PART I: COMPETITIVE POSITION OF JORDAN

Transcription

1 PART I: COMPETITIVE POSITION OF JORDAN

2 36 JORDAN S COMPETITIVENESS REPORT Introduction Part I of the Jordan s Competitiveness Report focuses on Jordan s economic performance and its overall competitive position. The information presented serves the purpose of providing the context for the thorough competitive analysis of three selected sectors: banking, insurance, and processed meat. The analysis in Part I reveals recent macro and micro-economic developments, as well as, social aspects that are important to understand the achievements and improvements that Jordan still needs to address in order to strengthen its competitive position. This part of the report will focus its prime attention on assessing the foundation of Jordan s prosperity. The following key elements are analyzed in depth: Macroeconomic performance: a general overview of the current economic achievements including key macroeconomic indicators such as GDP, inflation, public debt, current account, etc. Social performance: Jordan s achievements are also presented in the context of social development. The analysis is additionally based on social indicators derived from the national statistical data available in Jordan. Jordan s performance in international competitive comparisons: Jordan s achievements are compared to other countries, both in the region and elsewhere. The following selected 5 global economic rankings are taken into consideration to show Jordan s progress and position in comparison to international peers: o Doing Business Report 2008 and 2009 ( The World Bank) o Global Competitiveness Index and (GCI by World Economic Forum) o Global Services Location Index 2007 and 2009 (GSLI by AT Kearney) o The World Competitiveness Yearbook 2008 and 2009 (WCY by Institute of Management Development - IMD Lausanne) o Economic Freedom Index 2009 (EFI by the Heritage Foundation) 2. Assessing the Foundation of Jordan s Prosperity Competitiveness is the key word in economic development today as the world economy has entered a new era of competition. Traditional barriers have begun to fall, new sophisticated competitors have emerged, and global rivalry is the new accepted norm. The new emerging development paradigm is one that involves the entire market and every economic institution. Enhancing competitiveness is one of the most important economic challenges and one of the most important goals for increasing Jordan s prosperity. Due to global economic crisis Jordan faces many new challenges in 2009 and the following years. According to the IMD 2009 Report the key challenges for 2009 in Jordan will be: To improve linkages between educational system and market needs To explore new markets to reduce impact of financial crisis on exports To direct development projects towards sectors that create more job opportunities Enhance tax regulations to better promote economic growth Address negative impact of political instability in the region During the last two decades, Jordan has undertaken a program of economic and social reforms. The government has taken the initiative to gradually eliminate fuel subsidies and pass legislation targeting corruption. According to the latest Global Competitiveness Report Jordan is in the transition period between factor driven economy towards efficiency driven stage of development. With high-sustained GDP growth and dynamic per capita income growth Jordan is in the process of developing more efficient production processes and increasing products quality.

3 PART I: COMPETITIVE POSITION OF JORDAN 2. ASSESSING THE FOUNDATION OF JORDAN S PROSPERITY 37 The Jordanian economy displayed encouraging results on several aspects despite the impact of external shocks, namely high prices of energy, food and other primary commodities in international markets during the first three quarters of The above-mentioned positive developments are testimony to the ability of the economy to cope with the external shocks and bypass their negative effects. This could not have been achieved without sound and prudent economic policies adopted this year, backed by sustained economic reforms which contributed in building the right fundamentals of the Jordanian economy over the past years. Jordan continues its structural reform efforts constantly upgrading the capacity of the economy, thus strengthening foundations of competitiveness. Efforts for structural improvements in the public finance management continued in 2008, including launching of the Government Financial Management Information System, the introduction of a Medium-Term Expenditure Framework, improved budget classification, implementation of Chart of Accounts and introduction of the first phase of the Treasury Single Account. 50 Under the EU-support Poverty Alleviation through Local Development program, a comprehensive Poverty Reduction Strategy, was finalized in April 2008 and was endorsed by Cabinet in November In February 2008 Jordan adopted the Development Zones Law to encourage the growth of targeted development areas in less urbanized regions (e.g. Irbid, Mafraq and Ma an). In March 2008, Jordan prepared with the help of the International Labor Organization, the first draft of an employment strategy, which was open to consultations until late In the areas of social inclusion and social protection, Jordan worked with the World Bank to assess the impact of the price shock and the fiscal situation of low income. With the World Bank assistance, Jordan developed a social safety net based on the following components: Increase of salaries for public employees Stable prices of bread, water and electricity Expansion of national health insurance program Better housing for the poor Provision of direct cash subsidies to almost 3.5 million Jordanians with an annual income of less than approximately EUR 1,110 (JOD 1,000). Jordan also worked on the preparation of the Social Security Law that includes the establishment of the maternity and unemployment funds and the progressive coverage of the social security to all workers until Jordan is pursuing sustainable development through its National Agenda 52 (Kulluna al Urdun), which links environmental sustainability and reforms in sectors such as water, agriculture, tourism, health, energy, industry and transport. 53 One of the examples being the Ministry of Industry and Trade and IFCorporation (member of the World Bank Group), which launched the first inspection reform strategy. It seeks to increase inspection efficiency and effectiveness of government agencies and improve their regulations on issues like labor, health, safety, and environment. It will help to ensure that private sector systematically improves its regulatory functions Macroeconomic Performance The macroeconomic performance was favorable in 2008; Growth of real GDP was encouraging, Inflation gradually dropped in late 2008 after picking up due to the increase of international prices of fuel and food, sizable inflow of FDI enabled to increase foreign reserves, on the other hand, macroeconomic achievements have been translated to a decline in poverty rates and overall improvement in the social well-being. The recent achievements were reflected in the country s improved ranking in the UNDP Human Development Index from 94 in 2000 to 86 in the latest 2007/2008 ranking. 55 Adverse impact of the financial crisis on the country in 2008 remained limited and under control due to the small market size, relatively unsophisticated financial product offering and limited exposure to international markets. The following macroeconomic analysis provides basic information on the recent Jordan s developments. 50 IMF Country Report No. 09/159, May The strategy focuses on economic development, social protection, human capital development and governance. 52 The National Agenda provides the medium term economic and social perspective, covering years It gives a general overview of actions, strategies, and targets to be achieved within the given period of time. As part of the monitoring efforts, the Ministry of Planning and International Cooperation issued Executive Program of for the National Agenda(Kulluna Al-Urdun). Its main purpose was to present goals, action, and policies together with timeline, budget, and indicators. 53 Implementation of the European Neighborhood Policy in 2008 Progress Report Jordan, European Commission Working Document, SEC(2009) 517/2, Brussels 23/04/09 54 In environment of rapid growth for private sector, effective inspection measures will protect public good and Jordanian citizens. On the other hand inspections can be heavy burden for businesses in terms of time and cost. 55 Human Development Report 2007/2008, UNDP

4 38 JORDAN S COMPETITIVENESS REPORT Growth of GDP GDP has been growing at an impressive average rate of 8.3% between 2004 and The real GDP growth in 2008 is 7.9% compared to 8.9% in It has been spurred by capital formation supported by the increase of productivity, domestic exports, and continuous inflow of foreign direct investment and private consumption. The growth rate of the real GDP in the years are shown in the figure below: Figure I.2.1: Real GDP Growth Rate (in %) 56 GDP at market prices was recorded at USD 11,740 billion in 2004 and USD 21.3 billion in The GDP per capita almost doubled and reached the level of USD 3,641 in The major contribution to GDP came from manufacturing industries, transport storage & communications, producers of government services, and real estate sector. Altogether they consist of almost 55% of the GDP in The following table shows the contribution of different sectors to GDP. Table I.2.1: Contribution of Selected Sectors to GDP in 2008 (%) 58 Service sector is the main contributor of GDP accounted for 72.9% followed by industry 24.0%, and agriculture 3.1%. Jordan s industrial sector is growing, aided by the government s concerted efforts to push the kingdom towards a more competitive economy. The industrial sector, covering both mining & quarrying, and manufacturing grew by 6.9% at constant basic prices in 2008 against a growth rate of -0.4% in SECTORS 2008 (%) Financial & Insurance services 7.8 Real Estate Sector 10.3 Manufacturing Industry 17.1 Mining and Quarrying Industry 2.1 Telecommunications, Transport and Storage 14.9 Producers of Government Services 12.6 Wholesale & Retail Trade 8.9 Restaurants & Hotels 1.1 Construction 4.8 Community, Social and Personal Services 3.9 Electricity & Water 2.4 Agriculture, Hunting, forestry & fishing 3.1 Nevertheless, the sector s relative importance to GDP, at constant basic prices, declined slightly in 2008 compared to its level in 2007 to stand at 19.3% against 19.4% in Annual Report, Summary of Economic Developments in 2008, Central Bank of Jordan 57 Own calculations: GDP of USD 21.3 billion divided by 5,85 million Jordanians by the end of 2008 (according to the Central Bank data) 58 Department of Statistics

5 PART I: COMPETITIVE POSITION OF JORDAN 2. ASSESSING THE FOUNDATION OF JORDAN S PROSPERITY 39 The following figures show Jordan s results in comparison with international peers from the region: Figure I.2.2: Comparison of GDP per Capita (current prices) in the Selected MENA Countries Between ; source: IMF World Economic Database Outlook, April 2009 (note: some numbers are IMF estimates) Lower Income MENA Countries Higher Income MENA Countries Figure I.2.3: Assessing Regional Prosperity GDP per Capita (in current prices, USD) vs. GDP % of Change in 2008; source: IMF World Economic Database Outlook, April 2009 (note: some numbers are IMF estimates) Country

6 40 JORDAN S COMPETITIVENESS REPORT Fiscal Outlook In the previous year s government expenditures have been one of the main causes of concern for the country s macroeconomic outlook. Continuing trend of large fiscal deficits put tremendous pressure on the debt situation. The general budget displayed a positive performance in 2008 compared to the budget outcome of the previous year. This achievement was driven by key structural reforms at the public budget and debt fronts, as well as the growth of foreign grants in This performance came despite the external shocks and domestic challenges faced Jordan s economy. It coincided with the government s implementation of further fiscal reform measures: the liberalization of fuel prices in the domestic market; strengthening the social safety net; as well as execution of the early debt buyback agreement with Paris Club creditors. The aforementioned developments resulted in an additional burden on the general budget in 2008, which recorded a fiscal deficit (including grants) amounting to JD million, or 4.9% of nominal GDP, compared to a deficit in the amount of JD 615 million, or 5.1% of GDP, in Figure I.2.4: Budget Surplus/Deficit as % of GDP (After Grants) 59 The fiscal deficit recorded in 2008 was an outcome of the growth in both public revenues and expenditures by 19.3% and 18.4%, respectively, compared to their levels in It is worth indicating that the budgetary figures in 2008 outperformed the estimated ones in the General Budget Law (GBL) and its two supplements for the same year, which estimated the fiscal deficit at JD million, or 6.0% of GDP, reflecting an improvement of 1.1% points. It was due to the increase in both public expenditures and public revenues by 3.9% and 13.1%, respectively, compared to their estimated levels. On the revenue side, the public revenues were up by JD million to stand at JD 4,738.3 million, or 31.5% of GDP. This growth was the combined result of the increase in domestic revenues by 10.8% and the increase in foreign grants by 109.1%. On the side of public expenditures, the figures indicated that public expenditures increased by JD million to reach JD 5,431.0 million, or 36.1% of GDP. This increase was the result of the growth in current and capital expenditures by 19.7% and 12.7%, respectively. The aforementioned increase caused budget deficit that amounted JD million, on one hand, and the settlement of the treasury account with the CBJ in the amount of JD million, on the other. This comes in conformity with the government s approach towards meeting the budget financing needs through issuing bonds and treasury bills instead of resorting to external borrowing. 60 In the area of public debt, on one hand the net outstanding balance of internal public debt was up by 66.7% at the end of 2008 against 36.% at the end of 2007; totaling JD million, or 32.6% of GDP. 61 On the other, the outstanding balance of external public debt declined by JD 1,613.1million at the end of 2008 compared to its level at the end 59 Annual Report, Summary of Economic Developments in 2008, Central Bank of Jordan 60 MoF 61 CBJ.

7 PART I: COMPETITIVE POSITION OF JORDAN 2. ASSESSING THE FOUNDATION OF JORDAN S PROSPERITY 41 of 2007; standing at JD million, or 24.2% of GDP. This drop was mainly a result of the execution of the debt buyback agreement for export debt with the Paris Club creditors summing up, net outstanding balance of public debt, domestic and external was up by JD million at the end of 2008; standing at JD 8,247.7million, or 54.8% of GDP External Sector: Trade, and Foreign Direct Investments (FDI s) Jordan s trade flow continues to be fairly robust with growing exports and imports, together with high remittances from Jordanians working overseas. Jordan s trade and current account deficits have been increasing since 2003, with the onset of the Iraq war. The trade deficit reflects an ongoing widening gap that emerged in 2003 primarily as a result of a surge in imports driven by increasing oil prices precipitated by the Gulf war. As oil accounts for significant portion of Jordanian imports, the country s trade balance is vulnerable to external shocks caused by volatility in oil prices. The indicators of the external sector displayed positive developments in 2008 in terms of exports. In this context, the domestic exports grew by 39.2% up from 8.7% in While Imports increased by 24.1% compared to 18.7% in As a result, the trade balance deficit increased by 13.6% in 2008 to total JD 6,427.9 million compared with JD 5,658.6 million in Figure I.2.5: Major Developments of External Trade Indicators , JD Billion (Including Re-export and Imports of Non-Residents) 62 The current account deficit still remains the highest in the MENA region, both in nominal terms and as a percentage of GDP, despite decreasing from JD 2,080.1 million (17.2% of GDP) in 2007 to JD 1,697.5 million (11.3% of GDP) in Moreover, the transactions in the capital and financial account resulted in net inflows in the amount of JD million in 2008 compared with JD 1,158.8 million in Figure I.2.6: Current Account Balance In USD Billion In the Selected MENA Countries Between ; source: IMF World Economic Database Outlook, April 2009 (note: some numbers are IMF estimates) Figure I.2.7: Current Account Balance as % of GDP In the Selected MENA Countries Between ; source: IMF World Economic Database Outlook, April 2009 (note: some numbers are IMF estimates) 62 Annual Report, Summary of Economic Developments in 2008, Central Bank of Jordan 63 Ibid.

8 42 JORDAN S COMPETITIVENESS REPORT In terms of the distribution of domestic exports, the majority goes to the Arab Free Trade Agreement countries (41.7% in 2008 out of which 31.1% to Iraq). The second destination for Jordan s domestic export is Asian non-arab countries with 33.3%, and the third - North America 16.8%. In terms of re-exporting, it also showed increase of 29,4% in comparison with 2007, and mainly for vehicles, machines, and machine tools. Major exported items are: clothes (the US), potash (India, China, Malaysia), fertilizers (India, Japan, Saudi Arabia), phosphates (India, Indonesia, Japan), medical and pharmaceutical products (Saudi Arabia, Algeria, Sudan), fruits and vegetables (Iraq, Syria, UAE). 64 In 2008 imports increased by 24.1% mainly due to the following products: crude oil and steel. 33.1% of Jordan s imports came from the Arab Free Trade Agreement countries (especially from Saudi Arabia 63.7%. The second source of imports was from Asian non-arab countries: 29.1% mainly China. The third was the EU with 21% mainly from Germany. Major items imported are the following: crude oil (Saudi Arabia), transport equipment and spare parts (Germany, Japan, South Korea), iron and steel (Ukraine, China, Russia), telecommunication equipment (China, Hungary, Finland, South Korea), textile yarn/fabrics (China, Taiwan, Turkey), machinery (Germany, Italy, Norway), petroleum products (Turkey, France, Kuwait). 65 Investment Jordan economy has enjoyed the foreign investor s sentiment for many years due to favorable macroeconomic data, constant modernization efforts, as well as political and social stability. Foreign direct investment (FDIs) grew during , reaching its peak in 2006 with amount of USD 3,272.2 million, and stabilized at the level of USD 1,953.2 million in 2007 and USD 1,969.9 million in Jordan Investment Board (JIB) continued its efforts towards stimulating domestic and attracting foreign investments through offering financial incentives and exemptions offered by the Investment Promotion Law (IPL). There were visible efforts to simplify the procedures of registration and grant licenses for investment projects. It is worth mentioning in this regards that investments in projects which do not fall within the sectors stipulated by the Law amounted to JD million in Accordingly, had this amount included in the total investments benefiting from the IPL, the volume of investment benefiting from the IPL would have risen to JD 2,268.0 million against JD 2,221 million in 2007; an increase in the amount of JD 47 million, or 2.1%. The number of projects benefiting from the IPL totaled 467 in 2008; up from in Most of these projects were concentrated in the industrial sector which accounted for 413 projects, or 88.4 %, of the total number of projects. Figure I.2.8: Foreign Direct Investment (In USD Million) Monetary Policy and Financial Sector Jordanian government does not have complete flexibility in its monetary policy given the peg of the dinar to the US dollar. However the government continues a concerted effort through interest rate adjustments and open market operations to contain inflationary pressures that have arisen due to easy liquidity in the regional and domestic markets, high oil prices, as well as financial crisis. The reason for sharp increase of the inflation rate in 2008 (13.9%) was 64 Department of Statistics. 65 Ibid. 66 CBJ.

9 PART I: COMPETITIVE POSITION OF JORDAN 2. ASSESSING THE FOUNDATION OF JORDAN S PROSPERITY 43 associated with higher prices of oil and food at the international markets as well as depreciation of the dinar. 67 In 2009 the situation seems to be under full control and the expected inflation rate at the end of 2009 should decrease to all most 1.5%, mainly due to the decline in international prices of food and fuel, as well as strengthening of US dollar. Figure I.2.9: Inflation Rate (In Consumer Price Index %) 68 Figure I.2.10: Comparison Between Annual % Change In Inflation Rate (Consumer Prices) Between In the Selected MENA Countries 69 Throughout 2008 and in 2009 the Central Bank of Jordan CBJ has been pursuing an interactive and conservative monetary policy in response to the domestic economic developments and the repercussions of the global financial crisis, which followed the upward shifting in the prices of basic commodities. The CBJ was keen on achieving the best possible balance between containing inflationary pressures and protecting the exchange rate, on one hand, and stimulating the economic activity, on the other. In the area of managing monetary policy, the CBJ stopped issuing certificates of deposits, as the main instrument within the framework of indirect management of monetary policy aiming to control the volume of liquidity in the economy. Accordingly, the growth of domestic liquidity was up by 6.7% points in 2008 compared to its level in the preceding year to stand at 17.3%. On the level of the banking policy, the CBJ adopted further measures and procedures in 2008 to enhance the soundness of the banking institutions and strengthen their capacity in the area of risk management, based on international best practices, particularly the Accords of Basel II Committee. The CBJ has also adopted several precautionary measures which contributed in empowering domestic banks to avoid the risks which hit international banking institutions. Further, the government has fully guaranteed all bank deposits in local and foreign currencies as well as inter-bank lending until the end of As for the developments in the operations of licensed banks in 2008; the outstanding balance of extended credit facilities grew at 15.5%, or JD 1,748.7 million. The facilities extended to the private sector (resident) accounted for 83.2 % of the above-mentioned increase. Similarly, total deposits in JD were up by 27%, or JD 2,883.1 million. The deposits of the private sector (resident) accounted for 84.8 % of the increase in total deposits. The developments in the interest rates at the banking sector indicated that interest rates on time deposits were up at a slower pace than the increase in the interest rates on credit facilities. Consequently, the interest rate margin, measured by the difference between the rate on loans and advances and the rate on time deposits, was up to stand at 3.82 percentage points at the end of 2008 compared to 3.3 percentage points at the end of Due to the weakening of US dollar and the transmission through peg mechanism: source: IMF Country Report No. 09/159, May Department of Statistics. 69 IMF World Economic Database Outlook, April 2009 (note: some numbers are IMF estimates).

10 44 JORDAN S COMPETITIVENESS REPORT Social Development As a result of the positive economic performance during the last few years in Jordan, significant achievements were accomplished in the social development aspect. For example the unemployment rate declined to 12.7% in 2008 from 13.1% in Moreover, poverty rates declined from 14.2 in 2004 down to 13% in Population growth rate stood at 2.2% for the years 2007 and 2008, while the dependency ratio decreased from 68.4% in 2007 to reach 68.1% in The table below demonstrates a chosen set of socio-economic development indicators: Table I.2.2: Selected Social Indicators For INDICATOR 2008 INDICATOR 2008 Population number (000) Crude Activity Rate (%) 25.0 Population less than 15 years of age(%) 37.3 Male (%) 40.3 Percentage of urban population 82.6 Female (%) 9.0 Population Density (km 2 ) 65.9 Refined Activity Rate 39.5 Average household size (persons) 5.4 Male 64.0 Life expectancy (years) 73 Female 14.2 Male (years) 71.6 Unemployment rate 12.7 Female(years) 74.4 Male 10.1 Population Growth Rate (%) 2.2 Female 24.4 Sex Ratio (male to female) Self employed (in total employment) 8.3 Illiteracy proportion 15+ year 7.7 Dependency Ratio 68.1 Male (%) 4.1 Population/hospital bed 522 Female (%) 11.4 Road accidents (per 1,000 population) 17.3 Students/teachers % (basic Education) 19.2 Students/teachers % (Secondary Education) Jordan Performance in International Competitive Comparisons The following chapter covers some international reports that focus on comparing countries in terms of social and economic development. Using a certain list of indicators, the studies give a good and comparable reference to the situation in Jordan, both in terms of possible further reforms and systemic changes, but also of the position of the countries in global rankings. The results of the following studies are presented: Doing Business Report 2008 and 2009 (DBR by the World Bank) Global Competitiveness Index and (GCI by World Economic Forum) Global Services Location Index 2007 and 2009 (GSLI by AT Kearney) The World Competitiveness Yearbook 2008 and 2009 (WCY by IMD Lausanne) Economic Freedom Index 2009 (EFI by the Heritage Foundation) Doing Business Report 2008/ Doing Business 2009 is the sixth in a series of annual reports investigating regulations that enhance business activity and those that constrain it. Doing Business presents quantitative indicators on business regulations and the protection of property rights that can be compared across 181 economies, from Afghanistan to Zimbabwe, over time. A set of regulations affecting 10 stages of a business s life are measured : starting a business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business. Data in Doing Business 2009 are current as of June 1, Department of Statistics 71 Doing Business Report, World Bank 2009

11 PART I: COMPETITIVE POSITION OF JORDAN 2. ASSESSING THE FOUNDATION OF JORDAN S PROSPERITY 45 The indicators are used to analyze economic outcomes and identify what reforms have worked, where, and why. The Doing Business methodology has limitations. Other areas important to business such as an economy s proximity to large markets, the quality of its infrastructure services (other than those related to trading across borders), the security of property from theft and looting, the transparency of government procurement, macroeconomic conditions or the underlying strength of institutions, are not studied directly by Doing Business. To make the data comparable across economies, the indicators refer to a specific type of business, generally a local limited liability company operating in the largest business city. Because standard assumptions are used in the data collection, comparisons and benchmarks are valid across economies. The data not only highlight the extent of obstacles to doing business; they also help identify the source of those obstacles, supporting policymakers in designing reform. The data set covers 181 economies: 46 in Sub-Saharan Africa, 32 in Latin America and The Caribbean, 25 in Eastern Europe and Central Asia, 24 in East Asia and Pacific, 19 in the Middle East and North Africa and 8 in South Asia, as well as 27 OECD high-income economies as benchmarks. The data used for Jordan s profile come from the Doing Business database and are summarized in graphs. These graphs allow a comparison of the economies in each region not only with one another but also with the good practice economy for each indicator. The good-practice economies are identified by their position in each indicator as well as their overall ranking and by their capacity to provide good examples of business regulation to other countries. These good-practice economies do not necessarily rank number 1 in the topic or indicator, but they are in the top 10. Jordan is ranked 101 out of 181 economies. Singapore is the top ranked economy in the Ease of Doing Business. Figure I.2.11: Benchmark of Selected Countries In Doing Business Report 2009

12 46 JORDAN S COMPETITIVENESS REPORT Table I.2.3: Jordan s Ranking In Doing Business Report 2008/2009 Indicator Change Ease of Doing Business (overall index) 80 th 101 st t Starting a Business 133 rd 131 st t Dealing with Construction Permits 71 st 74 th t Employing Workers 45 th 52 nd t Registering Property 109 th 115 th t Getting Credit 84 th 123 rd t Protecting Investors 107 th 113 th t Paying Taxes 19 th 22 nd t Trading Across Borders 59 th 74 th t Enforcing Contracts 128 th 128 th = Closing a Business 87 th 93 rd t improved s deteriorated t remained the same = The only reform which was included in the 2009 Report was that Jordan reduced the paid-in minimum capital requirement for starting a business by 97%. 72 Global Competitiveness Index (GCI) 73 The World Economic Forum publishes a yearly report covering 134 developed and developing economies. The report, Global Competitive Index (GCI), is based on the newest theoretical and empirical research, consisting of over 90 variables; mainly obtained by Executive Opinion Surveys and publically available information. GCI looks at competitiveness, as a combination of well-managed macroeconomic frameworks, strong institutions, infrastructure, and workforce. GCI is grouped through sub components of 12 pillars and takes into consideration drivers of competitiveness and stages of development. According to this year s GCI, Jordan remains a transition economy and continues to be factordriven and efficiency-driven. Jordan placed 48th in 2009, one spot higher than in 2008, and remains in the top 50 competitive countries, among the strongest OECD economies in the world. Although countries like Saudi Arabia (27th) and the United Arab Emirates (31st) ranked higher than Jordan, other countries in the region, such as Egypt (81st), are far behind. While Jordan, Saudi Arabia, and United Arab Emirates have seen improvement from year 2008 to 2009, Egypt has decreased its rank by four places. 72 The Government of Jordan continues to be committed to further improving the environment for starting and operating businesses in Jordan, and reducing constraints on private sector competitiveness. To this end, the government has recently launched several reforms related to enhancing the business climate in Jordan. - The 1st Annual Policy Forum on Investment Climate in Jordan was held in coordination with the World Bank during the period 24-25/2/2008. The Forum concluded a series of recommendations to be implemented in order to improve Jordan s performance in the Doing Business Indicators. -The Ministry of Planning and International Cooperation hosted a series stakeholder meetings, at the secretary general s level, around the 10 Doing Business Indicators. The outcome of these meetings was a comprehensive reform package to enhance Jordan s ranking in the Doing Business Report. -The Plan was presented to H.E the Prime Minister on 23 June H.E the Prime Minister endorsed the plan and tasked the Ministry of Planning and International Cooperation and the Ministry of Industry and Trade with following up on the implementation of the plan. To follow up on the plan, periodic meetings are held at the Secretary General s level. 73 Global Competitiveness Index, World Economic Forum 2009

13 PART I: COMPETITIVE POSITION OF JORDAN 2. ASSESSING THE FOUNDATION OF JORDAN S PROSPERITY 47 Table I.2.4: Global Competitive Index Ratings Country Rating out of 131 countries Rating out of 134 countries Jordan 49th 48th Saudi Arabia 35th 27th Egypt 77th 81st Libya 88th 91st USA 1st 1st Switzerland 2nd 2nd Ireland 22nd 22nd From the three major groupings of the pillars - Basic Requirements, Efficiency Enhancers, and innovation - the weakest part of Jordan s competitiveness lies in the Efficiency Enhancers (63rd). Labor Market Efficiency (93rd), in particular filing practices and efficient use of talent, alongside Market Size (88th), were the main disadvantages. Although the market size cannot be changed, Labor Market Efficiencies can be improved upon. High quality of educational systems and good market efficiencies were the main advantages of Jordan in this category. Figure I.2.12: Jordan s Performance on the 12 Pillars of the GCI (Lower Rank Means Better Performance) Figure I.2.13: Global Competitiveness Index Ratings, MENA Countries In terms of the Basic Requirements (47th), Jordan placed 25th with its public institutions. Infrastructure (44th) is strong with a well-established air and road transport. The disadvantages in this category were based on low quality of railroads and the infrastructure of telephone lines. Macroeconomic stability (111th) pulled back the overall rating of Jordan, as a result of a high government deficit and low national savings rate, while inflation remains a cause for concern. The institutions pillar is divided into two parts: private institutions and public institutions. As one pillar (both private and public institutions merged together) the Jordan s ranking is 27 out of 134 for the Lastly, Innovation and Sophistication factors (47th) of Jordan were relatively strong, as a consequence of many scientists and engineers in the country, along with many local suppliers. Overall, from the Global Competitive Index, Jordan s competitive advantage comes from strong institutions, infrastructures, and workforce. Managing macroeconomic frameworks remains a challenge. Little change can be seen from 2008, and a stagnation may become a disadvantage as countries in the region, Saudi Arabia and UAE, and becoming more competitive.

14 48 JORDAN S COMPETITIVENESS REPORT Figure I.2.14: Regional Prosperity GDP per Capita (In Current Prices, 2008) vs. GCI Ranking for source: IMF World Economic Database Outlook, April 2009 (note: some numbers are IMF estimates) Country Global Services Location Index (GSLI) The trend to move operations offshore is typically done to lower business costs. The A.T. Kearney Global Services Location Index measures the cost advantage of the leading offshore economies and analyzes the top 50 offshore locations by comparing and ranking functions like IT services and support, contact centers, and back-office support. A given country s score is a combination of 43 measurements, including, financial attractiveness, people and skills availability, and business environment. The rankings are prepared every two years. Overall, competition among the low-cost countries has been increasing each year and the wage advantage has started to decline. In 2007, ten new countries were added to the list, indicating an increase in competition for the existing offshore locations. In 2009, China, India, and Malaysia continue to be the top ranked destinations. The shift from central and Eastern European to the MENA region is emerging as the key region for off shoring. Higher labor costs and appreciation of currency to the US dollar has made Eastern and Central Europe less attractive for businesses. Additionally, the global financial crisis has decreased the number of new companies off shoring, but the layoffs in high-cost countries are not leading to layoffs in the offshore sites. In 2009 s GSLI report, Jordan ranked 9th, above UAE (29th), Turkey (44th), and Israel (49th). In fact, they placed second, after Egypt (6th) from the MENA. Jordan made it into the top ten for the first time, mainly because of their solid IT capabilities, favorable business environment, and a well educated work force. 74 Global Services Location Index, AT Kearney 2009

15 PART I: COMPETITIVE POSITION OF JORDAN 2. ASSESSING THE FOUNDATION OF JORDAN S PROSPERITY 49 Table I.2.5: Selected Countries Rating of the GSLI 2007/2009 Country India 1st 1st China 2nd 2nd Egypt 13th 6th Jordan 14th 9th UAE 20th 29th Turkey 49th 44th Israel 38th 49th All countries from the Middle East and Northern Africa that made the top 50 ranking, maintained or improved their ranks. The MENA region made significant gains this year as the quality and availability of their labor forces improved. For Jordan, it increased by 5 ranks from 2007, although a slight decreased in score of every major category. The MENA countries whose rankings fell include UAE and Israel, as a result of lower scores in business environment and financial attractiveness. As to the key offshore countries in the MENA region: Saudi Arabia, in particular Dubai, has the advantage of liberal tax laws and residency laws, and Egypt and Israel has the largest talent base. The low financial attractiveness of Israel sends foreign businesses that are looking to lower their costs, to countries like Egypt or Jordan. These two countries are emerging as the key off shoring region because of their well education populations and near location to Europe. In general, most developed countries improved their scores in 2009; they still experienced a fall in rankings because the emerging market countries improved their score in business environment and people skills at a higher rate. The dynamics of global off shoring are clearly changing and the MENA countries look like a very promising new destination. The World Competitiveness Yearbook (WCY) 75 The World Competitiveness Yearbook (WCY) by IMD Lausanne analyzes and ranks and the ability of nations to create and maintain an environment, which sustains the competitiveness of an enterprise. A business entity operates in a national environment, which enhances or hinders the ability to compete domestically. Based on the analysis of the methodology of the WCY, it divides the national environment into four main factors: Economic performance Government efficiency Business efficiency Infrastructure Altogether, the WCY features 20 sub-factors. These 20 sub-factors comprise of more than 300 criteria. Finally, aggregating the results of the 20 sub- factors makes up the total consolidation. This leads to the overall ranking of the WCY. There were 57 countries analyzed in 2009 (compared to 55 in 2008). Table I.2.6: Selected Countries Rating of the WCY 2008/ Country USA 1st 1st Qatar not assessed 14th Netherlands 10th 10th Jordan 34th 41st India 29th 30th Turkey 48th 47th Israel 20th 24th 75 The World Competitiveness Yearbook, IMD Lausanne Ibid.

16 50 JORDAN S COMPETITIVENESS REPORT The report Lists the Key Challenges for 2009: Improve the linkages between the educational system and market needs Explore new markets to reduce the impact of the financial crisis on exports Direct development project towards sectors that create more job opportunities Enhance tax regulations to better promote economic growth Address the negative impact of political instability in the region Selected Improvements: Direct investment flows abroad as a % of GDP Number of internet users per 1000 people Government subsidies to private and public companies as a % of GDP Exports of goods USD billions Stock market capitalization as a % of GDP GDP per capita in USD Number of computers per 1000 people Exports of commercial services in USD billions Direct investment stocks abroad in USD billions Selected Declines: Average annual rate of consumer price inflation Direct investment flows inward as a % of GDP Venture capital is easily available for businesses Adaptability of companies to market changes is high Bureaucracy does not hinder business activity Stock market provide adequate financing to companies The brain (will-educated and skilled people) does not hinder competitiveness Table I.2.7: Comparing Jordan s Ranking between 2008 and 2009 Based on the WCY Report (57 countries analyzed in 2009) Category Change Domestic economy 44th 39th s International trade 24th 6th s International investment 35th 35th = Employment 54th 56th t Prices 32nd 44th t Public finance 54th 41st s Fiscal policy 16th 21st t Institutional framework 22nd 32nd t Business legislation 13th 24th t Societal framework 28th 38th t Productivity & efficiency 2nd 46th t Labor market 43rd 56th t Finance 30th 28th s Management practices 22nd 44th t Attitudes and values 17th 39th t Basic infrastructure 46th 51st t Technological infrastructure 33rd 39th t Scientific infrastructure 25th 26th t Health and environment 39th 46th t Education 23rd 35th t improved s deteriorated t remained the same =

17 PART I: COMPETITIVE POSITION OF JORDAN 2. ASSESSING THE FOUNDATION OF JORDAN S PROSPERITY 51 Economic Freedom Index by Heritage Foundation 77 According to the Economic Freedom Index 2009 (183 economies assessed), that was published by the Heritage Foundation, Jordan scored the 51st freest in the Jordan s score has increased by 1.3 points since last year mostly due to increases in the following categories: business freedom, trade freedom and government size, and declines in freedom from corruption. Jordan is ranked 6th out of 17 countries in the Middle East/North Africa region. The most free economy in the region was Bahrain scored 74,8 followed by Israel, Oman, Qatar, Kuwait, and Jordan. Economic Freedom Index is divided into ten categories. The following table shows the dimensions of the Index together with Jordan s scores and average for the 183 countries. Table I.2.8: Ten Economic Freedoms of Jordan 2009 Rank Indicator AVG Rank Indicator AVG 68.9 Business Freedom Investment Freedom Trade Freedom Financial Freedom Fiscal Freedom Property Rights Government Size Fdm. from Corruption Monetary Freedom Labor Freedom 61.3 As a summary, the table below shows Jordan s positions in different global rankings analyzed and their changes in time. Table I.2.9: Cumulative Results From Analyzed Reports Jordan Ratings 78 Type of report/index Previous ratings Recent ratings Scores Doing Business Report 80 (178) 101 (181) t Global Competitiveness Report 49 (131) 48 (134) s Global Service Location Index (50) 9 (50) s World Competitiveness Yearbook 34 (55) 41 (57) t Economic Freedom Index No data 51 (183) improved s deteriorated t remained the same = Note: in brackets there is total number of countries analyzed for the specific report in a given year.

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