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French Version

Privatization a source of concern as foreign investment grows

Economists have advised caution on the sale of integral corporations to the private sector, particularly if control over the corporation is in foreign hands.

JORDAN (Star) - Efforts aimed at privatizing government services are in full swing this year with some economists expressing fears at the increasingly multinational presence in companies set to guide Jordan's economic interests into the future.
The latest official reports indicate the government is considering the sale of even more of its shares in local companies to private sector entities, both foreign and domestic, in order to continue to grow earnings. Already 51 institutions are privatized in Jordan earning some $1 billion a year for their investors.

His Majesty King Abdallah's recent endorsement of a new national action plan to improve the investment environment in Jordan is seen as a change in the King's perspective, now focusing on the infrastructure of the Kingdom's investments. The committee responsible for the implementation of the action plan is said to have all the tools necessary to attract local and foreign investments in a way said to be the most efficient and favorable for Jordan.

The potentially negative impact of growing multinational investment is a growing concern for local economists. They are urging the government to allow more time to pass for government-owned institutions to become better participants in the current economic and social transformation plan launched earlier this year.

Economists have advised caution on the sale of integral corporations to the private sector, particularly if control over the corporation is in foreign hands.

Thus far profits from the sales of several major corporations have generated less income than before privatization. Dr Munir Hamarneh, professor of economics at the University of Jordan, thinks privatization is a bit akin to musical chairs: Authorities are changed but the output remains the same. He thinks the government should move very carefully, considering all the negative consequences of selling remaining publicly owned enterprises.

"Research indicates local investment in Jordan has reduced 18-20 percent in the second half of the 1990s," Hamarneh told The Star. Hamarneh says the main reasons are easy to identify: The economic recession, the increase in interest rates, and the gradual slowing of economic growth following the Gulf War. Hamarneh explains the political instability in the region along with Jordan's maturing economy has prevented the local private sector from playing a more integral role in privatization. "This opens the way for foreign investors to come and take over all the previously publicly owned enterprises," he added.

The Kingdom's fiscal budget is 7 percent in deficit largely due to shrinkage in public revenues. Hamarneh believes the only option for the government to close this gap is to raise taxes and the prices of local commodities.

"This is happening already," he stressed. "The government is currently paying out 30 percent of its budget to service its debt-a fact that hinders any real economic and social development in the foreseeable future."

Hamarneh and other economists believe rapidly ushering in privatization in Jordan misses the bigger picture. They suggest privatization's greatest change is money made from privatized companies goes into the pockets of foreign and domestic owners instead of the Jordanian treasury. Hamarneh explains, "foreign investors prefer to have businesses in Jordan because of its strategic geographic position and the still developing local economic sectors."

A recent study by the Consultative Economic Council notes growth in the Jordanian economy will increase 7 to 8 percent by 2006 in expectation of increases in local and foreign investments. The study added public revenues from these investments should reach JD 2.3 billions in four years time.

One example provided by the study is what is termed as the "Irish example." In Ireland incentives are provided for investors to own land at low rates, reducing tariffs and insurance costs thereby enhancing local human resources.

The government, despite local protestations, appears resolute to privatize the Kingdom. Cabinet sources indicate more companies have been put on the agenda, including the post office and electricity provider-scheduled to be privatized later this year.

Adel Al Qdah, president of the Privatizing Commission, indicates government efforts are actively underway to privatize the post office and Jordan Phosphate Mines Co. The process began with a restructuring of both companies, this to be followed by the selling of government shares to strategic partners.

"The government has ratified regulations to prevent foreign investors from owning a controlling share of privatized corporations [termed the "golden share"]," Al Qdah said. "These regulations put restrictions on foreign ownerships and fight monopoly in local resources."

Qdah also justified government privatization objectives to create real partnerships between the public and private sectors. "I believe such a partnership requires balanced policies from both sides," replied Hamarneh, noting real partnerships cannot be achieved by substituting the public sector's role with a private one.

"The Jordanian economy is a developing one. This requires the government to work closely with the private sector to rectify the inefficiencies of our economic sectors rather than simply selling our national companies for an influx of foreign capital."

Many of the economic sectors, most notably tourism, are facing mounting losses because of the region's political unrest. Some of the larger hotels are considering bankruptcy or releasing a majority of their personnel. "When you speak about a real investment, it should be a continuing project that increases the Kingdom's resources, not reduces them. Privatization is seen as a way out," Hamarneh indicated, saying privatization alone is not the solution if the sales simply result in short-term gains for the Kingdom.

Ghassan Joha
The Star

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