Speech Given By Peter Grimsditch At The Report: Jordan 2011 Launch

JordanEconomy

Event

17 Oct 2011
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Your Excellency, ladies and gentlemen, I would like to welcome you to the press launch of Oxford Business Group’s new publication on the Kingdom’s economy, The Report: Jordan 2011.

We have been studying Jordan for the past ten years and each Report takes us around seven to eight months of on-the-ground research. In fact, were it not for the invaluable help we get from people like our research partners at the Jordan Investment Board, the Amman Chamber of Commerce, Ernst and Young and Al Sharif Zu’bi Advocates and Legal Consultants as well as active collaboration from institutions such as Arab Bank and AB Invest, it would take even longer.  To all of you, heartfelt thanks from myself and the whole of the OBG team.

Before talking about our findings in The Report, I’d like first to gaze into a crystal ball and look at the possibilities afforded by what could be one of the most exciting developments in Jordan’s entire economic history – potential membership of the Gulf Cooperation Council.

For a moderate country Jordan has a surprising number of extremes. It is extremely short of water and energy resources. It is extremely rich in brains, innovation, history – and some minerals. Membership of the GCC can solve Jordan’s energy problem at a stroke. Most of the GCC has a lot of fossil fuel energy and could afford to supply a proportion of the Kingdom’s needs at subsidised rates. And this is really nothing dramatic or new. Jordan had a similar understanding with Iraq for years and years and years.

In the other direction, the well trained and well educated Jordanian labour force, especially in the areas of medicine, pharmaceuticals, mining and IT should be welcomed with open arms by existing GCC industries. You produce more IT graduates than you can find jobs for. Gulf countries are sometimes held back from expanding IT services by, inter alia, a shortage of suitably skilled labour.

Of course it won’t be as easy or as simplistic as that. Gulf countries too – like Jordan – have young populations and a need to create jobs for their own people. Nevertheless I am convinced that some degree of increased political and economic cooperation between Jordan and the GCC is on the cards. The big imponderable is when.

There is already a lot to build on. Last year, bilateral trade between Jordan and the six-state bloc was worth more than $5 billion. The GCC bought just under a fifth of Jordan's entire exports and supplied almost a quarter of its imports. 

Foreign direct investment (FDI) in Jordan is another important and well-established factor in the relationship. In the past three years alone, Saudi Arabia has invested $4 billion in Jordan. And I say with a smile of gratitude that these figures come from the Jordan Investment Board. 

But it is not just the Saudis who see Jordan as a good place to do business. According to the UAE Ministry of Foreign Trade, UAE investment in Jordan is around $15 billion and the Kuwaitis have around half that figure. This is big money and represents a huge vote of confidence.

The persistent, stubborn and unwelcome big number is the level of unemployment. Last year, it was around 12% and estimates by the IMF forecast only a slight drop to 11.5% for 2011. However, closer trading ties with an enhanced GCC would benefit the Jordanian economy and as that growth happens so we can expect the level of unemployment to drop. Those Jordanians tempted to work in the Gulf will be contributing to the economy of their home country by sending remittances, which even now are the equivalent of 9% of GDP.

GCC membership would not be a one-way street merely bringing benefits to Jordan. Jordanian membership would also add potential benefits to the GCC, like its close association with the US and European Union and free trade agreements with major countries – such as the US and EU themselves, as well as Canada, Egypt, Malaysia, Morocco and Singapore.

That’s the future. Let me turn briefly to the present and the immediate past and highlight just a few of our findings in this latest Report.

Along with the rest of the region, Jordan staged a convincing recovery in 2010 expanding by 3.4%, a figure that should be maintained, give or take a little, for this year and probably rise for 2012. However, those same strong ties to the US and EU that bring prosperity in good times also make Jordan vulnerable to volatility in Europe and the US in bad times. I’m sure I don’t need to spell out for you the woes in either of those two places, which are dampening investor appetite and putting pressure on trade and tourism.

The fortunes of mining sector in particular will determine Jordan’s economic performance in 2012. Last year’s recovery from the disastrous plummet in activity of 2009 was truly remarkable. Prices for key export commodities – phosphate and potash – may well be volatile but we think overall levels support healthy earnings and relatively healthy public revenues.

Investor confidence has yet to return to some key domestic sectors such as construction and retail – but there is nothing surprising or particularly worrying for Jordan in that regard. Construction is usually among the last to recover and infrastructure projects will help anyway, especially those included in the three-year Executive Development Programme.

However, in the tourism sector, we also believe that revenues are going to stabilize in 2012 following 12.5% slump at the beginning of 2011.

Much of the credit for this success can be attributed to the substantial drawing power of its star attractions of Petra, the Dead Sea and Aqaba, but Jordan is promoting other tourist opportunities as well. These include the country’s diverse religious sites, adventure tourism, ecotourism, and “voluntourism.” The sector accounts for approximately 13% of GDP, and is the country’s largest employer, providing work for more than 42,000 people.

 The Arab Spring has thrown a spanner into the sector’s works, however, with visitors worried about the Kingdom’s stability and package tourists cancelling tours that involved Egypt. In times of trouble, the whole region tends to be painted in faraway countries, with the same black brush. Jordan is not Tunisia, it is not Libya, it is not Egypt. As the region returns to stability, so Jordan will benefit with growth in areas like ecotourism, especially to places like Wadi Rum, which saw 60% growth in 2010. And I know from our own detailed studies outside The Report on developing hotels – and possibly more importantly other leisure facilities – in the Dead Sea area, that there is much thought going on into lengthening the average stay of visitors in that area.

On business environment, OBG welcomes the draft Investment Law, which is set to make it easier to set up businesses, open more sectors to foreign investment and remove the local partner requirement. When implemented, it should justifiably improve Jordan’s rankings in the World Bank’s “Ease of Doing Business” report.

This will help rally investor interest with Jordan retaining an advantage as a stable investment destination in an otherwise turbulent region. And among the most important provisions will be the switch from a “positive list” of investment opportunities to a small “negative list” of places that are off limits to foreign investment. In other words, everything is open except a few specified areas.

Foreign Direct Investment (FDI) flows will benefit from a JD2.6 billion ($8.8 billion) Executive Development Programme (EDP) for 2011-13, focusing on infrastructure, water, housing, and transportation projects, as well as social welfare and education.

Limited state funding means that the programme will rely partly on public-private partnerships, particularly for large projects such as the National Railway Network. Going forward, Jordan’s Investment Board is focused on promoting ICTs, pharmaceuticals, tourism, and energy, particularly in the renewables subsector.

One of Jordan’s key advantages coming in and out of the most recent economic downturn was domestic banking sector stability. Challenges however remain in improving funding access for Small and Medium Enterprises as well as agribusinesses.

This is slowing down the process of transformation of both the economy as well as the agricultural sector. Jordan continues to face the need to introduce new farming techniques to conserve its dwindling water resources.

Groundwater is being extracted at about double its recharge rate, and lack of awareness of water scarcity is compounded by subsidies. Whatever happened to that grand Turkish plan in the 1980s when the then Prime Minister Turgut Ozal had the idea of piping water through the Middle East as part of an overall design to bring “peace for water”?

There are many other areas I could mention but it would be remiss not to add two more final observations.

Jordan is in the final year of a strategic three-year plan announced by the Ministry of Transportation, which would see upgrades to the nation’s air, sea, road, and rail systems. Queen Alia International Airport, which handled 5.4 million passengers in 2010, up 13.7% from the 4.77 million recorded in 2009, is stretched and needs extra capacity.

Its two terminals will be replaced by a single, 100,000-sq-metre facility that will open in 2012 and will be able to accommodate 9 million passengers. Deregulation and growing traffic has enabled low-cost carriers like Air Arabia and EasyJet to open services to Amman, with the obvious increased potential for tourism.

Jordan’s 25-year, $1.8 billion project extending its road network is in its 9th year, with major projects like the Irbid and Amman ring roads already underway. And there are long-term plans to develop a national rail system, which will link to services from the Gulf to Iraq and maybe onto Turkey and Europe.

Finally, one of the jewels in Jordan’s crown. The ICT sector is one of the fastest-growing parts of the economy, averaging 25% expansion year-on-year. IT was responsible for $1 billion in earnings in 2010, while telecoms revenue was $1.3 billion. One key growth area is online Arabic content, where three Jordanian sites—Yahoo! Maktoob, www.d1g.com and www.jeeran.com—carry more than 75% of the total Arabic content in the region.

The government is addressing the employability issues of its 4,000-5,000 annual IT graduates with a Graduate Internship Programme, which is designed to help new graduates find jobs quickly, while also bridging the gap between academia and work.

There is a lot to be proud of in Jordan. There are many opportunities for investors. There are also problems to be overcome. We have tried in this Report to present to the wider world a balanced picture of Jordan’s potential – and by any standard it’s impressive.

Ladies and gentlemen, thank you again for your attendance and your attention. I hope our work will help you to achieve your goals.

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