Biznews (BN): Since His Majesty King Abdullah II’s 1999 ascension to the throne, Jordan has taken steps to encourage foreign investment and to develop an outward-oriented and globally competitive economy. How would you describe today’s business and investment environment here in the Kingdom?
H.E Mr. Omar Malhas (OM): As you rightly said, His Majesty has worked very hard for the last 17 years on putting Jordan on the world’s map when it comes to investment. He has encouraged businesses throughout the World to think of Jordan as a place to do business. The laws and the regulations have all been put in place to cater to that, especially with the development of the Aqaba Special Economic Zone, to reiterate these big projects when it comes to the logistics with the ports we have. There are a large amount of ports in the South, even though the coastal line is very small, but we have been able to maximize its utilization. The oil and gas terminals have helped Aqaba to be on the map as well.
In a nutshell, His Majesty’s efforts have led us to state one thing: Jordan is open for business. We encourage all investors to think of Jordan as a destination to do business. Let me remind you that Jordan lies at the crossroads of trade routes, and even if today, because of the war in Syria and the almost-finished war in Iraq, things may not necessarily look very bright, we keep looking forward and reiterate the unique position Jordan has in the area.
BN: Many of our interviewees stated Jordan could be the place where investors can come to rebuild Iraq and eventually Syria.
OM: Definitely, and not only that, but I think Jordan should be a platform in the reconstruction of Syria, especially in the southern part of the country. Downtown Damascus is only 190 kilometers away from Amman. Jordan should be a suitable platform for the reconstruction of Syria.
BN: Despite recent challenges, the World Bank estimates that Jordan’s GDP growth is expected to an estimated 2.6% growth between this year and 2019. The IMF team that recently visited the Kingdom, praised Jordan’s economic correction measures and stated, “Over the medium term, growth is projected to accelerate gradually, supported by structural reforms and fiscal consolidation.” What is your forecast for the Kingdom’s growth in the coming years and what sectors will be leading it?
OM: Our estimations are in line with the IMF because we have worked closely and directly in the program. We are projecting a 2.3% growth this year and it will gradually grow up until 3% in 2 years. About 7 or 8 months ago, the estimates were different, we had higher expectations.
Jordan’s economy can be described as a satellite economy to the countries around us, and especially within the GCC (Gulf Cooperation Council) and it relied heavily in the past on transit, trade, industries and exports to Iraq and transit trade via Syria.
Syria’s border shut down years ago, and the Iraqi border was closed 2 years ago, which has impacted our economy. 20% of our manufacturing was exported to Iraq, and most of it now is not really exported because before that, businesses were able to establish competitive pricing when the land border was open. Now, if we want to export to Iraq we will need to use other means and it would probably be more expensive, and we could not compete with pricing. We need these borders to open again to give the industrial and transportation sectors a boost.
Jordan’s truck transportation is a classic case of SMEs (Small and Medium Enterprises), as we have a limited number of truck companies: most of the trucks are owned by individuals or groups of individuals. This is the kind of small business that everybody tries to encourage, as 75% of the fleet is not working now because of the closure of the border.
In the past Iraq used the port of Aqaba to bring in goods. We hope that once the border crossing opens, it will give better opportunities for these businesses to pick up. At the same time, there will be better movements at the port of Aqaba as there will be more investors coming so we will see that we start to be in the right direction.
We also rely on the GCC as there are many Jordanian expatriates working there. We are impacted by their economies. With the lowering of oil prices and the slowdown they are facing, we also face a difficult situation.
2.6% growth is not bad compared to Europe or to the USA. In Jordan’s case, natural population growth is around 3%, so the economy needs to grow at double that growth rate to be able to establish more job opportunities to absorb the new entrances to the labor market.
The limited economic growth, combined with the population growth, makes us face a high unemployment rate. It was 15% last month but this month, with the new formula of calculating, it reached 18%, which is a very alarming figure. The government is implementing a number of plans to reduce that figure, which is something that takes some time because once again, when you make decisions for the national economy, you are not going to get the results at the flick of a switch, but at least we put ourselves on the right path of job creation.
There are also several initiatives put in place by the Government and the Central Bank to solidify and improve the SME financing. A number of initiatives were put in place and funds were made available with the help of governments or multinational financial institutions to fund start-ups, SMEs and a number of venture capitals and alike.
BN: The Kingdom's public debt ratio to GDP stabilized in the first quarter of the year, and was praised by Standard & Poor’s for example. What are the main measures put in place to reduce the Kingdom’s debt and achieve self-sufficiency, as stated in your budget speech?
OM: The ultimate objective we have with the program of the IMF is to lower debt to GDP ratio. The target is in the upper 70s by 2021-2022. That requires a lot of work every year for us to reduce that level. We started the program last year, and for the last 2 years we stabilized the debt to GDP figures, it hovers around 95%. In order to reduce that gradually, a number of fiscal measures will be put in place again next year and the year after, equaling each year 2.5% of GDP. This would stop putting Jordan on the downward trend of debt to GDP, assuming the GDP growth rates will be as forecasted. I think we do not have high expectations, with an expected growth rate of 2.3% and we will be able to achieve that. It is very important for us to maintain the debt to GDP ratio and have it on the downward track.
BN: It is commonly known a well-functioning financial sector plays a crucial role not just at a macroeconomic level but also in terms of the activities of individuals and businesses. How would you describe Jordan’s financial sector to the eyes of a foreigner?
OM: I think it is the best organized sector in the country. The policies and supervision of the Central Bank have really yielded and we have a robust and strong system. To be able to attract investors, you need things to be in order. A stable, reputable, trustworthy banking system or financial system, and at the same time the stable fiscal affairs of the state, and I am not saying they have to be fabulous, but they have to be stable, that is what we have been working on. You couple that with the right rules and regulations to make the country appealing for investors. It is a very tricky situation where you need to balance all these to keep things in perspective.
BN: How would you also assess the efforts of the banks to finance private sector initiatives?
OM: If you look at the loan to deposit ratio in the banking sector, that will tell you the story. The loan to deposit ratio is around 70%, and the majority of that is going to the private sector, because the Government cannot borrow in local currency from local banks. We can only issue bonds, and the bond is not classified by the banks as a loan, but it is classified as an investment. There is no crowding out of the private sector. The banking sector has enough liquidity to cater for the needs and requirements of the private sector.
BN: Now focusing on our target audience, which are the people of Germany, the relations between both nations go long back in time and touch upon different sectors. Last year for example, Germany’s cooperation reached an all-time high of 472 million euros of assistance. We read an interview when you were General Manager at Housing Bank where you stated, “We are open for business with German investors and banks.” Where would you like to see a stronger cooperation between both nations?
OM: First of all, I would like to thank Germany and the German Government for their efforts to help Jordan, which are highly appreciated and needed. Germany has focused on the very important initiatives and projects that we need, and we have seen a lot of interest in the water sector for example. The German are also working on several projects with the municipalities and in the energy sector.
All the grants and help are coming through direct help to projects rather than the budget and the treasury, because Germany does not give grants for budget support.
The relationship with Germany goes back a long way and the assistance and the magnitude of help has been tremendous over the years. We always look forward to reinforcing and solidifying our relationship with Germany.
I will reiterate what I said in my previous interview: Jordan is open for business. We welcome and encourage German investors and the German business community to think of Jordan as a destination to do business.
BN: Over the past 10 years, Jordan has pursued structural reforms in privatization and liberalization and has created the conditions for public-private partnerships. World Bank President Mr. Jim Yong Kim stated, “The airport that was built in Amman, Jordan is an example of how public private finance can deliver infrastructure projects that bring enormous economic benefits for the country.” What PPP (Private Public Partnership) opportunities would you like to highlight in general to the international community and particularly to German interested parties?
OM: PPPs are extremely important for us because they will help us do projects without committing funds from the budget. It would mean that we free up funds from the budget to tackle the deficit, so we will be reducing deficit and debt and at the same time we will have more projects.
The Airport is one of the success stories worldwide when it comes to that, but there are other PPP projects. We have the water-pumping project from the Southern tip of Jordan to Amman, another one that is being worked on by the Ministry of Water and Irrigation is the Red-Dead canal. It is a blended kind of project because there is a grant element, but also a PPP element and a debt element. It is a hybrid kind of financing. The Red-Dead project is open for the German investors or business community.
A large number of renewable energy projects are available for those who are interested. Today we have wind and sun energy projects. On another note, there is an Estonian company working on generating electricity with oil shale. They have started the project and I think the electricity production will start by the end of 2019. This is very important for us because Jordan has substantial reserves of oil shale and using oil shale means we are saving on our energy bill that is non-renewable. 80% of our electricity is generated by gas, and we are still importing all kinds of oil and oil derivatives. If we start producing electricity from our natural resources, that would definitely help us saving energy costs, which will eventually be reflected on Jordan in general.
The other part is the PPP Unit that was set up about a year and a half ago in this Ministry. Today we have 12 projects that are on the website of the Unit, that range from all kind of different projects if investors are interested.
We are setting up a Public Investment Management (PIM) Unit at the Ministry of Planning and International Cooperation. That Unit would be reclassifying the priority of projects on a national level rather than on a Ministry level. When a Ministry sets up a project, their priority is done at a Ministry level, and not at a national level. At PIM it will be decided whether this specific project will be financed by the budget or will be presented as a PPP opportunity to the private sector. Honestly, the direction is to maximize on PPP projects.
BN: My last question is a more personal question. King Hussein I once said, “All what we hope for is that a day will come, when we have all gone, when people will say that this man has tried, and his family tried. This is all there is to seek in this world.” What is the ultimate goal you would like to achieve before leaving office?
OM: Jordan is resilient and will continue to be resilient. Jordan has seen some tough times in the past but it always came up on top. The current situation is not encouraging; we have been subjected to exogenic shocks that have really impacted our economy and other issues related to our economic growth.
We have been hit by what the IMF calls the SRC (Syrian Refugees Crisis). A recent study done by the IMF showed that Jordan’s economy decelerated by 1% since the SRC started, and that is very frightening. It means that when we say our growth rate is 2%, it should be 3%. We have lost this 1% because of the SRC. If you add all the values of that, we talk about 2 to 2.5 billion USD lost by the economy. Of course, the impact on the infrastructure and on our scarce water supplies puts Jordan under a lot of pressure.
Even though the international community has been trying to help us, I do not think we have been helped enough. Our infrastructure is being depleted as well as our water resources. Our road network was not built to cater 9 million people but for 6 million people that grow at a 3% rate per year. Today, 35% of people living in Jordan are non-Jordanian and half of them are Syrian. They might all not necessarily be registered refugees, but they are refugees in a different way.
That is why I think the international community has to take a hard look at our country, and see that Jordan really deserves and still needs help.
