Interview with His Majesty King Abdullah II

"Royal Leadership in the World's Toughest Neighbourhood”

An Exclusive Interview with His Majesty King Abdullah II

His Majesty King Abdullah II of Jordan has since 1999 successfully steered Jordan into safe harbours and exceptional economic growth, despite the consequences of regional instability. Moderation, security, and stability thus continue to be the hallmark of Jordan. Jordan Business was privileged to receive the comments of His Majesty on various aspects of the Kingdom's economy.

Jordan Business: Your Majesty, despite the ongoing uncertainties in Iraq, growth in Jordan has noticeably picked up in 2004-2006. To what extent is this growth fuelled by exogenous factors? What policies are being pursued to ensure sustained growth after these external factors subside?

King Abdullah: It is true that an economy like Jordan, strategically located and small as it may be, can be affected by external shocks and turmoil in its vicinity. However, the efforts over the last few years have centred on ensuring that the Jordanian economy is as resistant as possible to such externalities. Through focusing on education and training, as well as on the enhancement of efficiency, factor productivity has witnessed an almost threefold increase in the last five years. This was primarily fuelled by the rising contribution of private sector activity to the growth of the economy. Allowing the private sector to own a stake in such sectors as telecommunications, power and water, has proved to be a key factor in achieving higher and more sustainable growth rates. In the 1990s, we were almost exclusively dependent on regional export markets. Today, thanks to a number of bilateral and multilateral trade agreements, we enjoy a wider, more diversified export base, and a larger global market that includes the United States, Europe, and a number of countries in Asia and the Far East.

Jordan Business: Living standards, as measured by GDP per capita (using current market prices) rose by 9.6 per cent in 2006. Provisional estimates put the figure at JD1,805 compared with JD1,647 in 2005, and JD 1,511 in 2004. So Jordan did better in 2004-06. Are you satisfied with how the benefits of structural adjustment growth have been distributed so far?

King Abdullah: What has been achieved so far is positive and, in my opinion, long overdue. It has come as a result of sound fiscal and monetary policies, and a private sector orientation to growth. It will be sustained through efforts to ensure the competitiveness of the Jordanian economy, based on the advantages that we possess in terms of human capital and our ability to leverage our competitive sectors to attract productive investments and create sustainable employment opportunities for Jordanians. Still, much remains to be done. Specifically, there is an urgent need to focus more on job creation, given the growing numbers of new entrants into the labour force. The National Agenda provides some guidelines on how to approach this challenge over the next 10 years. Through enhancing productivity, as well as ensuring a higher level of per capita income, we are striving to graduate out of the lower-middle income country bracket into higher developmental classifications. The challenge that remains, however, is to ensure an equitable distribution of the fruits of this growth and, in my opinion, this can be largely obtained through a more efficient and fairer tax system, as well as via a more balanced developmental strategy that would ensure economic activity and job creation in the south, east and north of the Kingdom, and not only around the urban centres surrounding Amman.

This is why we are focusing on the establishment of economic centres starting in Mafraq and Irbid, and then moving towards the south. The Aqaba Special Economic Zone provides a successful example in this regard. International experience shows that economies undergoing rapid transitions, like ours, need to provide for social safety nets. This is to guarantee direct assistance intervention by the government to those who are less fortunate, who are unemployed, and/or vulnerable. Providing these groups with the necessary basic needs of health and education is a major priority, and we shall ensure that there are adequate allocations in the government budget for the delivery of these essential social services throughout the Kingdom.

Jordan Business: Foreign assistance to Jordan is displaying a downward trend. To what extent will this decrease affect the government budget and the Jordanian economy more broadly? What policy measures are being taken to address these effects?

King Abdullah: Our intent has never been to become an assistance-dependent nation. Our goal is to continue to aggressively develop the competitiveness of our economy, to ensure more rapid growth and to decrease the economy's dependence on foreign grants, thus helping us to graduate from reliance on aid to trade-led growth. The government budget has grown in the last few years in spite of the fall in aid. This can be attributed to our rising growth rates, increased economic activity, and enhanced efficiency within the government itself. This is really a testament to the strength of our economic fundamentals. Our economy rebounded with vigour and strength, and we have turned the challenges into opportunities, culminating in enhanced economic activity in general and a marked improvement in the profitability of companies in particular. Examples of this abound, including banks and financial institutions, manufacturing companies, tourism operators, and ICT businesses. However, while we are trying to sustain our economic growth levels, and to ensure that our economy provides the necessary number of employment opportunities to our youth, we shall continue to depend on our international partners to help us in this effort. Such assistance is required not only in terms of grants, and concessional loans, but also through better debt treatment, access to international markets and transfer of technology. This is what the G-11 group of countries is trying to advocate. All members of the G-11, have achieved positive results through sustained, and sometimes painful, reform measures that have so far ensured lower external debt ratios, better fiscal management, and higher rates of economic growth. Still, we do require the partnership and assistance of our G-8 partners in particular to sustain these achievements and to graduate into a higher developmental phase.

Jordan Business: Jordan has been party to several preferential trading agreements with the United States (US) since the late 1990s, including the Qualifying Industrial Zones (QIZ) agreement in 1997 and the US-Jordan Free Trade Agreement (JUSFTA) in 2001. The US has subsequently pursued similar arrangements with other Arab states in the past few years. How do the QIZs and the JUSFTA contribute to development in Jordan, and how have Jordanian businesses adapted to harness the benefits of these agreements? In your opinion, will the pursuit of similar arrangements with other Arab countries, such as Egypt, undermine Jordan's US market share?

King Abdullah: The QIZs have attracted foreign direct investment in excess of $1 billion, generated more than 16,000 jobs for Jordanians and played a major role in developing rural areas and empowering women. Together with the FTA with the US, the QIZs have helped boost Jordanian exports to the US from $18 million in 1998 to $1.4 billion in 2006. There have been other spin-off benefits, as well. Working with transnational companies has helped Jordanian companies enhance their technical, managerial, and marketing skills, and has also contributed more broadly to the upgrading of transport, logistics and financial services in Jordan. New companies have also been established to provide supporting services for the textile and garment factories in the QIZs. These include embroidery, printing, packaging, food and housing for workers as well as logistics companies that move goods to and from the zones. Our policy toward the QIZs is to safeguard the gains already achieved in terms of job creation and quality enhancement, while also aiming to increase the value-added of products manufactured in the QIZs, improving linkages and integration with the rest of the economy, and deepening the technological benefits we have derived from these zones. Increasing the local value-added should raise productivity and wages, with an even more positive impact on the country. A rising tide floats all boats, so we encourage and support all Arab countries to conclude free trade agreements with the US as soon as possible. This will help Arab signatories to such agreements form a solid trading block when dealing with other extraterritorial trading partners. For the same reason, we wholeheartedly support the establishment of the Middle East Free Trade Area Agreement between all Arab countries and the US by 2013.

Jordan Business: Jordan has made significant progress in trade liberalisation, privatisation, and regulatory reform during the past 18 years, and has subsequently been rewarded with consistent GDP growth and ever-increasing levels of foreign direct investment. However, official unemployment figures during the past five years have fluctuated around 14 per cent, with joblessness for those aged 20 to 24 being much higher. What are the sources of the Kingdom's unemployment problems, and what policies are being undertaken to address this, particularly among younger Jordanians?

King Abdullah: A new challenge has accompanied Jordan's economic growth and advancement in this respect. The labour market's skills and the output of the educational system have not been progressing at the same pace as the dynamics of growth and diversity of investment, resulting in a gap between skills and qualifications and the country's labour market requirements. As I mentioned earlier, closing this gap is a top priority for us, and we are in the midst of undertaking extensive reforms to the educational system, focusing on technical and vocational training so that educational outputs and market requirements are aligned.

In spite of the prominent youth demographic, unemployment, although high at 14per cent, has remained steady. The economy is generating new jobs at least equal to the number of new entrants into the labour market. During the next period, we are implementing the recommendations of the National Agenda in this respect and shall ensure that business, government, and academia are all in sync to help match the skills with the requirements. We shall continue to strive to achieve a job opportunity for every Jordanian who seeks it. That is the main challenge that will define our future course.

Jordan Business: Looking at Jordan's western border, the economic promises of peace made in the mid-1990s have not fully materialised. As the World Economic Forum meets later this month by the shores of the Dead Sea, a unique world-class tourist attraction tucked between Jordan, Palestine, and Israel, what is your vision of the tripartite cooperation needed to develop this and other promising areas of business with Jordan's neighbours to the west?

King Abdullah: Let me just say I am very pleased to welcome the World Economic Forum back to Jordan this year. The forum provides a unique platform to showcase Jordanian and Arab expertise and innovation, and to help our Arab business community network and establish global partnerships. We expect to witness the signature of a number of key agreements in power, water, and tourism during this year's Forum, which I hope will also prove beneficial for the development of our economy. The Forum will follow an event that will be held at another important historical site in Jordan. The third Petra Conference of Nobel Laureates will also bring together more than 40 Nobel Laureates and several international public figures. This year, youth from around the region have also been invited to engage these leading minds in a discussion of issues of concern to them.

I also understand that there will be sessions addressing regional cooperation through peace. In this regard, we have been coordinating closely with the Palestinians and Israelis in order to establish the Jordan Valley Peace Corridor, an initiative that is being supported by Japan. This initiative envisages cooperation in industrial and agricultural development in the Jordan Valley, something we hope would have a number of benefits for communities in that area, as well as to each economy at the national level. The trilateral projects include the Red-Dead Canal, which is part of a comprehensive effort to promote long-term beneficial economic outcomes. If anything, the Red-Dead Canal could increase all parties involved' access to water, and also be an important source of power. The tourism sector is also likely to benefit from the Red-Dead Canal by helping reinvigorate the Dead Sea to its previous levels. Let me be clear, though. The economic prosperity of all of us will be incomplete without regional peace. Our region needs peace and I hope that all parties, particularly our Israeli partners, will recognise the opportunity that is now before us. The Arab Peace Initiative can take the region one tremendous step closer to peace and stability in the Middle East.

Jordan Business: The Aqaba Special Economic Zone (ASEZ) has demonstrated remarkable innovations in institutional design, e-government, customs, and bureaucratic hiring procedures, coinciding with unprecedented levels of foreign investment, tax collection, and regional domestic product growth. Is there any intention of applying innovations from ASEZ to the Jordanian central government more broadly?

King Abdullah: The Special Economic Zone in Aqaba was established in 2000 to encourage the creation and adoption of best practices throughout the economy. The model of governance, a special development area to create an economic engine of growth, was meant to be a pilot case to be replicated with time nationwide. In Aqaba a decentralised model of governance was adopted. It was built on Aqaba's competitive attributes, namely tourism and logistics. Combined with world class incentives, a one-stop shop regulator (Aqaba Special Economic Zone Authority) and a central development vehicle (Aqaba Development Corporation), this created an environment conducive to investment and job creation. As I mentioned earlier, Aqaba's success has encouraged us to replicate this model or key elements of it in other locations in Jordan. One initiative we recently adopted was to strengthen the economic and development role of governors in the various governorates. Another saw the launch of the Mafraq Special Development Area. The transformation of other areas, such as the Jordan Valley and Wadi Araba, be it into special economic zones and/or development areas, is currently under study. Each will focus on specific competitive attributes in terms of the business clusters it can attract and develop. All of these initiatives share the same goals: attracting more investments, stimulating regional development throughout the country, creating more employment opportunities, and raising the standard of living for all Jordanians. Those successful elements are indeed being adopted on a national level. Detailed master planning that integrates all aspects of development (real estate, infrastructure, investment, and socio-economic), along the lines of the ASEZ, is now being implemented across Jordan. Amman is the prime recent example. The successful one-stop-shop and e-government ASEZ initiatives are also being considered for adoption at the central government level.

Jordan Business: Finally Your Majesty, for the past 18 months you have been working on a new development initiative within the international community, the G-11 which is a partnership of countries with similar development challenges. Since you will be meeting heads of state from the Group of 11 Lower-Middle Income Countries on the sidelines of the World Economic Forum, can you explain this initiative, and what are your expectations from the summit on May 19?

King Abdullah: The G-11 initiative seeks to advance the interests of a group of 11 mostly lower- and middle-income countries in the global economic, investment, and trade arena. G-11 countries share a strong commitment to accelerating home-grown economic, social and political reforms as well as modernisation, and are also working with partners to enhance the effectiveness of their different programmes. However, in order to graduate to higher income brackets and face the challenges rising from the sudden sharp fluxes in global markets, the G-11 members need the support of the industrialised countries, particularly the G-8. Over the past few months, and since the last G-11 Summit in New York in September 2006, we, as president of the G-11, have been in discussions with the Governments of the G-8 countries. These have been highly receptive, expressing interest in our initiative. We have extended an official invitation to the governments of Germany and Japan to attend the G-11 Summit. We look forward to their participation. In the upcoming G-11 Summit we seek to address in one unified voice the possibility for institutionalising the relationship between the G-11 and the G-8 and establishing a meaningful partnership between the two groups. Among the other things we are planning to discuss during the upcoming summit at the Dead Sea is the potential to enhance cooperation among the G-11 members themselves. The G-11 presidency will present a series of recommendations to guide this process in the near future. Jordan will also expedite steps to realise some of these recommendations.