Gaining from free trade

Article in Jordan News

Tue 22 11, 2022 

Jordan signed the EU Association Agreement (AA) with the EU in 1997, two years after the Barcelona Declaration. The AA, which entered into effect in 2002, covered political, trade, economic, social, and cultural venues of cooperation. Moreover, in 2016, to help with the refugee situation in what became known as the Jordan Compact, the EU, through the EU Relaxation Decision (No.1/2016), relaxed requirements concerning certificates of origin for certain goods produced in Jordan for a 10-year period, until December 31, 2026. Now that 20 years have passed, it is only fair to ask whether the AA added value, and had a discernible impact on employment and foreign direct investment (FDI) in Jordan, and, if not, what remedies/changes can be done to fix the AA.

 EU is Jordan’s largest trade partner, accounting for 14.7 percent of Jordan’s trade in 2020. EU imported goods from Jordan worth 0.4 billion euros, and its exports to Jordan reached 3.0 billion euros. However, Jordan’s trade with the EU does not represent more than 3 percent of its total trade. Interestingly, there is something of a rule in economics, which says that for a small country to gain from trade with a large country, the latter should be altruistic toward the smaller one. It is not by chance that the EU is the leading foreign investor in Jordan, accounting for 55 percent of the foreign direct investment (FDI) stock in the Kingdom, and that the EU became a major donor to Jordan after the signing of the AA (EU aid to Jordan averaged 130 million euros per year during 2014–2020).

A recent report, “Trade liberalization and jobs in the Mediterranean: towards a new generation of trade agreements”, by the Center for Mediterranean Integration (CMI), underscores that the impact on jobs, value-added, and FDI has been mixed (a hodgepodge of few winning and losing sectors) and mild (underwhelming is the wording of the authors) across the Jordanian economy. In fact, other regional developments, such as the Palestinian Intifada, the invasion of Iraq, the Arab Spring, the influx of refugees from Syria, may have more of an impact than the AA.

So what can be done to make the AA more beneficial to Jordan (and the other three countries, Tunisia, Morocco, and Egypt)? According to the CMI report, three things can be done: liberalization of the services sectors (such as business services, information, telecommunication, and financial services), which contribute to enhancing the value added in the manufacturing sector; attracting FDI in manufacturing to promote knowledge-intensive production, especially in labor-intensive sectors; improving the competitiveness of the industry and addressing the non-tariff barriers (which are more forbidding to trade than tariffs sometimes).

Clearly, one must agree with the report that by simply signing a free trade agreement a country does not immediately benefit from trade, particularly if it is the smaller partner, which is Jordan’s case. Jordan needs to do much more than simply sign a free trade agreement to benefit from trade. It needs to put in place and implement a strategy to develop its manufacturing industry. It should facilitate the manufacturing sector’s access to finance, which remains a challenge today.

Jordan needs to focus on value-added everywhere (services, industry, and agriculture). There is a great need to support firms to become exporters to the EU market (market access). In other words, there is a whole cluster of activities that ought to be done internally to ensure that local producers enhance their competitiveness and gain from trade.

 

*Yusuf Mansur is CEO of the Envision Consulting Group and former minister of state for economic affairs.

https://www.jordannews.jo/Section-36/Opinion/Gaining-from-free-trade-24862

Jordanian public sector as an innovator 15 11 2022

A fundamental question emerging in innovation research is why some organizations innovate while others do not.

Innovation has traditionally been studied in the private sector. It is only recently that some research has been addressing innovation in a public sector context. Given the size of the public sector relative to the economy in Jordan, the variety of its organizations, and the fact that there is a new vision for economic modernization, addressing what would make organizations in the public sector innovate is a vital and timely undertaking.

A good example of innovation in the public sector is the introduction of new or significant changes to the provision of services and goods, operations, organization, or communication. Innovations need not be developed by the organization itself, but simply applied or implemented by it.

To begin with, one should recognize that public sector innovation is often seen and assessed through private sector frameworks and paradigms. Basic economic theory states that private sector organizations maximize profits while public sector agencies focus on minimizing costs. Moreover, it is widely accepted that the public sector is less efficient than the private sector. This latter claim could be generally true, but not necessarily in all government agencies.

Factors that determine the level of innovation in the private sector, such as size, location, performance, and investment in human capital (training), can also be applied with some tweaking to public sector organizations.

In the public sector, innovation may respond to specific organizational and managerial conditions and practices. Managerial conditions that are conducive to innovation in public agencies include sufficient space for experimentation, availability of clear and efficient feedback loops, effective response level to low performance, motivation to make improvements (reward systems), and budget constraints to drive efficiency (however, this is the least significant condition, according to the literature).

A good example comes from Australia, where the government not only allows its employees to experiment and innovate but also established for them a framework to do so.

In Jordan, any initiative that focuses on enhancing innovation at the public organization level must start there: at the organization level. Each organization has a unique work culture affected by location, structure, geography, placement within the bureaucratic hierarchy, function, etc.

The literature on innovation in the public sector underscores that the focus should be on the individuals’ interest in those organizations.  Consequently, public organizations should focus on the fundamental aspects of jobs, and increase the employees’ motivation to innovate through experimentation.

Providing motivation and experimentation to public sector employees will lead to greater innovation and job satisfaction. On the other hand, budget cuts are not recognized as a motivator to innovate, as the carrot is always a better motivator than the stick (which is the budget cuts here).

Based on the above, having a merit-based management system in the public sector is an important and necessary condition for enhancing innovation in the public sector, but it is not sufficient. Measures that specifically focus on enhancing the level of innovation are also vital for public sector innovation.

Published in Jordan News:

https://www.jordannews.jo/Section-36/Opinion/Jordanian-public-sector-as-an-innovator-24554