Regulatory changes to boost foreign investment and support partnerships in Jordan's construction industry

With demand for mass housing thriving and transport, energy and other infrastructure projects continuing to roll out, the kingdom’s construction sector faces the challenge of meeting a wide range of demands at a time of economic slowdown.

Yet with years of experience working in an often uncertain environment, contractors and developers, planners and materials providers are continuously adjusting to new circumstances. Meanwhile, recognising the sector’s vital role in the economy, the government has promised major assistance.

Facts & Figures

The most recent data from the kingdom’s Department of Statistics show that in 2015, 6% of Jordan’s 4m-strong labour force, or 241,000 people, worked in the construction sector. Of this total some 79.6% were in craft and related trades, with the rest in more skilled, managerial and technical positions. Some 99% of those employed were male, as is common in many other countries.

As a share of GDP, Bank Audi figures for 2015 give construction a 4.3% contribution to overall economic activity. The Central Bank of Jordan (CBJ), meanwhile, recorded the total contribution for the year at JD533.8m ($750.7m), at constant prices, with activity peaking in the third quarter of 2015 at JD158.4m ($222.8m), from an annual low in the first quarter of 2015, when it stood at JD100.6m ($141.5m).

Slowing Down

As construction is highly sensitive to overall economic growth, the sector’s slowdown mirrored this change. Indeed, 2015 was a year of stark contrast to 2014, when the sector grew by 7.8% during the first nine months, according to Bank Audi. The same period of 2015 saw construction contract by around 2.8%. The CBJ figures for GDP at constant prices saw the JD540.8m ($760.6m) contribution of the sector in 2014 fall to JD533.8m ($750.7m) in 2015.

The sector’s general downturn was due to a combination of factors. The biggest of these was the regional security situation, which boosted risk aversion among private investors and left the sector more dependent on foreign lenders and donors.

At the same time, while Jordan, as an energy importer, benefitted from the decline in global oil and gas prices, some of its principle donor countries – members of the GCC – all suffered cuts in revenue. The budget cuts that then followed all had a negative impact on donor activity, to Jordan’s detriment. Total foreign grants fell from JD1.23bn ($1.7bn) in 2014 to JD886m ($1.2bn) in 2015. This significantly reduced the stimulus that the whole economy – including construction – receives from these funds.

GDP at constant market prices (with 1994 as the base) thus grew 2.4% in 2015, according to the CBJ – a robust figure, but lower than in previous years. In 2014 annual growth had been 3.1%, and in 2013, 2.8%.

The slowdown was evident in a variety of metrics. The first 11 months of 2015 saw demand for construction permits down 12.2%, Bank Audi reported, after a 9.2% expansion in 2014. Demand for residential construction permits, which accounted for some 91.9% of the total, fell by an even sharper 12.9%, having risen by 9.2% in the same period year earlier. The area with the highest demand was Irbid, with 29.6% of the total, followed by Amman (26.2%) and Zarqa (9.3%). Also falling was the total area covered by these permits. In the first 11 months of 2014 this stood at 13.6m sq metres, while for the same period of 2015, the total was 11.5m sq metres.

With reduced activity, there was also less call on financing. Bank credit facilities extended to the construction sector fell 24.6% year-on-year (y-o-y) over the same period, from $658m to $496m. The amount of capital held by newly registered construction firms had grown 7.7% in 2014, but shrank 30.6% in 2015, while the number of new construction companies registering also declined, by 33.9%, after growing by 3.3% the previous year. The raw numbers were 148 newly registered companies in 2015 and 224 in 2014.

One further indicator of activity in the sector is the production of clinker (a by-product of cement production used as a binder in many cement products). Production stood at around 865,000 tonnes in the first 11 months of 2014, but fell to 653,000 tonnes in the same period of 2015.

Many large cement firms operate in Jordan, including Lafarge Jordan – which operates the largest plant, Jordan Cement Factories – the Northern Cement Company, Al Rahji Cement Holding, the Qatrana Cement Company, Manaseer and the Arab Company for White Cement Industry-Khaldeya White Cement.

This somewhat depressed picture may soon see major change, however, thanks to several factors. The first is demographics. Since the conflict in Syria began, somewhere between 630,000 and 1.2m Syrian refugees have arrived in Jordan. Add this to refugee flows from other conflict zones, such as Iraq, Libya and Yemen, plus the country’s own native population growth, and the kingdom had swollen from 6.993m inhabitants in 2011 to 9.532m by 2015, according to the CBJ. “We need around 45,000 apartments a year to meet demand,” Fawaz Hassan, president of the Jordan Housing Developers Association (JHDA), told OBG. “Of these apartments, 80-85% must go to low- and middle-income people, too.” Providing for these people will require major investments in infrastructure, as new communities will need roads, utilities, schools, retail centres and hospitals.

Long-Term Plan

At the same time, the government is pursuing a long-term development plan known as Jordan 2025. Launched in May 2015, the blueprint breaks down into three successive executive plans, with the current one running from 2016 to 2018. Overseen by a special unit at the prime minister’s office, the vision outlines some 400 policies and measures, to be implemented via a coalition of government, private sector outfits and civil society organisations. Under Jordan 2025, the construction sector is expected to see its GDP contribution reach 4.5% by 2017, 5% by 2021 and 6% by 2025.

The plan acknowledges the housing crisis, while also taking a critical look at infrastructure. Regarding the latter, the vision notes the importance of a new Investment Law, passed in October 2014 and operational from April 2015, and the new Public Private Partnership (PPP) law, which was passed in September 2014. The first sets up the Jordan Investment Commission as a one-stop shop for foreign and domestic investors, while the latter led to the establishment of a PPP unit at the Ministry of Finance to design and implement PPP initiatives.

According to Hamza Haj Hasan, CEO of Jordan Free and Development Zones Group, the new investment law has improved the environment for investors by giving developers the right to lease the land for a longer period. “In the past, this was only possible for 30 years, while now it can be automatically renewed for another 30 years and can be granted an extra 30 years with a Cabinet approval. This gives investors a total of 90 years,” Hasan told OBG.

Investment Funds

A further development, in May 2016, was the passage of a law to establish the Jordan Investment Fund (JIF). This new agency has the right to invest in and develop a string of infrastructure projects, from the national rail network to the electricity interconnection scheme with Saudi Arabia. The formalisation of funding that this represents should help mobilise many of the kingdom’s planned construction projects. In another positive step, in October 2015 the government announced it was putting together a 10-year action plan for accelerating growth in the construction sector. Dovetailing with Jordan 2025, the plan is being drawn up with participation from a number of key sector bodies – including the JHDA, the Jordan Engineers’ Association, the Jordan Construction Contractors Association (JCCA) and the Architects and Engineers Business Council.

Move To Quality

One of the issues highlighted by the developers of the 10-year action plan was the need to raise standards within the sector. Part of this is a call for more effective matching between education in the sector and market demand, so that high-quality professionals with the latest, necessary skills are available. Jordan has long had a reputation for producing high-quality engineers, who can now be found working all around the Gulf and beyond. Yet the quantity of engineers being produced may now exceed demand considerably. “Today there are around 120,000 engineers,” Wael Toukan, the president of the JCCA, told Venture magazine in late 2015, indicating that this was far more than the supply of engineering jobs. “Universities should carry out studies to find what’s needed in the job market,” he added.

Another issue is proper implementation of existing regulations and building codes. The JCCA, for example, regularly inspects properties in the capital, as does the Greater Amman Municipality, yet the violations they observe reportedly sometimes fail to be followed up on and enforced. Some contractors take issue with the codes themselves, particularly where they limit the scope of development – for instance, Article 9 of the Amman by-law on residential properties states that buildings cannot exceed four stories. Other contractors complain that getting planning permission for smaller units is much harder than for larger ones, even though the need is for the former.

The JHDA has therefore been working on this issue. In partnership with the World Bank, the government’s Housing and Urban Development Corporation is developing a new national housing strategy that will seek to incentivise the construction of more low- to middle-income homes (see Real Estate chapter). The new strategy should be ready for rollout by the end of the first half of 2017.

Building On

In the meantime, a large number of construction projects are under way, or in the pipeline, across the kingdom. In the transport and real estate sectors, Aqaba continues to see much activity. The New Port project, undertaken by BAM International-MAG, has seen a three-phase development move the marine industry centre southwards, with new quays and jetties, dredging and land reclamation now complete. In June 2015 a new jetty for liquefied natural gas came on-stream, while the Aqaba Container Terminal (ACT) has also now finished its quay extension project. ACT is now moving to further relieving bottlenecks by widening the port gate area.

The port’s move south has created space for a major new mixed-used waterfront development in the old centre. The $10bn Marsa Zayed project, being executed by the UAE’s Eagle Hills, will comprise seven new districts built on a 3.2m-sq-metre site, edged by 2 km of waterfront. The project also includes the construction of a luxury cruise ship terminal, with a planned 2017 completion date. Also due for completion next year is phase one of the project, which includes a mosque and village district.

Nearby, too, Eagle Hills is the developer of the Saraya Aqaba project. This is a 634,000-sq-metre tourism and residential complex built round a 1. 5-km artificial lagoon, with four five-star hotels, villas and apartments, entertainment facilities, business facilities, including a conference centre, and the retail Souk Saraya projected to be featured.

Still under construction is the Ayla Oasis project, which boasts 17 km of new waterfront and Jordan’s first all-grass, 18-hole golf course and 9-hole academy. Some 3000 homes are also planned, along with hotels, a retail and food and beverage hub, and various entertainment and recreational facilities.

Aqaba will be the key terminal for the forthcoming JD2bn ($2.8bn) National Railway Project. The Ministry of Transport is behind this, with plans for 897 km of track nationwide. This will replace the current narrow-gauge line, as well as adding new stretches that connect the port to Amman, to the kingdom’s other main cities, to the principal phosphate mine at Eshidiya, and to the Syrian, Saudi and Iraqi borders. The railway network should be one of the main beneficiaries of the JIF.

In late 2015, too, the China Civil Engineering Construction Corporation signed a $2.8bn deal for railway construction with Jordan. The railway network will connect to three planned dry ports, at Maan, Madounah in Amman and at Mafraq, for which road infrastructure will also be required.

In Amman itself, major construction work has now restarted at Jordan Gate, a $400m multi-use, twin tower project, which should be completely finished within two years, with the commercial tower and mall completed within 18 months. Elsewhere, the Abdali project took another step forward in May 2016, with the opening of the Abdali Mall.

Meanwhile, the St Regis and Jenan Amman projects – the first a branded hotel, residential and retail complex, the second a JD100m ($140.6m) residential scheme – saw progress. Both are scheduled to open in 2017, with Jenan Amman being developed in three stages, each taking 18 months.

Amman is also seeing some a number of significant transport infrastructure projects. A planned bus rapid transit system will run along 33 km of roads, 25 km of which will be dedicated bus lanes. In June 2015, too, work on a pre-feasibility study began on a light rail from Amman to the Queen Alia International Airport, with assistance from the European Bank for Reconstruction and Development (EBRD).

Energy & Infrastructure

Some important construction projects are also being carried out in the energy sector. Much of this activity is in the renewable energy sphere, often involving specialised foreign contractors (see Energy chapter). For example, two 50-MW solar projects are being supported by the EBRD, working along with the Saudi ACWA Power and Fotowatio Renewable Ventures.

Al Rajef wind farm, meanwhile, will be constructed in the Ma’an governorate and will have a capacity of 86 MW. The EBRD is providing a $70m loan to Green Watts Renewable Energy for the construction of the facility, with the total project cost expected to reach $185m. In addition, Jordan is aiming to build two, 1000-MW nuclear plants, with the first expected to be on-line by 2023 and the second by 2025.

The Jordan Valley Authority also has a master plan for development which involves a series of dams and sand dams in the Wadi Araba and Wadi Rahmah. These are designed to assist agricultural development in these regions, with the JD6m ($8.4m) Wadi Musa dam expected to hold some 1.2m cu metres of water.

The Red Sea-Dead Sea Water Conveyance Project would also pass through Wadi Araba, adding more water resources and lakes. Construction of the first phase is set to begin in 2017 including a seawater intake structure, intake pump station, seawater pipeline, a desalination plant with a capacity of 65m-85m cu metres per year and a brine conveyance pipeline. The project, which includes Israel and the Palestinian Authority, would see Red Sea water desalinated and pumped inland to radically boost agriculture and encourage settlement in the Jordan Valley (see Energy chapter).

Outlook

Recent times have seen some key legislative developments in the sector, with the passage of new investment, PPP and now funding laws, all of which should have a positive impact. At the same time, the demand for housing – particularly at the low to medium end – looks set to continue to increase, with concomitant pressures on infrastructure.

While the overall economic situation remains uncertain both regionally and internationally, Jordan has a solid reputation as a politically stable place of safety among investors in MENA, enabling it to ride out many regional and international storms. It is clear that the Jordanian government is keen to attract investors, too, particularly in infrastructure, with further national development planslikely to add additional incentives to the construction mix.