Regional conflicts threaten tourism sector

21 July 2015

Countermeasures by the Jordanian government include regulatory adjustments to attract investors and reverse the recent fall in visitor numbers

  • Number of visitors to Petra in the south dropped by 30 per cent between January and May compared with the same period in 2014
  • Statistics indicate Jordan will miss the targets it set for the tourism sector
  • There are several ongoing proposals to reduce taxes and lower electricity prices even outside the special economic zones

Last year was a good one for Jordan’s tourism sector. A 1 per cent contraction in the number of visitors to the country in 2014 was tempered by a 6 per cent increase in tourism receipts that by the end of the year reached JD3.1bn ($4.4bn). Nearly all other tourism-related indicators grew in 2014, including the number of hotels, people directly employed by the sector, and travel agencies.

The concern is that this positive trajectory has not been maintained in 2015. The number of visitors to Petra in the south dropped by 30 per cent between January and May compared with the same period in 2014, while passenger movement at Queen Alia International airport (QAIA) also decreased by 8.1 per cent during the first half of the year compared with the same period a year ago.

The statistics indicate the country will miss the targets it set for the tourism sector. As part of its five-year tourism strategy that ends in 2015, Jordan aims to reach JD4.2bn of tourism receipts at the end of this year, a 35 per cent increase on last year.

Law amendments

While targets may be missed, the upside is that such a focused approach has encouraged several adjustments in terms of the country’s regulations and tax regimes to encourage growth within the sector. One of the most significant developments involves amendments to the Petra Development & Tourism Region Authority (PDTRA) Law, which the Jordan cabinet approved during the second quarter of the year.

The amended PDTRA law has included provisions akin to those implemented in the kingdom’s special economic zones such as the Dead Sea and Aqaba Special Economic Zone. The added incentives that investors can now take advantage of include:

  • A 5 per cent corporate income tax rate
  • Exemption from sales tax and customs duties
  • Full ownership without the need for a Jordanian partner

Apart from amending the PDTRA law, there are several ongoing proposals to reduce taxes and lower electricity prices even outside the special economic zones.

The Jordan Tourism Board (JTB) has also played an instrumental role in promoting and marketing the country as a holiday destination within and outside the Middle East since its formation in 1998.

Luxury and sustainability

The private sector has also played an important role in developing Jordan’s hospitality industry over the years. Between Amman and Aqaba, more than a dozen mixed-use and hotel projects, nearly all privately owned and funded, are scheduled to come on stream between 2015 and 2022.

These include luxury seaside hotel properties in Amman, such as the Porto Dead Sea project, owned by Egypt-based Amer Group, and the $2.1bn Ayla Oasis Development in Aqaba. The latter scheme involves a 300-room Hyatt Regency hotel as well as a boutique hotel, possibly offering 80-100 rooms, which is set for completion by 2016.

Based on these ongoing projects, Jordan expects at least 2,900 additional new hotel rooms by 2017, which will bring its total hotel rooms to at least 30,000 in fewer than three years.

The waning statistics are a far reaching concern for the Jordanian economy. Tourism receipts account for 12 per cent of Jordan’s nominal GDP, estimated by the Washington-based IMF at $35.8bn in 2014.

Major shift

In addition, the scale of the projects under execution presents a major shift towards providing luxury accommodation, particularly in Amman and Aqaba, in order to attract high-end tourists instead of focusing on the staple mass market.

It is also noteworthy that some hotel and mixed-use project developers have started to address the high cost of energy in Jordan as well as the need to incorporate sustainability into their project design. For instance, the Ayla Oasis Development masterplan includes a Greg Norman 18-hole golf course. Given the scarce water supply in Jordan, the golf course will be utilising desalinated water from the Red Sea.

While regulatory obstacles such as high taxes remain, particularly in Amman, industry players are hard at work designing promotions such as travel packages to the Dead Sea or to Petra. There is also a proposal to lower entry fees to Petra to encourage tourists to include it in their itinerary once they are in Jordan.

Aviation infrastructure

Jordan’s strategic goal of significantly increasing tourism receipts includes improving its airport infrastructure, again in partnership with the private sector. In 2007, the government awarded a 25-year concession to the local Airport International Group (AIG) to rehabilitate, expand and operate QAIA.

Phase one of the project has been completed in 2013 and brought the airport’s passenger capacity to 9 million. Phase two, which is due for completion in 2016, will further increase the airport capacity to 12 million. This phase includes a 46,500-square-metre extension to the existing passenger terminal, eight aircraft contact gates and eight remote boarding gates, as well as 10 moving walkways, among others.

AIG’s capital commitment amounted to $850m, with additional funding obtained from the Washington-based World Bank’s International Finance Corporation (IFC). AIG’s shareholders include Abu Dhabi’s Invest AD (38 per cent), Kuwait’s Noor Financial Investment Company (24 per cent), with the remaining shares equally divided between Jordan’s Edgo, Cyprus’s Joannou & Paraskevaides (Overseas), Greece’s J&P Avax and France’s Aeroports de Paris Management.

The recent acquisition by UAE budget airline Air Arabia of a 49 per cent stake in Petra Airlines, Jordan’s chartered carrier, is largely seen as a positive development that will provide the local carrier a major potential source of capital to maintain if not grow its operations. This comes in the wake of UK budget airline EasyJet cancelling its three-times-a-week flight to Amman from London’s Gatwick airport in May 2014.

Another encouraging development is Air Arabia’s plan to set up an international hub at QAIA, its fifth after Sharjah (UAE), Ras al-Khaimah (UAE), Casablanca (Morocco) and Alexandria (Egypt). The new hub in Amman provides Air Arabia access to the European low-cost travel market, which EasyJet used to address.

Worst of times

The interest from airlines demonstrates the massive potential for tourism that Jordan has. It is home to some of the most scenic and significant historical and archeological sites in the Arab world. These include Petra to the south of Amman, the city of Jerash, the Amman citadel, the Dead Sea and Aqaba. These sites have been attracting tourists from the neighbouring Middle East and GCC states as well as internationally, providing Jordan with much needed revenues to help offset its lack of fossil fuel resources.

Security threats are nothing new for the kingdom’s tourism sector. For decades, it has also lived in a highly volatile geopolitical environment as it lies in the line of fire of conflicting nations including Palestine, Israel, Syria and Iraq. The recent emergence of the jihadist group Islamic State in Iraq abd Syria (Isis) out of the Syrian civil war and its advance into Iraq, while inspiring violent terrorist attacks in other parts of the Middle East, further ensured that a large number of tourists stayed away from Jordan at least over the short term due to security concerns.

Staying afloat

Jordan is using all of its experience to tap every available regulatory and marketing instrument at its disposal to keep its tourism industry afloat while fully cooperating with the US and the GCC states in dealing with Isis and other terrorist threats.

Once these threats are contained if not eliminated, there is little else that should set Jordan back from maintaining its niche as a popular holiday destination in the region.

In the meantime, it has become clear that Amman is going to miss its strategic target of hitting JD4.2bn in tourism receipts in 2015. However, without a focused approach and without having ensured private sector participation, its tourism sector could have done a lot worse.

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