Complex Made Simple

Why is Jordan selling the country?

When we hear of governments selling assets in the region, Saudi comes to mind with the famous 5% sale of the Kingdom’s Aramco, slated for end 2018, early 2019.

But Jordan?

Jordan, if you didn’t know, in fact leads the MENA region with ongoing and expanding privatization practices. The latest of these is the sale of a 51% stake in Airport International Group (AIG), the company that runs the Queen Alia Airport under a Build-Operate-Transfer (BOT) concession agreement, as the Jordan Times reports. The new major stakeholder is none other than Groupe Aéroports de Paris (ADP), the company that runs Paris’ Charles De Gaulle Airport and 26 other airports worldwide. ADP committed $615 million to its stake, which puts the airport at an estimated value of $1.2 billion.

While this remains the first sale of a secondary infrastructure asset in the Middle East, it is not the first time the Jordanian government has resorted to aid from the private sector.

The country is poor in natural resources such as oil and gas and thus has had to wisely implement a strategy to privatize many of its state-owned assets.

A long history of privatization

Jordan has had a very long history of attracting foreign direct investments (FDI) due to privatization policies.

Jordan’s privatization efforts began in 1986, but launched into full swing in the 90s, with the establishment of a special unit called the Executive Privatization Unit (EPU) established in 1996 to handle all privatization affairs in the country, according to the Amman Stock Exchange. This unit was eventually succeeded by the Executive Privatization Commission in 2000.

Some of Jordan’s earliest privatization endeavors include (source: Amman Stock Exchange):

-Selling 87% of the Jordan Hotels and Tourism Company to Zara Investments in 1995.

-Selling all its equity in a limited number of shareholding companies throughout 1996-1997 (Jordan Paper & Cardboard Factories, and Jordan Tobacco & Cigarettes).

-Selling 33% of the shares of Jordan Cement Factories (JCF) to Lafarge, a French company, in 1998.

-Selling all of its equity in a large number of shareholding companies in 1999 (The Housing Bank, Cairo Amman Bank, Export & Finance Bank, Jordan Dairy Co., Petra Tourist Transport Co., The Industrial Commercial Agricultural Co., Jordan Electric Power Co., Jordan Ceramic Industries Co., Jordan Worsted Mills Co., and Jordan Tanning Co.).

-Selling 40% of Jordan Telecommunications Corporation’s (JTC) shares to the Arab Bank/France Telecom consortium

-The April 1999 agreement signed with the Lyonnaise Des Eaux Company to manage the water network in the Greater Amman area.

-Approving the privatization of the electricity sector in 2001.

-The transferal of the entirety of RJ shares in Alia Hosting Company, Alia Hotel and Royal Tours to RJ Investment Company. The Airports Duty Free Company was sold to Spanish company Aldeasa for $60 million, while the Training Centre Company was sold to Boeing Flight Safety International for $18 million.

The pro-privatization stance the Jordanian government had adopted so early on in comparison with the rest of the Middle East would have eventually helped stabilize the country’s economy, were it not for two major hurdles in 2008 and 2011.

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Famine or feast

The Jordanian economy was one of many to be hit hard by 2008 recession and the general political unrest in neighboring countries post the Arab Spring. Following the 2011 attacks on the Sinai pipeline, Jordan has had a difficulty procuring natural gas for its electricity plants, as the Egyptian pipeline was the lifeblood of the nation’s electric grid. Unable to source the gas at the low prices Egypt used to offer, Jordan has to resort to other, more expensive options, which has raised national debt significantly. In turn, the government has had to raise electricity prices, which eventually led to civil protests.

According to Jordan’s Finance Ministry, public debt in 2017 registered at $38.4 billion, representing an astonishing 95.3% of GDP. Most of the debt was accrued by the National Electric Power Company (NEPCO) and the Water Authority of Jordan (WAJ), two of Jordan’s most prominent infrastructure organizations.

The government has often relied on foreign financial aid and the occasional privatization deal to get itself through rough financial times. Most foreign investments come from GCC countries and the US.

At the moment, most foreign aid is directed towards balancing out the immense costs accrued by hosting refugees from neighboring countries. The Jordan News Agency reported that total foreign aid added up to approximately $2.99 billion, with $653.7 million of the total going to the support of refugees. As Kirk Sowell for Carnegie Endowment for International Peace explains, “Jordanian fiscal policy only remains sustainable because of immense dependence on foreign aid.”

With no oil reserves to lean on unlike GCC countries, the Jordanian government has often relied on income from the once flourishing tourist industry to help keep the country afloat amidst rising debt. The general instability of the region following the Arab Spring has had a very negative impact on tourist figures.

Yet, there is a silver lining.

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Lately, numbers have been improving as things begin to settle a bit in the region. The Jordan Times reported a 50% increase in tourists to the ancient site of Jerash during the month of March, compared to the same month in 2017. Petra Development and Tourism Region Authority (PDTRA) also reported a similar story, revealing that Petra tourist figures in March were the highest they have ever been in 8 years.

Remittances also play a significant role in keeping the country financially afloat. The Central Bank of Jordan registered total remittances at $3.7 billion. Jordanian expats are estimated to number around 750,000, with most of them working in the Gulf region.

Things seem to be looking up as of late. State Minister for Investment Affairs Mohannad Shehadeh said foreign direct investment in Jordan rose by 87% during the 2nd quarter of 2017 compared to the same period last year, the Jordan Times reports.

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Creative cash-flow plans

Looking to reel in even more foreign investors, Jordanian State Minister for Media Affairs and Government spokesman Mohammad al-Momani announced in March that the country will be handing out citizenships and permanent residencies to qualifying foreign investors, with benefits such as reduced tax rates and other privileges.

Furthermore, in order to bolster FDI inflow into the country, Santander Trade reports that “the government has planned large-scale infrastructure projects (water, transportation, nuclear energy) for which it needs foreign and private funds.”

With ever rising debt, privatization is the Kingdom’s tried-and-tested way of keeping creditors at bay. With the socioeconomic environment gradually stabilizing in the region, FDI from future projects, and the recovering tourist sector, Jordan should be able to pick itself up in the coming years.

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