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?
اضافة اعلان
It is a prickly
and controversial question, and the answer, at least to some, is polemical.
(Photo: Envato Elements)
According to the
UN Conference on Trade and Development (UNCTAD), FDI refers to 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
afterwards, 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 an 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 policy makers. 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 which
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).
The writer is CEO of the Envision Consulting Group and
former minister of state for economic affairs.
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