The Report: Jordan 2014

Economy

The IMF has forecast Jordan’s GDP to expand by 3.5% in 2014 and the government remains committed to tackling long term structural issues in the economy including reducing the fiscal deficit. The role of the private sector is being boosted, particularly with regard to government support for SMEs. Stronger economic ties with Iraq have led to proposals for a Basra-Aqaba pipeline and this, along with the completion of the Aqaba liquefied gas facility next year, is expected to help address the kingdom’s heavy reliance on energy imports. Jordan’s membership in the Greater Arab Free Trade Area offers local companies advantageous access to 17 markets across the Middle East and North Africa, while free trade agreements with countries further afield such as Singapore and Canada offer global opportunities.

This chapter contains interviews with Umayya Toukan, Minister of Finance; Ibrahim Saif, Minister of Planning and International Cooperation; and Awni Rushoud, Investment Commissioner, Investment Commission.

Banking

Jordan’s banking sector, with its diverse array of financial institutions, continued to perform robustly over the past year. In the first half of 2013 non-performing loans dropped to their lowest level since 2009 while the Islamic financial services segment has continued to grow, increasingly seeking out business from small and medium-sized enterprises as well as from the retail sector. In May 2014 the Central Bank of Jordan issued a new set of instructions in line with Basel III standards aimed at ensuring responsible corporate governance within the sector.

This chapter contains interviews with Ziad Fariz, Governor, Central Bank of Jordan; and Nemeh Sabbagh, CEO, Arab Bank.

Capital Markets

After the turbulence of recent years, indicators are positive for Jordan’s capital markets. The Amman Stock Exchange (ASE) Free Float Index showed a 5% year-on-year increase in 2013, while the value of traded shares reached JD3bn ($4.2bn) in 2013, up from JD2bn ($2.82bn) in 2012. The ASE, with its total of 237 listed companies, reflects the diversity of Jordan’s economy. The recent coordination of the Jordan Securities Commission and the European Bank for Reconstruction and Development in drawing up a list of reforms is seen as a step towards increasing investor confidence and boosting foreign investment. The ASE has also taken other steps to increase foreign investment, most notably with the signing of a memorandum of understanding with the Cyprus Stock Exchange in 2012.

This chapter contains an interview with Tarik Awad, CEO, Capital Investments.

Insurance

The growth of Jordan’s insurance industry reflects the maturation of the nation’s economy since independence in 1946. While the industry showed resilience during the global economic crisis, posting a rise in gross written premiums (GWPs) from 2008-09, competition within the sector is high. With 27 companies currently operating, achieving sustained profitability is a challenge for many of the smaller companies. The sector is dominated by the motor segment which in 2013 made up 40.8% of GWPs. Potential growth areas include the sharia compliant, or takaful, segment which has had considerable success across the GCC but currently accounts for a modest 7.9% of the market in Jordan. Moving forward, the pending dissolution of the Insurance Commission is set to dominate discussion within the industry, given the very central role that regulators play in developing the insurance sector across the region.

Energy

Population increases and a growing economy look set to intensify demand on energy resources in Jordan over the coming years. In response, the government has put in place an energy plan that will focus on maximising the use of domestic resources, particularly oil shale; encouraging energy conservation and awareness; generating electricity from nuclear energy; and promoting the development of renewable energy projects. While driving diversification and the development of domestic energy sources, the plan will also reduce the kingdom’s reliance on energy imports, which stood at 97% of energy needs in 2011, and allow Jordan to stabilise prices and supply streams in times of regional turbulence.

This chapter contains an interview with Mohammad Hamed, Minister of Energy and Mineral Resources.

Transport

Jordan’s transport sector remains a major source of employment, currently providing jobs for approximately 10% of the county’s workforce. While the volatility of energy supplies, particularly natural gas from Egypt since 2011, continues to pose a challenge to the sector, plans for a new national rail network, including a line connecting Iraq with the Port of Aqaba, hope to address this. Moreover, the national railway project will allow Jordan to remain competitive in Iraqi transport markets while also boosting tourism to the kingdom. King Hussein International Airport in Aqaba recently unveiled a new arrivals wing which, along with the port complex, is part of a wider tourism push that is driving local economic activity.

This chapter contains an interview with Kjeld Binger, CEO, Airport International Group.

Construction

The construction sector saw renewed growth in 2013 with forecasts for continued expansion in 2014. Loans extended in 2013 reached $5.76bn, accounting for 21.5% of credit to all industries. While housing accounted for the bulk of construction activity, several major real estate and tourism development projects are driving opportunities for large contractors, particularly in the Red Sea port of Aqaba. Meanwhile in the capital, Amman, the downtown area of Abdali has been the focus of major redevelopment projects, including commercial space, retail facilities and residential units at a total investment cost of $5bn.

This chapter contains an interview with Taha Al Zboun, CEO, Dead Sea Development Zone.

Industry & Retail

Industry is one of the mainstays of the Jordanian economy with the sector producing roughly one fifth of the country’s GDP and employing around one tenth of Jordanians. The success of Jordan’s current strategy to build higher-value-added industries is reflected in the pharmaceutical sector, which has leveraged both the high standard of human resources in the country and the availability of local feedstocks to establish Jordan as a regional leader in the field. The retail sector has undergone a change in recent years with the arrival of global-quality shopping malls. However the pattern of shopping in outdoor markets or in family-owned mixed retail shops has remained largely unchanged, with Jordan’s top five organised retail brands accounting for just 5% of the market. In e-commerce, Jordan has jumped ahead thanks to the kingdom’s advantage in educated human capital, and the market looks set to be worth more than $2bn by 2016.

This chapter contains an interview with Hatem Al Halawani, Minister of Trade and Industry.

Tourism

Tourism accounts for 14% of Jordan’s GDP, with receipts in 2014 up 10% year-on-year. Efforts are under way to diversify Jordan’s tourism offerings with an emphasis being placed on religious tourism, aimed particularly at visitors from East Asia, while Jordan’s medical infrastructure remains one of the country’s most valuable tourism assets with the World Bank ranking Jordan the top medical tourism destination in the Middle East and fifth in the world in 2011. Adventure and eco-tourism is also on the rise, as part of the kingdom’s wider push to attract younger visitors. Meanwhile, new luxury developments in the Gulf of Aqaba and the Dead Sea demonstrate Jordan’s intention of establishing itself as a major holiday destination in the region.

This chapter contains an interview with Nidal Katamine, Minister of Tourism and Antiquities.

Telecoms & IT

ICT is one of Jordan’s fastest growing industries and penetration rates for internet and mobile phones remain high. Strong growth was recorded in 2013 in data services and smartphone sales, with 38% of the country’s mobile phone users owning a smartphone. The tech start-up sector is a leader in the Middle East but, while Jordan has been able to produce a large, skilled IT workforce, it has faced a problem of brain drain to more lucrative markets in the past. In an effort to combat this, on-the-job training initiatives and government subsidised-programmes have been put in place to help retain the local IT workforce. Moreover, the success of tech start-ups like social media platform Sowt is encouraging many young IT professionals to put their skills to use at home

This chapter contains an interview with Azzam Sleit, Minister of Information, Communications and Technologies.

Health

Jordan’s health care spending as a proportion of GDP was 9.8% in 2012, a high figure by regional standards. Just over 40% of the population has health coverage from the Civil Health Insurance Programme, while 27% have military-provided insurance. Currently, private health coverage stands at 9% but the sector is witnessing a wave of expansion driven by the need for additional capacity. Meanwhile, Jordan’s medical tourism sector continues to grow making Jordan the leading medical tourism destination in the Middle East with around 255,000 patients coming for treatment in 2013, up from 240,000 in 2012 and 180,000 in 2009.

Education

Jordan has both a private and a public school system. Of the 6355 schools operating in the 2012/13 academic year, 3582 were state schools and 2600 were private. In the tertiary education sector there are currently 10 public and 19 private universities. Foreign enrolment remains high at the kingdom’s universities, with foreign students accounting for around 11% of undergraduates in the 2012/13 academic year. The largest source of foreign students is Palestine, followed by Iraq, Syria, and then Saudi Arabia. The Ministry of Education has made entrepreneurship education a key focus and this has resulted in dedicated courses and business incubators being established at universities. Meanwhile, an emphasis on research and development aims to boost innovation in the energy and water sectors, and also in pharmaceuticals, analysis of biological materials and organic fine chemistry.

Tax

This chapter contains an overview of the tax framework in which local and foreign investors operate including an introduction to a new investment law aimed at improving tax governance, an examination of the various treaties that have been established with partner countries and a breakdown of general sales tax and special sales tax.

This chapter contains a viewpoint from Ali Samara, Partner, EY Jordan.

Legal Framework

This chapter contains an outline of the legal framework in which local and foreign investors operate including an examination of the approval criteria for real estate and property transactions in Jordan and a breakdown of the first Islamic Finance Sukuk Law, enacted in late 2012, which addresses the issuance of sukuk (sharia-compliant bonds) of all forms.

The Guide

The guide contains listings of some of the leading hotels and resorts in Jordan and contacts for important government offices and services. It also contains useful tips and information for business and leisure visitors alike.

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