The argument for Jordan as an investment destination is certainly a compelling one. The nation occupies a strategic position near the convergence of Europe, Asia and Africa, and, despite its politically turbulent neighbours, it is a relatively stable monarchy supported by a democratically elected parliament. The government has established an open economy, adopted a private-sector-led approach and has implemented a programme of privatisation that has, for the most part, been deemed successful. The prevailing investment climate is an attractive one, with tax-free exports, income and social services tax exemptions of up to 10 years, and free repatriation of capital, profits and salaries. At first glance, the Amman Stock Exchange (ASE) has benefitted from these attributes. According to ASE data, as of the beginning of August 2014 shares owned by non-Jordanians represented 49.1% of the stock exchange’s total capitalisation, a figure that compares favourably with regional peers. Foreign market participants are also geographically dispersed, with some 36.2% originating from Arab countries and 12.9% from beyond the region.
International Participation
The foreign capital that has been directed towards the ASE is of the distinctly “sticky” variety, and even following the global financial crisis, during which time regional exchanges saw significant outflows of foreign investment, the claim of foreign investors on total market capitalisation remained markedly steady. In January 2006 foreign ownership of equities on the ASE stood at 44.5% of total market capitalisation, a figure that increased to 50.9% by July 2008 as investment poured into the region.
Similar to exchanges in the Gulf Cooperation Council, the late summer of 2008 saw the first retraction of foreign investment, as the financial crisis started to bite. In August of that year, the foreign element of market capitalisation declined to 49.8%, and by October 2009 it had reached a low of 48%. This, however, was the lowest point that foreign investment levels on Jordan’s bourse would reach due to the global economic crisis. Where exchanges in emerging markets around the world suffered outflows of what had turned out to be hot money, the ASE barely registered the event, and by 2010 began a steady recovery.
Clearly, the static nature of foreign participation on the exchange represents a welcome signal of confidence in both it and the wider Jordanian economy. However, the high level of foreign participation belies a structural challenge: foreign participation on the ASE is almost entirely made up of long-term, strategic investments that are concentrated in a narrow range of activities – mostly in the financial, industrial and services sectors. If the bourse is to truly benefit from Jordan’s advantages, it will need to secure more liquid capital from global investors, competition for which is fierce.
Finding Solutions
Improving transparency and corporate governance is one way to achieve this, as evidenced by the strides taken by regional exchanges to enhance regulation and oversight in order to win emerging market status from influential indices such as MSCI. Cross listings or joint indices with other markets represent another route to increased foreign investment. The ASE has taken steps in this direction already, most notably in recent times with the signing of a memorandum of understanding with the Cyprus Stock Exchange in 2012. According to the agreement, the two bodies will work together on a wide range of issues, including providing and exchanging consultative services, know-how regarding listing and trading issues, and introducing new financial products. The deal also includes preparations for a joint index in the future, which may contribute to increasing and attracting foreign investments to Jordan’s capital markets.
The potential for greater foreign participation on the bourse is significant. Developments such as the revived Red Sea-Dead Sea canal project, future shale gas extraction, transit routes for Iraqi pipelines, renewable energy, tourism and expansion of the Port of Aqaba each represent a possible boost to Jordan’s capital markets. The challenge for the ASE is to establish a regulatory regime capable of harnessing this potential.
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