The year 2001 proved to be favorable for the Jordanian economy, with economic growth at 4.2 percent despite difficult regional and global conditions. The economy’s relative insusceptibility to such external issues may be linked to a more resilient macroeconomic framework that is a direct result of the structural reform agenda, according to a recently released country report by Jordan-based research firm Atlas Investment Group.
This economic progress was mainly driven by the construction sector, which had grown by almost 11 percent. However, a continued boom in this sector is contingent upon an increase in the government’s construction expenditure as part of the socio-economic transformation plan.
Nevertheless, the implementation of this plan seems to be behind schedule as additional sources of funding have yet to be secured. Jordan has successfully rescheduled $1.2 billion in external debt payments due to the Paris Club creditors in the next five years. This will provide temporary relief for the balance of payments but will in no way help the government’s fiscal performance.
The government has been lagging behind in its fiscal consolidation measures, namely due to a recurring shortfall in revenues. This is partially a result of trade liberalization policies, which have reduced customs duties revenues, in addition to difficulties in the early stages of implementing the value-added tax (VAT).
These advances in trade liberalization have been a clear catalyst for an improved investment climate in the country that has helped to attract both domestic and foreign investments. Jordan’s successful Qualifying Industrial Zones (QIZs) have helped attract such investments, which consequently, strengthened the country’s export base to the US thus allowing Jordan to reap the benefits of the US-Jordan Free Trade Agreement (FTA).
However, there are still some restrictions, such as non-tariff barriers and an invariable export base, that are limiting the country from acquiring the gains of its trade regime in full.
Most recent efforts with regards to improving the investment climate have targeted the institutional framework of investments. In this realm, H.M. King Abdullah has recently approved a new and welcomed set of national strategic recommendations put forward by the Investment Committee of the Economic Consultative Council (ECC).
The new strategy proposes the creation of a central authority in Jordan that unifies under its umbrella all functions related to investment promotion including. In addition to the institutional concerns, the investment environment in Jordan requires a more active role led by the private sector in directing domestic and foreign investments into productive services and industries.
As such, recent amendments to the Companies Law have focused on the creation of a new category of companies labeled: Private Shareholding Company (PSC). This new classification of companies has been given privileges withheld from public shareholding companies. The new structure is viewed as a vital catalyst for mobilizing Jordanian and foreign private equity investment in the country.
Despite its slow implementation, Jordan’s privatization program has demonstrated the government’s ability to conform to strict transparency guidelines in the process of privatizing public enterprises. And while last year did not witness the closing of any privatization deals, it played an important preparatory role, particularly with regards to the planned privatizations in the mining sector.
Finally, prospects for sustained higher economic growth remain mixed despite growth in exports, low inflation, stable monetary conditions, and reduction in public debt. Jordan’s short to medium term outlook lingers at stable due to regional uncertainty and volatile environment particularly on the Palestinian and Iraqi fronts. Improvement in outlook hinges upon the country’s ability to pursue structural reform, which is essential to improve per capita income levels and move towards socio-economic equilibrium, in the face of likely deterioration in the geopolitical environment. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
