcel of land fringing the Jordanian desert. Times in the Kingdom were good.

The Hashemite Kingdom of Jordan is a small country with limited natural resources, but for years it has played a pivotal role in the struggle for power in the Middle East. Jordan's significance results partly from its strategic location at the crossroads of what most Christians, Jews and Muslims call the Holy Land.

The challenge of war
But what of opportunities for Middle Eastern entrepreneurs? "Being a pioneer has its advantages and disadvantages," says Jack. "Sometimes you start a project when people aren't ready for it." Sometimes problems boil down to chaotic geopolitical events.

Despite the region's instability, some economies are doing better than usual. When war in Iraq loomed, the country's Arab neighbours predicted dire consequences for themselves. Egypt's government said it expected the country to lose up to US$3 billion, with tourists flocking elsewhere and contracts with Iraq abandoned. Jordan and Syria dreaded being cut off from cheap Iraqi oil. Bahrain and Dubai feared a flight of investors. Regional shippers bemoaned hefty increases in their insurance bills.

In fact, some Arab countries have done quite nicely. In its latest quarterly report the World Bank said Jordan withstood the shock economically and politically better than most observers had expected and proved able to resume normal economic activity. This renewed proof of resilience bodes well for the future, although some of the long-term impact of the conflict will still pose challenges for the years to come. "Jordan managed the challenges it faced well during and after the war in Iraq," the bank said. For Jack, the country's big challenge is reeling in foreign investors. But to economists at the Oxford Business Group, specialists in Middle Eastern economic analysis, paying down $8 billion in national debt is a priority.

Still Jordan's achievements have been impressive. From the early 1970s to 2001, life expectancy has leapt from 58 to 72 years. Adult literacy rocketed to 90% and infant mortality rates have tumbled. It wasn't always so. In 1986 King Hussein severed political links with the PLO, 12 years after recognising the organisation as the sole legitimate representative of the Palestinian people. Two years later the monarch backed the Palestinian intifada against Israeli rule. Twelve months on, in 1989, rioting over price increases rocked several cities.

The early 1980s, recalls Jack, were eventful if not hot. It was also an era that saw the family element of the business emerge. In 1981 Jack's son George, agriculture degree in hand, entered the fray. Less than 12 months earlier Iraq, Jordan's neighbour to the east, invaded Iran following border skirmishes and a dispute over the al-Arab waterway. Yet by some miracle the bitter eight-year war offered a "tremendous boost" to Meatco's  egg-hatching and canned food operations. "Meatco expanded and became the largest hatching-egg producer in Jordan and one of the largest in the Middle East exporting to Iraq under the Jordan-Iraq protocol," recalls Jack. Today, Iraq is Jordan's second biggest trading partner after the US, accounting for 12.6% of exports worth $260 million a year.

On 2 August 1990 Iraq invaded Kuwait, sparking off the Gulf war. The six-week conflict was short-lived. But, as Jack recalls, "the situation changed" soon afterwards. Indeed, between US cruise missile attacks in 1993 and the unceremonious ousting of UN weapons inspectors years later, Jack witnessed a key market evaporate. "Meatco lost its main export market," he recalls. Unprofitable poultry operations were shuttered and Meatco's diversification blueprints would be pored over once again.

Small market, big competition
By then George was heading up Meatco's trading operations. Jack's daughter, Dina, a business graduate from George Washington University, had been aboard since 1984 running Meatco's canned food business and turning her hand to the firm's promising joint venture with Best Foods, makers of Knorr soups and Mazola, one of America's most recognised corn oil brands. Muna, Jack's other daughter, had entered the fray in 1985 to manage government tenders and head up exports for Best Foods Jordan.

But the first Gulf war had brought economic stagnation and popular support – largely from Jordanians of Palestinian origin – for Saddam Hussein. Ensuring the survival of the family business would concentrate the minds of the Khayyat clan.

Having all but lost the important Iraqi market, Meatco threw itself into its joint venture with Best Foods, producing soups and corn oil for the domestic market. "The Jordanian market at that time was dominated by Maggie (Nestle) and in two years Knorr became the leader," recalls Jack with pride. But the fickle finger or fate would tap the family business in 2000 when Unilever, the Anglo-Dutch food and consumer products giant, announced its intention to snap up Best Foods in a transaction that would exceed $20 billion. By 2001 the merger had accelerated. Best Foods' operations were duly consolidated with Unilever closing a unit in Jordan and shifting operations to Egypt. Egypt was the larger market. Best Foods' decision simply boiled down to economies of scale. "When you're placed in a market with a large population, your local market plays a big role in expansion – exports are bonus," he reasons. "When you're placed in a small, local market the opposite applies and you start relying on exports that face severe competition from international companies; consequently our food manufacturing unit was closed in 2002."

Moving into real estate
But as Alexander Graham Bell once said: "When one door closes another door opens." Jack couldn't agree more. "Survival in a small market, in a politically unstable area, is not easy but it provides incentives to look for opportunities." Such reasoning is probably why Meatco is around today, turning over a tidy $8 million a year with 70 employees. There are other reasons. Having morphed from an agriculture and agro-related products company to a real estate development concern meant opportunities needed to arise, and be exploited.

Enter the Qualified Industrial Zone (QIZ). QIZs are special trading areas that encourage inward investment through hefty tax breaks on exports. Although Jordan is an old hand at the 'free zone' concept,  having set up special trade zones as far back as 1973, the QIZ actually turns the free zone concept on its head by giving manufacturers duty-free and quota-free access to the US market, rather than providing a duty-free zone within the country. Developed to encourage Jordanian-Israeli business co-operation in the wake of the 1994 peace treaty, the QIZ concept offers some unique features. "The first qualified zone in Jordan was granted to a government-owned industrial estate," recalls Jack. "The concept attracted textile and garment manufacturers from Asia and Southeast Asia that saw the opportunity to start manufacturing in Jordan, thus saving on the quotas and duties and making their landed price in the US more economical."

By 2000 the zones were attracting strong attention from US, Israeli and, increasingly, Southeast Asian investors. The first QIZs were at the state-owned Jordan Industrial Estates Corporation (JIEC) Hassan Industrial Estate in Irbid where four companies were producing for the US market. By 2000 around 25 companies – half of which were building factories – had signed contracts with the JIEC to operate in the zone.

For Jack and family, QIZs were a "golden opportunity". Meatco already owned a large tract of land which could be converted into an industrial park once the basic infrastructure was in place. The family business submitted a request to the government seeking permission to re-purpose the land as a QIZ. "In the meantime, before obtaining approval, Meatco started developing the infrastructure by opening roads, parcelling the land and ensuring access to water and electricity," says Jack. In 2001 Meatco was given the approval it sought. Jordan's first privately-held industrial park was a reality. Things were looking up. Only weeks later, King Adbullah and presidents Bashar al-Assad of Syria and Hosni Mubarak of Egypt inaugurated a $300 million electricity line linking the grids of the three countries.

Meatco began pitching its QIZ to dozens of garment manufacturers throughout the eastern hemisphere. In a series of trips and seminars, and in destinations as far-flung as Taiwan, China and Bangladesh, the company touted the enviable benefits of exporting duty-free from Jordan into an insatiable US market. Despite the Middle East's unpredictable political comportment, 1994's peace dividend looked a tidy sum. "We were able to attract 18 large garment companies that have already established their manufacturing facilities at Ad-Dulayl Industrial Park," says Jack with a flourish. "These companies now employ 8,000 labourers, and last year exports to the US from our park reached $93 million."

Jack expects employment to reach 12,000 this year with exports in the vicinity of $150 million. The semi-desert land that has been converted into an industrial park and has changed the lives of many. Once jobless, agricultural workers now have work. Living standards, says Jack, are also on the up.

Moving towards expansion
What of the future? "We are increasing the services provided at our park by building factories, dormitories and providing catering for the employees," says Jack. "We expect the number of factories to triple in the coming few years." Meanwhile, Jack, George and Dina now manage the industrial park as a team. The man from Jaffa done good.