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 key location for a range of sectors of the Jordanian economy, most notably tourism, transport and logistics, and industry. To encourage development, the town and surrounding areas since 2001 have been designated a special economic zone. A number of major investments, including the redevelopment of its ports and several large-scale real estate projects, are transforming Aqaba and are set to boost its status as a centre of transport and tourism.

DEVELOPMENT: The 375-sq-km Aqaba Special Economic Zone (ASEZ), centred on Aqaba and its 27 km of coastline, was launched in 2001. The ASEZ Authority (ASEZA) is responsible for regulating the zone, which is being developed by the Aqaba Development Corporation (ADC), jointly owned by the Jordanian government and ASEZA, according to a 20-year master plan running from 2001-20. The master plan aims for 50% of total investment in the zone to go into tourism development, 30% into services, 13% into heavy industry and 7% into light industry. It divides Aqaba into five areas, namely the Airport Industrial Zone, Aqaba Town, the Coral Coastal Zone, the Port Areas and the Southern Industrial Zone. Incentives for investment in the zone include a 5% flat income tax on net profits, duty-free import of goods, permission for full repatriation of profits and capital, and permission for firms to employ foreign labour for up to 70% of their workforce.

While the combination of tourism with logistics and industry in a relatively small space may seem a difficult one, officials counter that there is no other choice. “Aqaba is Jordan’s only sea front; we have to do tourism, industry and logistics there,” said Nasser Madadha, chief commissioner of ASEZA and chairman of ADC. “What we are now doing is aiming to ensure that they are properly separated by moving the main port activities away from the town centre.”

PORT: A key element of the master plan is the redevelopment and expansion of Aqaba’s ports (see Transport chapter). This redevelopment includes the construction of new facilities at the southern industrial port, around 24 km to the south of the town, near to which the operations of the existing main port will be moved. This will allow for the old port area to be devoted to real estate and tourism development projects, including construction of a cruise ship terminal. It will also see industrial activities that are arguably unsuitable for the centre of a tourism-oriented town moved out of the city.

Land preparation and the construction of infrastructure for the new port are now complete. The ADC in December 2011 signed an agreement with a consortium made up of BAM International and local firm MAG Engineering and Contracting Company for the marine works package of the new port’s development, which includes dredging and reclamation works as well as the construction of four deep-water berths of a combined length of 800 metres, to be completed within two years. According to Madadha, as of March 2012 the new phosphate terminal being built at the southern industrial port was 60% finished and likely to be complete by July, with the full transfer of operations from the old port to the new one to take place before year-end. “The redevelopment of the ports will have a positive impact on the economy in general and on the logistics sector in particular,” Ahmad Halaiqah, the general manager of Aqaba National Real Estate Project Company (ANREPCO), told OBG. “The location is more convenient and more capacity means lots of companies will need logistics services.” While past delays have fuelled concerns about progress, local observers say development of the port is under way.

Aqaba’s container port, known as Aqaba Container Terminal (ACT) and operated since 2006 under a 25-year public-private partnership contract by APM Terminals in conjunction with the state-backed ADC, is currently being expanded. Under the $235m project, which is due to be completed by the end of 2013, throughput capacity at ACT will double to 1.5m twenty-foot-equivalent units (TEUs) per year. “The expansion of the container terminal will give rise to new business opportunities in logistics and support services, and should also stimulate local logistics projects, such as ANREPCO,” Madadha told OBG. In a related development, in October 2011 the National Resources Authority announced plans to build a liquefied natural gas (LNG) terminal in Aqaba by 2013.

LOGISTICS: Local logistics projects include a logistics and light industry real estate development launched by ANREPCO, and the Aqaba Logistics Village (ALV).

ANREPCO, which is 30% owned by ADC and 70% owned by Kuwait’s National Real Estate Company, operates a warehousing and industrial estate that provides closed and open storage areas as well as space for light and medium industries. Phase one of the ANREPCO development, which has been completed at an investment cost of some $37m, represents 75% of the entire development and includes infrastructure for about 750,000 sq metres of land and 60,000 sq metres of built warehouse space. The development of 300,000 sq metres in the second phase will depend on investment in the first phase and the wider economic situation, said Halaiqah. Targeted segments of the project include light assembly, packaging and food industries. An example of a company already operating at the estate is a Kuwaiti firm that produces pre-cast concrete for the construction industry. “Light industry in Aqaba is a good fit with the port, and there is potential for imports and exports to and from Iraq, Saudi Arabia and Egypt,” Halaiqah said.

ALV grew out of a tender launched by ADC in 2005 for a container freight station (CFS) to process less-than-container loads (LCLs) outside the port. The JD70m ($98.36m) project is being developed by ALV under a 25-year build-operate-transfer contract. The 430,000-sq-metre site, which is located across from the container port and has its own gate accessing the port, is being developed in three stages. Stage one was completed in 2010 and involved the construction of a 10,000-sq-metre container handling station and a distribution centre of the same size. Development of phase two, which will add two more 10, 000-sq-metre distribution centres and a second CFS, began in 2011 and will be followed by phase three, which will last from 2014 to 2016.

PBI AQABA INDUSTRIAL ESTATE: Another major site for industry is the PBI Aqaba Industrial Estate, which is located in the airport industrial zone and comprises 170 ha of land to be developed over 30 years. The first phase of the project, which accounts for 50 ha, has been completed and is fully sold. About $160m has been invested in the project to date. PBI Aqaba is currently working on the second phase and has signed contracts with around 60 clients, of which 37 had established operations as of March 2012. Present and prospective clients include businesses active in industries such as metals and engineering, building materials, clean energy, security products, and services and logistics. In addition, the estate is currently working with a prospective client to establish a clean energy device assembly plant. “Real estate and land prices are reasonable, and while electricity prices are high compared to some regional countries, they are low compared to European countries, or to Israel or Turkey,” said Sheldon Fink, CEO of PBI Aqaba Industrial Estate, while pointing to some of the advantages for industry in Jordan and Aqaba in particular. Fink also noted that PBI Aqaba is able to sell land to its customers, whereas most other industrial zones in the region are only able to lease land.

IRAQI MARKET: In addition to driving growth in the transport and logistics sectors, Iraq also represents an opportunity for industry in Aqaba. “The Iraqi market has enormous potential,” said Fink. “In particular, we are currently seeing strong demand in Iraq for metals engineering as well as armour for civilian vehicles. Factors such as shipping costs make it more economical to assemble some goods and equipment close to their final destination, and a location at a seaport such as Aqaba makes logistical sense for assembly and solves security problems.”

SOUTHERN INDUSTRIAL ZONE: Heavy industry is concentrated at the Southern Industrial Zone and is mostly related to the fertiliser and chemical cluster. Companies from other segments such as Red Sea Timber Industries, operating the only timber plant of its kind in the region, are also active in the zone. “Aqaba is an excellent location for producers of industrial products, though the small size of the local market means containers often leave our shores empty and some of its key export markets are plagued by instability,” said the firm’s general manager, Ayman Azzeh.

TOURISM & REAL ESTATE: With Jordan’s only coastal beaches and diving reef, Aqaba is the country’s premier tourism destination. Its tourism capacity is set to be further expanded by three large-scale real estate projects that will include numerous hotels and residential units, namely the Ayla, Saraya and Marsa Zayed projects (see analysis), which are steadily progressing.

Sahl Dudin, the managing director of Ayla Development Company, told OBG, “Despite the global economic downturn, we have maintained a steady level of progress in the development of infrastructure works for our project in Aqaba. Thus far 2012 has been a landmark year for the project, highlighted by the flooding of a series of lagoons back in April.” The $2bn project is being built on a site of approximately 430 ha, including 250 metres of sea frontage on the Gulf of Aqaba. The allocated budget for phase one of the venture is JD450m ($623.34m), said Dudin. This includes development of around 50% of the total project, as well as construction of the entire infrastructure at an investment cost of JD250m ($351.3m). The first phase also includes construction of a 120-ha Greg Norman golf course and the Marina Village, which will be the commercial heart of the development and will contain a Hyatt Regency hotel, a Souk area and residential buildings. Construction of the Greg Norman course, which Dudin describes as Jordan’s first true golf course, should be complete within two years.

Perhaps the most ambitious aspect of the project is the construction of three man-made lagoons – two for swimming and one for boats – with a combined surface area of 75 ha, which will extend Aqaba’s coastline by 17 km. This includes around 5 km of white sandy beach, which will be built using silica sand taken from a site 40 km north of Aqaba. When fully completed, the development area will include five hotels with 1540 rooms, around 3000 residential units and roughly 100,000 sq metres of commercial and retail space. The project is being backed by Saudi Arabia’s Astra Group.

In February 2012 Al Maabar, the developer of the Marsa Zayed, said that construction of the 3.2m-sqmetre, $10bn project was on schedule and that the first phase of the project, which includes construction of 450 residential units, a mosque and infrastructure for 300,000 sq metres of land, would be ready by 2014. The company awarded contracts for architecture and engineering consulting, and for primary infrastructure works in 2011. The project will use land freed up by the transfer of activities from the main port to the Southern Industrial Zone, meaning progress is, in part, dependent on the development of the ports. Once completed, the development will include 2 km of waterfront and several marinas with at least 350 berths in addition to Aqaba’s planned new cruise ship terminal, 30,000 residential units and eight hotels with 3000 rooms.

Located adjacent to Ayla, Saraya Aqaba is a $ 1bnplus, 634,000-sq-metre project that will include 756 residential units, several five-star hotels – to be managed by Jumeirah and Starwood – with a combined 1100 rooms, a shopping centre to be known as Souk Saraya, a conference venue, a waterpark and a manmade lagoon adding 1.5 km of shoreline to Aqaba. The project is being developed by the ADC, Arab Bank, Saraya Holdings and the Social Security Corporation. In 2011 Saraya reported that construction of roads and utilities was almost finished despite many delays.

Another ambitious venture that should boost Aqaba’s attractiveness as a tourism destination is the Red Sea Astrarium theme park. The project was announced in May 2011 and its developers – Jordanian animated content developer Rubicon Group Holding and Callison, a Seattle-based architecture and design firm – say it will be built by 2014. Rubicon has signed agreements with Paramount and CBS to include a Star Trek-themed centre in the development. In October 2011 the project’s developers said they had found investors for the venture in the US and the Gulf.

ANREPCO is also planning a mixed-use real estate development on more than 500,000 sq metres of land to be developed over 10 years. The company delayed the $100m project because of the regional economic situation, but ANREPCO’s Halaiqah said the firm hopes to start work on it later in 2012, with plans to initially focus on residential units.

While the Jordanian real estate market, like others in the region, has been hit by its share of troubles since 2008, some in the industry argue that the long-term future for Aqaba is promising. “Aqaba’s real estate market is different from the wider Jordanian market,” Halaiqah said. “It is the only seaport and Jordan’s main leisure tourism destination, so there is always going to be demand for real estate there.”

LABOUR FORCE: Even though ASEZA regulations allow companies to employ workforces with up to 70% foreign labour, not all firms have felt the need to take advantage of this, a positive reflection on the skillsets of nationals. ACT, for example, claims that 99% of its current employees are Jordanian citizens, while ADC’s Madadha told OBG that although there is a lot of foreign labour currently in Aqaba, this is likely to change. The town’s expansion has attracted a significant number of internal migrants from the governorates – the estimated population of Aqaba governorate stood at 115,000 in 2010, up from 102,000 in 2000 – and members of the domestic business community say that the availability of local labour is improving as people become increasingly willing to take private sector jobs. “We were previously concerned about the availability of manpower, but that is no longer a critical issue,” PBI Aqaba’s Fink said.

PATH AHEAD: Some argue the regulatory environment in Aqaba’s special economic zones (SEZs) needs to be reformed and updated. “There is strong investment interest in Aqaba from the GCC and Europe, but after 12 years, we need to look at the experience of other SEZs to modernise rules and regulations. Incentives need to be made more competitive,” Halaiqah told OBG while suggesting a 0% income tax rate on profits. “Government competition with the private sector also needs to be eliminated, especially in the logistics sector.” In addition, Halaiqah argued that backsliding in some areas needs to be addressed.

Others believe the entire regulatory framework would benefit from a re-examination. “Policymakers in Jordan must realise that SEZs only thrive under separate and dedicated legal systems,” Fink said. “This is the lesson we have learned from China, which created successful SEZs by giving them new regulatory umbrellas built entirely from scratch. Aqaba by contrast has some special regimes and its own laws in some areas, but the system is only partial,” he added. However, investors also point to progress, both recent and overall. “There was previously both a national Customs entity and an Aqaba one, which was problematic, but the government agreed to combine the two and has done a good job in doing so,” Halaiqah said.

Fink, meanwhile, said that while Aqaba has made a great deal of progress and is a great success story for the country that will likely continue to prosper, a great deal more can be done. Fink suggested that the model for development should be changed to focus less on tourism and second homes.

OUTLOOK: With investors showing strong interest in Aqaba, 2012 is looking promising for Aqaba. “The Arab Spring, and events in the surrounding countries, will remain a challenge in 2012, but we are more optimistic this year and are seeing increased investment applications,” said Halaiqah. “2010 was a low point,” Fink told OBG, “but 2011 was not a bad year and 2012 may be even better.” However, he pointed out that the lack available financing is a constraint on industry growth in Jordan, as it is elsewhere in the region. “Two or three years ago you could at least get financing for land and buildings, but now even that has dried up. All development currently depends entirely on equity.”

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. Nevertheless, recent progress in major transport, tourism and real estate projects suggests Aqaba is set to cement its status as a lynchpin of Jordan’s economic development.