After years of discussions and document-drafting, Jordan is poised to introduce a new investment law which the administration hopes will play a key part in reinvigorating the economy.
The legislative changes will spearhead a drive to improve the investment climate, with a focus on streamlining processes for businesses and strengthening institutional infrastructure. However, while welcoming the new law and calling for its swift implementation, critics argue that tough competition means still more will need to be done to attract investors.
Jordan’s economy has felt the weight of a difficult external environment in recent years. The global financial crisis of 2008-09 contributed to lower growth by draining capital markets, while the kingdom has also borne the brunt of regional political unrest since the first uprisings of 2011. A halt in gas supplies from Egypt, an influx of 600,000 Syrian refugees and a significant drop in tourism revenues have all negatively impacted Jordan’s economic performance in the intervening period.
Lawmakers are confident, however, that the proposed legislation will address several of the most pressing issues that are thought to be hindering foreign direct investment (FDI) growth.
In a key move, the law paves the way for Jordan to bring the various organizations involved in investment under a new umbrella body – the Higher Investment Council (HIC). The council will be tasked with putting in place national investment strategies and policies. It will also be responsible for cultivating a more investor-friendly environment and boosting private sector participation in the economy.
Overcoming the obstacles
Almost two decades have passed since Jordan last gave the legislation governing investment a major overhaul, although modifications have been made in the intervening years.
The Investment Promotion Law is credited with significantly pushing up FDI levels during the period following its introduction in 1995, with FDI rising from 0.2% of GDP in the early 1990s to as much as 10% in the 10-year period up to 2010, according to a 2013 OECD Investment Policy Review. However, while ongoing reforms have earned Jordan a reputation as one of the region’s most liberal economies, increased competition, particularly from emerging economies, has made the task of attracting new investors more challenging, while also exposing the kingdom’s weaknesses.
In its 2013 review, the OECD cited a number of obstacles which it said risked curbing FDI growth in Jordan, including a complicated legal framework, overlaps and blind spots within incentive regimes. It also pointed to income tax changes, which it described as unhelpful, and restrictions on FDI across a surprisingly high number of sectors, including transport, telecommunications, construction and both wholesale and retail trade.
More to do
While most agree that the time is ripe to overhaul the legislation governing Jordan’s investment regime, not everyone shares the administration’s confidence that these latest proposals will address the main challenges.
Critics took the opportunity to suggest ways in which the law could go further at a forum hosted recently by the audit and financial services holding company, Talal Abu Ghazaleh Organisation. Participants called for better coordination of investment and economic policies and a reduction in the number of agencies involved in the investment process. They also highlighted the need for stronger institutional support to help facilitate the ushering in of new legislation.
The institutional pillars which prop up Jordan’s investment regime have struggled under the weight of expanding business activity in recent years, causing the country’s performance in key international surveys to slide.
The World Bank’s “Doing Business 2014” study ranked Jordan 117th out of 189 economies surveyed, giving it notably low marks for investor protection, accessing credit and enforcing contracts.
Jordan’s justice system, in particular, is feeling the strain of a growing business caseload which has built up over the past decade. The country has moved to increase capacity by securing assistance from both the US and the EU, which will speed up investment in technology, training and logistical support for its judiciary.
The measures should help ensure that the courts are better equipped to enforce new legislation. However, critics will be watching closely to see what other improvements follow.
Oxford Business Group