In Jordan, King Abdullah has implemented economic reforms to open up the country’s economy and encourage inward investment. It is an example that its neighbour, Syria, would do well to emulate
Jordan’s strong trade links with countries both within the Middle East and the rest of the world has enabled the kingdom to enjoy sustained growth between 2005-2008, when gross domestic product (GDP) growth in the country averaged more than 7 per cent, despite the country lacking serious oil reserves.
The growth has been broadly based in the manufacturing, construction, real estate and services sectors.
Since his accession to the throne in 1999, King Abdullah has implemented significant economic reforms. These include facilitating trade, privatising state-owned companies and eliminating most fuel subsidies. This opening up of Jordan’s economy has been successful in stimulating economic growth by attracting foreign investment and creating new jobs.
Even amid the global recession, Jordan’s economy grew by 2.8 per cent in 2009, according to the International Monetary Fund (IMF). However, that represented a significant deceleration. GDP growth fell by 5 percentage points last year to 2.8 per cent, down from 7.8 per cent in 2008.
For Jordan, the most important thing now is to lower its fiscal deficit, because it has widened in 2009
Mohamed Abu Basha, EFG-Hermes
One of the main reasons for the slowdown was a 2.4 per cent drop in remittances in 2009. Remittances have accounted for about 20 per cent of Jordan’s GDP in recent years. But many Jordanian expatriates working in the Gulf, particularly in the UAE, have suffered from job cuts.
|Remittances (percentage of current amount receipt)|
|Source: Standard & Poor’s|
In addition to remittances, Jordan has strong economic links within the Middle East, especially with the GCC countries, through trade, tourism, grants, and capital flows. There is a strong correlation between Jordan’s GDP growth and growth in GCC member states, especially with regard to the output of the non-oil sector. In 2009, non-oil growth declined significantly in some GCC countries, which in turn had a negative impact on Jordan’s economy. An important aim for Amman in the coming years is to reduce the fiscal deficit, which increased from -5.7 per cent in 2008 to -8.9 per cent in 2009. “For Jordan, the most important thing is to lower the fiscal deficit, because it has widened in 2009,” says Mohamed Abu Basha, an economist at Egyptian-based investment bank EFG-Hermes.
|Syrian exports to the Arab States, 2008 ($ million)|
|Source: Syria Central Bureau of Statistics|
Another potential problem for Jordan’s economy in coming years is its high debt level. Jordan’s total government debt was 66.1 per cent of GDP in 2009, and the IMF expects this to increase to 67.1 per cent by the end of this year.
To assist the government’s development programme in, the World Bank approved a $300m Development Policy Loan (DPL) to Jordan at the end of last year. The World Bank says that the overall objective of the DPL is to support the government’s efforts to improve the economy’s resilience to adverse shocks.
More emphasis should be put on modernising Syria’s regulatory framework to encourage investment
International Monetary Fund
In response to the recession, Jordan is executing several major infrastructure projects to attempt to stimulate the economy. These projects are to be financed by public-private partnerships (PPPs). One of these is a nuclear power plant project, the first such scheme to be built on a PPP basis.
Since the start of 2010, Jordan’s fortunes have turned a corner. Remittance levels have stabilised and tourist arrivals have picked up. GDP growth is forecast to be 4.1 per cent this year, rising to 4.5 per cent in 2011.
But as 2009 showed, Jordan’s economy is closely tied to the economies of other countries in the region, so it is important that it continues to reform and manage its economic policy carefully to reduce the impact of future external shocks.
The challenges facing Damascus are far greater, however. Its oil, which has traditionally been its main source of international earnings, is running out, and Syria has already become a net importer of oil. As production levels fall further, it is increasingly important for Damascus to diversify its economy and to attract foreign investment.
The country’s GDP grew by 4 per cent in 2009, according to the IMF but, by stalling on much-needed economic reform, Syria may have missed the opportunity to transform its economy during the oil boom.
Syria’s GDP is dependent on its oil and agriculture sector. The oil sector provides about 20 per cent of the government’s revenues and about 40 per cent of its export receipts, according to data from the World Bank. Oil, exports of services and remittances are the main sources of foreign earnings, and allow the government to finance its imports.
Despite a modest increase in GDP growth last year, non-oil growth declined by 1.5 percentage points. According to IMF data, Syria’s total import costs were $19.1bn, while its exports were only $16.7bn. In addition, total government debt was 29.1 per cent of GDP in 2009. Moreover, poor climatic conditions, leading to severe drought, have had a negative impact on the agricultural sector in recent years, reducing its share in the economy to about 17 per cent of GDP in 2008, down from 20.4 per cent in 2007, according to the Central Bureau of Statistics.
Despite a moderate improvement in agriculture in 2009, it is clear that Syria needs to push ahead with reforms to remove dependence on these two traditional sectors.
Syria also suffers with rising unemployment. According to the World Bank, unemployment increased to 11 per cent in 2009. Joblessness is particularly high among the young. Some 60 per cent of Syrians are aged below 25, and about 61 per cent of them are out of work. With a population increase of 2 per cent last year – a trend expected to continue for the next few years – the problem looks set to worsen.
Economic reform and an opening up to outside investment is imperative if Syria is to achieve sustainable economic growth to cope with its declining oil reserves and expanding population.
When Bashar al-Assad assumed the presidency in 2000 following the death of his father, it was seen by many as the perfect opportunity to reduce the traditional centrally planned economic policies and cut the country’s expenditure on the armed forces. But a radical reform programme has not been forthcoming.
Instead, limited progress has been made in streamlining tax collection and reducing tax rates; the government is planning to introduce value-added tax in 2011. The exchange rate has been unified and restrictions on access to foreign exchange for transactions have been significantly reduced. The Damascus stock exchange was re-opened in 2009, having been closed for 40 years.
In the banking sector, the share of private banks has grown considerably since they were first established in 2004. According to the IMF, by September 2009 there were 12 private banks, with assets equivalent to 24 per cent of total assets in the country.
But the government still maintains tight control over the Syrian economy and much more needs to be done in terms of further structural reforms. This is particularly important in the fields of export diversification and institutional reform.
In addition, more progress needs to be made in the transition to a market economy. The IMF says that emphasis should be put on modernising the legal and regulatory framework in order to encourage private investment and enhance competitiveness in the market.
Current US sanctions on Syria may also have an impact on its efforts to increase foreign investment. This could prove particularly difficult in the area of technology, where many electronic goods have US-made components.
To allow economic growth, it is vital that Damascus introduces comprehensive economic reforms and reduces restrictions on business development. Syria needs to encourage outside investment to meet its targets, but it will also need to cut bureaucracy and improve its standing in the eyes of the outside business world to encourage foreign investors.
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