JORDAN’S investors are on the move. Buoyed by the July agreement with Israel, they are pouring money into new investment funds. About JD 100 million ($143 million) has been placed with new public investment companies this year. With more shareholding ventures in the pipeline, analysts expect total investment to top JD 200 million ($286 million) by the end of 1995. In Amman, the flood of funds is seen as a vote of confidence in Jordan’s economic future and a mark of new maturity in the local approach to investment (see cover story).
Most of the new companies have mixed aims. The money they raise will be used to promote their own projects and to invest in the financial market, where industrial and tourism schemes are set to be the main attractions. Most of the investment companies are strongly supported by established business figures.
Nabil Mouasher, chairman of the founders’ committee of the International Investment Company for Industry, Trade and Tourism, says the funds will strengthen management and encourage corporate development in a country where business has traditionally been dominated by individuals.
Such ventures are not new to Jordan, but they are having an unprecedented revival. In the early 1980s, Jordan’s money changers were closed, banks were encouraged, and investment funds were squeezed. But the influx of returnees during the 1990/91 Kuwait crisis boosted bank deposits and triggered the new investment boom. After moving into real estate and largely speculative dealing on the Amman Financial Market (AFM – stock exchange), investors are now looking for longer term prospects. The combined capital of the new companies will make them a significant force in the local economy.
One of the first to market was the JD 22 million ($31 million) Union Investment Company (UIC) in May. The offer of five million shares was 40 times oversubscribed.
The founding shareholders of UIC have interests in banking – the Union Bank for Savings and Investment – and industry, including cigarette, cooking oil and eye wear. UIC plans new ventures in steel manufacture, air conditioners, packaging materials, and property development.
UIC managing director Rajai Salfiti is upbeat: ‘We think this country will be the moderator between Israel and the Arabs and it has the political stability, the infrastructure and the institutional framework to underpin major development.’
Salfiti says UIC and its associated companies will invest up to JD 100 million ($143 million) in Jordan in the coming years. ‘Our vision of the future is that there will be a lot of business and we have to be prepared,’ he says.
The confident prediction is echoed by Bank of Jordan chairman Tawfiq Fakhouri, who is a founding member of the JD 35 million ($50 million) Al Iqbal Company for Development and Investment. The speed of the peace process has put some fire into Al Iqbal’s founders and Fakhouri says shares should be floated within the next two months. The company will focus on tourism, new industries, the re-engineering of existing industrial ventures, and direct dealing on the AFM. The group already has factories for paper and cigarette production and is moving into paper conversion, printing and packaging. It has also secured authorisation to set up an Islamic bank in the Palestine self-rule areas with capital of JD 15 million ($21 million).
There is much enthusiasm but the new companies have their critics. They are faulted for focusing on similar areas of investment and lacking a well-aimed strategy. ‘The new companies are not a good model unless they have very specific objectives based on specific studies,’ says Amman Bank for Investments managing director Maher Shukri. ‘Multi-purpose, do anything companies should be against the law.’
Shukri fears that investors are still more attracted by the prospect of rapid riches than a long-term return on their capital. ‘The public are happy to buy and sell quickly. They only want their 5 per cent once the company starts trading,’ he says.
Some observers worry about the danger of over-investment in sectors that are simply fashionable, rather than financially sound. The rush into tourism, by companies with no previous experience of the sector, could be based on over-optimistic assessments of the impact of peace, they say.
Supporters say that the creation of larger investment companies with long-term aims offers the best chance of stabilising the AFM. The exchange is volatile and vulnerable to rumours and short-term profit-taking. Because of this tendency, the authorities are keen to encourage the new investment firms, in the hope that they will lend some much needed stability to the system.
Arab Financial Investment Company chairman Issam Gammo says the changes are long overdue. ‘We are 15 years behind in investing our money in this country. If we had started in the late 1970s, the situation here would be much better.’ he says. His company, set up in 1982, won authorisation in May to go public.
Gammo says Jordanians have always had money to invest, but it is greater confidence in the future that has now persuaded them to repatriate funds and invest at home.
He says there is no reason to fear a boom to bust cycle, as occurred in Egypt in the late 1980s when Islamic investment companies mushroomed almost overnight. Jordan has long experience of the private sector, and public sector companies and the AMF are strictly regulated. The founding shareholders of most of the new companies are also taking advantage of their right to hold up to 75 per cent of shares. Only 25 per cent is being offered for public subscription, underlining the founders commitment to the success of the new ventures, Gammo says.