|Review of economic performance 2007
|In a region fraught with violence, 2007 has seen Jordan, under the aegis of a relative stable political environment, make a number of significant strides in developing its economy. From hosting the World Economic Forum (WEF) on the Middle East to the privatization of some of the state’s most prominent assets, the country has been aggressive in liberalizing its economy and encouraging foreign investment.|
One of the biggest stories of the past year was Jordan hosting the fourth WEF in May. As one of the largest gatherings of business executives, stakeholders and public officials in the world, the meeting was clearly a feather in the cap for the small kingdom. However, it was the work behind the scenes that made it a true success, with over $2.5 billion worth of private and public development deals signed on the sidelines of the conference. The varied array of agreements, which covered sectors as diverse as finance, transport and energy, ranged from Emirati real estate investments to a Chinese-Jordanian-Pakistani consortium, which will construct a $240 million light rail link between Zarqa and Amman.
According to Maen Nsour, CEO of the Jordan Investment Board, foreign investment growth last year exceeded 200 percent. In fact, a recent report from the United Nations Conference on Trade and Development placed Jordan in the top 10 countries in terms of investment inflows.
One of the oft-recurring headlines of the past year was the successful privatization of a number of major state assets. Last year saw a pair of major deals clinched: the first, finalized in October, heralded the $320 million privatization of the Central Electricity Generating Company, while the second was marked by December’s oversubscribed $232 million IPO for Royal Jordanian, the national airline. Jordan’s privatization program now ranks, according to the World Bank Group, “as one of the, if not the most, successful programs in the Middle East region”. Headed by the Executive Privatization Commission, the program is a cornerstone of the country’s reform agenda and has raised over $1 billion in proceeds, largely through the sale of monopolistic state-owned enterprises in the transport, electricity, water and telecommunications sectors.
While significant in its own right, particularly given the airline’s 23 percent year-on-year growth, the Royal Jordanian IPO also paves the way for increased liberalization in what was traditionally a relatively restricted aviation sector. A consortium, led by Aéroports de Paris and Abu Dhabi Investment Company, won a $700 million 25-year concession in April to build and manage a new terminal for Jordan’s principal Queen Alia International Airport (QAIA). The expansion, which will encourage an estimated $1 billion in private investment in the aviation sector, will boost QAIA’s capacity from 3.5 million passengers to over 9 million by 2010.
The growing capital outlay in the aviation sector has been spurred in part by the resurgence of Jordan’s tourism sector. Tourism has always been a linchpin in Jordan’s economy and despite the setbacks the industry suffered following the bombings in Amman in 2005, it has seen steady growth in the years since. The country received a major shot in the arm with the declaration of the Nabatean city of Petra, already one of the country’s primary draws, as one of the new wonders of the world by the New7Wonders Foundation, while the increased interest in health and wellbeing tourism boosted Jordan’s Dead Sea resorts. Visitor numbers in the first half of 2007 saw a growth of nearly 14 percent, approximately 400,000 people, over 2006. Revenues have jumped more than 20 percent to $807 million over the same period.
With an increasing number of people considering Jordan as leisure destination, the country has seen a concomitant boom in resort and luxury accommodation. Although luxury apartment sales have dropped compared to 2006, Jordan’s resort market has progressed steadily, driven by the country’s relative stability and safety, along with its natural beauty and relaxed investment laws. In August, Dubai-based developer Emaar Properties opened sales for its latest Jordanian project, the $500 million Samarah Dead Sea Golf and Beach Resort while that same month Taameer of Jordan showcased its 800,000 square meter Andalucia gated community development in Amman.
However, with high-end residential demand falling, an increasing number of projects are aimed at providing for the low-income market. According to industry insiders, at least 100,000 new apartments will have to be constructed over the next five years to meet demand from Jordan’s lower and middle-income groups. In July, HM King Abdullah II reiterated his support for the King Abdullah Bin Abdul Aziz Al Saud housing complex, a 70,000-unit complex in Zarqa that will house some 370,000 Jordanians at a unit price of around $21,400. The housing finance market has also risen to meet the demand for loans and mortgages from the low-income market; in some instances, local banks will be contracted to provide low interest loans and financing to buyers, subsidized by the state.
Last year saw steady growth in industrial property, with industrial estates and free trade zone attracting particular attention. Jordan has broken ground on a number of new economic zones and industrial parks. Officials hope these new developments will promote growth while mitigating unemployment in the kingdom, imitating the success of the Aqaba Special Economic Zone (ASEZ), which, through a basket of tax and tariff incentives, has raked in $8 billion over the past five years. Among the new developments are the privately-owned 4.4 million square meter al-Mushatta Industrial City, outside of Amman, and the $750 million King Hussein Bin Talal Economic Zone in Mafraq, both of which are expected to provide thousands of jobs for the local economy.
While all of these developments are encouraging, 2007 has not been all roses.
The installation of a new government in November, led by the former head of the ASEZA, Nader Dahabi, underlined some of the struggles the previous government has faced with the implementation of its economic reform agenda, particularly with a rising inflation rate and burgeoning budget deficit.
According to Umayya Toukan, governor of the central bank, “Inflation pressures are increasing and we have to worry.”
The rise in oil prices has led to cost increases across the board, with the official inflation rate, which is based on the Consumer Price Index, rising to around 6.3 percent, a significant increase over the 2002 rate of less than 2 percent. Food prices, which are linked to changes in the costs of transport and oil, have risen nearly 21 percent over the same period. While these hikes, coupled with lower pressure from the real estate market, unusually slow economic growth, the deflationary effect in Jordan has been largely overshadowed by the leap in fuel prices.
In spite of these cautionary notes, however, Jordan’s efforts over the past twelve months have underlined the country’s ambition to boost foreign investment and encourage local development across the board. Whether these ambitions result in sustainable improvements for citizens remains to be seen; 2008 will determine whether 2007 was as successful as was hoped.