Private Sector Development in Jordan: Harnessing technology to Boost Development

The University of Michigan

March 2008

Authors: Aaron Batsakis Salik Farooqi

Joanna Kopicka Ko Nishiuchi

Adam Van Loon Abstract: In the last five years, the Hashemite Kingdom of Jordan has experienced strong GDP growth as a result of robust foreign direct investment; privatization and deregulation of previously government-controlled industries; and increasingly international linkages between Jordanian and foreign-owned businesses. Yet in spite of these achievements, it remains far from clear whether the Jordanian private sector is positioned to remain competitive in a globalized financial and human capital marketplace, particularly in “knowledge-based” industries such as the Information Communication Technology (ICT) sector. This paper assesses the current state of development and international competitiveness of Jordan’s private sector, and explores the country’s policy options for stimulating and shaping its knowledge-industry growth.

We can be reached at iedpprivate2008@umich.edu

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INTRODUCTION Jordan’s private sector has reached a crossroads. For the last five years, GDP growth forecasts for the country have been consistently strong, with expectations above 4% annually.1 (See Appendix A, Exhibit 1.) Politically, Jordan has remained stable, despite numerous conflicts in neighboring countries. Moreover, through the Amman Letter, the monarchy has been vocal in its message that terrorism is antithetical to Islam; that sectarianism is unethical; and that states that allow free religious Muslim practices should be supported by Muslims. This has created an attractive climate for investment and business growth. One of the highest population growth rates in the world coupled with an influx of refugees from both the Palestinian territories (which constitute 50% or more of the Jordanian population) and Iraq (which number somewhere around 500,000, according to the UNHCR) have grown certain markets substantially, particularly real estate. And the Jordanian government has privatized many of the business it formerly owned, while streamlining and relaxing regulations for high-growth industries, creating a platform for competition that previously did not exist. However, the Jordanian private sector development faces many threats. Lacking nearly all natural resources, the country espouses the attitude that its “people are its resource.” Yet recent university graduates and other skilled laborers find a dearth of job opportunities in knowledge-based industries. Moreover, wages for knowledge-based jobs are typically a half to a third in Jordan of what they are in the Arabian Gulf region. A full 28% of the Jordanian GDP is now made up of remittances from such workers abroad. Meanwhile, domestic unemployment lingers somewhere between 15% and 25%. And of the unemployed, 60% are persons below the age of 25, the demographic who will become the future leaders of Jordan’s knowledge-based industries. Indeed, Jordan’s knowledge-based industries, which depend on proprietary capabilities and the typical main value-creation drivers, have not been keeping pace with those in other countries, according to the IFC. The textile industry now constitutes 89% of Jordan’s exports. This is due in large part to the Jordanian-U.S. Free Trade Agreement, which eliminated U.S. tariffs and quotas on Jordanian products. Once these protections expire, there is a strong risk that the textile manufacturers who have been taking advantage of JUSFTA will simply “move shop” to a different quota-free country. Moreover, the textile industry is essentially commoditized, meaning that despite the high volume of textile production, there is little value creation occurring. The construction industry is booming, thanks to the influx of not only impoverished Iraqi refugees, but middle- and upper-class émigrés as well. However, these gains have only somewhat benefited knowledge-based industries: while engineering and architecture firms have experienced a windfall, most of the jobs created have gone to unskilled laborers, the majority of them foreign refugees. And indicators point to the influx of money soon running out. Substantial investment in the tourism sector is bearing fruit, with a marked increase in tourist numbers and receipts. Perceptions of the country as a safe haven in a turbulent region are benefiting the tourism industry, particularly as visitors from the Persian Gulf states seek an alternative destination in the light of the instability in Lebanon.2 However, tourism is still for the most part a low value-added sector with most companies operating at the local, micro-enterprise level.

1 Business Monitor International, “View: Jordan,” 14 Nov 2007. 2 Business Monitor International, “View: Jordan,” 14 Nov 2007.

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These examples point to Jordan’s lack of value-creation within its knowledge-based industries, particularly the ICT sector. While other regions of the world including the Gulf Region, India, China, and formerly Soviet Eastern Europe have already embarked on knowledge industry development programs, this paper contends that Jordan’s economic growth initiatives, which until now have been broad and cross-industrial in nature, must be restructured to focus growth incentives on the country’s knowledge-based industries. The objective of this paper is to assess the current state of development of Jordan’s private sector, focusing on its knowledge-based industries, and to make specific policy recommendations for spurring growth in those industries.

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INCENTIVIZING LOCAL INVESTMENT INTRODUCTION While Jordan has experienced robust FDI and strong public-private investment through the privatization of formerly government-owned businesses, local investment has not kept pace. This is due in large part to the lack of financing mechanisms for businesses of all sizes, particularly Small and Medium Enterprises (SMEs). Public-private collaboration has been relatively strong. In the last 12 years, the government’s privatization program has been largely successful at achieving lower prices and better service for consumers, and fostering competition within previously state-controlled industries. 3 The IFC continues to play an important role in financing large-scale public-private-partnership initiatives.4 At the same time, there is still much opportunity for government involvement in ICT development via state-sponsored financing. Indeed, as the textile protections of the JUSFTA come to an end, it will be critical for Jordan to find ways to invest in its ICT sector.5 Among knowledge-based industries, ICT requires the fewest material inputs (which are costly in Jordan due its lack of natural resources) and relies most heavily on human capital, an area in which Jordan is positioned strongly. Analysis Privatization In 1996, Jordan began the process of privatizing its state-owned businesses.6 Energy, transport, postal and telecommunications, water and broadcasting sectors, were targeted, in that order of priority.7 The goal of the law was not only to improve consumer welfare but to open these industries to private competition. During the next 12 years, the country passed 13 more privatization-related laws, culminating in the 2000 Privatization Law, which laid out specific process of privatization and the regulations that the newly privatized businesses would be subject to.8 Since 1996, the Executive Privatization Commission, the agency charged with developing the country’s privatization strategy and designing its accompanying regulations, has executed 62 whole or partial sales of state-owned businesses, including the sales of Royal Jordanian Airlines and the national postal company. The EPC believes these sales have created more than 12,000 jobs.9 In 2007, Jordan completed the privatization of the country’s telephone company, Jordan Telecom. With that transaction, the country’s privatization strategy has more or less been completed. 3 IEDP meeting, Executive Privatization Commission, Amman, Jordan, 25 February, 2008. 4 IED meeting, International Finance Corporation, Amman, Jordan, 28 February, 2008. 5 Ibid. 6 IEDP meeting, Executive Privatization Commission, Amman, Jordan, 25 February, 2008. 7 Ibid. 8 Ibid. 9 Ibid.

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Micro- and Small-to-Medium-Enterprise (MSME) Financing MSMEs constitute 95% of businesses in Jordan.10 However, the current growth prospects for these businesses is limited due to the lack of capital available, and a lack of monitoring systems that would make capital financing less risky. Grants—as well as management training, functional support, and coalition-building opportunities—are available to Jordanian micro-enterprises (as well as SMEs) through the Jordan’s Business Development Center (BDC). The BDC was created in 2005 as part of the USAID-funded, US$27 million economic development program, the Jordan-United States Business Partnership. However, as it currently functions, the BDC is a more of a social support organization than an enterprise fund. According to the BDC, no more than 5% of the businesses they fund are growth business, while more than 95% are comprised of “mom-and-pop shops”. Although these family-owned businesses play a vital role in the community, they do not represent growth businesses. (Indeed, the authors of this paper heard numerous anecdotes that sole proprietors at this level are skeptical of leverage and willing to forgo growth in order to retain full, debt-free ownership of their businesses.)11 The BDC has also stated that it hopes to “graduate” micro-enterprises into small- and medium-enterprise financing programs. However, in all but a few cases, this has not happened. Lending and Credit Reporting Business lending is in its infancy in Jordan; indeed, the basic concept of leverage is relatively new to the country’s capital markets. Historically, lending decisions have been based on loan applicant’s hard asset collateral or on their “trustworthiness.” Lacking a regimented credit scoring system, the country currently has no standardized means of assessing lending risk to individuals or businesses. Lacking national Generally Accepted Accounting Practices (GAAP), lenders have had no means to quickly and thoroughly analyze a business’ capitalization structure. The auditing industry is accordingly nascent, and audits are rarely performed. Furthermore, business lenders lack the requisite training to perform due diligence on a company’s growth opportunities and strategic risks. In this environment, banks and other lenders have been generally skeptical of business lending as a profitable enterprise. This is particularly true for potential SME clients, who carry greater risk. As a result, many banks in Jordan are still in the process of defining their initial SME product lines. This has been further complicated by the conflation of micro-enterprise with small-to-medium-sized businesses, which have very different financial needs and carry distinct risks that are unique to Jordan. Additionally, without properly scaled micro-lending processes in place, the transaction costs of micro-lending can often exceed the return on principal for banks.12 The IFC continues to play a role in SME funding: one of its two Jordanian initiatives is to provide capital to lower-tier banks to for use in funding SMEs. This extra capital is intended to encourage conservative banks to take risks in SME lending that they otherwise wouldn’t. It is unclear how successful these efforts have been.13 10 IEDP meeting, Business Development Center, Amman, Jordan, 27 February, 2008. 11 Ibid. 12 Ibid. 13 IEDP meeting, International Finance Corporation, Amman, Jordan, 28 February, 2008.

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Venture Capital There are almost no venture capital funds targeting the MENA region. Within the region, the strong aversion to risk is a substantial deterrent to venture capital. The lack of mature corporate governance systems and the dearth of judicial means of contract enforcement compound this risk.14 There is also a lack of training, networking and other business development opportunities for startup companies in knowledge-based industries. Business incubators such as the Queen Rania Center for Entrepreneurship have begun to address this problem, but there is still much room for improvement.15 Regulations Jordan is currently ranked on par with other Arab nations in terms of ease of doing business. Recently, government bureaucracy has been somewhat eliminated, and it is now slightly easier to register a new business. Among other changes, the government lowered the minimum amount of cash-on-hand to register an LLC from US$30K to US$8K, and is considering lowering it further.16 Retaining Human Capital The key to incentivizing investment in the ICT sector will be government initiatives to retain the country’s skilled workers, the best of whom often leave to work more lucrative jobs in the Gulf region. At the same time, the government must find ways to offer opportunities for skilled university graduates who remain in Jordan to utilize their skills.17 Discussion and Recommendations Privatization Jordan should continue to balance consumer protections against the demands of a free and open investment marketplace. Existing government shareholder plurality positions should be liquidated to ensure investor control of publicly traded companies and prevent government-controlled voting blocs. Micro- and Small-to-Medium-Enterprise (MSME) Financing The Jordanian government should create a loan guarantee program through which certified lenders that uphold government-mandated due diligence requirements will be partially or wholly insured against losses on loans to SMEs. Micro-lending programs should be promoted through microfinance organizations, and should not be a focus for private banks, for whom it may be too costly or risky. The BDC should clearly define micro-enterprise in financial terms, and focus its financing programs on these businesses. It should cease financing projects in the SME space, and instead direct all SME business development initiatives through banks and other private financiers. These initiatives should include both financing and training for SME lenders and investors. This two-pronged approach will protect the socially essential micro-enterprises who depend on the BDC for their survival. At the same time, it will spur SMEs and SME financiers to institute standardized

14 Ibid. 15 Ibid. 16 Small and Medium Enterprises (SME) Conference, Amman, Jordan, 25 February, 2008. 17 IEDP meeting, International Finance Corporation, Amman, Jordan, 28 February, 2008.

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reporting and disclosure guidelines, engendering an open marketplace in which risk and return can be more accurately assessed. Lending and Credit Reporting The Jordanian government should create a credit bureau that tracks and reports individual credit scores. It should also support the private sector’s movement toward standardized accounting. Venture Capital The Jordanian government should make contract enforcement a priority of the judicial system. It should subsidize the creation of an independently managed venture capital fund, targeting ICT companies. SME Business incubators focused on the ICT sector should be created and funded. Regulations Jordan should expand its program to eliminate government bureaucracy and open markets by further streamlining business registration and other reporting processes. Retaining Human Capital Jordan should attempt to expand the JUSFTA to protect the country’s ICT sector and knowledge-based services industry. It should also consider restructuring its welfare system to subsidize wages of workers with advanced skills, which would offer those workers the opportunities to earn equivalent wages to their peers in the Gulf Region.

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Foreign Direct Investment Introduction A crucial aspect of the Jordanian government’s development strategy for the Information and Communications Technology (ICT) sector is attracting foreign direct investment (FDI) into the sector – to produce the infrastructure necessary for the sector’s viability, as well as the productive capacity necessary for the sector to expand, become an engine of growth, and produce products and services18. Indeed, the World Bank identifies the promotion of FDI in ICT as imperative for Jordan’s development strategy: “…Create jobs and income opportunities by making Jordan a globally attractive location for skill-intensive and knowledge based private investment……[Key component] – Increased FDI.”

- World Bank, Jordan, Business Environment Snapshot, Country Assistance Strategy, Private Sector Development19

Analysis FDI inflows to Jordan are robust. (see Appendix B, Exhibit 1.) Other than the global dip in FDI during 2001 and 2002, FDI has had a high and rising trajectory since the end of 2002.20 In 2006, FDI inflows totaled $3121 million. This represented a staggering 99.1% of gross fixed capital formation.21 In the same year, FDI inward stocks totaled $16,349 million. This represented 114.2% of gross domestic product. And in 2007, Jordan ranked 10 out of 72 countries on A.T. Kearney’s Globalization Index for FDI as a share of GDP, where FDI was measured as FDI inflows minus FDI outflows, divided by GDP.22 These are extremely positive figures. FDI Outflow Puzzle Figures for FDI outflows are not available for Jordan. This skews the analysis heavily, and puts into question the data that is available. For example, would Jordan have obtained a rank of 10 on the Globalization Index 2007 if FDI outflows were taken into account? Indications are that FDI outflows are in fact significantly large. For example, in 2005 net foreign investment in private fixed capital formation as a percentage of GDP was a low 12.1%. Although this represents an increase from 9.6% in 2000, it is nowhere near the gross fixed capital formation figure of 114.2%.23 Analysts suggest that these significantly large FDI outflows probably result from a) the repatriation of profits that foreign firms make from operating business in Jordan (in particular in the Qualified Industrial Zones (QIZs), and in the Aqaba Special Economic Zone (SEZ)), and b) from binding purchase agreements that force Jordanian business concerns to invest in the FDI source country.24 18 IEDP Meeting, Jordan Investment Board, Amman, Jordan, 24 Feb. 2008. 19 http://rru.worldbank.org/BESnapshots/Jordan/default.aspx 20 http://www.fdi.net/country/sub_index.cfm?countrynum=104 21 UNCTAD, World Investment Report 2007 ; www.unctad.org/wir or www.unctad.org/fdistatistics 22 A.T. Kearney Globalization Index 2007, in Foreign Policy, November/December 2007, http://www.foreignpolicy.com/story/cms.php?story_id=4030 23 http://devdata.worldbank.org/PSD/jor_psd.pdf 24 IEDP meeting, Executive Privatization Commission, Amman, Jordan, 25 February, 2008.

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FDI in ICT Jordan’s ICT sector has been successful in attracting FDI, in particular through two government sponsored initiatives: Investment Intelligence Initiative; and the Investment Map Initiative.25 The sector has had an annual growth of 50%, and while FDI in the sector totaled $3 million in 1999, it reached $90 million in 2007.26 Amongst the foreign companies that have invested/are investing in Jordan’s ICT sector are: Microsoft; Intel; Cisco Systems; France Telecom; IBM; Oracle; Dell; Compaq; HP; U.S. Robotics; Apple.27 Yet, despite these positive findings, Jordan’s ICT sector lags behind regional competitors. The World Economic Forum’s Network Readiness Index ranks Jordan at 57, behind Kuwait(54), Bahrain(50), Qatar(36), Tunisia(35), and the U.A.E.(29).28 Indeed, analysts suggest the data increasingly indicates that Jordan may have lost its early comparative advantage in the ICT sector to the U.A.E. and Tunisia. Whereas the latter economies are seeing an upward trend to their ICT sectors, Jordan is experiencing a downward momentum.29 A significant reason for this dynamic is that relatively more FDI is flowing to the ICT sectors in the U.A.E. and Tunisia.30 The differential with the U.A.E. is particularly large. 31 (see Appendix B, Exhibit 2.) Impediments Analysts agree that the most salient impediment is political risk. The reality is that whilst Jordan itself is socially and politically stable, its neighbors – Syria, Israel, Iraq – are not. And investors are keen to avoid investing in regions that are marked with high socio-political uncertainty.32 Investors often ask Jordanian government officials, “when a bomb goes off in Baghdad, do you hear it in Amman?”33 Unfortunately for Jordan, each successive bombing in Iraq dries up current FDI, and reduces the probability of it returning in the future. But political risk is not the only impediment to increased FDI in Jordan. On balance, investors do not have a positive view of the investment climate in Jordan. This is most clearly seen when Jordan is compared to competitor economies. In 2008, Jordan ranked 80 out of 178 economies in the World Bank’s overall Ease of Doing Business (EDB) index.34 (see Appendix B, Exhibit 3.) Significantly, the two areas that depress Jordan’s overall EDB ranking are a) protecting investors, in which it ranks 107 out of 178 economies; and b) enforcing contracts where it ranks even lower at 128 out of 178 economies.35 This indicates key governance problems, and highlights deficiencies in institutional mechanisms, which if not addressed and corrected, will make Jordan an unattractive destination for FDI. Furthermore, it may attract the wrong kind of FDI, i.e. short-term profit seeking activity, rather than long-term infrastructure and sector-capacity building funds.36

25 IEDP meeting, Jordanian Investment Board, Amman, Jordan, 24 February, 2008. 26 http://www.intaj.net/index.php?option=com_content&task=view&id=940&Itemid=10; http://www.moict.gov.jo/MoICT/MoICT_REACH.aspx 27 Ibid. 28 http://www.insead.edu/v1/gitr/wef/main/analysis/showindexranking.cfm?vno=a 29 IEDP meeting, International Finance Corporation, Amman, Jordan, 28 February, 2008. 30 Ibid; IEDP meeting, Jordanian Investment Board, Amman, Jordan, 24 February, 2008. 31 http://www.insead.edu/v1/gitr/wef/main/analysis/headtohead.cfm 32 IEDP meeting, Jordanian Investment Board, Amman, Jordan, 24 February, 2008; IEDP meeting, International Finance Corporation, Amman, Jordan, 28 February, 2008. 33 IEDP meeting, Jordanian Investment Board, Amman, Jordan, 24 February, 2008. 34 The World Bank Group, “Doing Business 2008 Jordan,” http://www.doingbusiness.org 35 The World Bank Group, “Doing Business 2008 Jordan,” http://www.doingbusiness.org/ExploreEconomies/?economyid=99 36 IEDP meeting, International Finance Corporation, Amman, Jordan, 28 February, 2008.

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Discussion and Recommendations Clearly, the Jordanian government can do little to change the political risk obstacles from its external geo-political environment that prevent FDI flow to Jordan. Therefore, we can treat regional political risk as an exogenous factor that the government has little control over. However, this only increases the need to improve on the endogenous factors the government can affect: governance; and FDI stipulations. Governance: Analysts agree that the Jordanian government, and specifically the King’s and Queen’s offices (in particular the latter, for its strong, and very positive, involvement in the development of Jordan’s ICT sector), have successfully produced the vision, the goals, and the design of what is required for Jordan’s economy to achieve sustainable development. However, implementation of policy has been slow and erratic at best, and wholly counter-productive at worst.37 For example, educators are not properly trained or equipped for the material they are tasked to educate.38 Significantly, ineffective policy implementation has led to serious inadequacies in forming the governance structures and mechanisms needed for sustaining a vibrant, efficient, growing business environment that can attract and maintain high levels of FDI. Recommendation: External policy professionals must be tasked with policy implementation. They should be provided clear instructions as to deliverables and a clear, immovable schedule for delivery. Moving forward, in terms of the policy process, the emphasis in Jordan must be on effective, complete, results-based implementation, and the development of institutional governance mechanisms. FDI Stipulations: The Jordanian government likes to laud the Investment Promotion Law of 1995, and its remarkably “all holds open” features – no local use requirements; no investment holding requirements (i.e. capital can enter and leave the country at free will); and no requirements for partnering with local investors.39 Positively, this has generated robust FDI inflow to Jordan. But it has also generated what appears to be an equal, and possibly greater, FDI outflow from Jordan. This has left local projects investment starved, and importantly, there has been little development of infrastructure and long term sector and/or industry capacity. Recommendations: The Jordanian government should re-think its “all holds open,” strategy for FDI attraction. It should not adopt an “all holds closed,” strategy, but should instead look at the kinds of strategies the Indian government adopted to attract FDI. One example is a local-use requirement that stipulates purchases from local Jordanian suppliers. Another example is a stipulation that intellectual property rights be conferred to the local Jordanian enterprise. It is not going to be an easy task to find the right balance of initiatives – after all, India is a far larger market and offers investors much less political risk than does Jordan. That said, a strategy that allows investment to enter, and does not require it to spur or support long term, sustainable economic development, is clearly not the answer, as data has strongly revealed.

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37 Ibid. 38 IEDP meeting, Ministry of Education, Amman, Jordan, 28 February, 2008. 39 Law No. (16) of 1995, The Investment Promotion Law.

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Public Private Partnerships Introduction By 2001, Jordan had reached a youth literacy rate of 99%, compared to an average of 88% in the Middle East and North Africa region (MENA). Despite that, the gap between Jordan’s highest and lowest performing students is wider than in most neighboring countries, implying unequal learning opportunities.40 Therefore, ensuring that the Jordan education system enables and empowers its students to become competitive participants in the local, regional and global labor market became Jordan’s top priority. The goal of building a knowledge- based economy is achieved by linking education output to labor market demand. The Jordanian government has taken many initiatives towards developing a knowledge-based economy via development of its ICT sector using public-private partnerships (PPP). PPP allowed various stakeholders to come together and to leverage their respective competencies. For instance, multinationals provided management skills while Jordanian firms possessed knowledge of local business climate. Analysis This section of the paper will analyze various initiatives as well as public and private partnerships aimed at addressing ICT development in Jordan. Education Reform for the Knowledge Economy - ERfKE In an effort to transform its education system, Jordan’s Ministry of Education (MoE) instituted the Education Reform for the Knowledge Economy (ERfKE) program in 2003. Jordan received over $120 million41 in World Bank support to launch this project. ERfKE is a five-year program whose main goal is to assure that early, basic and secondary education system fully prepares its graduates to be highly educated, motivated, adaptable and broadly skilled. The project is regarded as a vital one in the government’s education reform strategy, considering it serves a country and a region where more than 50% of the population is below the age of 18. The Jordanian Education Initiative - JEI The Jordanian Education Initiative (JEI) was launched at the World Economic Forum meeting in 2003. It involved the government of Jordan, the international private sector, local private sector, NGO’s and donors. In 2006, JEI was established as a NPO with all Jordanian staff. The goal of this initiative was to achieve educational reform in order to develop a knowledge economy, stimulate economic growth and provide future employment opportunities. JEI successfully achieved its goals in Jordan’s 100 ‘discovery’42 schools and was adopted by other countries worldwide as their model for readying their educational systems for a knowledge economy. As a result of JEI, Jordanian school administrators are promoting a student-centered learning experience; science teachers are using technology to bring virtual experiences to the classroom; match teachers are introduced to new technologies as they develop new e-curricula; and educators who created new Arabic materials share their knowledge through collaborations via online teachers’ networks.

40 The World Bank Group, Country Brief, Middle East and African Region—Jordan, http://lnweb18.worldbank.org/mna/mena.nsf/Countries/Jordan/FFEEB08A8CCBA06D85256B75006E9B91?OpenDocument 41 McKinsey 2005 Report, “Building Effective Public-Private Partnerships: Lessons Learnt from the Jordan Education Initiative.” 42 Schools in Amman selected to be transformed into model facilities where technology is used for learning and teaching, and where IT is integrated in education.

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Microsoft In 2003, one of the first major strategic supply side partnerships was started between Jordan’s Ministry of Information and Communications Technology (MoICT) and Microsoft. In this initiative, Microsoft, via its strategic partner, the General Computers and Electronics Company, agreed to provide software licenses, training and technical support to various government departments.43 In addition to providing deep discount on its software products and providing recommendations on usage of IT to enhance performance and efficiency, Microsoft implemented several strategic projects in collaboration with MoICT. Jordan’s minister of ICT said that “deals with multinational IT firms like Microsoft had done much to aid the development of ‘specialized labor force’ and had encouraged innovation in the kingdom’s ICT sector.”44 Moreover, the firm has been very active in supporting the IT education in Jordan and worked closely with the Ministry of Education on its Global Partners in Learning initiative. This program was aimed at both students and teachers, to promote the use of IT and resulted in the set up of e-libraries in Amman and Marka, in addition to Knowledge Stations (KS) throughout Jordan. The King has supported the establishment of the KS through the King Abdullah II Fund for Development and enabled the first centre that officially opened in the remote desert township of Safawi in September 2000. CISCO, UNIFEM and Rubicon Another successful example of a supply side PPP was a USAid funded UNIFEM and Cisco partnership. This initiative targets young women in order to promote greater inclusion of women in the IT sector in Jordan. Currently, male workers dominate the IT sector. Priority is given to women from low-income groups who would not normally be able to access such opportunity. This initiative has been very successful according to anecdotal evidence. Fadiya Shakdih, was a student who completed a four semester long Cisco training program, and who secured a position with the firm upon her graduation. She said that her training gave her practical experience that distinguished her from her colleagues. In addition, she gained greater confidence from soft skills development workshops that allowed her to express her ideas in a clear and professional way.45 In another joint venture, Rubicon, a Jordanian e-education and animation company, worked with Cisco Learning Institute, on a $3 million e-math curriculum and developed more than 2,500 mathematics lesson plans. Through this initiative, teachers and supervisors of the Jordanian Ministry of Education supported the JEI's work and received training in new teaching theory. Discussion and Recommendations There are many advantages of a PPP for Jordan. First of, the PPP model, based on cooperation of various local and international stakeholders, leads to innovation, and transfer of technical know-how to Jordan. Second, due to the limited size of Jordan’s technological enterprises, the burden and risk is shifted to the larger, usually international partners, while actively engaging these muli-national entities in Jordanian locales. However, there may be some disadvantages. It is important to ensure that the transition to the knowledge based economy is equal across all socio-economic classes in Jordan, and that no one is “left behind.” The 43 Microsoft deal boosts Jordan’s ICT ambitions. http://www.ameinfo.com/130311.html 44 Ibid 45 USAID in Jordan, Education projects in Jordan, Success story, Jordanian women venture into the Jordanian IT workforce. http://www.usaidjordan.org/features_disp.cfm?id=77&type=success

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goal of the reforms is to ensure sustainable economic development in Jordan, such that the gains of economic growth are shared by all in society. In order for this to happen, some checks and balances need to be put in place to ensure that access, and performance is uniform across schools. Specifically, performance measurement metrics could be utilized to ensure that schools in East Amman have equal access, and are performing as well as their counterparts in West Amman. Data and field research extensive indicate that PPPs and initiatives in place that support them are steps in the right direction for Jordan. According to a McKinsey estimate, approximately $3.7 million has as of yet been transferred from global partners to local companies as a direct result of JEI programs.46 Apart from monetary benefits, the JEI drew attention to Jordan, giving it more visibility and perhaps encouraged multinational players to take a closer look at Jordan by creating a favorable environment for investment. For example, it is reported that due to the success of the JEI, Cisco Systems formed a strategic partnership with Estrata Solutions to develop a Cisco Technical Support Center in Amman that will serve customers in Europe and the Middle East. These are promising results, and they warrant being built open.

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46 McKinsey 2005 Report, “Building Effective Public-Private Partnerships: Lessons Learnt from the Jordan Education Initiative.” pp.1

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ICT: The Demand Side Introduction This section looks at the demand side, that is, users and consumers of ICT products and services in Jordan. Exhibit 1 in Appendix C, illustrates that internet usage in Jordan is low (13.65% in 2006)47 compared with to the figure in the United States. Computer usage is also very low in Jordan. (see Appendix C, Exhibits 2 and 3.) Analysis Demand for ICT products and services in Jordan stems mainly come from the government,48 which has made a significant investment in E-government. There are two reasons why demand from the general public has lagged. First, not all Jordanians have the technical skills to use computers. Second, usage costs are high because of a lack of competition.49 We will look at each aspect below. Knowledge The Ministry of Education as a representative of the government organizations and other public institutions, attribute the low demand for the ICT to the lack of knowledge about ICT. There are some initiatives to cope with this issue. Ministry of Education (Public Education)

The Ministry of Education attributes low demand for ICT products and service to the lack of knowledge about ICT. The ministry provides public schools with computers, internet and ICT training to students.50 Interestingly enough, even though the ministry focused on ICT education since the REACH initiative51 began in 1999, the e-Readiness Assessment Report 200652 pointed out that there was a gap between the needs of the industry and the education the government provided. The government has attempted to address this issue by training teachers and providing knowledge about the content business (cf.Rubicon.com). 53 King Abdullah Fund for Development

The King Abdullah Fund for Development is an institution under the supervision of King Abdullah. It provides various initiatives for training, and free computer services in rural and under-developed areas. One of these initiatives involves the provision of “knowledge stations,” of there are currently 144. The number of users has increased steadily.54 47 ITU, http://www.itu.int/ITU-D/icteye/DisplayCountry.aspx?countryId=124 48 Jordan's ICT National Strategic plan, http://www.moict.gov.jo/MoICT/en_index.aspx 49 Ministry of ICT, Statement of Government Policy http://www.moict.gov.jo/MoICT/downloads/ICT_Policy_2003.pdf 50 http://www.moe.gov.jo/learning/index.htm 51 The REACH initiative is a national strategic plan to develop the ICT sector in Jordan. http://www.moict.gov.jo/MoICT/MoICT_REACH.aspx 52 E-Readiness Assessment report, http://www.moict.gov.jo/MoICT/MoICT_Jordan_ereadiness.aspx 53 Rubicon,com, http://www.rubicon.com.jo/index.php?url=companyprofile 54 Number of beneficiaries until December 2007 was 398,030.

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The Jordanian Hashemite Fund for Human Development The Jordanian Hashemite Fund for Human Development is a privately funded institution. Their projects, such as the Intel Computer Clubhouse,55 aim to inform children about the world through the use of ICT products. Jordanian children can communicate with children across the globe through the internet. While these institutions focus on providing basic ICT knowledge to the people, the problems they face next are how ICT education can create the demand for ICT and develop the industry. Market Usage and access costs for ICT products and services are extremely high because there are only a few service providers.56 According to the Ministry of Education, “the low income people whose income is only $2000 can’t afford to buy a computer. The problem is connectivity.” Based on the assumption that people cannot afford to buy their own connection to the Internet, public universities and public initiatives provide free or very low cost internet services. This distorts the market because people do not have an incentive to purchase a private internet connection. This possibly prevents the price of internet access from decreasing and keeps companies and users away from introducing their own ICT environment. Options Now we’d like to discuss possible options for Jordan to seek about each aspect. Knowledge There are two main options to connect ICT education to demand: Reliance on export and Content business. Reliance on export Based on the understanding that Jordanians don’t have enough demand for the ICT, it is certainly possible to search for demand in the export market. The issue is what products and services the Jordanian ICT sector can export. Since there is consensus among stakeholders that they should not focus on manufacturing hardware, the Jordanian ICT sector should focus on producing software or services. In general, however, these areas are extremely competitive, considering the highly qualified industries in Israel, Egypt or even India which have huge BPO offices. In order to be competitive, the Jordanian ICT sector needs to internally strengthen. -Merit: Possible high demand supported by huge capital -Demerit: High competition and low profitability, necessity of advantage Content business The area of content business is what the Ministry of Education supports. Certainly this area could potentially make a profit compared with other ICT products like simple internet connection services. However, the problem again will be the small expected demand in the sense that the whole market itself cannot be big. In addition, other institutional mechanisms such as the protection of intellectual property rights need to be secured. Profitability cannot be expected in the near future.

55 Computer Clubhouse, http://www.computerclubhouse.org/about1.htm 56 Jordan's ICT National Strategic plan, http://www.moict.gov.jo/MoICT/en_index.aspx

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-Merit: Specification leads to some rent -Demerit: demand cannot be big. Other social infrastructure needs to be arranged We looked at the two options, but the important thing to notice is that the Jordanian public initiatives haven’t fully discussed how to use the ICT because they have focused on providing connectivity and basic skill education so far. The government and public initiatives might need to discuss it locally and nationally. Market About market issue, we’d like to discuss the option to stop free Internet services to bring competition to ICT market. Stopping free Internet services to bring competition to the ICT sector Because reducing usage costs is key to increasing demand, the government could possibly pursue this direction. In order to achieve a price reduction, the government needs to bring more competition to the market at a certain point. To increase competition, the government needs to consider stopping free services to people, and/or handing those instruments over to the private sector. This option obviously involves a long-run perspective compared with the options above. But certainly in order to change the structure of demand, the government needs to take these steps at a certain point in the future. -Merit: Reducing the price and fair industry growth anticipated -Demerit: Risk of losing prevalent connectivity. Maintaining the status quo Considering that Jordanian people haven’t reached the income level where they can buy ICT products by themselves, the government has option to keep providing their free services and wait for price decreasing as the industry grows. But as discussed above, there is risk that inefficient industry structure might prevent price from decreasing. -Merit: Guranteeing prevalent connectivity -Demerit: Maintaining inefficient industry structure So far, we have discussed options Jordan could take. We’d like to present our recommendation in the next section. Recommendations In terms of the demand side of ICT in Jordan, we found that there are the Knowledge issues and the Market issues. We offer recommendations to each issue: 1. To coordinate perspectives about how to connect the education of ICT with development of the industry. 2. To reduce the price by introducing more competition to the market Knowledge -Coordinating perspectives about how to use ICT education So far, the focus on education in Jordan involves providing connectivity to people. Based on the current context, it is understandable that importance be placed on connectivity. However, in order to achieve development, the next step must be taken: how can the learned ICT skills be used? As discussed above, there are several possible business models to use the ICT skills. But unfortunately, this aspect has not been fully discussed among the stakeholders. Therefore before deciding on a single direction, the Jordan people might need to go through a creative process to think about how to use ICT rather than hurry in

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making a single decision to focus on sectors. The government and other public initiatives might need to first provide places where the business model will be utilized. For example, they could take steps to use the knowledge stations as business stations where you can gather not only students and teachers, but also employees from the private and public sectors. Market -Reducing the price by introducing more competition A reduction of price of computer hardware and internet service provision can be accomplished by increasing competition in the market place. In order to develop fair and efficient industry growth in the long run, it should be necessary for the government to quit its primary role in providing free ICT services at a certain point. Unfortunately, the right time has not come yet. However, the government needs to keep in mind that the “free” services they provide might cause people quite an “expensive” result. Without changing this costly structure, consumer demand may not increase in the long run.

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Gender Disparity Introduction Economic gender disparity is a global phenomenon. It is a theme that has pervaded across time and continues to exist today in modern societies. Degrees of disparity vary from region to region, however it is especially prevalent in the Middle East and North African corner of the globe. Gender disparity affects all aspects of life. Countries such as Jordan constantly struggle with this notion as its society and economy transition, develop, and modernize. One such aspect in focus, private sector development, has been an economic issue with deeply entrenched gender biases. Further development of the private sector, and therefore the economy, will depend on Jordan’s ability to reconcile its gender issues. Analysis Jordan’s social structure is based on a patriarchal system of cultural norms. Economic and political power is concentrated among males and oriented towards their interests. With regards to the private sector, 90% of businesses are comprised of SME’s. Of this 90%, 96% are male owned and only 4% are female owned. 57 Female entrepreneurship by world standards is 25-33% and additionally, MENA standards fall between 12-18%.58 This sharp contrast against both world and MENA standards illustrates how female entrepreneurship is markedly underdeveloped, marginalized, and undervalued. Furthermore, 75% of female businesses are home-based and are not considered major contributors to the growing knowledge-based economy.59 They are representative of traditional female skills, producing goods and services including sewing, embroidery, handicrafts, beauty services, and small amounts of commercial trade in groceries and clothing. Factors contributing to gender disparity Jordanian society strongly operates along traditional gender roles. The business world is regarded to be the domain of men while the world of the home and childcare is traditionally the domain of women. In the midst of these conservative views, female employment and entrepreneurship are fairly new concepts in Jordan and remains a sort of taboo. Additionally, levels of conservatism are higher the further one travels from Amman into rural areas.60 Although Jordanian society has made advances in its economy and education system, it has yet to break the taboo of women working outside the home. These trends perpetuate the female labor force settling into traditional aforementioned areas of employment. As well as the influence of traditional gender roles, there also seem to exist concrete barriers to female entrepreneurship. The high costs associated with business registration and licensing stand as barriers to all but the wealthiest and best connected in Jordan. Items including time required to go through the registration and licensing process along with the aforementioned costs are among the highest in the world when measured against a per capita income continuum.61 Depending on the sector of business, costs can range from $11,000 - $70,000 USD.62 Though this affects both men and women, women conventionally have access to fewer resources and are disproportionately disadvantaged, making entrepreneurship unattainable for the majority of women.

57 United States. USAID.Jordan Gender Assessment. Washington, DC: BearingPoint, Inc, 2007. 58 World Economic Forum. McKinsey & Company.Jordan Education Initiative. Geneva: 2005. 59 United States. USAID.Jordan Gender Assessment. Washington, DC: BearingPoint, Inc, 2007. 60 Center for Strategic Studies- Economic Studies Unit. University of Jordan.Labor in Jordan. Amman: University of Jordan, 2005. 61 United States. USAID.Jordan Gender Assessment. Washington, DC: BearingPoint, Inc, 2007. 62 Center for Strategic Studies- Economic Studies Unit. University of Jordan.Labor in Jordan. Amman: University of Jordan, 2005.

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Moreover, there are strong perceptions of discrimination in access to finance. Though the World Bank formally denies this, many female entrepreneurs have reported less favorable treatment compared to men when accessing credit and loans. Women have reported needing greater amounts of collateral and male spouses as cosignatories to guarantee any credit lending. Difficulties in accessing formal lines of credit have resulted in women turning to micro-credit opportunities. There are few microfinance institutions within Jordan, however Micro-Fund for Women is the largest and specifically targets women.63 Organizations like Micro-Fund offer small loans and also usually require a male signatory to the credit agreement. Though a progressive start in the right direction, these loans do not provide adequate financing for any major entrepreneurial endeavors and are considered the cliché “drop in the bucket” as far as the issue extends. Institutional impediments also play a role in marginalizing the female labor force in Jordan. Something pervasive throughout the business culture is a preference to hiring men over women. Many organizations are dissuaded from hiring women due to the additional costs associated. For example, extra expenses include providing maternity leave for new mothers and fully funding nursery facilities once companies accumulate twenty or more women with children. 64 These measures are required by Jordanian law, which provides an unintended incentive to hire men. Factors such as these impediments contribute to the resulting figure of only 7% of married women being formally employed in Jordan. 65 Women and the Jordanian economy Because of the underutilization of female labor potential, the Jordanian economy effectively operates at half-capacity. Though women represent half the population, they only occupy 15% of the labor force. These figures are staggeringly low compared the average of 28% for the entire MENA region. 66 As well as institutional barriers to female employment, many women remove themselves from the labor force to pursue marriage in accordance with cultural norms during their peak working years of 24 – 44. Of the women that choose to enter the labor force, many predominantly pursue careers in the public sector. Jobs in the public sector are much more appealing than private employment because they are most readily available to them and offer the most security. Women face additional impediments and differentials in the labor force. A crucial issue is the unemployment rate. The national average is 15%, but the average for women is higher at 25%.67 Job growth is slow and a saturated labor market with a rapid population growth rate keeps these figures high. The general lack of jobs in the economy, combined with gender biases in hiring practices, add to the increased unemployment burden borne by women.68 Women encounter significant wage differentials in the workforce. Females are conventionally hired on at lower wages and salaries than their male counterparts.69 Notably, per the education of women in Jordan, females are usually overqualified for the jobs they work. The Jordanian education system prepares them for higher-level jobs than most women end up being hired for. Women also face non-wage differentials in the labor force. Items such as pensions and social security benefits of women cannot be passed to husbands and/or children upon their death whereas men have this benefit. Additionally, women are not eligible for state subsidized child allowances. In Jordan, only men 63 United States and Jordan. USAID.USAID/Jordan Strategy 2004-2009. Washington, DC: 2003. 64 United States. USAID.Jordan Gender Assessment. Washington, DC: BearingPoint, Inc, 2007. 65 United States. USAID.Jordan Gender Assessment. Washington, DC: BearingPoint, Inc, 2007. 66 Center for Strategic Studies- Economic Studies Unit. University of Jordan.Labor in Jordan. Amman: University of Jordan, 2005. 67 Center for Strategic Studies- Economic Studies Unit. University of Jordan.Labor in Jordan. Amman: University of Jordan, 2005. 68 YEA Business Incubator . (2008). Young Entrepreneurs Association. 21 Jan 2008 <http://www.yea.com.jo/about_yea.shtm>. 69 United States. USAID.Jordan Gender Assessment. Washington, DC: BearingPoint, Inc, 2007.

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enjoy this assistance. Women are also subject to lower mandatory retirement ages. Factors such as these indicate the role of females as financial supporters and contributors to the home are not valued. There is also evidence of occupational segregation within the workforce. Across generally all industries, women are subject to vertical segregation. They face a glass ceiling of promotion potential that is very difficult to break through and advancement is usually reserved for male coworkers. Women also face a type of horizontal segregation, as they are typically concentrated among the middle ranks of employees, again, with limited opportunities for promotion. Education Despite many of Jordan’s shortcomings, the country enjoys one of the best education systems in the region. Since Jordan has little to no natural resources, its only major resource is its human capital base. Because of its compulsory initiative, Jordan has achieved gender parity in primary and secondary education levels. However, there is high gender disparity at the tertiary level. Men outnumber women at the tertiary level 3:1.70 With limited economic opportunities, priority in education is given to males because of their perceived greater effectiveness in the labor force. Partly due to this phenomenon, women naturally move into the domestic setting and occupy their traditional roles. Because of the limited opportunities for women in the economy, women who do pursue higher education tend to orient themselves towards accepted female industries including domestic crafts and services. Discussion and Recommendations Jordan is pushing to modernize and transform its economy through its private sector. Through its human capital resource, Jordan is seeking to become and a knowledge-based economy, heavily leveraging information and communication technology industries (ICT.)71 As the country heads in this direction, there are many factors that Jordan will need to address. Issues of education, information technology infrastructure, and the role of women therein will need to have their options considered and reconciled. Education The education system has long stood as one of the best in the region, producing large numbers of qualified graduates who bring a high value-added domestically and abroad. However, as the economy has begun to shift and change, the education system has been slower to adapt. This discrepancy in pace between the economy and education has created a mismatch between the two in terms of economic needs and human capital production. Education is not adequately preparing graduates to succeed in the new economy. What has taken shape is a surplus of graduates who although are highly skilled and educated, lack the specific skills to assume ICT employment. The new economy is demanding of ICT knowledge skills and integrating new technology and curriculum into the current education system provides the opportunity to close the gap between economy and education. ICT ICT growth and industry continues to be a positive directive of the nation. Greatly due to lack of education in ICT, continued growth threatens to leave behind large segments of the population. An option to be considered is increasing access to ICT and education throughout the country. In addition to integrating ICT into schools, accessible community centers provide another option to empower the

70 Education. (2008). USAID in Jordan. 22 Jan 2008 <http://jordan.usaid.gov/sectors.cfm?inSector=17>. 71 Hashemite Kingdom of Jordan. Ministry of Information and Communications Technology.Jordan e-Government Program: e-Government Strategy. Amman: Jordan e-Government, 2006.

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population. Community centers, which provide technology and education on how to use ICT provides one of the most efficient ways of reaching large segments of the population.72 Though the initial costs are potentially high, the future benefits of this training to the future economy are significant. Women Human capital plays an essential role in any expanding private sector and economy. Currently in Jordan, women occupy a marginalized role. This role pervades through the labor force, education system, and new economic initiatives including ICT. Jordan has a major option to consider. Does it continue essentially running at half-capacity or does is tap its underutilized female human capital resource? If Jordan seeks to advance and become an aggressive global economic entity, it surely must draw from its entire human capital base. Integrating and providing equal footing for women provides an instant talent stimulus that certainly will certainly add advantage to its labor force and generate greater economic growth. Fortunately, female human capital is not a financial issue; it’s a cultural one. Jordan’s main challenge is changing the cultural norms of its society. Although a difficult task, this change provides one of the best options for sustained economic growth and longevity. There is no easy remedy for Jordan’s gender disparity issue. The roles of men and women in Jordanian society have been in place for hundreds of years and bringing about change will undoubtedly take effort from both the top down and the bottom up. The following offers both general and specific recommendations for Jordanian gender disparity reform. Generally, there are two main recommendations that create the base and catalyst for reform. First, creating economic growth and employment opportunities are key. Presently, economic growth is slow and is being outpaced by the rate of new members entering the labor force each year. Although ICT industries are growing, they are however still limited. With limited demand, the majority of the existing employment opportunities go to Jordanian men. Growing the economy and thus stimulating skilled labor demand will provide women with a greater array of employment options and give them more choices in pursuing a career. Jordan should aim to build a successful economy to the level where is cannot solely rely on only its male population to support it. Second, it is necessary that Jordan work towards the reform of cultural norms. The taboo of women working outside the home needs to be broken to facilitate females moving out from under their traditional roles both in education and in the labor force. Women possess the same base skills and education as most men in Jordan. It is only because of limited opportunity, but most importantly cultural norms that they remove themselves from pursuing higher education and private sector entrepreneurial ventures. Creating a societal environment where it is not only accepted, but is desired for women to move ahead in education and labor will exponentially create more economic opportunities, strongly positioning women to become active contributors to the private sector and growing ICT industries. Creating an environment of opportunity and acceptance is crucial for the advancement of women. In addition, there are many specific institutional impediments that exist for women in Jordan. To promote greater equity in all economic sectors, it is recommended that the Jordanian government take steps to legally reform the following areas: Business registration and licensing fees: Reducing these costs would benefit the entire population, but women most of all due to their overall access to fewer financial resources. Credit access: Requirements should be given to lending institutions to establish equality in collateral and loan amounts as well and removing the spousal guarantee for lending to women.

72 World Economic Forum. McKinsey & Company.Jordan Education Initiative. Geneva: 2005.

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Female workforce costs: The government should look to remove financial burdens from employers who incur added operating costs due to female workers such as maternity leave and nursery facilities. Wage differentials: Universal wage regulations should be enacted and enforced to give women parity in salary for the same job. Non-wage differentials: Laws pertaining to items including pensions, social security benefits, and child allowances should be reformed to achieve equality with the male standard. Occupational segregation: The government should take the lead in removing both vertical and horizontal segregation practices in the workplace. Technology affordability: Computers and ICT should be made more affordable to the public, promoting greater access among women. As Jordan continues to develop, it will face constant challenges. The recommendations set forth seek to identify and reform the most critical issues pertaining to gender disparity in Jordan today. Through growing the economy, restructuring cultural values, and reforming inherently unequal institutional and legal practices, gender disparity can be greatly mitigated and the stage set for greater progress in the future. Jordan possesses a priceless resource in its human capital and women must play a vital role in private sector development in the years ahead.

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Appendix A Exhibit 1

Treading A Healthy Growth Path Jordan - Real GDP Growth (% change)

Source: BMI

24

Appendix B Exhibit 1

Exhibit 2

25

Exhibit 3

26

191,918 203,122252,152

278,557

344,146

434,223

536,759599,166

712,438

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

1996 1997 1998 1999 2000 2001 2002 2003 2004

1,949 2,150 2,131

6,797

12,370

10,091

14,394

17,699

23,148

27,153

409 478 531 1,207 1,277 1,062 876 1,0412,217 2,783

0

5,000

10,000

15,000

20,000

25,000

30,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Software Services Maintenance services

Appendix C Exhibit 1: Internet users per capita Exhibit 2: Telecommunication output in Jordan Exhibit 3: ICT related industry output in Jordan

36.55

44.06

50.155.21

6366.33

69.1

2.45 2.53 4.52 5.788.11

11.22 12.62 13.65

55.58

0

10

20

30

40

50

60

70

80

1999 2000 2001 2002 2003 2004 2005 2006

U.S Jordan