A vital contribution: Industrial estates and special zones provide a number of advantages

Through its industrial estates, free zones and development zones, Jordan has continued to attract local and foreign investment. These make a vital contribution to national exports and to the economy in general, despite some concern that Jordanians have not benefitted from the jobs created. At the same time, the government is working to unify relevant public bodies in order to simplify the investment environment, which some investors still claim is hindered by red tape.

Jordan’s five operating public industrial estates make a sizeable contribution to the Jordanian economy. According to the Jordan Industrial Estates Corporation (JIEC), total invested capital in 2011 stood at around JD1.57bn ($2.2bn) – equivalent to roughly 5.5% of GDP – and exports from the estates were valued at JD860m ($1.2bn), or around 18% of total national exports. The best-represented industries in the estates are cotton and weaving (making up 25.7% of total capital in 2010), food (16.8%), metallic and electric engineering (13.3%), and pharmaceuticals (12.8%).

EMPLOYMENT BOOST: The estates are also an important source of employment within Jordan. They provided 33,113 jobs in 2011, up from 32,776 in 2010. However, most of the new jobs were for foreign nationals, with the number of Jordanians employed falling from 19,864 in 2010 to 19,281 in 2011. This left the proportion of Jordanian workers in the estates standing at 58.2% of the total workforce in 2011. The government is aware of the issue and is attempting to boost local employment opportunities. In May 2011 the Ministry of Labour released a National Strategy for Employment, one of the primary aims of which is to boost employment for locals. Particular focus has been given to boosting employment in the garment companies within industrial estates.

The newest public industrial estate was opened at Muwaqar in May 2011. Spread over an area of 250 ha, the estate is located on an international road network which links Jordan, Iraq and Saudi Arabia. Investors have shown growing interest in the estate: in May 2011 the Petra News Agency reported that nine firms had invested a total of JD162m ($227.6m) in the zone, and by the end of 2011 a further three firms had invested an extra JD30m ($42.1m).

“The estate’s first investment phase is now 35% complete,” said Oday Obaidat, the corporate strategic planning and development director at the JIEC, in an interview with OBG. The JIEC is to begin developing the second phase when take-up on the first phase reaches 70%, he added. Current investors comprise food, steel and electronics companies, including Tiba Iron and Steel Company, a JD30m ($42.1m) joint Saudi-Jordanian-British venture, and Turkey-based Mega Food Industries, which is investing JD5m ($7m).

FURTHER ESTATES: The government has further plans in the pipeline. Construction on a new estate at Zarqa is hoped to begin by the end of 2013, according to Obaidat. Authorities have long been considering a site near Salt for a new estate, but the difficult topography of the area makes it unsuitable for heavy industries, though light industries could still possibly operate there. The JIEC was also instructed to develop a zone at Salt by a royal directive issued in July 2011.

A number of Jordan’s industrial estates continue to enjoy what is known as Qualifying Industrial Zone (QIZ) status, whereby Jordanian exports produced there can enter the US tax-free, provided that 8% of the content is sourced from Israel, among other terms. However, now that Jordan’s free trade agreement (FTA) with the US has been fully implemented, exporters can gain the same tax-free access to the US without having to source content from Israel.

“QIZs have been successful in developing the competitiveness of Jordanian exporters, but most are now moving to the FTA,” said Obaidat, adding that existing contracts will mean that the QIZ status will continue to be in use for some years yet. JIEC statistics for the Al Hassan and Al Hussein Industrial Estates show that exports under the FTA increased dramatically from JD168.8m ($237m) in 2010 to JD207.8m ($292m) in 2011, while QIZ exports decreased over the same period from JD80.7m ($113.4m) to JD73.8m ($103.7m).

Though the FTA could reduce the competitiveness of businesses still bound to operate under QIZ status, the shift has had indirect benefits for Jordanian industry: as manufacturers have been freed from the obligation to source from Israel, there is now an increased need for certain support industries. “There has been increased local demand for the production of hangers, labels, zippers, buttons and other such accessories,” said Mohammad Khourma, the chairman of the Jordan Garments, Accessories and Textiles Exporters’ Association.

DEVELOPMENT ZONES: Jordan’s five development zones, which are spread throughout the country, are intended to attract foreign investors while at the same time catalyse economic growth in the kingdom’s less developed regions. As of the end of 2011, there are 60 projects spread across the five zones, with a total capital investment of JD517.2m ($726.8m) and providing a total of 3809 jobs for Jordanians.

However, this investment is not equally spread among the zones, with the Dead Sea Development Zone (DSDZ) – which focuses on tourism and hospitality – receiving 79% of the investment and 68% of the jobs generated. After the DSDZ comes the Ma’an Development Zone, taking around 10% of the investment but only 2% of the jobs, while the Mafraq Development Zone accounts for 8% of the investment and a little under 5% of the jobs. Finally, the Irbid Development Zone holds around JD500,000 ($702,600) and provides around 60 jobs.

In addition to the industrial estates and development zones, Jordan has five public free zones and some 35 private free zones. To encourage export-orientated businesses in Jordan, profits on exported goods are exempt from income tax, import fees and Customs duties. Construction work from licensing fees and land taxes, as well as non-Jordanian salaries from income and social services taxes, are also exempt.

INCENTIVES: A range of incentives and exemptions aim to attract investment in industrial estates, free zones and development zones. Under the 2008 Development Zones Law, investors in industrial estates are exempted from sales tax, Customs duties, social services tax and dividends tax, while income tax stands at 5%. Companies operating in the estates will be provided with construction licensing and work permits as well as connections to water, electricity and telecommunications networks. The same incentives are available to those who have invested in Jordan’s development zones, in accordance with the 2008 law.

Jordan’s investment policy – and in particular the policy on development zones – came into the spotlight in early 2012, with the king instructing the government in February to remove red tape and improve the investment environment. “The existence of several investment agencies is unnecessary; the duplication of procedures and services can confuse investors,” said Loay Sehwail, the director of Industrial Development at the Ministry of Industry and Trade.

Also in February, a group of foreign investors presented several requests to the Jordanian government: they want an investment services unit to be established in affiliation with the Prime Ministry, as well as a society for foreign investors that allows them to communicate their issues to the government. They expressed concern over interference by ministries in the work of the Aqaba Special Economic Zone Authority, which is currently overseeing the development of several megaprojects funded by foreign investors. Others have complained that directives from the government can arbitrarily override regulations.

UPDATING POLICIES: At a time of concern over the health of the economy and of public finances, the government is increasing its efforts to attract foreign investment into the country. Promptly responding to investors’ comments, former Prime Minister Awn Khasawneh announced in early March 2012 that investment-related entities would be merged and that a unit dedicated to addressing the needs of investors would be established in affiliation with the Prime Ministry.

Such streamlining has in fact already begun. A law enacted in 2008 created the Development Zones Commission (DZC) as an autonomous body responsible for creating, regulating and monitoring all development zones in Jordan. Now in 2012, the government has announced an ambitious unification.

“We are working on a law to merge the Jordan Investment Board with the DZC, which should be submitted to parliament by June 2012,” Sehwail said. The merger will result in the creation of a master regulator for investment in Jordan.

At the same time, with the help of the US Agency for International Development, the existing DZC and JIEC are to be transformed into master developers for all the zones. A merger of the two entities is also being planned, according to Obaidat. Such wide-ranging institutional reforms may encounter resistance in the short term, but ultimately should bring about a more attractive environment for foreign investment.