With efforts to accelerate the pace of economic growth and boost domestic employment taking centre stage under the new government of Prime Minister Marouf Bakhit, a new law is under discussion that would focus state incentives more squarely on investments that add value, create jobs and make use of local resources.
The new law, currently under discussion at the Ministry of Industry and Trade, would limit the granting of incentives in the future to value-added investments that employ Jordanians and use domestically sourced raw materials. For projects that meet these criteria, however, the incentives on offer will be enhanced.
“The new law will seek to open up more sectors to investors, in addition to offering more incentives, especially to businesses that utilise Jordanian raw materials and labour,” Ahmad El Zubi, the acting director of Jordan Investment Board’s research and studies department, told OBG.
The minister of industry and trade, Hani Mulki, called a mid-February meeting with local businesspeople and stakeholders to discuss the investment law, which was approved by the government in late 2010. The law is still being formulated, and nothing is set in stone yet. “What we do know is that the new law will not negatively affect current investors. They will continue to receive the incentives offered by the current law,” El Zubi told OBG.
Incentives currently on offer as part of the Investment Promotion Law, which went into effect in 1995, include corporate income tax rates of 24% for insurance, telecoms and financial institutions; 30% for banking institutions; and 14% for all other companies. The law also exempts from fees and taxes fixed assets that are imported into the kingdom for exclusive use in a project, and exempts hotel and hospital projects from fees and taxes once every seven years for modernisation purposes.
Along with the government’s economic reforms of recent years – which have included the facilitation of trade, privatisation of state-owned companies and the elimination of fuel subsidies – Jordan’s current investment law is widely credited with helping the country achieve annual GDP growth of around 7% between 2005 and 2008.
The proposed changes should help to shore up investor sentiment as events in the wider region look likely to have an knock-on effect on the country’s economic growth, which is highly dependent on foreign investment, tourism revenues and remittances from workers overseas.
Opening up investment opportunities in the kingdom should also help to release some pressure on the tourism sector and remittance inflows, which contribute 14% and 20% of GDP respectively. Promisingly, the Ministry of Tourism reported in late February that sector revenue for January 2011 reached JD160m ($224m), up 7% from JD149m ($209m) in January 2010. Tourist arrivals also increased to 507,206 in January, up 6% from a year earlier.
However, the true test of how the sector will fare is performance in February and March, the industry’s busiest season. Though there has been some indication that tourists are cancelling their holiday packages to Jordan due to unrest in the wider Middle Eastern region, the kingdom is taking advantage of its relative calm.
“In view of the current regional circumstances, we are working hard to maintain the levels of 2010, which was a tremendous year for tourism,” said the director-general of the Jordan Tourism Board (JTB), Nayef Fayez. He told local media that the JTB was highlighting the kingdom’s “peacefulness” in European advertising campaigns.
Remittance levels have taken a hit recently, though for a different reason. One of the main factors behind Jordan’s slower-than-normal GDP growth in 2009, when it dropped by around five percentage points year-on-year to 2.8%, was the 2.4% decline in remittances. Money sent home by overseas workers has accounted for as much as 20% of GDP in recent years, but as many Jordanian expatriates working in the Gulf were hit by the effects of the global economic crisis, including job losses, there was less money to send home.
The proposed changes also come on the back of the downgrading of a host of Jordan’s ratings by Moody’s and Standard & Poor’s (S&P). In early February, Moody’s revised Jordan’s foreign currency bond outlook from stable to negative and downgraded the government’s local currency bond rating out of investment-grade status, from Baa3 to Ba2. S&P lowered its long- and short-term local currency ratings and revised its outlook on long-term foreign currency and local currency ratings from stable to negative.
The ratings changes are not reflective of domestic economic factors so much as of concerns over potential spillover effects from political turmoil in the wider region. However, this does not mean that Jordan is sitting idly by, and King Abdullah recently said that he wants Prime Minister Bakhit to immediately usher in political and economic changes. The new investment law could be among the first of these
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