Jordan stands at the cross-roads of trade and cultural exchange between the Middle East and North Africa. Although location and a history filled with marked achievements give Jordan a significant comparative advantage, it is a competitive advantage that Jordan seeks to establish.
In 1996, Jordan's economy continued its advance toward real progress as it achieved an economic growth rate that exceeded the population growth rate to reflect an improvement in the per capita share of the Gross Domestic Product. Moreover, inflationary pressures were contained, particularly those arising from the aggregate demand side. A noticeable improvement in the labor market was also achieved, as unemployment dropped in 1996 from the level of the preceding year.
Jordan's achievements were attributable to the relentless and continuous reform efforts pursued by the government to implement structural adjustment and promote economic stability. Several measures were initiated with the aim of liberalizing prices, removing market distortions, balancing economic growth through monetary stability, maintaining a fixed exchange rate for the Jordanian Dinar, building the foreign currency reserves of the Central Bank of Jordan and providing greater incentives to the private sector for broader participation in the economy. Remarkable progress has been achieved toward increasing market size, opening the economy through regional free trade agreements and acceding to the World Trade Organization (WTO), harmonizing property rights legislation with the best international practices, and creating the conditions necessary for accelerating technology transfer and know-how.
The positive results of these measures were reflected in a growing GDP, increased exports, a reduction in inflation, and the stability of the exchange rate. Over the past few years, Jordan has been ardently working at enhancing its competitiveness within a regional and global context. Many of the positive developments in the economy have been brought about by the sincere will and desire of the people and government of Jordan to make such aspirations a reality.
Indeed, the Jordanian success story has been in the making for several years. In 1992, Jordan's GDP grew by 16.1&, the highest in the Middle East and North Africa region. By 1993, the GDP had grown by 5.9% against a regional average of 4.8%. The steady growth rate in GDP continued in 1994 as Jordan experienced an economic growth of 8.1% against a regional average which declined to a low of 2%. In 1995, growth in the GDP continued to accelerate, this time by 6.4%. In 1996, the rate declined to 5.2% yet still giving Jordan the lead in terms of growth rates over most of the countries in the region. Concurrently, the unemployment rate declined from a high of 18.8% in 1991, resulting from the Gulf Crisis, to a current rate of about 13%, with signs of further decreases in the near future. The growth rate for 1997 is expected to be 6.5%, and is predicted to remain at this level until the year 2000.
Jordan has also made dramatic progress in booting exports and reducing imports. The Kingdom's trade deficit decreased by 7% in 1994, and by another 1.1% in 1995, as exports skyrocketed by 24.7% and imports grew by 9.8% during 1995. Between 1985 and 1995, Jordan's exports grew by 293%, while imports increased by only 141%. In 1996, exports increased by US$ 66 million, while imports increased by US$ 640 million due to an increase in the imports of food and live animals. However, this trend was only temporary as the trade deficit decreased by US$ 218 million in the first ten months of 1997 over its level in the previous years.
Furthermore, there is a shift away from (negative savings rates and) consumption rates that exceed the GDP. These are explicit indicators of future prosperity. In 1996 savings were 15% of GDP, possibly the highest savings rate in the world. Jordan's plan is simple: convert savings to investment to create greater exports and export-led growth. In Jordan, being competitive means that the future is decided by national choices, not by endowments or limitations.
Government's Role as a Partner
The government has undertaken short, medium and long-term programs aimed at increasing economic growth through the enhancement of productivity based on positive social development through the expansion of an already advanced physical and human infrastructure. The programs emphasize both public and private sector involvement and partnership, and the growth of international and inter-regional trade, strategically managed within a framework of sustainable development.
In April 1989, Jordan signed a five-year structural readjustment package with the International Monetary Fund (IMF) with the goal of restoring sustainable growth, curbing inflation, stabilizing the Dinar's exchange rate, and reducing internal and external financial imbalances. The first phase of the economic reform program resulted in a strong positive turnaround in the country's economic performance. The first phase of the economic reform program resulted in a strong positive turnaround in the country's economic reform program resulted in a strong positive turnaround in the country's economic performace. However, the program was interrupted due to the Gulf Crisis of 1990-91 and its aftermath, as Jordan became faced with a challenge to act quickly in order to deal with sudden, sizable imbalances in the economy. The second phase was designed to deepen and expedite the reform process. In October 1991, the government concluded a new seven-year economic adjustment program with the IMF, designed to improve Jordan's balance of payments, reduce inflation, shrink the public sector's share of GDP and boost real GDP growth.
In addition, a five-year economic and social development plan for 1993-97 was drafted as a tool for a new developmental strategy. The plan designated a major role for the private sector, and confined the role of the government mostly to infrastructure-related projects that are essential for stimulating private investment Jordan implemented a plan designed to rectify imbalances and bolster the long-term stability of the Jordanian economy through the following:
Buoyed by the remarkable achievements of the last few years, the forthcoming third phase builds upon past accomplishments to further consolidate and expand the reform programs. These programs, which will also be underscored in Jordan's forthcoming National Economic and Development Strategy, will add momentum to the ongoing plans.
Legislative and Regulatory Reforms
The government has long recognized the need for establishing business-enabling structures with strong investment incentives. Developing an efficient regulatory framework activates the role of the private sector, increases the volume of domestic investment, and attracts inward international investment. A wide-ranging legislative package has been drafted and introduced to foster a more efficient and transparent business environment.
The Income Tax Law
This law has been amended, reducing the tax rate for banks, financial institutions and insurance companies from 50% down to 35% of taxable income. Industrial and mining companies, hotels and hospitals now pay 15%, while other companies pay 25% of taxable income.
The Sales Tax Law
In late 1995, a new Sales Tax Law was passed, increasing the General Sales Tax rate and expanding its coverage. This new tax structure aims at boosting the level of savings and investment and decreasing consumption of management levels as noted earlier.
The Investment Promotion Law
This law, which was passed in 1995, provides both Jordanian and foreign investors with additional incentives and tax exemptions. Projects in the industry, agriculture, hotel, hospital, maritime transport and railway sectors now enjoy a number of additional exemptions. The law has been recently amended to allow non-Jordanians to entirely own and operate any project or activity in Jordan with the exception of three sectors: construction contracting trade and trade services, and mining. In other words, under the amended law, national treatment is offered to all investors in most sectors and MFN treatment is offered to investors in all sectors.
In the field of income and social services tax exemptions, the Investment Promotion Law divides the Kingdom into three different regions--A, B and C--according to the level of economic development. The percentage of exemption depends on the location of the project as follows: 25% if the project is in a class A development area, 50% if the project is in a class B development area and 7% if the project is in a class C development area. These projects will receive what is called a "tax holiday" of 10 years, and these exemptions apply to the already lowered income tax scale described previously. Projects being planned at one of Amman's industrial areas--Sahab or El-Hassan Industrial Estate--receive another "holiday" for two additional years.
The new Investment Promotion Law also established the Investment Promotion Corporation (IPC) which is responsible for marketing Jordanian investment opportunities internationally. The IPC works to create linkages between national and foreign companies through joint ventures, and assists investors at all stages of the investment cycle.
The Investment Promotion Corporation enjoys financial and administrative independence. Specifically, it works to identify investment opportunities and promote investment in them. It offers a "one-stop window" at which investors can acquire all the necessary licenses and permits from the proper authorities. It also provides advice, information and manuals to interested investors.
The Securities Law
Jordan has one of the most developed and fastest growing stock markets in the region. With a market capitalization close to US$ 5 billion, the Amman Financial Market (AFM) is one of the largest Arab stock markets that is open to foreign investors. Today, the AFM is considered the most sophisticated financial market among the Arab countries. The role of the capital market in Jordan's national economy is highlighted by the Amman Financial Market's 77% ratio of market capitalization to GDP. This is one of the highest ratios among emerging markets, indicating both a well-established stock market and a relatively high level of securities trading.
Market capitalization at the AFM has undergone accelerated growth in recent years, rising by 158% over the last five years. About 30% of market value is owned by non-Jordanians. The government of Jordan, through the Jordan Investment Corporation, owns approximately 18% of total market capitalization. The banking and finance sector leads the market with 49% of total market capitalization. The industrial sector ranks second with 41% of capitalization, with the service and insurance sectors representing 8% and 2% respectively.
Trading at the AFM is currently based on open outcry on the trading floor. However, in October 1996 a deal was signed to make trading fully automatic by the beginning of 1998. This project, which is perhaps the most important development in the history of the Jordanian stock market, will allow every transaction taking place at the AFM to be conducted through a central computer network. The process will allow quick documentation of all dealings, and, more importantly, it will offer easy access for investors into details of the market situation and thus facilitate the entry of foreign capital into the market.
In June 1997, a modern Securities Law was enacted. The law separates the regulatory function from the technical side of the market. It created a regulatory body, the Jordan Securities and Exchange Commission (JSEC), with broad and well-defined powers over non-banking financial services, to organize, develop and monitor the securities market. The objectives of the new organization and its legal framework are to: adhere to internationally accepted and proven standards and practices to increase investor confidence and interest; standardize market practices and protect investor rights; establish a completely transparent, well-functioning and regulated capital market; achieve effective and efficient institutional operations; maintain a transparent flow of information among market institutions, participants and investors; create sophisticated, professional and efficient organizational and administrative functions of market institutions and the JSEC.
In addition to the JSEC, the government is establishing four other entities: a private sector stock exchange, Jordan Stock Exchange (JSE); a private sector depository, Jordan Stock Depository (JSD); and institute to provide proper training concerning dealing in securities, and an association to represent private sector participants in the securities industry in their dealings with the JSEC. Considerable progress is being made in enhancing the technical expertise of the stock exchange by computerizing the activities of the JSE and JSD, and the AFM.
The Insurance Law
Jordan is in the process of drafting and adopting a new Insurance Law and creating a new independent Insurance Supervisory Agency (ISA). The objectives of the law are to: strengthen the insurance market and coverage while protecting consumers; harmonize laws and regulations with international standards; strengthen the insurance supervisory body through a twinning agreement with a European insurance controllers office (there is a proposed twinning agreement with the Irish Insurance Controller's Office) which would provide a vehicle for the transfer of know-how and technical expertise.
The new law will adopt European Union solvency margins to ensure that companies maintain an adequate capital base and discourage inefficient low premiums. The ISA will monitor insurance companies to ensure that they maintain required levels of insolvency margins.
The Secured Financing and Leasing Law
The government is expected to submit to parliament early in 1998 a Draft Secured Financing and Leasing Law. The law is expected to enhance financial growth by providing risk management tools and improving security through lease financing and increased asset-backed lending using movable property as collateral. The law provides legal bases for lease financing and for using movable property as collateral. Additionally, to facilitate the proper implementation of the law, a computer-based Register of Interests in Movable Property (RIMP) would be established with both registration and inquiry functions.
The Mutual Funds and Trust Law
A trust law is in the drafting stage to create the necessary environment for private sector mutual funds, which are at the center of the financial sector reform strategy. The law would regulate: the standards and fiduciary duties of administrators to beneficiaries and to third parties; requirements for security and insurance; delegation of authority; presumptions of sound investment; apportionment profits and expenditures; accounts, reporting, and disclosure; termination; and liabilities, warranties, and status in solvency.
The Safeguard Law
This law has been drafted to protect domestic industry from dumping or any other illegal practices that may arise in international trade. It is consistent with the safeguard measures provided in the agreements administered by the WTO and internationally recognized best practices.
The Competition (Antitrust) Law
The government drafted this law with participation from the private sector in an up-to-date manner that aims at encouraging competition in domestic markets, improving existing market structures, fostering economic efficiency and enhancing consumer welfare. Furthermore, the law addresses issues related to entry barriers to trade, and advocates sound, internationally recognized and accepted business practices.
The Companies Law
The new law has been drafted as an amendment to the previous Companies Law. Under the amended law: approval requirements for several sector-specific economic activities are abolished; other previously centralized and duplicated licensing requirements are annulled; and, corporate governance and finance are improved.
The Customs Law
This law is consistent with WTO requirements, and establishes the principle of invoice-based valuation of goods combined with a post-auditing system. Furthermore, the principle of self-declaration will be implemented upon completion of the computerization of the Customs Department. The law allows for voluntary pre-shipment valuation by international companies, as well as "green channel" for exporters. Customs procedures are streamlined and the delivery of goods and services is enhanced via efficient, state-of-the-art techniques that reduce costs to importers and exporters, thereby increasing productivity and efficiency.
In order to further boost Jordan's attractiveness to investors and strengthen the Kingdom's export competitiveness, the government recently cancelled all customs duties on 492 capital imports. Moreover, in recognition of the pivotal role of the private sector in expanding exports, and keeping in line with the overall drive toward liberalizing the economy, the government has taken a number of steps to improve the capacity of national industries for competing in international markets. Within this framework, a project for modernizing and upgrading the efficiency of the customs system was launched in mid-1997 and is now well underway.
A key component of the project involves the computerization of procedures and data through the introduction of an Automated System for Customs Data and Management (ASYCUDA), which is recognized as the international standard for customs clearance and information. The new system will play a pivotal role in the government's implementation of an effective economic and fiscal policy by providing policy makers with accurate and timely trade and revenue data. ASYCUDA will enable the customs department to disseminate trade-related information to relevant institutions as well as to importers and exporters. It will facilitate exporting procedures by permitting established exporters to benefit from the establishment and use of the "green channel" in importing materials, equipment, and components used in the production of exports.
Intellectual Property Rights (IPR) Legislation
Also under consideration is a new Copyright Law that is consistent with the guidelines of the World Intellectual Property Rights Organizations (WIPO) and the Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement of the WTO. In addition, the Trademark Law and the Patent Law are being introduced protect the rights of creative persons in all fields, including authors, publishers, inventors, innovators, composers and others. The new legislation enhances present IPR laws and enables their efficient implementation in Jordan.
Other related topics: Regional and Global Integration || Privatization || Poverty and the Social Productivity Package || The Results of the Economic Reform Programs || Monetary Policy || Balance of Payments
Source: Jordan Diary 1998, International Press Office, the Royal Hashemite Court, Amman - Jordan