Interview: Henry Azzam
To what extent can the government balance deficit cuts with maintaining a social support system?
HENRY AZZAM: Jordan has tried to beef up the public sector to absorb the high level of unemployment, but this has failed to yield the desired results. The most important driver for the economy moving forward should be the private sector. Businesses need to step in, regain con-fidence and increase their investments in the country to create more employment opportunities. For this to happen there must be a certain level of macroeco-nomic stability. The private sector wants to see infla-tion under control, supported by sound fiscal policies.
The best thing the government can do is to provide macroeconomic stability and manage people’s expec-tations that conditions will continue to improve. By putting the budget deficit on a declining trend, the government would send a clear message to market participants that imbalances are being addressed. The government must reduce current expenditures, espe-cially wages and subsidies, and use the financial aid that the country is receiving from abroad to build the nec-essary infrastructure. This will undoubtedly encourage the private sector to invest more.
How would you describe the fund’s balance between local investments versus participation in regional and international investment schemes?
AZZAM: So far, a very small proportion of our assets are invested internationally. Hickma Pharmaceuticals is the main investment we have abroad; it is a Jordan-ian company and was originally listed on the Amman Stock Exchange but has since been listed on the Lon-don Stock Exchange. In principal, we have the approval to invest up to 9% of our assets internationally. This should help the Fund reduce risk not only by sector and company, but also by country.
We are allowed to start looking for international investments, but we need the approval of the Central Bank for this, in order to not put pressure on the for-eign exchange and reserves of the country. That said, there are promising investment opportunities in Jor-dan, be it in new projects or in the local bond or stock markets. Over the last 10 years, the average annual rate of return on the Fund’s portfolio was 8.7%, which com-pares favourably with other pension funds worldwide.
What segments of the economy present the most potential for long-term return on investment?
AZZAM: Jordan is a country that imports more than 95% of its energy resources and is the poorest coun-try in the region in terms of water resources. Any invest-ment directed at enhancing energy availability or water security would likely have a good return. There are ample opportunities for infrastructure development within these sectors, and over the long term clean energy, solar and water desalination investments are likely to bring a solid return on investment.
In addition to resource opportunities, there is a need for investment in education, both formal and voca-tional. The majority of Jordan’s population is second-ary-school age, and the country needs to be ready for when these students graduate from high school and start going to university. Other sectors targeted by the SSIF include health, insurance and mining.
What level of interest is there among Jordanians for subscribing to social security investment schemes?
AZZAM: Anyone who is employed, by law, must con-tribute to the pension scheme. Now, however, we are noticing that the self-employed and Jordanians work-ing abroad are showing increasing interest in subscrib-ing to the social security scheme.
Despite the slowdown in the economy, contribution levels to the scheme have actually been on an upward trend. In 2013 the SSIF is expected to receive over JD350m ($492m) as net contribution from pensioners, and this figure will be on the rise in the coming few years. Jordan’s stability and economic viability have played an important role in securing more widespread participation in the national social security scheme.
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