1. Overview and key policy considerations

This section assesses the main challenges and opportunities in terms of sustainable development in Jordan and discusses how foreign direct investment (FDI) can support the recovery from the COVID-19 crisis and sustainable development in the future. It then derives key considerations for institutional and policy reforms to boost FDI-led progress towards the Sustainable Development Goals (SDGs).

Economic development in Jordan has slowed in recent years, after witnessing a period of rapid economic growth and development in the 2000s. Annual GDP growth averaged between 4-8% over 2000-08 (Figure ‎1.1, Panel A), similar to growth rates in many peers in the Middle East and North Africa (MENA) as well as other emerging regions. More than in other MENA countries, foreign direct investment (FDI) and integration into global value chains (GVCs) have enabled economic growth and productivity in Jordan. FDI inflows have mainly gone to real estate development and the energy sector (power generation) (70% of greenfield FDI) but also manufacturing such as garments, textiles and chemicals. However, Jordan’s economic development process slowed down after the global economic crisis in 2008; growth now averages around 2% per year. In addition to this slowdown, ongoing conflicts in neighbouring countries that have cut off important trade corridors led to a significant drop in demand for Jordan’s exports and a sharp increase in energy costs from imported fuels (Chapter 2). Jordan’s reduced competitiveness has also been accompanied by lower investment than in the MENA region and OECD countries and a relatively low intensity of knowledge activities such as research and development (R&D) (Figure ‎1.1, Panel B).

Jordan has an opportunity to reap the benefits of a young and well-educated population but more inclusive growth is challenged by various labour market imbalances. The employment rate is low compared to the average for MENA and OECD countries, with many people in informal and low-paid jobs, and many young and highly educated graduates are unemployed, particularly women (Figure ‎1.1, Panel B). Progress in women’s educational attainment in Jordan has not been followed by increased participation of women in the labour market. The female participation rate is among the lowest in the world, at only 14%, and the gender pay gap remains significant (Chapter 4). Insufficient job creation through private investment, combined with a growing labour force and considerable skills imbalances, are the main challenges facing the labour market in Jordan – challenges that the influx of refugees and the COVID-19 pandemic have exacerbated (Chapter 3). The public sector is no longer absorbing a large number of new graduates, but continues to offer more attractive working conditions than the private sector, thereby limiting labour mobility. These challenges have also led to a decline in average per capita incomes since 2012; corrected for purchasing power parity, incomes have now returned to levels seen in 2000 (Figure ‎1.1, Panel A).

Water, food and energy security are amongst the biggest challenges to achieving sustainable development in Jordan and have serious implications for Jordan’s carbon emissions and its ability to meet its climate targets (Chapter 5). Water scarcity and high energy costs are also crucial barriers to private sector growth and productivity. Jordan is one of the world’s most water-scarce countries, and climate change is expected to exacerbate this scarcity. Jordan’s geographical conditions are such that high energy inputs are required to filter and transport water over long distances and varied terrains. Jordan’s energy sector is overwhelmingly fossil fuelled (Figure ‎1.1, Panel B), and has been subject to rising costs due to conflicts and political instability in the region, high dependence on energy imports and the growing demand of a larger population due to the influx of refugees. Given its natural resource endowments, Jordan has a strong potential for the development of renewable energy technologies, especially in solar and wind energy. While there is still a long way to go, Jordan has made important strides in recent years reaching its 10% renewable energy target for 2020 ahead of schedule, and is now aiming for as much as 31% of its electricity mix to come from renewable sources by 2030.

Reigniting exports and FDI can drive inclusive and sustainable growth in Jordan as well as support the ongoing recovery from the pandemic. Fiscal and balance of payments constraints remain a challenge. Despite fiscal adjustments, Jordan’s debt-to-GDP ratio has risen to above 90% since the 2008 crisis. Future growth cannot depend on fiscal stimulus, nor can it be expected to come from fiscal discipline. The current account deficit is already large, so growth cannot be driven by increases in private domestic demand for non-tradable goods, as these would require more imports and worsen the external balance. Jordan’s growth and productivity potential thus lies in export activities and foreign investment inflows, which will lower the current account deficit and also have a multiplier effect on the non-tradable sector.

The immediate potential for inclusive and sustainable growth lies in services activities that are neither energy- nor water-intensive. Jordan has the natural endowments to reduce the costs of electricity in the medium term through an acceleration of investments in renewable energy generation and leveraging new technologies to maintain grid stability (Chapter 5). This would also help Jordan’s green growth agenda more generally and create new opportunities for sustainably increasing water supply, which would also improve competitiveness in (energy- and water-intensive) manufacturing activities.

The potential for inclusive growth in services is supported by the growing workforce with tertiary education (Chapter 3). While the most recent change in the labour force is driven by significant inflows of refugees, Jordan’s comparative advantage in skills-intensive activities has developed over a longer period, driven by a significant increase in women’s tertiary education (Chapter 4). Traditionally, female labour was in the education, health and non-market services sectors, but further female workers cannot be absorbed by these non-tradable sectors due to fiscal constraints. Jordan should therefore boost investment and create jobs in tradable services such as ICT and other business services, transport and logistics, creative industries and tourism. Many of these services, which have already served as a driver for growth and exports over the past decade, could be further expanded in the future and, with appropriate investment, have significant potential to raise productivity from current low levels.

The Government of Jordan prioritises FDI as a driver of sustainable development. Ambitious liberalisation reforms in the 1990s made the Kingdom one of the most successful countries in attracting FDI – the FDI stock-to-GDP ratio exceeded 80% in 2020, which is high compared to other economies. In 2014, the government adopted a modernised investment law and launched a revamped investment promotion agency, the Jordan Investment Commission (JIC), which became the Ministry of Investment (MoI) in 2021. Projects benefitting from the Investment Law refer to firms that are registered with MoI to exercise activity in Development Zones (areas within customs) and Free Zones (areas outside of customs). These companies benefit from various tax exemptions or reductions – the Investment Law and related regulations also give incentives to some activities outside of zones, but projects are not registered through MoI. Foreign projects registered with MoI represented 50% of total inward FDI inflows between 2000 and 2020 (Box ‎1.1). They also accounted for 40% of all MoI-registered projects, the rest being domestic projects (Figure ‎1.2).

Despite important investment climate reforms, persistent structural challenges and dependence on a few industries, combined with global shocks and regional instability, have gradually eroded Jordan’s FDI performance in the last 15 years. FDI inflows represented less than 2% of GDP in 2020 and 2021, on par with comparator groups, but much lower than the country’s average performance over the last decade (Figure ‎1.3 1.3). Jordan’s FDI inflows held up during the first year of the COVID-19 pandemic and increased by 4% in 2020 compared to 2019 while it dropped by 18% in the MENA region. Foreign projects benefiting from the 2014 Investment Law and registered with MoI – projects in Free or Development zones – have declined more strongly in 2020. Due to the ongoing crisis, Jordan’s FDI inflows declined by 18% in 2021.

The challenge for Jordan is not only to restore and increase FDI levels, but also to enhance their alignment with the SDGs to support the recovery. Despite a large stock of FDI, Jordan has not been as successful as other economies in leveraging investment to promote sustainable development. Some of the sectors that attract the most FDI in Jordan – including real estate, construction and oil and gas-related energy – do not contribute the most to productivity and innovation, green growth or the creation of quality jobs for young women and men. While the services sector produces almost 60% of the country’s value added, it attracted less than 10% of greenfield FDI between 2003 and 2020 (Figure ‎1.4). Within services, the financial sector attracts most FDI – the sector accounts for 77% of total market capitalisation by foreign firms in Amman Stock Exchange (ASE) against 10% in other services. FDI in manufacturing created many jobs in the early 2000s, particularly for women, but accounted for 20% of greenfield FDI, a share that has been gradually declining in recent years, compared to 40% in most ASEAN economies (OECD, 2021[2]). Furthermore, manufacturing FDI has been concentrated in low productivity and low skill-intensity sectors, such as the garment industry, and has been responsible for large shares of oil-based fuel consumption.

Evolving global FDI trends and changing investment patterns in Jordan might be able to better match the country’s factor endowments, thereby also promoting sustainable development. Jordan’s renewable energy sector, business, financial and health services, transport and logistics, and ICT – sectors that are also expected to boost global FDI flows in 2021 and beyond – have received relatively more FDI in recent years compared to manufacturing and construction. These sectors often have higher productivity levels, create better-paid jobs that can meet the aspirations of Jordanian women and men, and can support green growth. Overall, Jordan’s current comparative advantages present clear investment opportunities in fast-growing high-skilled tradable services as well as some opportunities in certain manufactured and agricultural goods, including the export of chemical products (Hausmann et al., 2020[3]; ILO, 2022[4]). Considering the export potential of sectors that can attract FDI with high impacts on the SDGs – and the barriers that hinder this potential – is important given the small size of the Jordanian market and the limited intra-regional trade.

Attracting MNEs to sectors that can drive the SDGs is crucial, but is not enough to maximise the benefits of FDI in Jordan. The impact of foreign companies’ operations on sustainable development is equally important. The OECD FDI Qualities Indicators show that foreign companies in Jordan perform better than domestic firms in several dimensions of sustainability. They tend to be more productive, pay higher wages, employ more women, and provide more training opportunities. Their performance premium is, however, small and weaker than in other peer countries, suggesting that there is a strong potential for policy interventions that help FDI to achieve better sustainability outcomes. This potential is even higher when it comes to green business practices, an area in which foreign firms perform relatively poorly.

FDI also influences SDG outcomes indirectly through foreign companies’ supply chain linkages and other market interactions with domestic firms. The potential for positive FDI spillovers is, however, limited in Jordan. Supply chain linkages between foreign and domestic firms, a key channel for FDI spillovers, are weak in comparison with other countries (Chapter 2). This limits the ability of foreign firms to influence the business, labour, gender and environmental practices of domestic firms. Furthermore, weak competition due to, among other things, a bloated public sector, has created a large group of small and old unproductive private sector firms that are vulnerable to foreign competitors. This also creates inefficiencies in the allocation of resources and limits labour mobility. Generally, high-skilled Jordanians prefer to work in the public sector because of the attractive working conditions. A more dynamic private sector will enable FDI to reallocate human capital to more productive activities and, in turn, support sustainable development.

Crippled MNE operations due to the COVID-19 pandemic may have temporarily delayed Jordan’s achievements towards reaching the SDGs, but MNEs can also support a more inclusive, sustainable and faster recovery due to their higher productivity and stronger resilience to shocks. During the pandemic, the proportion of foreign firms in Jordan that had to close permanently their business was six times lower than of domestic firms (Figure ‎1.5, Panel A). They were also proportionally more to start or expand remote work, fewer to decrease employment and faster to retrieve their pre-pandemic workforce levels – similar to foreign firms in other countries (OECD, 2020[5]). Recovery in terms of sales levels is, however, slower among foreign firms, potentially reflecting their high concentration in activities that are severely affected by the pandemic, potentially the apparel sector that employs a large share of women (Figure ‎1.5, Panel B).

Jordan has a coherent framework of national strategies to support the SDGs with consistent references to the role of private (domestic and foreign) investment. Providing the overarching direction, Jordan’s Vision 2025, the Economic Growth Plan 2018-22 and other strategic documents point to sectors with significant potential for investment, productivity, employment (including for women) and green growth. The emphasis is on the development of modern, ITC services and sustainable infrastructure (e.g. renewable energy or transport), which is in line with sectoral growth opportunities discussed in this report (Chapter 2).

Vision 2025 is supported by multiple national strategies for the implementation of policy objectives across various areas of sustainable development and policy domains (e.g. Jordan Investment Promotion Strategy; National Policy and Strategy for Science, Technology and Innovation 2021-25; National Employment Strategy 2011-20; National Strategy for Human Resources Development 2016-25; National Strategy for Women 2020-25; Green Growth National Action Plan 2021-25). While the importance of private investment is mentioned in all strategies, references are sometimes generic and not always linked to specific priority actions or projects; this is particularly true for policy efforts towards a low-carbon economy.

Strategies are not always developed in a co-ordinated manner both within and across areas of sustainable development. For example in the area of productivity, job quality and gender equality, strategies are introduced without cross-referencing those of other state bodies. On the other hand, the strategic framework for green growth, as a top national priority, has been effectively consolidated since 2017 under the National Green Growth Plan – which could be a guiding example for consolidation and alignment in other sustainability areas. Across areas of sustainability, all strategies are framed under the 2025 Vision but information on strategies and plans under this vision could be further centralised on a single platform with links to websites of the various ministries and made easily accessible to ministries, agencies, investors and all actors involved in improving the impacts of FDI on sustainable development.

There are no mechanisms in Jordan exclusively dedicated to policy co-ordination in the area of investment and sustainable development. Other existing mechanisms nevertheless could take a more prominent role to ensure some strategic alignment at high political level – notably through the Investment Council where the presence of the Ministry of Labour is unique to Jordan, but also through other high-level bodies (Figure ‎1.6). The creation of a new Ministry of Investment in 2021 that will be responsible for all investment-related affairs and bodies, including JIC and the Public-Private Partnership Unit, could constitute a positive development in terms of streamlining licencing procedures and improved co-ordination with other ministries, but the institutional reform is still at its early stages.

Co-ordination could be further strengthened by ensuring that public and private institutions from all pertinent policy areas and all stakeholder groups (including for example foreign investors) are represented in relevant committees, councils and boards of directors. High-level bodies overseeing skills development, innovation, gender equality and green growth are not represented in the Investment Council nor are they all united in other co-ordination bodies. Yet, in the area of gender equality, both the Ministry of Labour and the Ministry of Planning and International Co-operation, which are part of the Investment Council, have gender units that help represent gender issues in labour market and investment policy making. Similarly, in the area of green growth, the Higher Steering Committee for Green Growth (HSCGG) reports directly to the Prime Minister who also chairs the Investment Council. This suggests that the Investment Council holds important authority overseeing the framework for investment in green growth.

At the implementation level, horizontal co-ordination and co-operation between agencies through joint planning and delivery of policy initiatives is broadly absent and – in some cases – agencies have overlapping responsibilities. For example, there is limited co-ordination between MoI and the main agencies in charge of delivering employment services and training support, including the newly established bodies in charge of technical and vocational training and skills needs assessments. Similarly, joint initiatives between MoI and the Jordan Enterprise Development Corporation (JEDCO) or agencies working on innovation, gender equality and green growth have not been identified.

Considering ways to involve MoI in other policy domains related to sustainable development could help tailor programmes to the investor needs and concerns (e.g. the design of skills programmes would benefit from investor perspectives to identify and address skills shortages; or investor perspectives could help in the design of green growth programmes and identify key bottlenecks to climate-resilient investments). In some cases, there is overlap in mandates and responsibilities of different agencies, which can create unnecessary administrative burdens for investors (e.g. several governmental institutions are involved in setting administrative and licensing procedures for renewable-energy projects). On the other hand, vertical co-ordination mechanisms between levels of government are fairly well-established (e.g.  MoI is well-placed to convey investor concerns to the Investment Council and can thus give important inputs to policy reforms at higher levels).

Monitoring and evaluation of the impact of policies and engagement with stakeholders happens sometimes but efforts could be reinforced in Jordan. There is no national standard for monitoring and evaluation of policies in Jordan. Rather, the practice of monitoring and evaluation depends on the discretion of each policy implementing agency. For example, in the area of innovation, HCST and the National Centre for Innovation carry out policy evaluation, but the evaluation mechanisms and methodologies are not sufficiently transparent. A key challenge for Jordan’s policy implementation agencies to exercise monitoring and evaluation is a lack of qualitative information received from investors. Jordan could further strengthen stakeholder engagement to assess gaps between laws and their implementation and identify key challenges that policy beneficiaries (e.g. investors, SMEs and workers) may face on the ground. The establishment of the Economic and Social Council in 2009 as an advisory body to the government on economic and social policies demonstrates strong commitment by the government to address this concern.

Clear whole-of-government strategies and strong co-ordination mechanisms are the foundations for a coherent policy framework that can enable the contribution of FDI to the SDGs. The Government of Jordan, like many other governments, has advanced meaningful reforms to improve the investment climate, expecting that the developmental benefits of FDI would automatically follow. These benefits did not materialise as much as the government hoped for, however. Beyond a conducive investment climate, wider regulatory reforms and targeted policy support could help unleash the potential of FDI for sustainable development in Jordan.

Reform and opening of services could help achieve the key objectives of Jordan’s Vision 2025 and other related national plans. Discriminatory measures on foreign investors’ entry and operations deter FDI and, in turn, related direct and spillover gains for sustainable development. Reforms in Jordan have largely liberalised the manufacturing sector but many other service sectors remain partly off limits to foreign investors (Figure ‎1.7). Restrictions on full foreign ownership exist in business services, distribution, transports and logistics and tourism, services where FDI entry has a strong potential to generate productivity gains throughout the economy, stimulate labour demand and create high-skill jobs – including for young women – and support the low-carbon transition. Joint venture requirements in such sectors may also hinder foreign investors from deploying their most advanced (green) technologies or responsible business practices, in turn limiting knowledge transfers and the adoption of higher international sustainability standards by domestic competitors and suppliers.

In addition to restrictions on FDI, wider ‘behind-the-border’ domestic regulatory barriers limit business creation and innovation in Jordan and, in turn, can hamper the sustainable development impacts of FDI. Pro-competition reforms could help reduce the high cost of doing business in Jordan – for instance in the energy sector – and hence increase the country’s competitiveness. Increased competition will also allow for a more dynamic private sector that can enable labour mobility and better absorb the gains from FDI spillovers. Jordan Vision 2025 aims to enhance the ability of firms to grow and compete on a level playing field and the government has recently revised its competition policy to minimise market distortions. The government’s reform agenda also aims to rationalise public sector hiring practices, which could increase the incentive for highly skilled Jordanians to work for the private sector.

Other regulatory barriers influence positively or negatively the impact of FDI on sustainable development in Jordan, but not to the same extent in the different sustainability dimensions. Barriers include, among others, lengthy steps to start a business and access to finance (SME productivity and innovation), legal barriers and loopholes preventing women from participating in the labour market (gender equality), high levels of wage-setting distortions, burdensome procedures to hire foreign talent and weak collective bargaining rights (job quality and skills development) and challenges in accessing land for renewable-power projects (reducing carbon emissions). The government has introduced important reforms in all these areas, yet further efforts would ensure that the wider regulatory framework is transparent and aligned with the government’s goal of leveraging FDI as a tool to achieve the SDGs. Section 1.2 and subsequent chapters focus more on the regulatory barriers that hinder the benefits of FDI in specific sustainability outcomes.

Targeted policies and measures can help governments act on specific sustainability outcomes of FDI. In Jordan, the policy mix reflects the country’s most pressing priorities, as most policy instruments influence – directly or indirectly – the contribution of FDI to job creation and SME growth (Figure ‎1.8). This emphasis is coherent with Jordan’s daunting needs of absorbing a young and growing labour force through private sector development. Policy interventions that enable the benefits of FDI also focus on incentivising private investment in the clean energy sector and on equipping workers with the right skills, although often only for lower-skilled jobs in the manufacturing sector.

Other sustainability dimensions appear to be less of a priority for the government, yet they are crucial to meeting the emerging challenges and opportunities facing the Jordanian economy. While general employment and skills development policies benefit both men and women, very few programmes specifically target increasing women’s low labour market participation rates. Likewise, only few policies proactively support the benefits of FDI or limit its adverse impacts on reducing carbon emissions, boosting productivity and innovation in key services or creating better quality jobs. Private sector job creation in the manufacturing sector is central for Jordan, but adjusting the policy mix to adapt to changing patterns of FDI could help support the emergence of a more inclusive, greener and knowledge-based economy in which the tradable service sector plays a greater role.

Tax and financial incentives are the most widely used types of policy instruments across all sustainability dimensions. This is because most of them can affect several outcomes at the same time, for instance by incentivising investment in certain sectors or regions where development needs are high. Fiscal incentives – most often corporate income tax (CIT) exemptions or rate reductions – distort competition and are not always effective in inducing firms to promote sustainable development. While the 2014 Investment Law streamlined the legislative framework under which tax incentives are granted, and created a more cohesive set of measures, investment incentives are still widespread in Jordan and scattered across different laws (OECD, 2018[7]). The government intends to streamline further investment incentives. It is currently working on a new incentives regime that removes provisions related to fiscal incentives from the Investment Law and consolidates them in one single law and under the Ministry of Finance responsibility.

The government introduced a new reform in 2020 (Regulation N. 18 of 2020 on CIT Incentives in the Industrial Sector) that phased-out permanently reduced CIT rates in some manufacturing sectors and made tax reductions conditional on reaching specific outcomes related to job creation, gender equality, SME growth and regional development (Table ‎1.1). This recent reform of CIT incentives in the manufacturing sector could serve as an example to guide the ongoing revision of the tax incentives granted in the 2014 Investment Law and related regulations, which also cover the service sectors. The revision could opt for tax incentives related to similar sustainability criteria (job creation, gender, SME growth) and consider other criteria such as companies’ investment in R&D or skills training, while phasing-out incentives to sectors with declining productivity or high carbon emissions.

Other incentives provide tax allowances and subsidies to investors meeting specific outcome conditions. When well-targeted, such incentives can enhance the impacts of FDI by attracting investors that do not foresee to make profits in the first years of activity. Financial support was introduced temporarily to mitigate the adverse impacts of the COVID-19 pandemic, for instance, such as Defence Order N.6 that provided wage subsidies to companies to limit job losses, subsidies that were strongly demanded by the foreign firms (Chapter 3). Overall, tax incentives or any other types of financial support that apply horizontally and do not target sectors but rather activities (e.g. R&D activity) are likely to generate fewer distortions. Furthermore, the government should periodically assess the appropriateness and relevance of tax and financial incentives and MoI should provide further clarity and transparency on the wide range of available incentives, beyond those granted by the 2014 Investment Law and related regulations.

Technical support to businesses and workers and, to a lesser extent, information and facilitation services are largely used in most dimensions of sustainability. These policies are crucial to strengthen domestic absorptive capacities and, in turn, better reap the benefits of FDI spillovers or mitigate their potential adverse effects. For instance, existing, albeit limited, sectoral training programmes in ICT can help reduce skills shortages in a high-growth sector where FDI may crowd out competitors unable to retain their talented staff. Information and facilitation services include, among others, FDI-SME matchmaking services and some awareness-raising initiatives on environmental or labour standards, helping companies to voluntarily disclose their compliance with them. In 2018, ASE developed a “Guidance on Sustainability Reporting” to encourage listed companies, among which many are foreign-owned, to report on their Economic, Social and Governance (ESG) performance. Reported information on ASE website is, however, limited.

As an adherent to the OECD Declaration on International Investment and MNEs since 2013, Jordan is mandated to establish a National Contact Point (NCP) to promote due diligence for responsible business conduct, covering aspects related to gender, environment, employment and industrial relations. The NCP, hosted by MoI (and previously by JIC), has been largely inactive (OECD, 2021[2]).

Only a few policy instruments in Jordan provide regulatory incentives or impose requirements on investors with the stated objective of improving sustainability outcomes. Providing no or very few regulatory incentives to specific investors is desirable as derogatory legal regimes such as free or development zones distort competition and can become enclaves with lower labour or environmental standards, a risk that materialised in Jordan’s QIZs, where working condition are difficult, although the government has recently been active in restoring better working conditions. Few regulations require companies to disclose their sustainability performance in the area of environmental sustainability. If well-designed, such regulations can be useful instruments to limit the adverse impacts of high-polluting FDI projects (Chapter 5).

This section provides key findings and policy considerations by sustainability cluster, showing how FDI supports a specific aspect of sustainable development (i.e. productivity and innovation; job quality and skills development; gender equality; low-carbon transition) and what reform opportunities exist.

FDI was a key driver of aggregate productivity growth in Jordan in the 2000s but inflows of FDI have slowed considerably ever since. The bulk of FDI is concentrated in capital-intensive resource extraction and real estate, jointly accounting for more than 70% of total greenfield FDI. Jordan’s labour productivity has been stagnant since the global economic slowdown in 2008, and ongoing conflicts in neighbouring countries have cut off important trade corridors, leading to a significant drop in demand for Jordanian exports and a stark increase in energy prices. Reduced competitiveness in manufacturing has influenced foreign manufacturers to engage less in knowledge-based activities in Jordan. Due to this, as well as to the limited capacities of small and medium-sized enterprises (SMEs) (e.g. related to endowments of and access to strategic resources such as finance and infrastructure), foreign firms are engaging less in business linkages with domestic firms, further reducing the potential for knowledge and technology spillovers from FDI activity. Future growth and productivity are likely to occur in tradable services (e.g. finance, transport, ICT and wholesale and retail services), which have experienced relative stability in FDI inflows in recent years, and are less affected by high energy prices and water scarcity compared to manufacturing.

The productivity opportunity in services, including through foreign investment and linkages with SMEs, is recognised by the Jordan 2025 national strategy and supported by multiple strategic documents and action plans whose governance is entrusted to several state bodies at various levels. Councils at the highest level in Jordan could ensure that public and private institutions from all relevant policy areas and all stakeholder groups (including foreign investors) are represented (e.g. in the Investment Council) and have the chance to enrich policy making processes with their insights. At the policy implementation level, horizontal co-ordination and co-operation on investment, innovation and SME programmes could be also strengthened to ensure greater synergies and alignment of resources, policy objectives and actions across Ministries and implementing agencies. Joint programming is currently broadly absent.

Further opening services to FDI could support productivity growth, while at the same time supporting progress in other sustainability areas (Section 1.1). The current fairly open FDI market access regime in ICT services and electricity already involves important productivity opportunities for Jordan. Beyond FDI restrictions, there are several ‘behind-the-border’ regulatory elements (e.g. intellectual property rights protection, or competition and labour market policy) that influence investment in services; better assessing those would be possible through the inclusion of Jordan in the OECD Services Trade Restrictiveness Index (STRI). In the area of policy implementation, Jordan has made notable improvements but starting a business, dealing with construction permits and protecting minority shareholders rights remain key constraints for businesses. Streamlining the regulatory environment for SMEs would contribute to further improving the business climate and thus enabling SME productivity growth.

The mix of pro-active policies is skewed towards programmes that aim to strengthen the growth and upgrading of local SMEs, while less policy attention goes into enhancing productivity and innovation of the economy as a whole through FDI. Yet, efforts to consolidate Jordan’s research and innovation ecosystem have intensified in recent years. Emphasis has been placed on increasing the financial support allocated for R&D and enhancing access to finance for innovative SMEs. Despite recent improvements in the availability of risk capital for entrepreneurs, more could be done to improve the provision of technical assistance, information and facilitation services to domestic firms that want to further develop their innovation and R&D capacities and serve as suppliers and partners of foreign affiliates. Furthermore, investment promotion policies are not conducive to attracting productivity-enhancing and R&D-intensive FDI. Jordan could reconsider the sectoral targeting of investment incentives away from manufacturing and more towards services and R&D-intensive activities with higher potential for productivity growth. The quality of investment facilitation and aftercare services could be also improved to help identify the sourcing needs of foreign investors and steer FDI projects towards locations with the greatest potential for supplier linkages and thus knowledge and technology spillovers on domestic firms.

The Government of Jordan has high expectations that FDI can support quality job creation and skills development. The employment rate is low by international standards, with many people in informal and low-paid jobs, and many young graduates unemployed, particularly women. Insufficient job creation through private investment, combined with an increasing labour force and considerable skills imbalances, are the main challenges facing the labour market in Jordan – challenges that the influx of Syrian refugees and the COVID-19 pandemic have exacerbated. The public sector is no longer absorbing a large number of new graduates, unlike in the pre-2000s period, while the private sector often offer less attractive working conditions, thereby limiting high-skill labour mobility from public to private sector jobs.

FDI in Jordan has advanced job creation, improved living standards and developed workers’ skills, but its impact has been limited and not all segments of the population have benefited. Over the last two decades, employment gains from FDI were largest for foreign workers in low-wage sectors such as construction, manufacturing or tourism and, since recently, for the higher-skilled Jordanians working in better-paid sectors like ICT or finance. Despite improving educational attainments, inconsistency between curricula and evolving employers’ needs are preventing Jordan from reaping the benefits of FDI, including services FDI that digitalisation and recovery from COVID-19 are likely to boost. Labour market gains from FDI remain off limits to low and medium-skilled Jordanian job seekers, who do not always have the incentives or skills to compete with foreigners on low-wage jobs in sectors with challenging, albeit improving, working conditions such as the apparel or chemicals industries – the country’s top export sectors.

Coordination on investment, employment and skills development exist at strategic levels – for instance through the Investment Council – but less across implementing agencies. The fact that the Minister of Labour sits in the Investment Council is a strong signal of the government commitment to policies that enhance the impact of FDI on labour outcomes. It is also particularly relevant as MoI oversees the Free and Development Zones where FDI is prevalent and foreign labour is abundant. Co-ordination between MoI and implementing agencies providing employment and training support is weaker and joint policy programming nearly inexistent. Involving MoI in the work of relevant skills development bodies such as the newly established Sector Skills Councils could be useful as the agency promotes investment in the same sectors and could bring forward its sectoral expertise and voice the concerns of the foreign investors in terms of skills shortages and training needs.

The government could advance product and labour market reforms that support FDI to create jobs for the highly skilled workers while protecting those at risk of losing their work. Restrictions on foreign ownership exist in business services, distribution, transport and tourism, sectors where FDI has the potential to create jobs for both low and highly skilled Jordanians. Pro-competition reforms to develop a competitive private sector and limit the distortion created by public sector could support labour mobility of highly skilled workers. Labour market regulations in Jordan are not a major constraint for the private sector and recent reforms raised minimum labour standards, but further efforts are needed to level the playing field in working conditions among Jordanians and non-Jordanians and between firms in Free and Development Zones and those outside. Strengthening collective bargaining rights and workers’ voice can particularly help ensure that all workers benefit from FDI by supporting collective solutions to emerging issues and conflicts.

Product and labour market reforms are, however, not enough for FDI to deliver quality jobs. Targeted policies in Jordan aims at stimulating labour demand by attracting investment in priority sectors, locations and occupations and at increasing the supply of adequate skills. Fewer policies pursue the objective of improving wages and non-wage working conditions. If well-implemented, these proactive policies can cushion or amplify FDI spillover on the Jordanian labour market. Policies and programmes are, however, skewed towards Jordanians with medium to low skills in the manufacturing sector. Adapting the policy mix to also target graduates and highly skilled workers in growing service sectors will help Jordan meet the challenges that automation, digitalisation and trade – all accelerated by FDI – impose on its labour market.

Jordan has made considerable strides in terms of women’s economic inclusion, but major challenges remain and some have been exacerbated by the COVID-19 pandemic. Despite significant progress in female education, few women still participate in the labour force. The female participation rate is among the lowest in the world, at only 14%, and the gender pay gap is high even when taking into account factors such as education, age, working time status, and sector. Women work mainly in the service sectors, particularly education, health and social care, and in low value-added manufacturing industries. A significant proportion of women, about 37%, are in the public sector. Social and cultural norms hinder women’s economic participation in all professions, including entrepreneurship. Female refugees face even harsher working conditions, as they are often employed in informal jobs.

FDI can contribute to greater gender equality in the labour market of host countries. Over the past two decades, the majority of FDI in Jordan has been directed to male-dominated sectors, such as energy (oil and gas), construction and business services. Gender pay gaps in those sectors, however, are lower than in other sectors (Figure ‎1.9). Manufacturing industries that employ significant proportions of women, particularly garments and textiles, have received less and, since 2008, declining amounts of greenfield FDI. Moreover, foreign companies are not more gender inclusive than domestic companies. They employ higher proportions of women on average, but are less likely to have female top managers or owners. Working conditions in Qualifying Industrial Zones (QIZs), where many foreign textile and garment companies operate, are also described as difficult, especially for female migrants. Jobs in the zones tend to be labour-intensive, low-paid and offer few prospects for professional growth. Business linkages between foreign and domestic firms are significant in some female-dominated sectors such as garments, but evidence shows that those linkages have not led to job creation in the local labour market.

Improving the inclusion of women in the country’s economic life is a policy priority for Jordanian policy makers, highlighted in several national plans and strategies, such as the National Strategy for Women 2020-25, the Action Plan for Women’s Economic Empowerment 2019-24 and the Employment Strategy 2011-20. These objectives are in line with Jordan’s ambition to become a prosperous, sustainable and inclusive economy where all citizens, including women, can benefit from economic growth, as described in its national development plan, Vision 2025. These objectives are also indirectly supported by its investment promotion strategy, which emphasises the importance of attracting foreign investment that creates quality jobs but are not explicitly mentioned. These national strategies and plans are not always developed in a co-ordinated manner, however. Moreover, continuity of and access to these strategies are not always guaranteed.

The governance framework influencing the impacts of FDI on gender equality in the labour market involves many actors, operating in areas such as investment, entrepreneurship, labour market and education. They include ministries and their implementing agencies, independent agencies, such as the Jordanian National Commission for Women and MoI, and various private and non-profit entities. Several mechanisms exist to ensure co-ordination between governmental actors, such as gender units in relevant ministries or the National Contact Point for RBC in MoI. For some of these co-ordination platforms, however, the scope of action and resources are unclear.

Several reforms implemented in the last decade have significantly improved the policy framework that allows for a positive impact of FDI on gender equality. Yet, challenges remain in several areas. FDI restrictions are high in some services sectors with high employment potential for women, such as hotels and restaurants, information and communication, and financial services. Recent reforms of the Labour Law and of the Social Security Law have addressed important gender equality gaps in the labour market. Nevertheless, legal barriers to women’s economic participation remain in areas related to maternity leave, the workplace and inheritance issues.

Jordan has several policy initiatives in place to support gender equality in the labour market. Some of these policies directly leverage domestic and foreign private investment, such as tax incentives granted to manufacturing companies that employ at least 15% of Jordanian women. Financial incentives (e.g. grants and loans) and training and skills development programmes are the main policy instruments used by these initiatives. The lack of monitoring and evaluation systems for these policies and programmes makes it difficult, however, to provide an assessment of Jordan’s overall policy approach. Finally, Jordan has ratified major international agreements on women’s human rights and signed several trade agreements with gender provisions. These international commitments have been important in advancing Jordan’s domestic gender equality reforms.

Carbon emissions in Jordan continue to rise, albeit at a diminishing rate, driven predominantly by the largely oil-fuelled energy and transport sectors. As the technological barriers to further electrification and decarbonisation of these sectors are falling rapidly, the private sector, and foreign investors specifically, can profitably cater to these investment needs. Over the last decade, foreign investment projects have been negligible in the transport sector, and largely dominated by fossil fuels in the energy sector. More recently, FDI has started to shift away from fossil fuels and into clean energy sources. Accelerating this shift is critical for diversifying energy sources, reducing reliance on fossil fuel imports and improving energy security, and will at the same time help advance Jordan’s low-carbon transition.

The low-carbon transition requires greening of investments beyond the energy sector. There is evidence that foreign firms may be responsible for over 50% of oil consumed in manufacturing. Moreover, according to the FDI Qualities Indicators, foreign investors in Jordan underperform in terms of green business practices, particularly when it comes to tracking energy use and emissions, and implementing measures to reduce emissions (Figure ‎1.10). This suggests that there may be little scope for positive spillovers from foreign to domestic firms, when it comes to greening business practices and improving the climate impacts of private investment. Even if foreign firms were to outperform domestic firms in terms of climate impacts (which there is currently no evidence of), the opportunities for influencing the business practices of domestic suppliers is somewhat limited, given to the limited extent of local supply chain linkages.

The Government of Jordan has made green growth a top national priority, and demonstrated its commitment to transition towards a green economy through various multi-year strategies and plans, resulting in a series of reforms and proactive policies to support decarbonisation and the green growth agenda. Several reform programmes implemented in the last decade have played an important role in levelling the playing field for foreign investors in low-carbon technologies. These include the unbundling of the power sector to increase competition in power generation and distribution, which has created more space for private investment in renewable energy; and the phasing out of energy subsidies and the resulting price distortions that give rise to over-investment in carbon-intensive activities. While these reforms are a crucial first step to influencing the carbon characteristics of FDI entering the country, greater efforts could be made to align the green growth agenda with the investment promotion strategy and to clarify the role of private investors in advancing low-carbon targets more explicitly and specifically.

Additional policies to stimulate low-carbon investments primarily include measures that seek to expand renewable energy generation capacity, and to promote energy savings and increase energy efficiency of economic activities. The most commonly used policy instruments are a variety of financial and fiscal incentives for investments that achieve these targets. These financial and fiscal incentives are however not advertised on MoI’s website, which raises questions as to whether foreign investors are aware of them. Greater co-ordination between the main implementing institution, the Ministry of Energy and Mineral Resources, and MoI to ensure that available financial incentives are included in promotional material published by MoI may raise the effectiveness of these instruments in attracting low-carbon investments. Other programmes include information campaigns designed to raise awareness among consumers about the emissions characteristics of energy companies, and training programmes designed to promote career opportunities related to low-carbon technologies. Such initiatives enhance the attractiveness of Jordan as a destination for low-carbon investments, and raise the potential for low-carbon spillovers from foreign to domestic firms.

References

[3] Hausmann, R. et al. (2020), A Roadmap for Investment Promotion and Export Diversification: The Case for Jordan, Working Paper Series 2019.374, Harvard University, Cambridge, MA.

[4] ILO (2022), The Impact of Trade and Investment Policies on Productive and Decent Work: METI Country Report for Jordan.

[6] OECD (2021), FDI Qualities Policy Toolkit, consultation paper, https://www.oecd.org/daf/inv/investment-policy/FDI-Qualities-Policy-Toolkit-Consultation-Paper-2021.pdf.

[2] OECD (2021), Middle East and North Africa Investment Policy Perspectives, OECD Publishing, Paris, https://dx.doi.org/10.1787/6d84ee94-en.

[5] OECD (2020), Investment and sustainable development: Between risk of collapse and opportunity to build back better, Discussion paper for the joint IC-DAC session at the 2020 Roundtable on Investment and Sustainable Development, OECD, Paris, https://www.oecd.org/investment/Between-risk-of-collapse-and-opportunity-to-build-back-better.pdf.

[1] OECD (2020), OECD Review of Foreign Direct Investment Statistics: Jordan, OECD, https://www.oecd.org/investment/OECD-Review-of-Foreign-Direct-Investment-Statistics-Jordan.pdf.

[7] OECD (2018), Enhancing the legal framework for sustainable investment: Lessons from Jordan, OECD, https://www.oecd.org/mena/competitiveness/Enhancing-the-Legal-Framework-for-Sustainable-Investment-Lessons-from-Jordan.pdf.

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