Wednesday, August 10, 2022

Economic theory and analysis does apply to Jordan 08/08/2022

Economic debate in Jordan, conducted mostly by non-economists, is devoid of solid economics as if the work of thousands of economists over 300 years has suddenly become irrelevant here.

Non-economists keep asserting that economic theory does not apply to the country, as if Jordan had been cut off from another planet. Such an assertion clearly comes from ignorance and suits the pseudo-analysts of economic policy well.

Such flippant heresies are not surprising or uncommon; they have circulated for years, and in many other places, too.

The father of modern economics, John Maynard Keynes, frustrated by the claims of ignoramuses that economic theory does not work or apply, once said in the first quarter of the 20th century: “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”

He elucidated further, just in case some had missed the point: “Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”

There are many such people around who spout loudly such claims because it is easier for them to talk than to listen, and, being lazy, find it easier to dismiss and shun learning than absorb knowledge and adapt.

Any observer of the current policy debate will attest that it is devoid of depth and, consequently, merit. Individuals who do not know even the basics of supply and demand, the simplest economic model ever and one that is viewed by economists as a point of departure, make economic policies, and statements related to the present and future of Jordan’s economy that to trained economists who spent years learning at some of the best institutes in the world represent total and utter economic heresies.

An Arabic saying goes like this: “A fool may throw a stone down a well, but it would take a million wise men to pull it out.” It applies in our case too: once ignorant statements are made by the “all-knowing” mediocre pundits, it is very hard to push back, as the errors are serious and could take a long time to counter.

Given the current institutional setup, Jordan does not seem to be in need of trained economists since it already has over 10 million economists and thousands of experts who gained their “expertise” from non-economic training.

Let us stop the onslaught of these “practical” men who are leading the country into a dark tunnel. The writing is on the wall and should be heeded, with the help of true economists, not self-professed experts.

Economic theory and analysis does apply to Jordan and its institutions; that has to be understood even by those who think they know better, but who, instead, should stay humble, admit ignorance, and learn.

Published in Jordan News:

Sunday, August 7, 2022

Jordan’s orange economy 02/08/2022

The Jordanian economy has long suffered from jobless growth rates, where the economy grows while high unemployment rates are hardly ever affected. More absurdly, in certain years, the economy grew and with it the unemployment rate. Furthermore, the high unemployment rates among women and youth have placed these two significant groups among the most economically vulnerable in Jordan.

One solution may lie in the promotion and development of the orange economy in Jordan. The term is used interchangeably with cultural industries, leisure industries, entertainment industries, cultural economies, and creative economies.

According to UNESCO, the creative economy includes 18 sectors: advertising, books, newspapers, visual arts, film, magazines, architecture, gaming, music, radio, TV, dance, crafts, fashion, cultural tourism, design, software, and photography. A distinguishing feature of these sectors is that their products rely on talent, creativity, and intellectual assets as key inputs. Globally, these industries contribute about 30 million jobs, with visual arts being top employer, followed by music and books.

In the Middle East and Africa, creative industries employ about 2.4 million people. Statistical research reveals that the lower the income of the country the more youth and women are involved in creative industries. Hence, in countries, such as Jordan, where there are high unemployment rates among women and youths, the orange economy would be a viable driver for additional jobs, better-paying jobs, and more sustainable jobs.

According to the recent World Bank study “Orange Economy: As a Driver of Jobs for Youth”, in order for a country to develop its creative industries, it has to have many interventions in several areas: nurture human capital; provide access to finance; expand access to markets; harness digital technology; and build networks and clusters. Under each of these categories, there is a set of specific interventions. For example, regarding the provision of access to finance, the following is entailed: provision of grants, early-stage loan/venture capital fund, microloans, guarantees, crowdfunding, and tax subsidies.

One nascent component of the creative economy that has shown real promise in Jordan so far is the film industry. In addition to several globally successful movies being shot in Jordan (which also provided Jordan with millions of dollars in free advertising), there are many Jordanian films that were recently produced, directed, and shot in the country that have gained fame and accolade, to Jordan as well, in international film festivals and ceremonies.

However, many facets of the film industry require support if this industry is to become globally competitive and a major source of employment and revenue generation in Jordan.

A foremost component of this support is financing. While a film may receive some financial support from the Royal Film Commission, it is difficult for producers to secure financing from a private bank. Moreover, because of the movie admission ticket price, attendance at movie theatres in Jordan is dismal. The price of an admission ticket to a movie theater in Jordan (around $10 per ticket) is extremely high relative to income. It is equivalent to $214 per ticket in the US; were this the case in the US, no one would go to watch a movie in a movie theatre.

Also, the price of a ticket is almost identical at all movie theatres, which prevents price competition. But these are only two challenges the sector faces; others include training of lawyers on contracts for films, and completing the infrastructure for film production.

Moreover, the film industry is facing increasing competition from the Gulf economies, which, being flush with cash, can provide many more incentives to foreign and domestic film productions there. Therefore, Jordan should strategize and move with a valid and applicable intent to grow this and other sectors in the creative economy.

Other sectors of the orange economy need a significant amount of support as well if we are to address unemployment among women and youth.

Jordan enjoyed periods of unprecedented growth in the past that did not decrease unemployment in a sustainable manner. The orange economy can be a vehicle for better paying and more sustainable jobs.

Published in Jordan News:

Tuesday, August 2, 2022

اقتصاد الأردن البرتقالي 02/08/2022

يعانى الاقتصاد الأردني من نمو معدلات البطالة وارتفاعها، كما يعاني أيضا من ضعف تأثر معدلات البطالة بأرقام النمو الاقتصادي، والأكثر غرابة من ذلك انه في سنوات معينة، نما الاقتصاد ومعه معدل البطالة وهو ما يتعارض مع قواعد الاقتصاد. أيضاً، تعاني فئتي النساء والشباب في الأردن من ارتفاع معدلات البطالة مما وضع هاتين الفئتين المهمتين ضمن المجموعات الأكثر ضعفًا اقتصاديًا. قد يكمن أحد حلول البطالة في تعزيز وتطوير الاقتصاد البرتقالي في الأردن.

يستعمل هذا المصطلح (الاقتصاد البرتقالي) بشكل متبادل مع الصناعات الثقافية، والصناعات الترفيهية، والاقتصاديات الثقافية، والاقتصادات الإبداعية. وفقًا لليونسكو، يشمل الاقتصاد الإبداعي 18 قطاعاً: الإعلان، والكتب، والصحف، والفنون البصرية، والأفلام، والمجلات، والهندسة المعمارية، والألعاب، والموسيقى، والراديو، والتلفزيون، والرقص، والحرف، والأزياء، والسياحة الثقافية، والتصميم، والبرمجيات، والتصوير الفوتوغرافي. ومن السمات المميزة لهذه القطاعات أن منتجاتها تعتمد على المواهب والإبداع والأصول الفكرية كمدخلات رئيسية. على الصعيد العالمي، تساهم هذه الصناعات بنحو 30 مليون وظيفة، مع احتلال الفنون البصرية المرتبة الأولى بين هذه الصناعات في التوظيف، تليها الموسيقى والكتب.

توظف الصناعات الإبداعية في الشرق الأوسط وأفريقيا حوالي 2.4 مليون شخص. وتبين البحوث الإحصائية أنه كلما انخفض دخل البلد، زاد انخراط الشباب والنساء في الصناعات الإبداعية. وبالتالي، في بلدان، مثل الأردن، حيث توجد معدلات بطالة مرتفعة بين النساء والشباب، سيكون الاقتصاد البرتقالي محركًا قابلاً للتطبيق لإيجاد وظائف إضافية، رواتب أفضل، وأكثر استدامة.

لكي يتمكن أي بلد من تطوير صناعاته الإبداعية، وفقًا لدراسة حديثة للبنك الدولي بعنوان "الاقتصاد البرتقالي: كمحرك لفرص العمل للشباب"، يجب أن يكون لديه (الحكومة عادة) العديد من التدخلات في عدة مجالات: تعظيم رأس المال البشري؛ توفير الوصول إلى التمويل؛ توسيع الوصول إلى الأسواق؛ تسخير التكنولوجيا الرقمية؛ وبناء الشبكات والتكتلات. هناك مجموعة من التدخلات المحددة ضمن كل فئة من هذه الفئات. فعلى سبيل المثال، فيما يتعلق بتوفير الوصول إلى التمويل، يستلزم هذا ما يلي: تقديم المنح، والقروض المبكرة/صندوق رأس المال الاستثماري، والقروض الصغيرة، والضمانات، والتمويل الجماعي، والإعانات الضريبية.

تعتبر صناعة السينما من المكونات الناشئة في الأردن للاقتصاد الإبداعي والتي أظهرت وعدًا حقيقيًا حتى الآن. فبالإضافة إلى العديد من الأفلام الناجحة عالميًا التي تم تصويرها في الأردن (والتي وفرت أيضًا للأردن إعلانات مجانية تقدر قيمتها بملايين الدولارات)، هناك العديد من الأفلام الأردنية التي تم إنتاجها وإخراجها وتصويرها مؤخرًا في البلاد والتي نالت شهرة وجوائز عديدة وكذلك في المحافل والمهرجانات والاحتفالات السينمائية الدولية.

ومع ذلك، فإن العديد من جوانب صناعة السينما تتطلب الدعم إذا أريد لهذه الصناعة أن تصبح تنافسية عالميًا ومصدرًا رئيسيًا للتوظيف وتوليد الإيرادات في الأردن. العنصر الرئيسي لهذا الدعم هو التمويل. ففي حين أن الفيلم قد يتلقى بعض الدعم المالي من الهيئة الملكية للأفلام، إلا أنه يصعب على المنتجين الحصول على تمويل من البنوك. علاوة على ذلك، وبسبب سعر تذكرة دخول السينما، فإن الحضور في دور السينما في الأردن قليل جدا وذلك بسبب سعر تذكرة السينما، حيث أن سعر التذكرة في الأردن يبلغ حوالي 10 دولارات وهو مبلغ يعتبر مرتفع للغاية بالنسبة لدخل الفرد ويعادل 214 دولارًا أمريكيًا كسعر للتذكرة الواحدة في الولايات المتحدة حين نقارن بين دخل الفرد في البلدين. فإذا كان هذا السعر المقارن هو القائم في الولايات المتحدة، لن يذهب أحد لمشاهدة فيلم في السينما هناك. أيضًا، سعر التذكرة متساو تقريبًا في جميع دور العرض، مما يحد من المنافسة السعرية.

لكن هذين تحديين فقط مما يواجهه القطاع من تحديات كتدريب المحامين على صياغة عقود الأفلام، والحاجة لاستكمال البنية التحتية لإنتاج الأفلام. علاوة على ذلك، تواجه صناعة السينما منافسة متزايدة من اقتصادات الخليج، والتي توفر العديد والكثير من الحوافز لإنتاج الأفلام الأجنبية والمحلية هناك. لذلك، يجب على الأردن أن يضع استراتيجية ويتحرك ببرامج قابلة للتطبيق لتنمية هذا القطاع وغيره من قطاعات الاقتصاد الإبداعي حيث تحتاج القطاعات الأخرى في الاقتصاد البرتقالي إلى قدر من الدعم أيضًا إذا أردنا معالجة البطالة بين النساء والشباب.

تمتع الأردن بفترات من النمو الاقتصادي غير المسبوق في الماضي ورغم ذلك لم تنخفض البطالة بشكل مستدام.

يمكن أن يكون الاقتصاد البرتقالي وسيلة لتحقيق رواتب أفضل ووظائف أكثر استدامة.



Making an investment promotion law 25/07/2022

The word “investment” has dominated the declarations, speeches, and promises of the Bishr Al-Khasawneh Cabinet since its appointment on October 12, 2020. A draft investment promotion law has been in circulation for some time now, and many parties, individuals and institutions have been invited to comment upon it. If passed, this law would become the 16th investment law that Jordan has enacted over the past 67 years; that is, a new investment law every four and a half years.

Investment promotion laws are an essential policy tool for investment promotion and regulation for many countries, as they constitute the basic legal framework for cross-border investment. Often, these laws contain provisions similar to those of international investment agreements.

UNCTAD research found that at least 108 countries have an investment law, of which 90 are developing countries or countries with economies in transition. Fifty-eight percent of the laws apply to both foreign and domestic investors, while the others target only foreign investors.

Jordan, like any other country, has to maintain a balance between modernizing legislation and keeping it stable, which means that we should shy away from changing such an important piece of legislation every four or even 10 years.

There are certain rules that should apply to any investment promotion law, which includes: 1) A clear and transparent set of incentives and conditions that is provided in an investor-friendly format. In other words, incentives and conditions should be simply stated, detailed and automatic (e-government). No need to go to the minister or prime minister every time an incentive is provided. 2) Avoid issuing by-laws and/or instructions later. If necessary, issue them at the same time as the law. 3) The smaller the country, the more it has to do to attract investors. Jordan, which has a very low economic growth rate, should do more than others to attract investment. 4) The investment law should be simple and clear, and the procedures must be transparent, to avoid discretionary power, which encourages not only bureaucratic delays but also corruption. 5) Incentives should go beyond tax breaks, which should be low anyway. They should aim at lowering the costs of production, and thus could include real estate, wages, energy, social security tax, water, interest on credit, fees, etc. 6) Additional incentives are provided to strategic investments, which should go beyond traditional incentives.

An investment promotion law should not be long, but short and clear. Avoid a bulky law — the investor does not need to become a legal and administrative expert before deciding to invest in Jordan.

It should not include penalties, authorities, the structure of the Investment Ministry, and administrative material in the investment promotion law because the investor does not care about all of these. This is a law for promoting investment, not for scaring investors away. If the legislator needs to mention penalties and administrative procedures related to investment, these can be placed in a separate law, not in an investment promotion law.

Most importantly, in the age of globalization where countries compete for foreign direct investment, the investment promotion law should be benchmarked against the best competitors for FDI. Does the new investment promotion law meet all these criteria? One would hope so.

Published in Jordan News:

Thursday, July 28, 2022

ملاحظات أولية حول قانون تشجيع الاستثمار 25/07/2022

سيطرت كلمة "استثمار" على تصريحات وخطابات ووعود الدكتور بشر الخصاونة، رئيس الوزراء، منذ تشكيل حكومته في 12 تشرين الأول 2020. ويجري تداول مشروع قانون تشجيع الاستثمار منذ فترة. كما تداول العديد من الجهات والأفراد مشروع قانون جديد للاستثمار و تمت دعوة بعض المؤسسات للتعليق عليه. وفي حال إقراره، سيصبح هذا القانون هو قانون الاستثمار السادس عشر الذي يسنه الأردن على مدى السنوات الـ 67 الماضية. أي أن الأردن "يتميز" للأسف في كونه حاضن لقانون استثمار جديد كل أربع سنوات ونصف تقريبا.

في البداية، أريد أن أذكّر بأن الأردن، مثله كمثل أي دولة أخرى، يتوجب عليه المحافظة على التوازن بين تحديث التشريعات واستقرارها، مما يعني أننا يجب أن نتجنب تغيير مثل هذا التشريع المهم كل أربع أو حتى 10 سنوات.

تعد قوانين تشجيع الاستثمار أداة سياسية أساسية لتشجيع الاستثمار وتنظيمه في العديد من البلدان حيث تشكل الإطار القانوني الأساسي للاستثمار عبر الحدود وتحتوي في كثير من الأحيان على أحكام مماثلة لتلك الموجودة في اتفاقيات الاستثمار الدولية.

توصلت أبحاث الأونكتاد إلى أن ما لا يقل عن 108 بلد لديها قانون استثمار، 90 منها من البلدان النامية أو البلدان التي تمر اقتصاداتها بمرحلة انتقالية. ويطبق 58٪ من هذه القوانين على المستثمرين الأجانب والمحليين بينما تستهدف القوانين الأخرى المستثمرين الأجانب فقط. وهناك قواعد معينة يجب أن تنطبق على أي قانون لتشجيع الاستثمار، والتي تشمل:

1.   انشاء مجموعة واضحة وشفافة من الحوافز والشروط التي يتم تقديمها بصيغة محببة للمستثمر. بمعنى آخر، يجب أن تكون الحوافز والشروط مبسطة ومفصّلة وتلقائية (الحكومة الإلكترونية). لا داعي للذهاب إلى رئيس الوزراء أو الوزراء أو الوزير في كل مرة يتم فيها تقديم حافز.

2.   تجنب إصدار الأنظمة أو اللوائح أو التعليمات في وقت لاحق. إذا لزم الأمر، يجب القيام بإصدارها حين إصدار القانون وليس بعد إصداره بشهور أو حتى سنين كما حصل مع قانون استثمار سابق.

3.   تجنب اصدار الحوافز العادية من خلال لجان، وتجنب وضع لجان كثيرة، فمعظم الحوافز قد تكون تلقائية ومن خلال الموقع الالكتروني للحكومة.

4.   يجب أن يكون قانون الاستثمار بسيطًا وواضحًا، وأن تكون الإجراءات شفافة، لتجنب السلطة التقديرية، التي لا تشجع التأخير البيروقراطي فقط ولكن تنمي الفساد أيضًا.

5.   كلما صغرت الدولة، زاد ما يتعين عليها القيام به لجذب المستثمرين. في حال اقتصاد صغير كاقتصاد الأردن والذي يعاني أيضا من معدلات نمو اقتصادية منخفضة للغاية، يجب أن تقدم الحكومة حوافز أكبر وأكثر من غيرها لجذب الاستثمار.

6.   يجب أن تتجاوز الحوافز موضوع الإعفاءات الضريبية، والتي يجب أن تكون منخفضة على أي حال، بحيث تقلل الحوافز من تكاليف الإنتاج، فتشمل العقارات، والأجور، والطاقة، وضريبة الضمان الاجتماعي، والمياه، والفوائد على الائتمان، والرسوم، وما إلى ذلك من أمور ممكن ان تعيق الاستثمار.

7.   النص على إمكانية منح حوافز إضافية تتجاوز الحوافز التقليدية للاستثمارات والمشاريع الاستراتيجية لأن الحكومة ترغب في استقطاب هذه المشاريع كروافد للاقتصاد.

8.   يجب ألا يكون قانون تشجيع الاستثمار طويلاً، بل قصيرًا وواضحًا وان نتجنب اصدار قانون ضخم، فالمستثمر لا يحتاج إلى أن يصبح خبيرًا قانونيًا وإداريًا قبل أن يقرر الاستثمار في الأردن.

9.   كما لا يجب أن يتضمن قانون تشجيع الاستثمار العقوبات والصلاحيات وهيكلية وزارة الاستثمار والمواد الإدارية في قانون تشجيع الاستثمار لأن المستثمر لا يهتم بكل ذلك. فهذا قانون لتشجيع الاستثمار، وليس لإخافة وترويع المستثمرين. إذا احتاج المشرع إلى ذكر العقوبات والإجراءات الإدارية المتعلقة بالاستثمار، فيمكن وضعها في قانون منفصل، وليس في قانون تشجيع الاستثمار.

10.                    في عصر العولمة حيث تتنافس الدول على الاستثمار الأجنبي المباشر، ينبغي مقارنة قانون تشجيع الاستثمار مع قواني أفضل المنافسين في جذب الاستثمار الأجنبي المباشر.

هل يلبي قانون تشجيع الاستثمار الجديد  كل هذه المعايير؟  لا أعتقد!!!!

Wednesday, July 20, 2022

Prescriptions to tackle unemployment 07/02/2022

Unemployment is a manifestation or result of many problems that have chronically plagued the Jordanian economy. Tackling unemployment in Jordan, which had reached 25 percent in the first quarter of 2021 and is currently 50 percent among the youth (age 15-24), requires a solid understanding of the problems and possible remedies. And, as usual in economics, there is no silver bullet. The solution is multifaceted.

The labor market in Jordan is distorted. The government and the Gulf have highly distorted the market. Both are strong employers of Jordanian labor, and both are becoming less likely to continue this demand pattern. The government in Jordan cannot afford to continue its policy as its resources have been stretched to the limit, and the Gulf countries have many substitutes for Jordanian workers.

Let us review the unemployment rates over the past 30 years. During 1991-1993, a period that witnessed an influx of Jordanians repatriating from the Gulf countries, at the time of the first Iraq War, who spent/invested their savings and UN compensations in Jordan, the unemployment rate averaged 19.5 percent while the economic growth rate averaged 6.8 percent in real terms.

Economic growth in 1992 jumped to 14.3 percent in real terms from a low of 1.6 percent in the previous year. This upsurge in the real economy was caused by the fact that the money was invested in bricks and mortar and real estate, which can quickly mobilize several sectors and create immediate growth in the economy. But the growth creates jobs for non-Jordanians and day workers who are typically informal and thus do not count in the labor force, and basically are unskilled.

The growth, alas, was also short-lived. It died right after the construction boom subsided. This is an empirical observation that occurred after every economic boom. Observations from the years that followed 1993 provide ample evidence that proves such a claim.

During 1994-2000, the average economic growth rate was 3.9 percent while unemployment averaged 14.3 percent. Growth had peaked in 1995 at 6.2 percent upon the signing of the peace accords and with the return of aid from the US. But growth fell soon thereafter, in 1996, to 2.1 percent. Again, the growth was not sustainable, and unemployment remained at 13.7 percent throughout almost the entire period. It was another jobless growth.

During 2001-2003, the economy grew by 5.1 percent on average while unemployment was 14.8 percent. Again, regardless of the growth rate, unemployment was in double digits.

The period that followed, 2004-2008, was a golden era as far as the economy was concerned. The economy grew by 8 percent on average. However, the unemployment rate was 13.9 percent, a truly jobless growth.

Again, growth was not the answer to unemployment. Why? Because, again, the economic activity was focused mainly on real estate and the money went into buildings – in fact we overbuilt.

From 2009 to 2012, the growth rate averaged 3.1 percent while unemployment decreased slightly, averaging 12.6 percent, which was an anomaly. The standard argument in economics is that economic growth reduces unemployment. This is not the case in Jordan.

Moreover, in recent years, the low growth was accompanied by higher unemployment rates: during 2013-2019, the growth was 2.4 percent and the unemployment rate was 15.6 percent; in 2020, growth was -1.6 percent and the unemployment was 23.2 percent.

So, is there a relationship between economic growth and unemployment? Yes, it is negative (as it should be) but very weak. For the period, the correlation coefficient is -0.112. In other words, economic growth had very little impact on lowering unemployment.

One solution is to encourage banks to lend to the industry at levels commensurate with those provided to the real estate market. In fact, the government must interfere directly with banks to make sure they increase lending to the industry.

Furthermore, private banks must start to lengthen the repayment period as the industry requires quite a long period of time to start turning a profit.

Additionally, the debate in Jordan must depart from contractionary budgets to lessen the budget deficit to expanding the budget by increasing capital expenditures. What type of projects? Large, productivity-enhancing (transport, energy, and infrastructure) to increase the incomes of Jordanians and the profits of their companies, and hence government revenues, which will be used to pay back the accumulated debt and free the budget of the chronic inflexibility it suffered throughout the past three decades.

With these prescriptions, the private sector would become more attractive to Jordanians than the public sector, and the size of the labor force that is hired by the government would shrink as more lucrative opportunities are availed. Also, Jordan’s brightest, who have moved to the Gulf to work, would come back; there is no place like home.  Let us not wait too long.

Inflation – should one worry? 14/02/2022

At the beginning of the COVID-19 pandemic, policymakers worldwide acted aggressively to sustain their economies. The global operating view was to sustain the economy and jobs at all costs. One of these costs has been inflation as fiscal and monetary stimulus policies were deployed with haste. Now that inflation has come into play in the world economy, one should wonder about the impact on Jordan.

The eurozone consumer prices had risen by 5 percent by December 2021, and the US inflation rate hit 7.5 percent. The expansionary economic (fiscal and monetary) policies were behind most of the rise in prices (the US, for example, pumped $2.5 trillion in 18 months into the economy), but other factors also played into this. These include supply chains disruptions due to shipping and/or unobtainability of components, refusal to work (unemployment in the US is at 3.6 percent and 2.5 million workers left the job market not wanting to return), and jump in demand for travel (increased by 25 percent in 2021 but subsided later on). Many sources claim that inflation could last for years, not months as originally predicted, as adjustments require more time than initially forecast.

Jordan also partook in activities to downgrade the impact of the pandemic. The main arrangements in Jordan were undertaken by the Social Security Corporation and the Central Bank of Jordan (CBJ). Still, the economy was plagued by higher unemployment rates in 2020 and 2021 than it was in the past 30 years. Meanwhile, the consumer price index in Jordan rose modestly, by 0.4 percent in 2020 and 1.5 percent in 2021.

What would cause inflation in Jordan? Obviously, the cause of inflation in Jordan is not the same as in the US and other countries. Jordan suffered from closures, curfews, furloughs, monopolistic practices, disrupted domestic supply chains, hoarding, and the fact that it is a net importer economy. The latter is extremely important: in the first 11 months of 2021, national exports reached JD5,447 million, while imports reached JD13,821 million; thus, the trade deficit was JD8,374 million. Actually, 87 percent of the average caloric intake and 90 percent of the energy consumed in Jordan are imported.

According to a study done by the CBJ in 2004, 60 percent of the inflation in Jordan is imported. Therefore, it is most likely that the global inflationary pressures will be felt in Jordan while painfully high unemployment rates persist during this year.

The good news is that the government budget for 2022 depends, among other things, on an assumption that the inflation rate in 2022 will be 2.5 percent. This will be achieved and may be exceeded. However, the bad news is that inflation comes with high unemployment. Obviously, consumers will be hard hit, and so will producers, and the government will have to worry about this double vortex.

So, what can the government do? First, it must expand the money supply by lowering the interest rates. Yes, this should hold true even if the US Federal Reserve attempts to curb inflation by increasing the interest rate in the US.

The government in Jordan should lower the interest rate to encourage investment, production, and consumption at lower costs as the cost of borrowing decreases. The cost of energy must decrease further to help businesses become more competitive and help the manufacturing industry and other productive venues return to some form of profitability. Mishaps in local supply chains should be addressed and weak links should be strengthened or removed. Monopolistic practices, which have been drivers of inefficiency in production and consumption, must be curtailed to encourage also greater employment. In fact, there is a host of policy measures to be taken, not to lower inflation (because small developing countries cannot – as the Noble laureate Joseph Stiglitz asserted on many occasions) but to increase employment and, thus, citizen welfare.

The time to act is now.

Hoping for a more vital economy 21/02/2022

It has become common practice to say that we, in Jordan, are heading the way of Lebanon; that is, what happened there would happen here. This is so far from the truth. Unfortunately, few people know what happened in Lebanon and how the crisis there came about.

Lebanon is undergoing a financial meltdown that is spawning one of the worst economic and human catastrophes in centuries. People have come to witness their livelihoods and savings disappear.

The story began in 1997 when the central bank (Bank of Lebanon), in order to maintain faith in the Lebanese economy, pegged the Lebanese lira to the US dollar (LL1,507=$1). The policy proved successful for a while. A visitor to Lebanon would carry either liras or dollars and have no problem using either. It was a dual currency economy.

But it also meant that banks had to hold large amounts of dollar deposits in order to meet the demands for exchange at any time. Lebanese firms needed dollars to pay for imports, which also increased the pressure on banks to have dollars. Note that Lebanon is a country that relied for foreign currency on three primary sources: remittances from the Lebanese in the diaspora (mainly the Gulf countries), tourism, and aid from the capital surplus countries of the Gulf and the West.

As long as these inflows kept coming, the dollars were available to meet the demand and the economy was relatively stable. However, the Arab Spring changed things: Syria, which was once a large trade partner, was facing financial trouble; remittances started to fall; aid from the oil-rich Gulf countries, for political reasons, started to falter and later came to a halt; tourism, with the promise of violent flare-ups, dwindled to almost nothing; foreign direct investment dried up as the US and others considered Hezbollah a terrorist organization; and the port explosion topped it all up.

With the disruption in dollar inflows, the private banks, with the blessings of the Bank of Lebanon, devised the following plan: private banks are to offer generous interest rates (15-20 percent) on dollar deposits to keep the dollars coming. However, to be able to meet such an obligation, the only way for banks was to pay the initial depositors with money from new depositors, which is better known as a money pyramid or Ponzi Scheme. But once people realized that a Ponzi scheme is at play, they panicked and started asking for their money back, which caused a run on banks. Banks, not having the money, refused to pay, and the conundrum started. Consequently, the lira exchange rate dropped by 90 percent after 2019.

Three events in 2020 did not help matters either: the government tried to impose taxes on WhatsApp calls in a country that is considered the most expensive in the world in terms of telephony; COVID-19 wiped out tourism and any hopes of recovery, and the explosion of the port in Beirut devastated whatever hopes for recovery existed.

So, how similar is this to the case of Jordan? Not at all!

The need to evaluate performance 28/02/2022

Ministerial Cabinets tend to have a short life span in Jordan. Many times the performance is measured by public opinion without quantification of performance outcomes. As such, the provision of key performance indicators has become an absolute necessity. Below are some examples.

A measure of the success or failure of a Cabinet is oftentimes accomplished by comparing the change in the real per capita income (the average income with the inflation removed). It is neither a perfect nor sufficient measure in itself. So, let us look at the period 2009-2018, a fascinating decade.

The reason 2009 is selected is due to the fact that it was the year that followed the 2008 global economic crisis, and the start of the low economic growth rates era for Jordan. 2018 is chosen because it is the end date of the last pre-pandemic government.

In order to make some assessment, the 2009-2018 period is divided into several intervals, the first of which is the pre-Arab Spring and Refugees (ASR) interval, 2009-2011. During those years, the real per capita income was falling at an average rate of 1.8 percent annually. In fact, 2010 witnessed the highest drop (-2.9 percent) in the real per capita income during the whole period (and even in the pandemic year of 2020).

The second interval, which spanned almost four years, 2012-2015 and almost half of 2016, was the interval during which the Abdullah Ensour Cabinet was in office. During that period, the real per capita income was falling by around 2 percent annually, the greatest drop throughout the 2009-2018 period. 

The third interval was 2016-2018, the almost two-year period during which the Hani Mulqi Cabinet was in office. Interestingly, the drop in real per capita income was an average of -0.4 percent annually, the lowest throughout the 2009-2018 period.

Moreover, the annual changes in the real per capita income tell a thought-provoking story. In 2016, the fall in the real per capita income was -1.0 percent – following the Ensour Cabinet, the Mulqi Cabinet had been in office for only six months. In 2017, the drop in the real per capita income was reduced to -0.3 percent, the lowest drop in the real per capita income throughout the period.

In 2018, the negative trend was reversed, the real per capita income was actually rising; it grew by +0.1 percent, the only positive growth rate during 2009-2018, which also signaled a return to positive real growth rates in the average income, a welcome development.

Did the change in the real per capita income come at the expense of a rising or falling debt level? One way to measure the public debt is to compare it to the GDP (that is, the debt-to-GDP ratio) during 2009-2018.

The 2009-2011 interval suffered a growth in the debt-to-GDP ratio from 65 percent to 71 percent. The 2012-2015 interval saw a rise in the debt-to-GDP ratio from 71 percent to 92 percent. During the 2016-2018 interval, the debt-to-GDP ratio held constant at 92 percent.

The above is only a sample of what should be done to evaluate the performance of the various ministerial Cabinets. It is provided as an example of what can be done, which is much more.

Funding industry to help boost economy 07/03/2022

An increase in exports is always welcome news. Recent trade reports indicate that national exports have increased by 20.1 percent and imports increased by 24.2 percent during the first 11 months of 2021, compared with the same period of 2020. However, judging from the list of what Jordan exports and imports, there really is a need for diversifying the industrial and export scope of products.

Total exports (national exports and re-exports) reached JD5,997 million during the first 11 months of 2021, an increase of 18.3 percent compared to the same period in 2020. National exports were worth JD5,447 million during the first 11 months of 2021. They increased by 20.1 percent relative to those of the same period in 2020.

The increase in national exports was due to a rise in the value of exports of clothes by 13.9 percent, fertilizers by 97.1 percent, crude potash by 27 percent, crude phosphate by 44.6 percent, and non-organic chemical products by 9.1 percent. So, after COVID, the world was asking for more clothes and fertilizers — people want to dress and eat better after the closures, curfews, and the macabre spread of the virus and its aftermath.

Notably, there was a 1.5 percent decrease in the export value of Jordanian pharmaceutical products. One could see a falling trend for what was considered a leading industry as Jordanian pharmaceuticals continue to lose traditional markets in the region.

There are many reasons for this steady decline, yet an extensive albeit value-added-focused industrial policy may help reverse the trend.

The imports value reached JD13,822 million during the first 11 months of 2021, an increase of 24.2 percent over the imports of the same period in 2020. There was a 35 percent increase in the value of imports of crude oil and its products, vehicles, motorcycle and their parts by 26 percent, jewelry, and precious metals by 54 percent,  machines, and machinery tools and parts by 18 percent, electrical appliances and their parts by 11 percent and grains by 18 percent.

Note how machinery and tools make a large chunk of Jordanian imports. Even the most casual observer would recommend that the industrial base be expanded and diversified, which is why analysts and pundits received the news of the $85 million Industrial Development Fund with great cheer.

The trade deficit in the first 11 months of 2021 increased to JD8,375 million, or to JD761 million per month. If Jordan wishes to decrease the trade deficit, and if the industry is to diversify and innovation is to set in, more funds are needed.

Jordan will need a plethora of funds beyond this fund, including an innovation fund, an export fund, a creative industries fund, and many others.

Proper cost-benefit studies show that government can recoup their expenditures via these funds; in months and in years, the impact on the economy is manifold. There is no time or reason to wait.


Falling remittances should prompt action 14/03/2022

Currently, Jordan is ranked 36th in the world in terms of the ratio of remittances to the GDP. The countries that are ranked higher than Jordan are almost all low-income developing countries, and some are extremely poor.

Remittances from expatriate Jordanians (a workforce of approximately 270,000), mainly in the oil-producing countries of the Gulf, have been a major source of revenue and foreign currency for Jordan. Historically, one of the main reasons the banking industry in Jordan was established was to handle remittances. However, remittances have been decreasing as a percentage of the GDP, which should sound the alarm or at least prompt some policy measures.

Let us look at the data.  In 1972, a year before the October War, the percentage of remittances to GDP was 2.6 percent, the lowest ever. After the October War and the quadrupling of oil prices, the percentage started to rise in an accelerated manner, reaching 21.2 percent of the GDP in 1975 and 24 percent in 1976. After 1976, it began to decline as Jordan’s economy grew at unprecedented rates. The remittances percentage finally bottomed at 18.4 percent in 1980, and then began to rise again, reaching 23.6 percent in 1982.

After two years of a slight decline, the percentage of remittances to GDP rose to 24.9 percent in 1984, the highest percentage ever, as more and more Jordanians returned with their savings due to a global oil glut, thus infusing large amounts of funds into the economy. The disastrous years 1988 and 1989 saw an increase in the percentage that was more likely due to the fall in GDP than an increase in remittances.

After 1989, as would be expected when people are worried about the destination they are sending money to, remittances started to fall as a percentage and continued the slide until 1991. In 1992 the remittances jumped to 15.9 with the repatriation of Jordanians from the Gulf countries due to the invasion and liberation of Kuwait.

Remittances continued to rise thereafter as Jordanians continued to receive compensations for their losses and some began to find their way back into the Gulf countries. The trend lasted until 1994 when the percentage declined slightly, then peaked in 1996 at 22.8 percent after the signing of the peace agreement with Israel. The next peak (22.4 percent) came in 2000, after which the percentage has been dropping steadily. It has been steadily falling since 2014, from a high of 17.3 percent to 8.9 percent in 2020.

Why is it falling? The answer is manifold: some Gulf countries allowed the expatriates to purchase real estate there at low down payments and interest rates, which took the funds away from the Jordanian real estate market; the Jordanian labor force is finding worthy competition from the laborers of other countries, which means that they have to accept lower wages; Jordanian expatriates are purchasing real estate in countries that grant citizenship to property owners (having a second citizenship has become a global trend in recent years); increasingly people are going global in their investment, and real estate is no longer the only option (stocks and cryptocurrencies are others, for example).

One should not however lament the dwindling inflow of remittances; after all, the remittances are a paltry price for the brain drain that induced them. A Jordanian leaving to work elsewhere is akin to plucking a tree from one’s farm and sending it to another to produce there. The exporting farmer loses the effort he had spent growing the tree for the few pennies he acquires from lending it to the neighboring farm which reaps the fruits, packages them, exports them, and as a result, becomes wealthy.

Jordanian talent, unable to find gainful employment at home, cannot be blamed. At the same time, banning such a valuable export is not a reasonable solution. The only feasible and proper answer is to create jobs at home and develop ways and means to cumulate added value from the fruits of the brain power in Jordan. In other words, development is badly needed, and it should be topmost on the agenda. Time to start thinking about a solution. The problem is already here.

Addressing the falling foreign direct investment 21/03/2022

Jordan’s foreign direct investment (FDI) ratio to GDP has been falling almost steadily over the last 17 years. Can the recent government measures, such as a new investment law and the Omnibus Law, resuscitate the FDI and bring back the glamour of the first decade of the millennium?

It is a prickly and controversial question, and the answer, at least to some, is polemical.

According to the UN Conference on Trade and Development (UNCTAD), FDI refers to the foreign direct investment that is equal to or exceeds 10 percent of the equity of a company. It is much more valuable than the foreign indirect investment, as the latter may easily flee a country in times of crisis, as happened with the Asian tiger economies in 1997–1998 when indirect investments fled in a herd-like behavior at the whiff of a crisis.

FDI is almost always measured as a ratio of the GDP; the higher the ratio the more successful the economy in attracting FDI. Absolute values in billions or millions of this and that currency are meaningless for comparison purposes, as a large economy typically attracts more FDI than a small one; hence, a comparison in terms of absolute size is not very useful. Comparisons are always made relative to the GDP of a country.

In Jordan, given the available data, which spans almost 50 years (1972–2020), the FDI to GDP ratio tells a fantastic, albeit not so surprising, story. In 1972, the FDI ratio was 0.1 percent of the GDP. This rose steadily after the October War in 1973, to 1.9 percent in 1975, and peaked at 3.2 percent in 1981, beyond which, and until 1996, there was a steady decline in the ratios, not exceeding 1 percent annually. The ratio then rose from 5 percent in 1997 to 10.8 percent in 2000 (mainly due to the privatization of the telecom sector). Immediately afterward, the ratio dropped to 2.5 percent in 2002 and at the time of the first Gulf War rose to almost mythical values, 23.5 percent in 2006, the highest ever. It steadily declined to 5.0 percent in 2011 (the year of the Arab Spring), then rose to 5.9 percent with the impact of Syrian refugees, only to start falling again to reach 1.6 percent in 2020.

One can surmise from this almost sinusoidal movement of the FDI-to-GDP ratio two very important observations: oil prices have had a notable impact on Jordan in terms of FDI, an impact that is becoming less apparent; regional shocks have had a positive impact on FDI flow into Jordan.

Based on the data, a vivid picture of the foreign investor that Jordan attracted can be drawn: Arabic, and seeking refuge in Jordan at the time of a severe crisis at home. 

What is Jordan doing now to attract FDI? The government is changing the legislative framework. There is a Herculean effort to create what is called the Omnibus Law, which requires changing 44 laws and 1,800 by-laws. The Investment Law No. 30 of 2014 is also being revamped, and a new law will emerge to accommodate the new Ministry of Investment, which replaces the Jordan Investment Commission, and the new system of incentives.

Almost a quarter of a century ago, Jeff Nugent of the University of Southern California did a study on FDI inflows to the MENA region. He determined, after testing various factors, that the most important deterrent to FDI in the MENA region is unilateral decision making, whereby a VIP unilaterally decides to change the course of action. Investors do not like that.

In the 1990s, Abdul Karim Kabariti, a truly exceptional Jordanian prime minister, once said: “The government should maintain a balance between legislative stability and modernizing legislation.”

Such a statement should always guide policymakers. It should be a golden rule because, according to the leading business and national strategy guru and innovator of competitiveness Michael Porter, the private sector adjustment time is different from that of the public sector; the former may require months, if not years, to adjust to a decision by the latter.

The new changes may prove useful. However, all the new legislative improvements will not prove fruitful unless the focus falls on implementation (streamlined processes), reducing bureaucratic discretionary power (an absolutely necessary action that can be achieved almost fully through digitization), and revamping the approach to attracting investment (go after the sovereign investment funds with specific large projects ideas, utilize the public-private-projects unit and the Social Security Investment Fund to generate government seeded investment and lower the cost of services domestically).

Combating predicted inflation 28/03/2022

The doomsayers in Jordan are talking about unmatched inflationary pressures that will fully eclipse the economy. The highest unemployment rate in 30 years coupled with the inflation and its predicted magnitude, which although not really known is already tagged as “huge”, makes for an unwelcome combination.

But while the scapegoats and branded bearers of the blame for the inflation are arguably the merchants (importers, distributors, wholesalers, and retailers), the responsibility should be borne by all, as should the obligation to act to curtail some of the forecast inflation-unemployment nexus.

The predicted inflation could be attributed to developments in the global arena. The disruption of supply chains around the world as a result of the pandemic, which caused significant upsurges in the cost of production, slowdowns in delivery, and even work stoppages, is already old news. In addition, demand increased in the developed countries where central banks and treasuries flooded the markets with liquidity and facilitated access to finance, which resulted in huge inflationary pressures.

Furthermore, millions of workers in the developed economies have voluntarily opted out of the labor market in search of a more meaningful life beyond work.

A new reason for the rise in inflation worldwide is the Russia-Ukraine war, which is causing the prices of commodities to rise worldwide.

Jordan, which imports 87 percent of its caloric intake and 93 percent of its energy needs, is of course highly vulnerable to global increases in commodity prices.

The design of relief should take into consideration several factors. The rise in food prices will overwhelmingly affect the poor more than the rich, as the former spend a larger share of their incomes on food than the latter. Hence, any policy aimed at reducing the impact of the predicted inflation should focus on the welfare of the poor first.

Those whose incomes are fixed and consist mainly or solely of wages are more likely to be worse hit than the rich whose incomes are generated by their assets, which increase (at least partially) in value with inflation, making the return and their total income increase as well.

The resolution of distressed loans that resulted from COVID-19 and the containment policies of the government should be delayed to avoid the social cost of debt distress. Wider access to credit should be encouraged since Jordan is not in a high inflation period like the developed countries, and businesses and people in Jordan have been spending from savings, not from income.

Lowering customs duties, taxes, and fees on basic commodities should be a policy tool. Reducing the cost of energy by as much as possible by taking away some of the special taxes to counter the global price increase should be a possibility.

The government must also conduct its own research into the components of any price hike. That is, it should be able to dissect the components of the price and determine the percentage of the hike that is due to global factors and the percentage that is due to collusive behavior. Should the price rise of a commodity be due to implicit or explicit collusion, Article 5 of Competition Law No. 33 for the year 2004 should be invoked. The proof of collusion would be relatively easy. If the large importers move in a coordinated or semi-coordinated manner, this would be evidence of collusive behavior and should trigger a deeper probe.

In short, the inflationary damage, with its gale of damage to welfare, should not happen in Jordan. The economy has already been badly hit by the pandemic, but while economic policy played second fiddle to the medical crisis, it need not continue to do so.

Let us not be “surprised” by the predicted inflation.