Jordan is worried that foreign investors from the Gulf will lose interest in the country as oil revenue drops.
Jordan fears investment drought
AMMAN // Jordan is worried that foreign investors from the Gulf will lose interest in the country as oil revenue drops and the financial crisis begins to weaken regional economies. However, the country's government is responding by promising prompt action - and incentives. The Jordanian prime minister Nader Dahabi said his government would prioritise foreign investments, particularly those from the Gulf, as Jordan's economy is heavily reliant on them.
"My colleagues and I will personally follow up on the investments to facilitate procedures, and provide incentives to encourage investors to come to Jordan and invest in promising sectors," he told parliament this week. Gulf investments in Jordan are estimated at nearly US$12 billion (Dh44.04bn), ranking the region as the country's number one investor, according to a study by the ministry of finance.
Since the third oil boom in the Gulf began two years ago Jordan has been one of the main beneficiary countries, with investors piling into large projects in the telecommunications, property, tourism, energy and agriculture sectors. "We had feasible projects that were attractive for prudent Gulf investors in different industries," said Maen Nsour, the chief executive of the Jordan Investment Board. "Therefore, we decided to open up permanent representative offices in Kuwait, Doha and Abu Dhabi that have been instrumental in attracting investments to Jordan."
The Bahrain-based Islamic investment bank Gulf Finance House is developing Jordan Gate, a $1bn landmark structure at the heart of the capital. Saudi Arabia's Rajihi Group has also set up cement factories in Jordan in an investment of about $210 million. But as the financial crisis cast its shadow across the globe analysts expect a subsequent economic slowdown, and cheaper oil will cause Gulf countries to trim their investments in Jordan and across the region.
There may be some positives for the economy: the government expects that inflation - which has been running at 15.5 per cent on an annual basis until September - will drop by 6 to 7 per cent next year. And for a country that imports all its oil supplies, a drop in prices means that its oil bill will be halved. "The country's imports of oil last year were close to $5bn - or 30 per cent of the total imports. So the oil bill is going to be halved," said Yusuf Mansur, an economist.
"The combination of falling oil prices and the rising dollar will increase the value of Jordanian exports and reduce the cost of imports, which will make intermediate goods and [factory] inputs cheaper for local producers and enable the industry to regain some of its competitiveness." Mr Mansur also said this would ease inflationary pressures, reduce outstanding debt, lower the balance of payments deficit and enhance local spending capacity.
However, one possible drawback is the possibility that foreign investors could withdraw funds from the country's banks, with foreign deposits making up 28 per cent of the total deposits. If this is withdrawn, banks' liquidity will be hit. The government has acted smartly to allay public fears. Late last month, Mr Dahabi pledged the government would guarantee all deposits with all its 23 banks to unlimited amounts until the end of next year.
However, Jordanian analysts and bankers remain concerned an economic slowdown could lead to fund withdrawals and hinder future investments. "Jordan is going to face new challenges in attracting investments ? particularly from major companies from the Gulf who are trying to bypass the world crisis with minimal losses," said Salameh Dirawi, the head of the economic department at Arab Alyawm, an independent daily newspaper.
Bankers said projects funded by Gulf banks would feel the pinch of the crisis and face a challenge to sustain their plans, although economists said it was too early to gauge the impact. A drop in Gulf investments would upset the balance of payments. According to Jordan's central bank, the nation's reserve of foreign currency stands at $6.8bn, with GDP growing at 5.6 per cent this year. The global crisis has also raised government concerns about the flow of Jordanian remittances from the Gulf, which exceeded $2bn this year. Remittances from GCC countries are one of the largest sources of foreign currency earnings in the country. Economists estimate that 90 per cent of Jordanian expatriates work in the Gulf."