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The Report: Jordan 2012

Amid the regional turbulence caused by the Arab Spring, Jordan has navigated a steady course. This is a key advantage that the kingdom offers to foreign investors, who continue to regard the country as a strong base for targeting growth markets in the region and who are stepping up their involvement in core domestic industries such as energy, health care and information technology. This stability, along with the country’s culture of tolerance and openness, is also a point of attraction for tourists, who flock to Amman, Petra, Wadi Rum and Aqaba in impressive numbers. While the government continues to pursue a programme of energy diversification, rising budget deficits and a severe lack of natural resources remain pressing issues. However, these challenges also present new opportunities for growth, and with the broader economy returning to strength, Jordan is well placed to carve a niche for itself as a strategic regional player.

Country Profile

Includes information about Jordan’s geography, climate, population and demographics. The chapter also provides an overview of the kingdom’s natural resources, politics and government.

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Politics

The kingdom faced a number of major political and economic challenges in 2011, including high unemployment, rising inflation and a $2bn budget deficit. Furthermore, like many other countries in the Middle East, Jordan is currently in the midst of a series of potentially transformative political reforms brought about by the Arab Spring protests in early 2011. Unlike many of its neighbours, however, Jordan has remained relatively stable, both politically and socially. Moreover, Jordan’s strategic regional importance is becoming increasingly evident. The Gulf economies stand to benefit substantially from Jordan’s close trade and political relationships with leading Western economies. The kingdom’s free trade agreement with the US, for example, could potentially be used as a conduit to boost Gulf exports to the lucrative American market. This chapter includes a viewpoint with King Abdullah II; Nouri Al Maliki, the Prime Minister of Iraq; and John Kerry, US Senator and Chairman of the Senate Foreign Relations Committee.

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Economy

As the economy faces short-term challenges of low growth and a tight fiscal position, preparation is under way to support long-term recovery and lay foundations for the encouragement of investment as new sectors open up, notably in infrastructure and energy. Jordan faces several short-term challenges it must overcome to lay the foundations for when growth is expected to pick up from 2013. It must secure cheaper energy through an agreement with Egypt for regular supplies of gas and must reform subsidies to reduce non-productive expenditure and instead boost spending on education and infrastructure. If 2012 looks to be a year for scoping out investment opportunities and laying foundations for the future, 2013 should see the start of several new large-scale development projects and a return to stronger economic growth. This chapter includes interviews with Awni Al Rushoud, Acting CEO of the Jordan Investment Board; Maen Nsour, Director-General of the Social Security Corporation; and Umayya Toukan, Minister of Finance.

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Banking

Jordan’s banking sector emerged from the global economic crisis in good health, providing much needed economic stability throughout 2011. Of the 17 banks that had declared year-end results for 2011 by March 2012, all reported positive net profits, and sum profit across these banks increased by nearly 25% on 2010. While the sector faces challenges in the form of increasing rates of non-performing loans, criticism for not doing enough to provide credit to small businesses, and a competitive marketplace, banks largely remain profitable with low exposure to risk. The banking sector is well placed to underpin economic recovery and return the country to healthy levels of growth. This chapter includes an interview with Ziad Fariz, Governor of the Central Bank of Jordan; and Kholoud Saqqaf, Executive Vice President of Arab Bank. The chapter also includes a roundtable with Tarek Akel, CEO of Al Rajhi Bank; Iyad Ghasoub Asali, General Manager of the Islamic International Arab Bank; Sami Al Afghani, CEO of the Jordan Dubai Islamic Bank; and Musa Shihadeh, Vice-Chairman and CEO of the Jordan Islamic Bank.

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Capital Markets

Following four difficult years, 2012 looks set to be a turning point for the stock exchange as institutions and investors ready themselves for a stronger climate of investment and growth. In 2011, Jordan’s capital markets continued to suffer from wider regional and domestic events as investors’ fears were stoked by low economic growth, a tightening of fiscal spending and high interest rates. More positively, the year witnessed an increase in the share of foreign investment, from 49.6% in 2010 to 51.3% in 2011. There is a sense that many of the blue chip stocks with solid results remain undervalued, indicating prices are being affected by low investor confidence rather than fundamental concerns. Exchange regulators, for their part, are looking to encourage the specialisation of investment products and create a more sophisticated investment environment. This chapter includes an interview with Samir Jaradat, CEO of the Securities Depository Centre; and Adel Kasaji, CEO of AB Invest.

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Insurance

The country’s insurance sector is continuing to see steady growth despite difficult economic conditions and the burden of underwriting unprofitable motor insurance. In 2011 demand increased across all segments, particularly medical, fire and life. Indeed, the life insurance segment is seen as having one of the highest potentials for growth, due to its relatively low penetration compared to other products. Takaful uptake is also expected to see expansion, due to increased public interest in sharia-compliant models. However, the market for health insurance has seen lower profits, due to rising costs and increasing competition forcing a reduction in premiums. This chapter includes an interview with Othman M Bdeir, Chairman of the Jordan Insurance Federation.

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Transport

The transport sector accounts for around 12% of GDP and 10% of the country’s workforce, according to figures cited by the Ministry of Planning and International Cooperation in January 2012. The sector has traditionally been dominated by road infrastructure, with Aqaba’s seaport and air transport also playing an important role. The rail system is less developed, though the government is moving ahead with plans to expand and modernise rail networks. In aviation, extensive improvement plans are under way at two of the major airports. Furthermore, measures are now being taken to update Jordan’s transport legislation. This chapter includes an interview with Ibrahim Naouri, Chairman of the Naouri Group; and Kjeld Binger, CEO of the Airport International Group.

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Energy

Unlike many of its neighbours, Jordan does not benefit from large hydrocarbons reserves. Consequently, around 96% of Jordan’s energy is imported, which costs as much as 20% of GDP on an annual basis. Spending on oil imports increased by 80% in January 2012 year-on-year, and this follows a 58% increase in spending between 2010 and 2011. To reduce dependence on foreign imports, policy makers are continuing to pursue an energy diversification strategy as a matter of urgency, focusing on new sources of natural gas in the short term, as new private-sector proposals in oil shale, nuclear and renewables come to fruition. This chapter includes interviews with Qutaibah Abu Qura, Minister of Energy and Mineral Resources; Mike Weightman, Chairman of the Regulatory Cooperation Forum; and Christopher Morgan, Chairman of Karak International Oil.

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Industry and Retail

Jordanian manufacturers continue to make up a sizeable slice of the country’s GDP. According to the Central Bank, in the first three quarters of 2011 the manufacturing sector made up 20.3% of GDP, expanding by 4.1% on the same period in 2010. Despite the political unrest that overtook much of the Middle East in 2011, Jordanian exports proved surprisingly resilient, both within the region and further afield, and are being encouraged by free trade agreements (FTAs). A number of FTAs have come into effect in recent years, including one with the US, the kingdom’s primary clothing export market. Foreign investment may continue to be deterred by regional uncertainty, although the first two months of 2012 saw a notable increase in investor interest. Going forward, the phosphate and potash industries, as well as fertiliser manufacturers, look set to continue on a path of strong growth. This chapter includes interviews with Hatem Halawani, Chairman of the Jordan Chamber of Industry; and Bashar Arafeh, Director and CEO at ePoints.

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Aqaba

The town of Aqaba and the short strip of coast on which it lies represent Jordan’s only access to the sea. This makes Aqaba a strategic location for a range of sectors in the economy, including transport, logistics and industry. Aqaba is also a premier tourism destination, boasting the highest number of hotel nights outside of the capital. Furthermore, its tourism capacity is set to be expanded by three real estate mega-projects, namely the Ayla, Saraya and Marsa Zayed developments. The projects will see numerous hotels and residential units built, as well as the extension of the coastline. However, as in the rest of the country, the local tourism sector has recently been negatively affected by regional instability and the eurozone crisis. Development and growth will continue to depend on this and other external factors such as the national economy, the regional real estate market, and the political and security situation in neighbouring countries. This chapter includes an interview with Nasser Madadha, Chief Commissioner of Aqaba Special Economic Zone Authority; and Chairman of the Board of the Aqaba Development Corporation.

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Construction & Real Estate

Although 2011 was a difficult year for the industry, the construction and real estate sector displayed encouraging signs of a rebound. This was especially the case in the residential construction segment, which saw strong demand, boosted by mechanisms such as government exemptions on property registration fees. However, fiscal constraints that were the result of the global and regional economic slowdown have led to tighter government budgets and delays in payments for commissioned projects. More positively, Jordan is benefitting from collaboration with Saudi Arabian, which has allocated funds for development projects and the hiring of several local contractors. This collaboration is further evidence that Jordan stands out in the wider Middle East for its relatively efficient and quick construction licensing and permit process, which requires roughly half the time as neighbouring countries. This chapter includes interviews with Yahya Kisbi, Minister of Public Works and Housing; and Yousef Al Nowais, Managing Director at Al Maabar.

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IT & Telecoms

Well-educated IT graduates and low operational costs mean that Jordan is emerging as a key regional IT centre. Indeed, part of the country’s appeal for foreign ICT firms looking to relocate is its workforce, which tends to relatively inexpensive. Moreover, driven by new technologies, rapidly rising domestic internet penetration is boosting the segment. In 2011 a rapid uptake of mobile broadband helped contribute to a significant increase in access to the internet. Information and communications technology has, in turn, become a key element of the economy, accounting for 14% of GDP. Going forward, planned regulatory changes are set to boost the domestic market as the kingdom cements its reputation as a regional centre for content and software development. This chapter includes interviews with Basem Rousan, Minister of Information and Communications Technology; Abdelmajeed Shamlawi, CEO of the Information and Communications Technology Association of Jordan; Usama Fayyad, Executive Chairman of OASIS 500; and John Chambers, Chairman and CEO of Cisco.

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Tourism

Tourism is a crucial element of the economy, accounting for 14% of GDP in 2010. Petra remains the country’s major tourist attraction, with 459,629 visitors to the site in the first nine months of 2011. However, the tourist industry was hit hard by regional unrest in early 2011, and many joint package trips to Jordan and neighbouring countries were cancelled. Economic woes in parts of Europe have also contributed to a drop in visitors. Nevertheless, there are some signs of recovery and efforts continue to develop the sector, which benefits from the diversity of the country and the wide range of tourism products on offer in a relatively small area. This chapter includes an interview with Nayef Al Fayez, Minister of Tourism and Antiquities.

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Education

With nearly universal levels of basic education and the majority of graduates enrolling in a university, Jordan was ranked fourth in the Middle East and North Africa on the Education Index of the UNDP. Furthermore, the kingdom’s top public universities are ranked among the best in the region, and have been rising in international rankings as well. Jordan is also host to several foreign universities and is attracting an increasing number of international students. However, challenges remain. Public sector salaries for teachers are an issue, with complaints over wages leading to a three-week strike in early 2012. Moreover, ensuring the employability of university students is a priority as graduate unemployment rates rose to 16.2% in 2009, up from 12% in 2008. A number of initiatives are underway to bridge the gap from education to employment. This chapter includes an interview with Professor Labib Khadra, President of the German-Jordanian University.

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Health

With one of the best health care sectors in the Middle East, Jordan is the regional leader for medical tourism. The Ministry of Health (MoH) is working to boost efficiency and reduce wasted expenditure through initiatives such as the development of an e-health platform. This will provide an electronic platform for the storage, retrieval and updating of electronic health records, and will be rolled out across the kingdom’s public health facilities. Another key focus is the expansion of health insurance, with plans in place for everyone in the country to be covered within the next 5-10 years. Lastly, with the country needing more qualified medical staff to meet demand, the government is making efforts to train and recruit new doctors and nurses. This chapter includes interviews with Dr Awni Al Bashir, President of the Private Hospitals Association; and Raed Shadfan, CEO of Atlas Medical.

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Agriculture & Water

Making up more than 15% of its exports – up from 12.7% in 2007 – the agricultural sector in Jordan is small but strong. Produce makes up the majority of exports, with livestock farming also playing a significant role locally and abroad. In particular, Jordan has the potential to increase its exports to the European market. Although few Jordanian companies are currently certified to export to the EU, the number that are is expected to grow. At the same time however, demand in Syria for Jordanian produce declined in 2011, and Iraq has banned imports of Jordanian vegetables, claiming that its local production was sufficient. More positively, recent moves by Saudi Arabia to allow Jordanian produce imports provide new opportunities in the sector. Lastly, in an effort to boost its agricultural sector and improve access to water, Jordan has developed strategies to alleviate the water burden; wastewater treatment and water desalination are among the solutions. This chapter includes an interview with Mousa Al Jamaani, Minister of Water and Irrigation; and Jean Louis Chaussade, CEO of Suez Environnement.

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Media & Advertising

The state plays a central role in the Jordanian media industry, operating three of the country’s major TV channels and owning several newspaper publishers. However, private schemes flourish as well and operate most of the radio stations in the kingdom. Television is the dominant form of media by audience, but the local television industry remains weak compared with pan-Arab and regional stations. This dominance is arguably now under threat: Jordan has seen internet penetration rise rapidly in recent years, which has translated into a boom in online media consumption. Moreover, this has been aided by the proliferation of 3G networks that bring internet connectivity to mobile devices. Going forward, the future profitability of the sector will depend heavily on the fortunes of the advertising market, which, in turn, will depend on the performance of the broader economy. This chapter includes an interview with Yousef Shamoun, CEO and Co-Founder of Akhtaboot.

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Tax

With Ernst & Young, OBG looks at some of Jordan’s significant economic reforms, many of which were designed to stimulate growth and increase the flow of foreign direct investment into the country. In addition to details of corporate and personal income tax, this chapter includes a viewpoint with Bishr Baker, Managing Partner at Ernst & Young, Jordan and Iraq.

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Legal Framework

Along with Ali Sharif Zu’bi Advocates and Legal Consultants, OBG reviews the kingdom’s legal framework and the various structures and incentives established to help foreign companies. This chapter includes an interview with Khaled Asfour, Managing Partner at Ali Sharif Zu’bi Advocates and Legal Consultants.

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The Guide

This section features an article on Petra, which is widely regarded as the crown jewel of Jordanian tourism. The chapter also includes a listing of the country’s leading hotels and resorts, as well as useful telephone numbers and facts for visitors, including information about language, weather, visas, currency and more.

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Table of Contents

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