Focus on Jordan

Interview with H.E. Dr. Ziad Fariz Governor & Chairman of the Board, Central Bank of Jordan
Biz News (B.N.): Since His Majesty King Abdullah II’s 1999 ascension to the throne, Jordan has taken steps to encourage foreign investment and to develop an outward-oriented, market-based, and globally competitive economy. How would you describe today’s investment environment in Jordan?

Biz News (B.N.): Since His Majesty King Abdullah II’s 1999 ascension to the throne, Jordan has taken steps to encourage foreign investment and to develop an outward-oriented, market-based, and globally competitive economy. How would you describe today’s investment environment in Jordan?

Dr. Ziad Fariz (Z.F.): Jordan has embarked on a comprehensive and ambitious political, social, and economic reform agenda, with the aim of building a modern state based on economic vitality with substantial potential for growth and prosperity, political inclusion, and social stability. Many elements of these programs have been successfully implemented and others are still in progress.

Extensive efforts have also been undertaken to further enhance the regulatory environment in order to attract direct investments. Reform efforts have clearly corresponded to the evolving global trends and success has been attained in molding a lucrative investment climate, in which businesses can thrive by tapping into the vast world market. These efforts have succeeded in opening the door for Arab and foreign investors to come and invest in Jordan.

Moreover, Jordan has adopted liberal-oriented economic reform policies, characterized by free trade and deregulation of many economic sectors. Recently, there has been a focus on how to enhance competitiveness of the private sector through offering incentives to private companies to participate in development projects, activating policies directed at achieving a more open economy. The actions of the government have also focused on reinforcing Jordan’s position in the international market and enhancing the role of exports in our economy. In order to do that, we signed new multilateral agreements, we committed more decisively to standards and rules promoted by the World Trade Organization, and we worked more closely with Europe and the US.

Developing Jordanian tools and industries became another pillar of our strategy for growth and development. Basically, we have been revisiting all the laws and agreements, looking at the impediments that were preventing the private sector from being more active. We decided to adopt policies to protect importations and our domestic industries, through embracing export growth policies. This includes all aspects of trade, particularly how to move services to international markets, how to transfer what were considered as non-marketable services to marketable services, i.e. the IT industries, the development in financial, engineering and consultation services, and other sectors which are becoming very important elements for our exports.

In the last few years, with the Arab Spring uprisings, we were affected indirectly by many factors in the region, and directly by the Syrian conflict, which has had a large impact on our economy. The influx of over 1.5 million refugees, for a small country like Jordan, has created an immense burden for the economy, in areas such as health, education and the management of limited resources like water. Jordan is still carrying an enormous burden, as the foreign aid is not sufficient to cover the needs of hosting such a large number of refugees. Despite this issue, Jordan continued to implement economic reform policies in collaboration with the International Monetary Fund (IMF), to achieve the aspirations of Jordanian citizens in having efficient public governance, reducing budget deficit by rationalizing expenditure, and enhancing revenues, giving special attention to disadvantaged groups.

Now we are trying to manage the regional crisis in such a way as to reduce the pressure on our economy and at the same time create more opportunities. For instance, the Response Plan of Jordan to face the closure of Iraqi and Syrian borders and the new agreements with Europe may help in compensating for some of the exports we lost due to the current political situation. However, even if Jordan performed well in dealing with the Syrian crisis, we hope that the international community will become more proactive and will adopt a more responsive approach in the near future.

Biz News (B.N.): Planning and International Cooperation Minister Fakhoury told us this is a challenge that can be translated into an opportunity and Cristine Lagarde, Managing Director of the IMF, agrees, saying that, for countries that are able to integrate refugees into the workforce, the influx can boost growth potential.

Dr. Ziad Fariz (Z.F.): This is indeed a big challenge and, unless the international community provides the necessary help, it is going to be very costly for Jordan to deal with the consequences of this crisis. We need the help of the international community to turn the problem into an opportunity. It will take some time and, in the meantime, the pressure of this emergency is there.

Biz News (B.N.): Despite recent challenges, the World Bank estimates economic growth is expected to marginally improve to an estimated 2.6 percent average over 2017-2019, with anticipated improvements in tourism, exports, and the impact of investment climate reforms. What is your forecast for Jordan’s potential growth?

Dr. Ziad Fariz (Z.F.): Jordan has achieved substantial success in dealing with adverse shocks over the past several years. The economy remained resilient with strong fundamentals. Despite the regional instability, GDP grew by 2.0 percent in 2016, compared with 2.3 percent in 2015. To overcome challenges, the government adopted a national program for economic reform (2012-2015), supported by the IMF. This program was a success and was complemented by another program (2016-2018) to continue preserving macroeconomic stability, strengthening our resilience, and enhancing the conditions for more inclusive economic growth, though sustained fiscal adjustment to reduce debt to safer levels, and structural reforms to boost jobs and growth, enhance competitiveness, and foster equity, fairness, and good governance.

These reforms will also focus on protecting the most vulnerable segments of the population and in supporting Jordan’s efforts in hosting the Syrian refugees. I believe that GDP is capable of reaching around 2.6 percent in 2017. The economic outlook is hopefully expected to improve further in the medium and long term, as we expect improvements in the Iraqi political scene, which would be reflected in the trading routes with Iraq. Also, risks stemming from investors’ sentiment and tourism will recover in time. While the oil prices are projected to remain low in the medium term, which will continue to support private consumption.

Biz News (B.N.): Speaking about social issues, the Central Bank of Jordan (CBJ) announced late last year the Kingdom’s 2018-2020 National Strategy for Financial Inclusion. What are the main points of this initiative to bank the unbanked?

Dr. Ziad Fariz (Z.F.): The CBJ launched the financial inclusion strategy to enable individuals and the private sector to access financial services at affordable costs. The strategy entails financial awareness efforts, protection of financial service recipients, supporting small- and medium-sized projects, micro-finance services and online payments. Our strategy has five pillars. Number one is education, number two technology and digital finance, number three is SMEs’ finance, and then we have microfinance and consumer protection. The strategy is working on these five pillars and so far we have managed to get financial education into schools. Thanks to the cooperation of the Ministry of Education, finance is now part of our students’ curriculum. Furthermore, the strategy pays special attention to Jordanian women’s needs, so as to contribute to achieving financial inclusion for women in an untraditional way, which saves costs when opening and administrating traditional accounts.

Biz News (B.N.): The government sees the private sector as the engine of growth, how would you describe the commercial banks’ efforts to finance private sector initiatives in 2017?

Dr. Ziad Fariz (Z.F.): What we have done is work on a sort of institutionary arrangement. The banks are eager to finance and enable the private sector to access finance. We have licensed the first credit bureau that will help banks to extend credit to all those who are eligible and financially worthy of credit. In addition, we have contributed to establishing funds for small businesses, startups and to enhance microfinance. We are also working with banks through the Jordan Loan Guarantee Fund, encouraging the banking institutions to extend credit to small businesses, borrowers and SMEs. As for the availability of low-cost funds, we made some facilities for the banks to extend credit to socially acceptable sectors like tourism, housing, manufacturing, renewable energy or environment conservation, for longer periods and at acceptable rates.

Biz News (B.N.): These sectors that you just mentioned might have great potential for German investors. What role do you think German know-how and investments can play here?

Dr. Ziad Fariz (Z.F.): There are several investment opportunities and priorities worth billions of dollars that have been promoted by the government recently. They are mainly concentrated in the sectors of energy, transport, water, tourism, ICT, urban development, and infrastructure. Germany’s investors could play an important and vital role in executing the aforementioned projects. Benefiting from German experience and advanced technology will also foster cooperation between the two parties.

Biz News (B.N.): Over the past 10 years, Jordan has pursued structural reforms, amongst others, in privatization and liberalization, and has created the conditions for public-private partnerships (PPPs). World Bank President Mr. Jim Yong Kim proudly stated, “the airport that was built in Amman, Jordan is an example of how public-private finance can deliver infrastructure projects that bring enormous economic benefits for the country.” What PPP opportunities does Jordan offer in general to the international community and in particular to German investors?

Dr. Ziad Fariz (Z.F.): We have been working hard to improve the legal and legislative frameworks that govern the investment environment and PPPs. We have a multi-track approach to privatization, including divestitures of shares, sales to strategic investors, management contracts, as well as other methods such as BOO, BOOT and BOT. The wide-scale privatization program has succeeded in enhancing the efficiency of privatized firms, creating a competitive market, and attracting investments. The PPP emphasizes transparency, fairness and good governance. On the other hand, the government is trying to activate the private sector by involving private companies in many projects. Big projects will be launched in the energy sector, especially in nuclear and solar energy. The Red to Dead water project is very important too. The plan is to look into some of the infrastructure projects that the Government used to implement and to have the private sector carry them out. These types of public-private partnerships will create a new model of development in health, education, transportation, roads, and ports, for example. There are many opportunities, but we need to work together with the business community to identify them and we need the government to present them in a very clear and marketable way.

Biz News (B.N.): A well-functioning financial system plays a key role, not only at the macroeconomic level, but also in creating better conditions for private individuals and businesses. How would you describe the financial sector of Jordan to a foreigner?

Dr. Ziad Fariz (Z.F.): A healthy and stable financial sector is important for macroeconomic stability and part of an attractive business environment, which is very important for attracting foreign investment to the country. Our financial sector is a healthy and well-managed sector. The financial soundness indicators reflect these strong fundamentals. If you look at the macro picture, capital adequacies of the banks are excellent – much above the minimum required by Basel II or III frameworks. Non-performing loans are also declining approximately at 4% with almost full coverage, and profitability rates are in line with international criteria. We also have very good experience and a positive history in dealings with foreign investors and partners.

Biz News (B.N.): King Hussein I once said, “all that we hope for is that a day will come, when we have all gone, when people will say that this man has tried, and his family tried. This is all there is to seek in this world.” What is the legacy you would like to leave behind?

Dr. Ziad Fariz (Z.F.): We are trying our best to save the country and I believe that we will succeed in solving the issues that are now upon us and the ones that will come in the future. In Jordan, we have become experts in turning challenges into opportunities: we have done it in the past, we are trying now and we will do it in the future.