Jordan: Driving Development

by Oxford Business Group

In a bid to stimulate growth and tackle stubborn poverty rates, Jordan is introducing new legislation to encourage the growth of targeted development areas in less urbanised regions.

The new Development Areas Law of 2008 (DAL), which was passed by Parliament last month, establishes a set of specialised rules to facilitate the creation of economic growth areas within certain zones. Its goals are "enhancing the economic capability of the kingdom, attracting investments and creating an advanced investment environment for economic activities", according to Article 3 of the new legislation.

Under the new regulations, development areas will be designated by the Council of Ministers, but will be under the purview of specially selected master developers, charged with managing the building and operation of the zones. The new law also provides a number of incentives for investment within the specified areas, including a flat rate of 5% income tax on a company's economic activities stemming from within the zone, as well as no Customs duties for materials, machines and equipment used for projects in the area. Provisions are in place to prevent land flipping, while master developers also have the power to establish free zones with development areas.

Rami Al Qusus, general manager of the Mafraq Development Corporation, the developer for the King Hussein Bin Talal Development Area, said the new legislation "will, when taking into account other factors, such as a specific geographical region's comparative advantages and available infrastructure, allow for attractive development opportunities across Jordan's governates".

The King Hussein Bin Talal Development Area is one of the projects that will benefit from the incentives under the DAL. Unveiled by King Abdullah II in 2006, the $750m zone is designed to help boost the status of Mafraq - which is located in the north of the kingdom, at the junction of a number of cross-border land traffic routes - as a regional transport and industrial centre in one of the kingdom's less developed municipalities.

The King Hussein area will provide over 21 sq km of space for logistics and light industry companies, including a $21m project by Petra Engineering to manufacture cooling units; as well a nearly $50m cable manufacturing factory for a venture between MESC Specialised Cables of Saudi Arabia, Jordan New Cable Company and Japan's Fujikura. Also in the pipeline is a $20m aluminium plant from Emaar Industries & Investments' subsidiary Multiforms. A nearby military airfield will be partially converted to allow for civil air traffic, while residential districts, schools, healthcare facilities and recreational areas will be provided. According to Mafraq, the greenfield development, which will take around 15 years to complete, should provide some 29,000 direct jobs in an area where around one-third of the population lives under the poverty line.

In an attempt to capitalise on the growth of the information technology (IT), health and education sectors, the government last year announced a similar development project for the northern Irbid region. Covering 3.12m sq km, the zone will be located near Irbid's university cluster, including the Jordan University of Science and Technology, and, once finished, will be responsible for an estimated 23,000 new jobs across the communications, medical and research industries. A $35m new nursing college will be among the first tenants.

While inspired in part by the success of the existing Aqaba Special Economic Zone (ASEZ), which, according to the Jordan Investment Board (JIB), has exceeded investment targets by over 133%, the DAL is noticeably different from the 2001 legislation that jumpstarted Aqaba's growth.

The Aqaba project, which covers around 375 sq km, offered a basket of tax and tariff incentives, as well as repatriations rights and more flexible operating regulations. The ASEZ had already brought in around $8bn in investment by 2006, surpassing the original target of $6bn, and the ASEZ Authority expects to attract a further $12bn by 2020.

While the DAL provides several advantages to investing in targeted zones, unlike the ASEZ legislation - which was specifically tailored for Aqaba's seaport location - its goal is to provide a broader, more universally applicable legal framework for localised development across the kingdom, without creating a burdensome number of autonomous Customs zones.

The new legislation is part of Jordan's efforts to dramatically increase its foreign direct investment (FDI) inflows, which, according to a recent presentation by JIB, have contributed over 12% of the country's GDP in recent years, as well as to reduce a chronic unemployment rate of around 14%. Alongside the DAL, several new initiatives, including a $7.5bn affordable housing project and a nationwide information and communication technology (ICT) policy, have been introduced to help alleviate the persistently high poverty rates in outlying areas.