Governance Case Study - World Bank
ANNEX IV
C. Draft Papers Received
b. The Aqaba Special Economic Zone, Jordan
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Governance Knowledge Sharing Program (GKSP)
Policy Initiatives and Reforms in the MENA Region
Review Workshop
The Aqaba Special Economic Zone, Jordan
Draft Paper By
Marwan A. Kardoosh
23-24 February 2004
Beirut, Lebanon
ACKNOWLEDGEMENTS
I would like to thank Aqel Biltaji, Chief Commissioner of the Aqaba Special Economic Zone Authority, and his colleagues and staff for their hospitality and their assistance in researching this work. Thanks also to Taher Kanaan and Wahib Shair for their insights. Special thanks to Riad al Khouri.
EXECUTIVE SUMMARY [to be written at the end]
CONTENTS
I. Introduction
II. Background to the Reform
III. Analysis and Description of the ASEZ
IV. ASEZ Management and Implementation
V. Initial Results of the Reform
VI. Lessons & Conclusions
Bibliography
Endnotes
I. INTRODUCTION
Following the passage of the Aqaba Special Economic Zone Law, No. 32 of the year 2000, the Aqaba Special Economic Zone (the ASEZ) began functioning in early 2001 and was formally established in May of the same year. Covering the Kingdom’s sole seaport of Aqaba and its environs, including Wadi Rum, the zone is currently established on 375 sq kms of territory[i] in the south of Jordan. (See Figure 1 below) The ASEZ currently has an estimated population of about 90,000.[ii]
Figure 1 Map of the ASEZ[iii]
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A six-member Commission, headed by a Chief Commissioner, forms the board of the Aqaba Special Economic Zone Authority (the ASEZA). Appointed by the Cabinet and reporting to the Prime Minister[iv], the Commission has the task of running the ASEZ, and is vested with zoning, licensing, and other regulatory powers that distinguish it from the rest of Jordan. The ASEZ enjoys a special fiscal regime, which is much milder than that of the rest of Jordan:
➢ There are no custom’s duties on imports into the Zone.
➢ There is no social services tax, or annual land and building taxes on improved property.
➢ A 5 percent tax rate is applied on all net business income (in contrast with a 35 percent rate for other parts of the country), except that from banking, insurance and land transport activities.
➢ A 7 percent sales tax is limited to the consumption of selected personal goods and hotel/restaurant services (as opposed to a 13 percent levy for other parts of the country).
The ASEZA’s stated vision is to (1) make Aqaba a world-class business hub and leisure destination, enhancing the quality of life and prosperity of the regional community through sustainable development, and (2) to turn the city and its environs into a driving force for the economic growth of Jordan and the entire Middle East.[v]
The ASEZA’s declared mission in translating this vision into reality is to:
• Improve the quality of life for all community members
• Create, regulate and sustain a globally competitive investor-friendly environment
• Optimize the efficient utilization of entrusted resources in harmony with a master plan to internationally recognized best practices; and
• Effect a transparent and accountable corporate structure, governance, and culture that synergize the activities of the organization.[vi]
Though this case study of the ASEZ focuses on governance reform, the ASEZ is not exclusively or even mainly a governance-related initiative.[vii] Nevertheless, the project is a major one in the Jordanian context, and has important governance dimensions. This study will therefore stress, as relevant, the implications of the ASEZ vis-à-vis key dimensions of governance including structure of government, political accountability, private sector environment, civil society voice and participation, and public sector management. However, as will be seen in the following pages, greater or lesser stress on one or more of these themes depends on how much or how little aspects of the ASEZ are governance-related, and how such relationships developed, intentionally or otherwise.
In the final analysis, no matter how tenuous or unintentional the links between the ASEZ and governance issues may be, the project has a very high profile, has been tried over several years, and even has some history in its formal inception phase and before. For the researcher, the ASEZ is therefore worthy of study. Hopefully, the present examination of the ASEZ will lead to further work that will analyze the project more deeply and further promote fruitful interaction between researchers and policymakers to the benefit of society as a whole in Jordan and the rest of the MENA region.
.
II. BACKGROUND TO THE REFORM
A. Problems of Jordanian growth and development
With a large stock of foreign debt, high unemployment, and much of the population living below the poverty line, Jordan has for the last couple of decades struggled to achieve expansion of gross domestic product (GDP) greater than population growth. Some external factors over which Jordan had little control contributed to the slowdown, but many internal ones were also to blame. In any case, the Kingdom in the second half of the 1990s suffered from a weak economic performance as a series of wide-ranging structural reforms were implemented and GDP growth barely averaged 3 percent. As the same period witnessed more than 3 percent annual population growth, real per capita GDP stagnated.
The past few years have witnessed an increasing recognition of the need to move economic policy away from pre-occupation with macro-economic stabilization embodied in the successive structural adjustment programs, to an explicit growth orientation. To make the Jordanian economy move ahead substantially, a growth rate of 6 percent or higher is required to create new employment opportunities and absorb part of the unemployed.[viii] For this to happen, Jordan will need viable reform processes that are rooted in sustainable, effective institutions. At the same time, Jordan’s efforts to globalize and undertake structural adjustment continue. However, initiatives in the context of globalization may not quickly or dramatically bring about necessary efficiencies. For example, privatization will not necessarily have the effect of rapidly raising productivity and output.
As economic reform policies in Jordan target the privatization of state enterprises, the important social dimension of globalization and its implications, particularly when it comes to the issue of unemployment, are beginning to be taken more seriously in Jordan. In general, the state will have to play a stronger role in helping to improve the situation in the labor market, while at the same time the government's role as an employer shrinks. The situation in the labor market remains problematic, with the most worrying feature the inability of the economy to develop fast enough to provide employment for young people.
Related to this problem of labor force restructuring is the issue of regional development. Trying to shift from the traditional pre-occupation with the metropolis of Greater Amman as a means of addressing some of the regional divides in Jordan has also become a national priority in the late 1990s. The Jordanian government has been busy for the last few years investing in the development of the south of the country, with the designation of the city of Aqaba and its environs as a special economic zone representing the spearhead for such efforts.
We will endeavor to show that behind the ASEZ reform lie important unemployment and regional development issues. Specifically, the question of social stability in Aqaba and the problem of over manning in the port are significant problems. These are being, directly or otherwise, addressed through the ASEZ.
B. The position of Aqaba in the Jordanian and regional economies
As Jordan’s only port, Aqaba enjoys a key position in the country’s economy, and to some extent in adjoining areas outside the Kingdom. Tourism, transport and certain kinds of industry could be important for Aqaba, partly thanks to the city’s location and the natural endowments of its hinterland. However, the region remains an underdeveloped part of the country.[ix]
The city of Aqaba and its hinterland also have the potential to attract a wide range of business. However, the current infrastructure is poor, and the facilities barely reach international standards. At the same time, Aqaba and Jordan’s strategy to attract international investments is vulnerable to events in Palestine and Iraq.
Aqaba is potentially an important seaport and regional transport center. The oil price correction of 1973 illustrated its importance, as Jordan’s transport network focused on developing Aqaba. During the Iran-Iraq War, Aqaba became an indispensable part of Iraq’s supply line. By early 1981 Jordan had already become the main supply route for war materiel and civilian goods destined to Iraq, and appeared to be holding up well under the strain of massive expansion.
In addition to the Jordanian-Iraqi connection, Aqaba had also become a key transit point for war materiel going from Egypt to Iraq, and for Egyptian workers going to and from Jordan and Iraq.[x] Jordan's restoration of relations with Egypt in September 1984 had provided the necessary political underpinnings to develop further the infrastructural requirements for increased Egyptian-Jordanian-Iraqi cooperation, in the short term to support the Iraqi war effort but in the longer term to increase regional economic cooperation and integration.
However, the Second Gulf War and the imposition of UN sanctions against Iraq, curtailed the utility of Aqaba as a regional seaport. Aqaba then faced stiff competition from Latakia, Beirut and Dubai. The port, which employed around 5,000 workers, was by the late 1990s underutilized, handling 12.5 million tons of goods each year, whereas its annual capacity is estimated at 30 million. (During its peak in the late 1980s, Aqaba was handling 21 million tons per annum.)
The crunch seemed to come in 1998, when Syria offered facilities in using the Syrian ports for shipping Iraqi commodities. That caused Aqaba the loss of a great share of its regional trade, after being the gateway of Iraq to the world since the 1970s. Iraq by the late 1980s had changed the destination of its European and Western imports from Aqaba to alternative ports, foremost being the Syrian port of Tartous, as well as Dubai.[xi]
Drastic measures were needed for the port to realize its potential, and the government began to realize that it needed to abandon ad hoc nibbling around the edges of Aqaba’s problems for a radical solution.
However, Aqaba did not have an edge over other regional facilities that would allow it to overcome a shift in the strategic balance against Jordan. Aqaba and almost all of the region’s other seaports are mainly run by semi-autonomous public enterprises; they have separate budgets, and most of them are subject to supervision by various ministries. No serious consideration has been given by the private sector to involvement in Arab maritime transport infrastructure, Salalah (Oman), the region’s first privately owned port, being a notable exception.
In Aqaba as almost everywhere else, surpluses from port operations go to the public treasury. Most ports in the region including Jordan’s only seaport generally suffer from state control, though some in the United Arab Emirates (UAE) and a few other places have managed to reduce government intervention. Most MENA ports including Aqaba are intended to and actually serve as a source of government revenue and employment. Few port enterprises in the region pay much attention to trade facilitation through flexibility of tariffs and fees and diversification of services, ports in the UAE again being notable exceptions.
Interference by governments in administration, operation, investment and pricing, combined with public sector control over port activities, causes confusion in port planning and operation, thus raising the cost of services and rendering them uncompetitive with other ports in neighboring regions. Aqaba is no exception to this trend.
Ports in the MENA region, including Aqaba, also need to become more integrated into the overall transport chain, and not act as separate entities. Instead, the segmented nature of MENA transport networks necessitates the duplication of several handling operations and leads to higher costs.
In fact, Aqaba, like most other ports in the MENA region, is characterized by delays exacerbated by lack of trained workers. The immediate consequences of the poor interface facilities are increased transport cost, poor security of consignments and above all additional requirements for large storage facilities at the ports, which add to expenses and investment requirements.[xii] Another problem is that the transport network in Aqaba and most of the rest of the region do not yet utilize much modern information technology.
C. The role of Aqaba in previous Jordanian planning and development efforts
1. Before the 1994 peace treaty with Israel
Prior to 1948, under the British Mandate in Palestine, Jordan’s international maritime transport went through the Mediterranean port of Haifa. That strategic factor, in addition to paucity of tourism and industry in the country, meant that Aqaba was simply a small rural settlement that played no role in Jordanian development. After 1948, Jordan’s maritime transport passed through Beirut, while tourism and industry developed slowly.
In 1966 the government of Jordan engaged international consultants Doxiadis Associates to prepare a development plan for the coastal stretch (4 kms deep) extending from the southern outskirts of Aqaba to the Saudi border, an area of less than 70 sq kms. In 1968, Doxiadis submitted a final report, which however had to be abandoned because it did not take into consideration the effect of the Israeli occupation of the West Bank on Jordan in general and the region of Aqaba in particular. This meant that Aqaba’s development was slow; but with the oil boom of the 1970s, plus the border settlement with Saudi Arabia that extended Jordan’s Red Sea shoreline to 27 kms[xiii], Aqaba acquired a new importance. Jordan’s first free zone was set up in Aqaba in 1973, when a small facility was established at the port to serve transit trade. More modest efforts at regional planning followed, until the creation of the Aqaba Regional Authority (ARA) in 1983.
Under the ARA, Aqaba was finally afforded a special status as the government of Jordan sought to develop the southern part of the country. The ARA, established under a special law, began operating in 1984. The ARA became by far the most important and best-financed public institution in Aqaba and had no equivalent in Jordan. The ARA was a financially independent institution, gaining its revenues mainly from land-sale and directly linked to the Prime Ministry. The ARA was responsible for socio-economic development in the region, and the formulation of strategic structure and some detailed plans, in addition to co-ordination functions with other public and private agencies. This included design and execution of industrial, tourist, agricultural and infrastructure development projects in the region, control and modification of the unbalanced growth of Aqaba town, and supervision of the execution of works carried out by public and private agencies.
The primary objective of the ARA was to act as the planning, research and regulatory body to co-ordinate the other government agencies in Aqaba. However, its power was later extended, as the ARA was eventually responsible for all infrastructure work in Aqaba City.
The ARA formulated a five-year development plan for the southern region (1986-1990), but it was interrupted by the country’s economic crisis of 1988. The sharp drop in oil prices during the mid-1980s, the resulting concretionary policies adopted by the Arab oil-producing states and the subsequent slowdown in their economies negatively affected both Jordan’s trade with these countries and the inflow of expatriate remittances and financial aid.
Real economic growth slipped and the deficit in the budget surged, which prompted excessive government borrowing domestically and internationally. The government’s escalating debt weakened its creditworthiness. Additionally, the mounting deficits in the balance of payments depleted the Central Bank’s foreign reserves; and the government had to devalue the Jordanian Dinar (JD) in 1988.
In 1990, Aqaba was designated as a Governorate. As a result, a number of Government departments, such as the Electricity and Water Authorities, financial bodies, and other institutions, opened regional offices in Aqaba, leading to an additional demand for infrastructure, health and social services, as well as affordable housing. Different public actors could then be identified in Aqaba and its surroundings. The three most important were the ARA, the city Municipality, and the Aqaba Governorate.
In the early 1990s, the Municipality of Aqaba lost part of its functions to the ARA or other departments, such as the state Housing and Urban Development Corporation, as a result of administrative restructuring. The municipality was mainly involved in planning and maintenance of public spaces, providing car parks, street paving, street lightning and cleaning, garbage collection, maintenance of public areas and facilities, and monitoring health and sanitation institutions.
The total budget of Aqaba municipality did not exceed JD 1.5 million[xiv] annually, of which up to 90 percent was generated from municipal revenue, such as fuel taxes and vehicle licenses. The limited budget revenue narrowed the possibilities of the municipality to plan and implement large-scale development projects.
The ARA remained the dominant player in the southernmost part of Jordan in the 1990s. According to Article 10 of ARA Law, the agency had legislative and administrative authority over both the municipality and the governorate. That caused a good deal of confusion and competition, even though some degree of co-operation and sharing of responsibilities also existed. The governor had, from a legal point of view, all government institutions and agencies in Aqaba under his mandate, but according to the ARA law, the governor was just a member of the Authority board, chaired by the president of the ARA.
Despite the broad development mandate of the ARA, it did not have direct control over other central government agencies operating in Aqaba. Those agencies instead reported on their activities, plans, and projects to their respective head offices in Amman.
In most cases however, institutional governance bottlenecks did not result from administrative overlap but more so from lack of real decentralization. All public institutions remained closely monitored by the central government in Amman. A large number of essential aspects of the ARA’s work, like budgetary matters, and sale of land or other changes in land lease, required approval from the Cabinet.
As a result of some later decentralization measures, coordinating committees between the concerned bodies were institutionalized. However, the ARA, the Municipality, and the Governorate of Aqaba were de facto restricted to a monitoring and implementing role, rather than fully assuming planning functions.[xv]
Studies after that started to look at efforts to make Aqaba a free zone with special economic regulations. One of these exercises was the study by Jordan’s Royal Scientific Society (RSS) in 1994,[xvi] which expressed reservations concerning turning the entire Aqaba region into a free zone. The RSS recommended instead that three separate free zones be set up around the city, covering an area of just over 60 sq kms, but this recommendation was not considered in the wake of the peace treaty signed between Jordan and Israel in late 1994.
2. The immediate post-peace era
The Jordanian peace treaty with Israel pushed Aqaba to become the focus of a joint initiative between the former foes. In particular, Aqaba was promoted as a hub for intra-regional co-operation in the form of the Jordan Rift Valley (JRV) scheme, and the Taba-Eilat-Aqaba Macro (TEAM) zone.
a. JRV
The JRV, which includes Wadi Araba and the Northern Red Sea shore, possess a unique topography, natural trade routes and historical sites. Infrastructure bottlenecks, closed borders and territorial insecurity in the region, had previously deterred private investors from exploiting its potential. US officials played an integral role in helping Jordanians and Israelis think through issues of co-operation during the final phases of the treaty negotiations. Civil aviation and tourism were at the soft end of the agenda.
The aim of this multisectoral cross-border development plan was to integrate the interests of the region by providing essential infrastructure and services, and encouraging private sector investment. The plans included improved transport links in the region and joint promotion of tourist destinations on both sides of the valley. The plan was designed to introduce mutual development strategies that were based on a core package of projects. The primary focus was on infrastructure. The US funded a feasibility study for the proposed joint-use airport in Aqaba. The EU also assisted with regional transport planning, which included the JRV.
b. TEAM
The TEAM area refers to the neighborhood of Egypt, Israel and Jordan. The development of the TEAM area was one of the focal points of the EU activity in the region. The project’s primary objective was to prepare a legislative and administrative environment that would be conducive to attracting international and local investment in the Taba-Eilat-Aqaba area.
The concept was based on two approaches: a fast-track planning model, which was designed to stimulate economic growth; and a broader approach designed to strengthen links between the three states, by exploiting economies of scale, and developing the region’s comparative advantage (including tourism infrastructure and services).
The EU strongly supported the TEAM project, and encouraged the private sector to engage more fully. Project ideas were circulated and included the following: the Red Sea Riviera; a free zone for tourists; an underwater coral reef park; and underdeveloped maritime activities in the Gulf of Aqaba, such as sailing, cruises and off-shore fishing.
3. The search for a new role for Aqaba after 1996
Before the election of Benjamin Netanyahu’s government in mid-1996, Jordan and Israel had come to accept a common vision for development, based on the TEAM and JRV projects. Aqaba was central to both projects. In particular, extension of border services and facilities along the TEAM and JRV areas could have had a major impact on tourism and affirmed Aqaba’s role as a tourism hub in the region. These schemes sought to develop the Aqaba region not so much by attracting Arab businesses, as by hoping to bring foreign investment into the region. Transport and tourism in particular were to have been emphasized, with industry less so.
Netanyahu’s election, however, ushered in an era of confrontation. The peace process stalled, and regional projects such as JRV and TEAM were put on the back burner. Aqaba started to fade in importance. Nevertheless, the Jordanian government sought to capitalize upon Aqaba’s strategic importance. After all, the US and EU had recognized its importance to both Jordan’s development and the promotion of the peace process.
The big change in the Jordanian vision for Aqaba came in late 1997 when a Jordanian presentation to the Middle East and North Africa Economic Conference at Doha, Qatar, mentioned that the government was embarking on a comprehensive plan to transform the entire Aqaba region into a “world class”[xvii] Freeport area, the first phase of which was expected to include an area of 34 sq kms, to be completed by mid-1999. Nearly $3 billion were earmarked for the project.[xviii]
This phase was characterized by various new measures in support of Aqaba. For example, the Jordanian government reached an agreement with the European Investment Bank to borrow 30 million Ecus for modernizing the Aqaba Port through buying equipment and constructing two new tanker docks. At the same time, studies were launched by an Egyptian group to establish a major tourist investment project in Aqaba to include a cinema and theater, among other new leisure facilities, while Jordan’s then Minister of Tourism Aqel Biltaji revealed that his Ministry was preparing a plan to establish a series of marinas in the port city.[xix]
In this atmosphere, King Hussein headed a joint meeting of the Jordanian Cabinet and the ARA in Aqaba in April 1998, and stressed the necessity of plans to improve the situation in the port in all aspects. The King said that “the meeting in the port city should serve as a positive turning point” for this part of the country emphasizing the need for sound careful planning to develop the Aqaba region in a manner that would contribute to the overall development of Jordan. In response, the Cabinet decided to entrust a study on converting the Aqaba region into a free trade zone to a consultant, who should finish the job in six months. A cabinet spokesman expressed hope that the region could be declared a free zone in early l999. [xx]
The ARA subsequently signed a contract with a consortium led by The Service Group (TSG) and made up of two other consulting firms specialized in free zones. The $1.2 million agreement was financed by the World Bank and stipulated conducting a study to transform Aqaba into an economic zone under “special provisions”. At the time, there was a sense that the (then) existing mechanism for attracting investment into Jordan was ineffective, in that the incentive regimes needed to attract FDI were fragmented (QIZ, Investment Promotion Law, Free Zones, etc.) and could not be attained in one single package.[xxi] The proposed regime in Aqaba would aim to combine all the existing scattered incentives and benefits into one package in one geographical area, in addition to adding other incentives that are alluring to foreign investors.
The study aimed at laying down the implementation plan and the mechanism to set up a free zone. Other objectives included an evaluation of the Aqaba port in terms of location and the commercial activity compared to other ports. Furthermore, the study evaluated the infrastructure, services and the mechanism for modernizing the general design in addition to evaluating the legal and institutional infrastructure for all government departments in Aqaba. [xxii] On the institutional level, TSG’s (brief) analysis revealed that the ARA lacked real operational autonomy and that the relationship between the Aqaba Ports Corporation (APC) and the ARA was unclear and had been problematic. “There was little integration of views in policymaking and planning”, the report noted, adding that most infrastructure and facilities were in the hands of government bodies, and that private sector participation was limited.
The TSG report recommended instead:
1. That the Aqaba SEZ should report directly to the Prime Minister, through its president.
2. That the ASEZA president should be vested with significant powers and autonomy, including the Prime Minister’s authority over privatization policies within the ASEZ.
3. To permanently designate the ASEZ Authority President as ex officio Aqaba Region Governor to ensure that the Governorate’s policies are in harmony with ASEZ’s development.
4. To create a strong ASEZA management team.
5. To dissolve the Aqaba Municipality.
6. To have the APC report directly to the ASEZA to ensure that its functions and operations are integrated with ASEZ’s policies and directions.
Applying a new methodology of taxation and administration for Aqaba was thus seen as a step towards resolving the problems of the city’s port. In any case, the situation in Aqaba could not continue, and blaming the woes of the port on the vagaries of Iraq-bound shipping would no longer function as an excuse.
Apart from the Iraqi connection what therefore were possible options for Aqaba? One would be for Aqaba to serve international trade more efficiently. Jordan like other MENA states had to consider the development of hubs trans-shipping to other ports. For ports to operate trans-shipment activities, more free-trade zones may be required. There is also potential for some of the region’s ports to operate in tandem with export processing zones. A successful example of this is the large facility at Jabal Ali in the UAE, which processes and exports to Iran, Pakistan, and Jordan, as well as to Azerbaijan and other countries in the former Soviet Union. Many international corporations have factories, assembly lines, and warehouses at the port. Aqaba, it was hoped, would emulate the flexibility, efficiency and success that Jabal Ali enjoyed in the late 1990s. For that to happen, major changes would need to take place in the system under which Aqaba was run, and many of these would involve governance.
III. ANALYSIS AND DESCRIPTION OF THE ASEZ
The study by TSG recommended the replacement of the ARA by a broader authority with widened powers and full autonomy. This authority would be responsible for decisions on economic planning, investment promotion, industrial estate management and marketing, privatization and private provision of public infrastructure, environment regulation and monitoring and licensing, permits and approvals. [xxiii]
This in fact was the beginning of the inception phase of the ASEZ. TSG’s report suggested turning Aqaba into a Freeport similar to the UAE’s Jabal Ali. The study was presented to Prime Minister Abdurra'ouf Rawabdeh’s government, the first to be formed under King Abdullah II, who had succeeded his father and ascended the throne in February 1999.
In the first half of 1999, the new Cabinet decided major institutional changes for Aqaba. The president of the ARA was named Governor to avoid confusion among the authorities and to improve co-ordination between public bodies active in the city and its hinterland. Since the municipal elections of July 1999 were cancelled and the Aqaba municipality connected to the ARA, the President of ARA became the de facto appointed Mayor of Aqaba.[xxiv] However, more radical changes were in the offing for Aqaba as well as for the country as a whole.
King Abdullah, inheriting a moribund peace process and generally unsatisfactory economic growth, took new measures to spur the country’s development. Among these was his personal push to move towards a new system in Aqaba. However, the cabinet remained divided over the controversial TSG plan and froze the project. Several ministers said in private they were in favor of restricting the projected free zone to the industrial area located on the southern coast to host a Qualifying Industrial Zone (QIZ) [xxv] similar to the ones operating in northern and central parts of Jordan.
The King then moved to sidestep the cabinet on this and other issues through several measures. These included, among other things, the creation of the Economic Consultative Council (ECC) in December 1999 to monitor the implementation of vital socio-economic, administrative and educational reforms. The 20-member ECC, whose sessions are attended by the Prime Minister and concerned ministers - even though none is a member – acts as an advisory body to the King and debates socio-economic development plans and projects presented to it before sending final recommendations to the government.
The ECC was noteworthy for two things: the young technocrats from the private sector who were among its members, some of whom would soon become ministers and key ambassadors, and the fact that a new body appointed by the king and personally supervised by him was charged with this massive task of national economic transformation, rather than the existing institutions of the state, such as parliament and the cabinet.
In fact, the ECC undertook the final stage of work on the ASEZ, with Member of Parliament and former minister Ali Aburragheb, heading a task force formed by King Abdullah from within the Council in February 2000 to develop an integrated plan for Aqaba. The recommendations on the ASEZ, part of an overall plan, were presented to the ECC by late April (2000).
The King gave ECC member Aburragheb six weeks to complete the plan. Aburragheb, a former trade minister who headed the Financial Committee of the Lower House of Parliament, and a group of ECC members and independent experts prepared a master plan built upon a dozen local and international studies on Aqaba. “We are trying to find a system with a legal and economic framework to administer the proposed plan for Aqaba that entails investment incentives that ensure fair competition,” Aburragheb said. The ECC entrusted the task force with laying down the legislative, executive and legal framework for the project, charting a set of rules and regulations.[xxvi]
The study envisaged an economic zone with tempting regulations to attract local and foreign investment under a comprehensive development scheme, he told the ECC. Aburragheb said Aqaba had all the incentives and prerequisites for a special economic zone. “The city enjoys advanced infrastructure, an international airport, a port, booming tourism and modern road grids,” Aburragheb noted. Aburragheb and his team had sought the views of various government departments and the private sector before they drafted the plan, which the King's endorsed in April 2000. [xxvii]
The project to turn Aqaba into a special economic zone was about completely transforming the city, including its administrative system and institutions. The plan promised to radically change the face of the city and the coast by, among other things, moving and restructuring the port. The target date for the opening of the ASEZ was January 2001, and Aburragheb attached an implementation plan to the project.
The administrative and institutional system of Aqaba as the ASEZ hinged on a commission formed of six members including the president who will be directly accountable to the King, and could be called for questioning by the government and Parliament. One point that emerged clearly from the plan was that the ARA would be abolished. The Cabinet would retain the power to approve the budget for Aqaba, and set the regulations and by-laws for the sale of land (for housing, offices, and small hotels) and the leasing of land (for warehouses, factories and large hotels). The government will also get 75 percent of the ASEZ's revenues. “The government will not need to search into its pockets for this project, Aqaba will support itself, and the plan can be achieved with almost zero cost to the government,” Aburragheb said. “But we need the right people in the right place, and an upgraded bureaucracy”, he added.
Plans were also being drawn to move the port from its then present location. “The port at its present location is hindering tourism development and increasing pollution”, said Aburragheb, explaining the reasons for phased relocation of the container port and allowing it to handle general cargo as well. “We came up with a concept, a general idea. The master plan will need to be looked into from technical, financial, and economic points of view,” Aburragheb stressed.
Also according to the plan, the airport should be moved 15 kms north of its present location to accommodate the city's future needs. “Airplanes would not have to circle over the town because of the wind, and would not be a nuisance,” Aburragheb commented. According to the plan, the then present airport was to be used for recreational flights and helicopters, while concessions for a new airport would be given to the private sector, thus making this operation cost-free for the government.[xxviii]
The transport revolution in Aqaba would also include building a new road behind the mountains for trucks to relieve pressure on the coastal road that will be used solely for tourist transport as a “scenic road”. The present railway would be extended to reach the port in the planned “heavy industrial area” and to handle all potash transport, possibly also from Israel, with a possibility of connecting the railroad to the Mediterranean in the more distant future. [xxix]
As chairman of the Lower House Financial and Economic Affairs Committee and as head of a special task force entrusted by the King with drawing a comprehensive master plan for Aqaba, Aburragheb had reportedly risen in the King's eyes. Aburragheb has given the impression of being swift and efficient, by putting together a master plan in only six weeks - though heavily relying on international consultants and studies conducted in previous years.[xxx]
Aburragheb was assigned by the monarch in May 2000 to implement the ASEZ in the face of Rawabdeh's opposition. “The policies pursued by Rawabdeh fall short of aspirations of Jordanians and lost him the confidence of their representatives in parliament,” MP Mahmoud al-Kharabsheh said. Kharabsheh was one of more than 50 deputies who sent a letter to the monarch in April 2000 deeply critical of Rawabdeh in the first widespread public sign of disaffection with the government. However, the move that sped Rawabdeh's loss of favor was his opposition to the ASEZ in a slap to the monarch's own pitch to attract foreign capital to Aqaba.[xxxi] The ASEZ was seen clearly as a brainchild of the King.[xxxii]
King Abdullah accepted the resignation of Prime Minister Abdurra’ouf Rawabdeh's government in June 2000 and appointed Aburragheb to his post. In doing so, King Abdullah has entrusted Aburragheb with implementing judicial, legislative, and educational reforms, accelerating privatization, on which the outgoing cabinet had minimal success. The monarch in his letter of designation said “Our national economy should be liberalized, the private sector should play a role in decision-making, and we should put an end to monopoly and re-examine the system of choosing government representatives”.
MP Mohammed Abuhudeib described Aburragheb as “The architect of economic legislation. “While the previous government was seen as having had difficulty initiating some of King Abdullah's structural reforms, the outgoing government did not succeed in creating a bridge with parliament and society” added MP Bassam Haddadin. “We need a political, technocratic government that does not isolate economics from politics”. Many in Jordan were hoping that Aburragheb's appointment would better facilitate economic recovery through reforms, especially regarding free trade and privatization, based upon his past record.
A two-time minister of trade and industry (1991-3 and 1995) and Lower House member in two legislatures, Aburragheb had chaired for the past year the Lower House Financial and Economic Affairs Committee. Aburragheb also played a prominent role in King Abdullah's “shadow cabinet,” the ECC, which aimed to decentralize the economy. Moreover, he led a special task force charged by King Abdullah with devising a comprehensive master plan to convert Aqaba into a special economic zone. “There is now a clear mandate to push reforms through, particularly privatization,” an analyst for Standard and Poor stated at the time. Aburragheb had also expressed his desire to privatize the state airline Royal Jordanian, and expand QIZs. According to Aburragheb, his program would require years, not months, to be achieved, and that no one should expect an overnight revolution, but a gradual, systematic, restructuring process.[xxxiii]
The Lower House of Parliament then endorsed a draft law on the establishment of the ASEZ (July 2000), not before laying down more explicit curbs on the sale of land in Aqaba. In any case, the move was not made with great enthusiasm by the legislature: on the day of the vote, the House Speaker was compelled to adjourn a morning session until the afternoon due to lack of quorum. The afternoon meeting also barely mustered a quorum.
Several deputies had said they were concerned that creating a special zone would undermine Jordan's sovereignty over Aqaba. However, both King Abdullah and Prime Minister Aburragheb assured lawmakers, on different occasions, that Aqaba would remain an indivisible part of Jordan.
According to the ASEZ Law, the ASEZA will become the legal heir of both the ARA and the Aqaba Municipality,[xxxiv] and therefore, all the employees in the two bodies will automatically be transferred to work at the ASEZ authority.
The ASEZA tasks are to include developing the area for investments, increasing job opportunities and giving priority to Jordanians, and preventing monopoly of economic activities. To achieve those objectives, the authority would have command over a wide range of affairs including financial regulations in the region, labor issues, health inspection, environmental protection, and project licensing as well as municipal affairs.
According to Article 13 of the ASEZ law, none of the council members, or their spouses or sons, should have any “interest,” of any kind in the ASEZA, nor should they have any “commercial ties” with companies or investors in the ASEZ. The authority will have an independent budget, which will have be endorsed by the council of ministers. Any budget surplus will be transferred to the national treasury.[xxxv] To benefit from the financial incentives, companies should register at the ASEZA, in which case they do not have to register with the Companies Comptroller at the Ministry of Trade and Industry.
However, there were dissenting voices. Deputy Mahmoud Kharabsheh - who is a member of the joint Legal Affairs, and Economic and Finance committees who recommended endorsing the draft - charged that the project would “jeopardize the safety of the country”.[xxxvi] In a written statement presented to the House, Kharabsheh claimed that the ASEZ would become “a stage for Zionist and foreign investments, [which will be established] under different names”. He also warned that according to the law Israelis will be able to buy land in Aqaba, and that Israel would dump its “environmental waste” in the area.[xxxvii]
Later seeking to deny these and similar charges, the King in his first interview with local papers since he ascended the throne said he was optimistic that Jordan would start to reap the fruits of economic reform in 2001. He strongly defended plans for the ASEZ, and dismissed some popular fears that the scheme will turn Aqaba into a self-rule haven for money laundering, smugglers, and moral corruption. “As for those who are promoting that this step will cut Aqaba off from the homeland or will change its identity and culture, this is talk of the ignorant, as every inch of land, whether in Aqaba or else-where, is holy, and I will not allow anyone to tamper with it,” he said. “Those who are spreading these rumors should look at the experience of the Dubai Jabal Ali Free Zone Area” which has attracted massive foreign investment and promoted trade. “We will provide Arab investors with all possible incentives to encourage them to invest in Aqaba and across Jordan,” the King added (The Cabinet had approved the draft the ASEZ plan and passed a law that curbs the sale of land in Aqaba, which will depend on the “principle of reciprocity” - thus effectively ruling out Israel, which bans land sales to foreigners[xxxviii]).
The government then moved to appoint a commission to manage the transformation of Aqaba into a special economic zone by early 2001. The ASEZA includes five main branches: “Administration and Finance”, “Customs and Revenues”, “Investment and Economic Development” as well as “Land, Infrastructure and Services” in addition to “Environmental Regulation and Enforcement”. Former Transport Minister Mohammad Kalaldah was named Chief Commissioner, heading a team of technocrats from the private and public sectors. The new commission's main task was to put in place the legislative and administrative structures to launch the zone.[xxxix]
However, this process did not go completely smoothly, and the government was seen as “jumping into the deep end” with the ASEZ.[xl] After King Abdullah had given the ASEZ the go-ahead in April 2000, the speed of its implementation had aroused opposition in Jordan.
Opponents were concerned about a range of issues, including the possibility of heavy Israeli investment, moral issues (the possibility of the establishment of casinos, for example) and fears that Aqaba’s special status will undermine Jordanian sovereignty over a large area of the country. Imad Fakhoury, the ASEZ commissioner for investment, saw the zone in different terms. ‘‘We expect the ASEZ to make Aqaba a key engine for Jordan’s economic growth,’’ he said. Fakhoury added: ‘‘we want to see Aqaba deliver the full potential of its existing infrastructure and serve as a gateway to the global economy for investors. The combination of the ASEZ’s location, its incentives, its one-stop-shop approach for investors and the opportunities opened up by Jordan’s easy access to the world’s major markets, including both the US and the EU, should make it a great business, logistics and leisure destination’’.[xli]
Nevertheless, alarm bells continued ringing in Jordan over the ambitious government plan for Aqaba into a duty-free special economic zone. Aqaba's proximity to Israel was fanning passions. Aqaba was seen as “very sensitive” as it shares borders with Israel and Saudi Arabia and is the country’s only port. Several MPs expressed concern that custom-made legislation for the ASEZ will undermine sovereignty, consecrating “Aqaba's separation from the rest of Jordan”. Deputy Salameh Al Hiyari was blunter. “It is as if we will set up a state in a state”.
However, the then Deputy Prime Minister Muhammad Halaika strongly refuted suggestions that Aqaba will fall prey to such evils. “Jordan's sovereignty in Aqaba will not be undermined in any way. We are only trying to find an engine to create economic growth... attract foreign investment and create jobs to overcome unemployment and poverty,” Halaika said. Halaika is a former secretary general of the Trade Ministry and led Jordan into the WTO after tough negotiations, for which King Abdullah decorated him. Halaika added, “Investors come to a region wanting an easy export route, water, manpower, infrastructure, good living conditions and easy investment procedures. Aqaba is the only place in Jordan with those conditions”. Legal safeguards have been drawn up to monitor the sale of land only to investors rather than foreign settlers and the government is determined “to preserve Jordan's moralistic values and Arab and Islamic culture”. “There won't be any investment without scrutiny or controls,” he said.
Lawyer Salah Bashir, a key architect of the legal framework for the Aqaba development, argued that parliament, the prime minister and the cabinet will always have their say in Aqaba. “The law is providing for specific provisions that relate to economic activity... the rest of Jordanian law will apply,” Bashir said. “We are putting the legal framework that will allow us to reap the benefits of the investment that has been done in Aqaba over the past 30 years,” he added, also noting that the total revenue to the central government budget from Aqaba in the late 1990s was “less than $1.4 million annually. The projection is 20 times that per year”. [xlii]
As 2001 began and the project moved too slowly, the King ordered the ASEZ Board of Commissioners to expedite the legislative groundwork for the ASEZ, a process then already weeks behind schedule. It was the first board meeting after the Cabinet officially endorsed the ASEZ as the legal successor to the ARA and the city's municipality. “We hope the ASEZ will bolster the national economy, cut unemployment rates and attract foreign investment,” the King told the commissioners. Prime Minister Aburragheb attributed the delay in launching the ASEZ on 1 January 2001, as initially scheduled, to hold-ups in Parliament. He pledged to finalize the zone's bylaws and regulations by January 25, on time for the official launching. The prime minister underscored the “need to develop the [southern] region and support the country at a faster pace to the best of our ability”.
Chief Commissioner Kalaldah re-assured the King that his team had drafted a full-fledged “master plan” for the transformation of the country's sole maritime outlet into a regional economic hub. By 25 January [2001], Kalaldah noted, the board would have finalized 17 bylaws and 17 regulations as well as 18 memoranda of understanding with various ministries. Part of the services provided by those government arms will be made the responsibility of the new ruling body, as it will operate independently, except for “foreign and defense affairs”. Likewise, Kalaldah added, the authorities would have crystallized by then “the strategic plan and the operating budget” for the ASEZ. Only the building code for the targeted area would take some more time before it is prepared.
Ultimately the Board of Commissioners would operate as a regulator of the ASEZ, and a private sector shareholding company would be assigned as a “developer” to invest in infrastructure and promote the ASEZ worldwide. With an expected capital of $100-$200 million, the “developer” would be a consortium of foreign and local investors including the government.
The planning and inception efforts received foreign backing. By 2001, the government has secured a three-year technical assistance program worth $15 million from the US Agency for International Development (USAID) and another for 10 million euros from the EU. Backed by USAID, the ASEZ Board started work on a 500-dunum QIZ opposite the Aqaba Airport. An Internet site was also to be launched as part of a promotional scheme to sell the project abroad.[xliii]
However, though such financial support may have made ASEZA’s emergence smoother, eyebrows were raised in some quarters about other spending aspects of the Authority. A petition signed by at least 40 Lower House deputies in early 2001 was presented to the House Speaker, protesting what they called “unjust” appointments in the ASEZ, Deputy Ziyad Shweikh said. Shweikh, an MP form Aqaba who initiated the motion, said he found the recent appointments in the zone to be “unjust” because the employees' assigned salaries “were very high” and that favoritism played heavily in their being hired. The salaries they will get, he noted were “high compared to ordinary people”. “It is clear that those employees are sons of officials and former ministers,” Shweikh charged.
However, the ASEZ Board of Commissioners Chairman Mohammad Kalaldah retorted that the board adopted a “very transparent and systematic recruitment process. The jobs were filled by employees of the defunct ARA and the Free Zone Corporation as is stipulated by the ASEZ law”. He said a special company screened the applicants’ CVs and when they were submitted for review to the board of commissioners, the names of the candidates selected by the firm did not appear on the CVs “just to avoid such allegations”. “We want to set an example of governance for the whole country and we were extremely careful in that [matter],” Kalaldah said.
Shweikh also alleged that the employees would earn salaries of JD 1,200-1,700. “This is very high,” the deputy said adding that the number of employees recruited at the ASEZ is estimated at 250. The ASEZ board chairman countered that “only eight employees” will get such salaries and those are heads of departments. He said the ASEZ had to offer such salaries to attract applicants with high qualifications needed for “a high-profile project”. He added that all the employees, whom he estimated at 170, were given a one-year contract and will undergo “a trial” period of three months in which to prove their capabilities. According to Shweikh, the petition also charged that Aqaba residents were excluded from the appointments. “This project is very vital to Jordan, and we are being optimistic about it. There should not be shortcoming[s] in it from the beginning. We hope the prime minister will fix this,” the deputy said.
Kalaldah responded to the charge, saying that at least 20 percent of the 150 persons appointed in the ASEZ customs department were Aqaba residents. He also added that the commission has established a recruitment office where the commission is collecting and working on the CVs of young university graduates from Aqaba to create a database that would eventually put investors in contact with job candidates to match the investors' requirements with the qualifications of the young job seekers. “We are trying to help create jobs for the residents of Aqaba through the private sector, and looking to donors to provide training skills programs to assist young Aqaba men and women in entering the job market. We have had several meetings with these young professionals and are working closely with them so that they benefit clearly from this initiative,” Kalaldah said.
Shweikh also said “the government could have seconded [more] experienced employees from other institutions like the Ministry of Public Works or the Greater Amman Municipality... the ASEZ appointed people who have little experience that could affect the work in such a vital project,” he said. Again Kalaldah countered that the employees were “extremely experienced” and have undergone special training and passed efficiency tests. “Our minimum prerequisite was that all be university graduates,” he said.
Spending by the ASEZA was also an issue as signatories to the petition charged that the ASEZ commission leased a building to house the ASEZ board of commissioners at an annual cost of JD 100,000. “They could [easily] use the building of the ARA which can be renovated and would allow for additional floors,” Shweikh noted.
The board chairman confirmed that the building was rented at JD 100,000 but added that the building space was 12,300 sqms. “We absorbed three organizations and we had to rent a building that would house all the employees. We were under pressure to launch the ASEZ by the start of this year and we wanted to avoid building a new building,” he said.[xliv]
Critics of the ASEZ’s economic aspects were also in evidence from outside the public sector. A discussion of issues related to the ASEZ was initiated by, among others, the Arab Bank’s then newly founded think tank, the Arab Bank Center for Scientific Research. Its director, economist Taher Kanaan, ex-minister of planning in the Jordanian government, took a somewhat questioning view of the new scheme, publishing articles to that effect in Arabic and English.[xlv] However, public skepticism expressed concerning the ASEZ seemingly failed to make a significant impact.
On the other hand, behind the scenes it seems that some pressure was being exerted on the ASEZ task force to limit the tax cuts within the Zone for fear of diversion of investment from other parts of Jordan to the Aqaba. The Amman Chamber of Industry was forthright in this respect.[xlvi]
In any case, as the ASEZ moved to its formal launch, the scheme’s autonomous administration and independent tax structure was seen by many others as having the possibility to turn the city and its environs into a boom area. Unlike earlier plans for Aqaba, the ASEZ methodology goes beyond the city to cover the region and everything in it, including transport. The constellation of stakeholders that proposed the reform was a powerful one headed by the King, though those who opposed it were also of some influence. The interplay of these forces affected the design of the reform, but its adoption in the form more or less foreseen by the King was a foregone conclusion in a system like Jordan’s
In other words, the reform was top-down, initiated by a government genuinely wishing to address a long-term development problem crisis by reform. In the process, the government was not really reacting to pressures from various quarters, such as civil society, the private sector and the media. Nevertheless the legitimacy of the reformers and the political and institutional processes by which they pushed reform was not in question.
IV. THE ASEZ MANAGEMENT AND IMPLEMENTATION
King Abdullah formally launched the ASEZ on 17 May 2001, in the presence of hundreds of high profile Arab and international investors, representatives of aid agencies, consultants, diplomats and Jordanian entrepreneurs; more than 400 enterprises had already registered to operate in the zone since its “soft” opening a few months earlier.
Under the new system, the ASEZA is invested with authority over legal and administrative affairs as well promoting the ASEZ both at home and abroad. The ASEZA also shares power with some service ministries in Amman. For example, the ASEZA is responsible for the provision of healthcare, in accordance with a memorandum of understanding (MoU) signed with the Ministry of Health (MoH). The MoU stipulates that the ASEZA is responsible for granting permits to medical and health-related enterprises. It is also responsible for monitoring and evaluating hospitals, pharmacies, food establishments, potable water and mineral water factories and laboratories. In other words, the ASEZA is responsible for upholding national health and safety standards throughout the Zone, and this applies to new investment projects - the maintenance of recognized standards is intended to attract investors.
The MoH, on the other hand, remains entirely responsible for licensing medical practitioners in the ASEZ. Services such as vaccinations, combating diseases, health awareness and other issues pertaining to health centers remain under the jurisdiction of the ministry. The acceptance, rejection or withholding of imported food consignments also comes under the purview of the MoH.
King Abdullah thus officially brought to life a project that he nurtured since his early months on the throne. The opening crowned a difficult but speedy legal and administrative process in the hope of unlocking the potential of this port city as a regional tourism, industrial and business hub. A bold integrated master plan for the development of residential, tourism, light and heavy industrial zones, including schools, hospitals, a university and business parks promised to change the face of the city of 70,000 residents, expected to grow to 250,000 in the next two decades.
To answer the skeptics, the ASEZ’s first tourism project – worth $450 million - was launched on the same day as the Zone’s official opening, with King Abdullah laying the cornerstone for `Tala Bay' - an Egyptian-Jordanian joint venture for a marina town 14 kms south of the actual city. Built by Egypt's powerful Orascom Group, Tala Bay is to include several hotels of all categories, villas and apartments, a school, commercial, cultural, entertainment and sport centers, as well as an 18-hole golf course, and a marina to accommodate over 70 boats.
Having formulated a master plan for the ASEZ, the ASEZA continued the process of selecting a strategic developer that would implement the master plan, and develop needed infrastructure and services. Once the developer is in, the ASEZA would confine its work to legal and administrative functions and the promotion of the zone.
Fourteen companies answered the ASEZA's request for credentials, and proposals were to have been submitted by mid-June [2001]. Some $200 million would be required for a developer to carry out its mandate. The ASEZA would continue being in charge of all legal and administrative functions and the promotion of the zone in the region and abroad.
The ASEZA also addressed public concerns on environmental protection. The ASEZA Commissioner for Environment Bilal Bashir said legislation for the protection of nature, and aquatic life in particular, had been passed, while developers would be working in conjunction with the Aqaba marine science station.[xlvii] A major concern revolved around the issue of conservation. Aqaba’s short coastline contains some of the world’s most delicate ecologies. Since the oil-boom of the 1970s, Aqaba’s shoreline has been increasingly subject to the needs of commerce. As a result, ports now occupy more than 40 percent of the shore, while industry, hotels, and private clubs occupy about 30 percent, and the rest belongs to the government and public beaches.
Since its inception, legislation has been passed to protect the ASEZ’s ecology. Moreover, the ASEZA has commissioned the Aqaba Marine Science Station to monitor the status of the coral reef, with a view to satisfying ecological needs while pursuing economic development. The ASEZA Commission of the Environment has managed to prevent an ecological disaster from occurring along the Aqaba coast, so far. However, the pressure on Aqaba to perform as a regional growth engine is growing at the same time as a culture of environmental protection.[xlviii]
Talks on the possible construction of a casino in Aqaba had drawn the attention of many Jordanians, among fears that the venture would clash with national religious values and provoke Islamic political movements and groups. “We have been approached by two companies, one Western, one Arab, interested in building a casino,” Kalaldah said. “But we have not looked into their requests, because we simply do not have the authority to license a casino”. That would be, the chief commissioner said, “a major political decision”.[xlix]
More innovation was manifested as telecoms and information technology companies had asked for more decisive liberalization measures to ensure the success of the ASEZ at a “town meeting” there under the chairmanship of King Abdullah. Liberalization measures to be requested by the private sector included the request Jordan Telecom rescind its exclusivity rights on fixed telephony services in the ASEZ's boundaries. “Major multinationals could then be free to start call centers in Aqaba, as the cost of international calls from there would decrease significantly”.
The meeting was “held behind strictly closed doors” and included some 50 people such as the then Chief of the Economic Unit at the Royal Court Basim Awadallah, some Cabinet members, the commissioners of the ASEZA, representatives from Jordan's telecoms and IT companies, and regional and international investors.
That this closed, ‘elitist’ gathering was hardly a town meeting in the tradition of liberal democracies was a point missed by the organizers. Otherwise, the meeting, which came one day after the official launch by King Abdullah of the ASEZ, was an innovative governance measure by Jordanian standards, bringing together as it did representatives of the public and private sectors to discuss how to improve the investment climate in Aqaba.
In the same vein of innovation, the ASEZA was studying a request by a major investor for licenses to operate a television station and an FM radio station in the country's sole maritime outlet, Imad Fakhoury, the ASEZ commissioner for investment and economic development, said. The ASEZA is still “studying this request in co-operation with the pertinent government branch in the Information Ministry”.
According to the “Organizing the Investment Climate” regulation, one of 17 bylaws and rules governing the ASEZ, certain spheres of investment must be dealt with in co-ordination with the government and its related organs. Those categories include certain activities in which the state has a monopoly “such as media-related businesses and school certificates,” explained Fakhoury.[l]
A few weeks after the launch, new ministers entered the government of Aburragheb, who fine-tuned his one-year-old government with a long-awaited shuffle that involved various posts, notably releasing Tourism Minister Aqel Biltaji from his post. Biltaji was widely tipped to take the helm of the ASEZA after Chief Commissioner Mohammad Kalaldah had resigned a few days before.[li] The King accepted the resignation of the head of the Kingdom's flagship economic scheme as it moved ahead with plans to select a ‘strategic developer’ for the ASEZ.
Six international companies had been "short-listed" to run and develop the zone. The firms vying for the position included Hillwood Strategic Services, which belongs to a group run by US industrialist and former presidential candidate Ross Perot and Jabal Ali Free Zone International of the UAE. The other bidders included the US-based firm Fluor Daniel, the British firms TCI Infrastructure Limited and Mersey Docks and Harbors as well as the Greece-based Consolidated Contractors International. The winner was to be selected on technical and marketing capabilities as well as on its capacity to bring in investors and develop a zone that can bring in meaningful returns to the Jordanian economy. It would run and operate the development corporation with an initial capital of $150 million and eventually open up to other local and international investors.[lii]
Of the six companies that were short-listed, only three submitted proposals: Hillwood Strategic Services, part of the Ross Perot group of the US; Mersey Docks and Harbors of the UK; and Athens-based Consolidated Contractors International. However, regional and international events dissuaded Hillwood Strategic Services and Consolidated Contractors International from submitting their bid on time.
The ASEZA had hoped to announce its choice of a strategic developer by 15 September 2001; however, it was compelled to extend the deadline until 25 October 2001 after two of the three bidders asked for a deferment. Only one bidder, Mersey, made the October deadline. As a result, the bidding process was suspended, only to be revived in spring 2002 in a slightly different form.
The events of 9/11 undermined the ASEZA’s vision of turning Aqaba into an international tourist spot, as tourism in the region dipped to new lows. The effects of 9/11 went beyond tourism. Transport companies in Aqaba increased their fees to cover their premiums for operating in a declared war zone. The increase, which was reversed the following year, was effective from 1 October 2001 and added $100 to the fee for a 20-foot container heading to the Gulf or Asia, whereas the quote for a 20-foot vessel heading to Europe and the US was increased by $125.
Eventually, in June 2002, the ASEZA chose Bechtel Corporation as an interim manager and signed an agreement with the engineering giant to manage, market and promote the Red Sea hub in conjunction with a private sector development company. Bechtel began work in Aqaba in July.[liii]
V. INITIAL RESULTS OF THE REFORM
The events of 9/11 dampened interest in the ASEZ. The Al-Aqsa Intifada had already created an atmosphere of gloom, and the War on Terror added to the mood. So, was the ASEZA moving too fast in the turbulent waters of the post-9/11 era?
Skeptics argued that the transformation of Aqaba into a Special Economic Zone lagged behind initial expectations, but others insisted that the “best is yet to come”. “We have just begun fast-track projects in the fields of tourism, industry and services” 18 months into launching the zone, said the ASEZA Chief Commissioner Biltaji. He noted that the government and the ASEZA have finalized “a solid infrastructure, sound legislation...and a culture of governance where business licenses are issued in a one-stop shop”. With the right level of support, the ASEZ could become “a pilot for successful regional economic integration initiatives that are private-sector driven and that aim to increase the standard of living as well as the quality of life for the residents of the region”, Biltaji added. The realization of this vision, according to Biltaji, was “the raison d’être behind the creation of the ASEZ”.[liv]
In testimony before the US House of Representatives in late 2002, Chief Commissioner Biltaji offered a “few examples to demonstrate the potential: developing the regional Riviera whereby peace through tourism using Aqaba as a regional gateway can serve as a true passage for historical and natural wonders to four neighboring countries; developing the peace airport initiative with the Aqaba airport serving both the cities of Aqaba and Eilat; developing a railway connection linking the Red Sea with the Dead Sea which will bring Israeli and Jordanian Dead Sea products to the Gulf of Aqaba to be exported to the markets of the Far East; developing the Red Sea-Dead Sea water conveyance system, which will generate electricity, produce water, save the diminishing water levels of the Dead Sea, and restore the biblical green meadows across the entire Araba Valley; development of border industrial and business parks such as IT/cyber parks, logistics parks, industrial parks that will be the incubators for regional joint ventures in businesses, technologies and industries […] to enable Jordanians to be employed by the emerging joint ventures; technological and vocational training that produces skilled workers that can be plugged immediately into the emerging joint venture industries and businesses; not to mention the need to create the needed social uplift in the ASEZ”.
He added, “We in Jordan stand ready to deliver this vision of regional economic integration. We have to start with a strong core to be partners in a vibrant region, to reach the world at large,” viewing the ASEZ as “a hub that will jumpstart the potential for regional economic integration”. [lv]
Jim O'Gara, a senior consultant at TSG, the US firm that conducted the initial study for the zone, was optimistic about Aqaba and future prospects. O'Gara stressed that the ASEZ has outperformed expectations in spite of “very adverse circumstances in the market” referring to the Palestinian Intifada and the 9/11 attacks. O'Gara singled out the ASEZ as a project realized “in record time”. “The bylaws were actually passed in 8 months as opposed to 2 years in other cases,” O'Gara said.
O'Gara, however, cautioned against unrealistic, buoyant anticipation. “The leadership has set very high expectations from the government and the Cabinet,” he said. “Sometimes the expectations are higher than they really should be from a zone like this”. For O'Gara, who has gauged the feasibility of similar projects around the world, “a zone like this normally takes five to seven years to become an effective tool for economic growth and development”. Biltaji and Fakhoury pointed out that the UAE took at least 10 years to turn Jabal Ali into a free zone. The ASEZA Commissioner for Investment and Economic Development Imad Fakhoury cited a construction boom as progress. Fakhoury added that Aqaba was the only part of Jordan where unemployment rates are declining.[lvi]
Irrespective of any role that the ASEZ could eventually play in local or regional development, from a purely financial point of view, in its first year of operations, the ASEZA boosted transfers to the state treasury by about 600 percent from less than JD 1 million in 2000, before the port city became a free zone, to more than JD 6 million in 2001. In the second year (2002), the ASEZA raised further its revenue transfers by 38 percent.
At a major international gathering in Jordan in 2003, officials from the ASEZA said the two-year experience of the ASEZ stands out as a showcase for good governance.[lvii] One of the ways in which this was being promoted was through civil scoitu activities.
The NGO scene in Aqaba was traditionally weak in drawing adherents and consequently in its human, capital and institutional resource bases. Most NGOs had budgets that did not exceed a few thousand JDs annually and those organizations were dependent on a limited number of volunteers. The integration of NGOs in public development programs – despite the official mandate of ARA to co-ordinate with them – remained low before the ASEZ was set up. There were few cases of collaboration between NGOs and local public authorities, however such attempts remain ad hoc and participatory initiatives come to a standstill with the completion of the projects life cycle. NGO activities in Aqaba previously concentrated on social service provision, such as running kindergartens, nurseries and orphanages, providing care for people with special needs as well as on vocational training and financial assistance.[lviii]
Under the ASEZ, the previous situation may now be changing. One example is in developing the socio-economic role of women. To that end, the Aqaba Business and Professional Women Association (BPWA) received a grant from USAID through the Aqaba Technical Assistance Support Program (ATASP). Through a Small Grants Program, the $86,000 donation aims at enhancing programs designed to increase women's representation and participation in society and the different economic sectors in the ASEZ.
The ASEZA Chief Commissioner Biltaji noted that the grant was essential for opening opportunities for women of Aqaba, especially in tourism. The grant will help the BPWA, a nonprofit voluntary organization operating since 1991, to launch and develop a comprehensive training unit to provide coaching services and enhance the skills of Aqaba women, in a bid to supply the ASEZ tourism with skilled labor.
Given the importance of tourism as one of the major areas of developmental concern and attention, specialized training programs will be tailored to build the capacity of women. The courses will focus on English language proficiency; competence in customer services, hospitality and catering; and advancing communication skills and creative thinking. BPWA President Layali Nashashibi indicated that improving the status of women in society and encouraging them to take the lead in socio-economic development as well as assume leadership and decision-making positions are among the main objectives of the association.
The association will also start an Internet café for women only, to encourage them to benefit from information technology to widen horizons and enhance their knowledge base. “Exposure enables women to increase awareness and chances are they will be more competitive in the labor market as viable partners in building society,” Nashashibi said. The BPWA, the ASEZ's first and only business women association, is also laying out an Arabic website and preparing advertising material to spread awareness and publicize the association's activities. BPWA current membership stands at 35 working women from different professional backgrounds. Since its inception 12 years ago, the BPWA has operated without a physical location or a long-term strategic plan. However, after the ASEZ was set up in 2000, members of the BPWA mobilized their efforts to strengthen the association's operations with the goal of empowering women in different aspects of life, particularly in the economic realm given the diverse opportunities that are now available at the ASEZ.[lix]
Education is also becoming a more important issue in Aqaba for both the public and private sectors. Traditionally, Aqaba was not well endowed with good schools. However, that may now be changing as for example the SABIS Corporation and the ASEZA signed a MoU for the establishment of new International School of Choueifat in Aqaba. This facility is being developed on a 60,000 square meters plot of land, in the vicinity of the lagoon project in the town. King Abdullah stressed the need for a world-class educational system to be in place for the Aqaba region to accommodate expected growth.[lx] The ASEZA will take over the education authority from the Education Ministry in the port city by 2007 as part of the implementation of its strategy.[lxi]
In that respect as in others, the ASEZ is attracting reasonable business interest. The number of the companies registered at the zone up till October 2001 was 761, increasing to 810 by March 2002, reaching 849 in April 2002, and 1132 in November 2003.[lxii]
Initial plans for the ASEZ had called for tourism projects to make up half the new investments in Aqaba, but how realistic is this in the present difficult business climate in the region? Though efforts are now being made to attract Jordanian and other Arab tourists to Aqaba, the medium-term outlook for such business remains unclear. Meanwhile, many foreign tourists remain reluctant to visit Middle Eastern destinations, including Aqaba.
A casino would serve the tourist market, especially visitors from the Gulf countries. Casinos have proven to be lucrative investments in Egypt. However, the prospect of a operating a casino in Aqaba has drawn criticism from many Jordanians. Conservatives argue that a casino would import unwelcome values into Jordanian society. A compromise solution might be to locate the project on a ship, somewhere off the Aqaba coast. However, it is unlikely that a casino will be introduced until the regional environment has changed.
Meanwhile, the answer for the ASEZ in the current climate might be to shift more towards industry. The QIZ extraterritorial model has started to have an impact on employment in light manufacturing sector, elsewhere in Jordan.
Among other important projects, the Dead-Red Canal, linking the Dead Sea with the Gulf of Aqaba, is underway with terms of reference now being prepared by the World Bank. The Dead Sea is around 400 meters below sea level, and is separated from the Red Sea by desert. The Canal will connect the two seas – saving the Dead Sea from excessive falls in its level - and provide major scope for tourism. However, the ASEZ’s jurisdiction covers only part of the "Dead Red" canal area; the Jordan Valley Authority is responsible for the remaining sector.[lxiii] The project received the backing of the emergency meeting of the World Economic Forum, hosted by Jordan in June 2003, and this might add a new impetus and clear the path for extending the ASEZA’s zone of the authority. However, the proposal might run into trouble due to the inclusion of Israel into the overall project.
Israel has expressed its desire to invest in the Dead-Red Canal project and the new airport in Aqaba. One notable methodology proposed by Israel for these and other investments is that the land on which any such border-straddling schemes are based should be mainly Jordanian. At present, this remains speculative, although there are indications that Jordan is preparing to co-operate with Israel on the Canal project.
In an ideal world of perfect regional harmony, it would be unreasonable to ignore the Israeli factor in the development of the ASEZ. However, in the present atmosphere in the region, the juxtaposition of the ASEZ and Israel could prove problematic. It should be recalled that Jordan was the first Arab country to confirm its participation in the Middle East-North Africa Conference held in Qatar November 1997. Among most other Arab states, Saudi Arabia, the UAE, Syria, Lebanon, Libya, and Sudan did not participate in the conference. However, Jordan did participate, and it was there that projects with Israel were advanced at the same time as the new methodology for Aqaba was presented.
One of those proposals involved a plan for Jordan and Israel to participate in the construction of an Aqaba-Eilat airport, though several years later, that project is still seemingly suspended.
Jordanian authorities have generally complained of the Israeli side not respecting the terms of an agreement signed in July 1997. The agreement underwent a trial period of four months, ending in March 1998; during that period aircraft bound to Eilat used the Aqaba Airport and were treated as if they had taken off from or landed at Eilat. The agreement stipulates that airport service fees paid by the Israeli carrier El Al to Royal Wings, a subsidiary of the national carrier Royal Jordanian, will be equal to those charged by Israeli airports, which amount to four times those charged by their Jordanian counterparts.
For Jordan to refuse to co-operate with Israel would be difficult, but for the Jordanian government to be seen to be leaning too far towards the Jewish State is no longer acceptable politically among most sections of the population.
However, the ASEZA seems to be setting a different tone. Chief Commissioner Biltaji stated last year that 10 percent of the containers coming through the port of Aqaba are destined to Israel. Israeli and Jordanian scientists and experts meet regularly to improve environmental protection of the Gulf of Aqaba. Model farms along the Aqaba Valley in Jordan use Israeli agricultural know-how. Every day 200-300 Jordanian workers cross the border to work in Eilat as part of labor protocol between the two cities, “which we [ASEZA] are about to renew”. Eilat and Aqaba also implemented the initiative of the Red Sea Marine Peace Park as a model for regional environmental co-operation, he declared, adding that the ASEZ was created with the vision of regional economic integration in mind and as a vehicle to create a critical mass of regional initiatives.[lxiv]
Applying this vision practically, the major Israeli industrialist Stef Wertheimer in early September 2003 signed an agreement to found an industrial park near Aqaba Airport in Jordan, in partnership with other major investors. For the Aqaba industrial park, agreements were signed to manufacture parts for DaimlerChrysler, Harmon International (audio components)[lxv] and two machine tool firms: South Korea’s Taguetak and Germany’s Gildmeister.[lxvi]
From the side of the public sector in Israel, Minister of Finance Benjamin Netanyahu pushed an Aqaba connection with his project for a railroad crossing the Negev, a "continental Suez Canal" linking the Mediterranean and Israel’s Red Sea port of Eilat. Perhaps the most important aspect of the project for Netanyahu is its regional potential. “We can go it alone, but we prefer working with Jordanian and Palestinian partners,” he said. Netanyahu will propose to the Jordanians to “join the Israeli rail network… In future, this will a part of a regional Middle East railway network”. [lxvii].
Efforts at tourism co-operation also came from Israel, as Chief Commissioner Biltaji and Israeli Minister of Tourism Binyamin Elon met in Aqaba late 2003. Elon and Biltaji agreed that Eilat and Aqaba would jointly market the Red Sea brand (Egypt has recently been marketing the Red Sea brand without co-operating with Eilat and Aqaba, including at the World Travel Market convention in London[lxviii] in November 2003 and in satellite TV advertising). During that meeting, the Jordanians told Elon that there was no need to build a new international airport for Eilat. They proposed that Israel use Aqaba International Airport, only a few hundred meters from Eilat. Elon replied that Israel needed its own international airport in Eilat,[lxix]presumably for military reasons.
Another newly promoted player in the ASEZA also has the background to deal with Israel: Returning to Aqaba after a stint at the Royal Court in Amman, Imad Fakhoury in late 2003 became responsible for several of the ASEZ portfolios, the first as Deputy Chief Commissioner for the the ASEZA, the second for setting up and running the Aqaba Development Corporation (ADC) that will be responsible to develop and manage the zone (including land, infrastructure, ports, airport and utilities)[lxx] and the third to start a process to gradually privatize the different port operations. Fakhoury was Director of Research and Economic Affairs at the Embassy of Jordan in Israel in 1995-9, having been selected by the Amman government as part of the first post-peace treaty Jordanian team to set up the Jordanian Embassy in Israel. He was subsequently President and Chief Operating Officer of the Century Investment Group (1999-2000) [lxxi] a business that was familar with Israel.
In a recent interview with an Israeli weekly, Chief Commissioner Biltaji was forthright about the place of Israel in Aqaba. “Our mission is to make sure that people from Eilat and Aqaba find a common denominator so that they can come closer to each other”.[lxxii] The interviewer and author of the article was also quite direct in this repect when he noted that “three years after stagnation in the relations between Aqaba and Eilat, something is starting to move”.[lxxiii]
Investors from outside the Arab world have so far been scant in Aqaba. However, some Western companies have shown signs of interest.[lxxiv] One firm, for instance, has indicated its interest in building a casino in Aqaba. Irrespective of that so far illusory project or others in the tourism sector, international investors will most likely operate in the Aqaba QIZ, as they have done elsewhere in the Kingdom[lxxv]. These will be needed to solve any unemployment problems resulting from restructuring businesses in Aqaba. Aqaba has managed to avoid the high levels of unemployment suffered by Jordan’s other southern governorates[lxxvi], partly by tolerating excess employment in such entities as the port. The APC is a major employer in the ASEZ, and restructuring the port will affect Aqaba’s employment environment. In a recent interview, Chief Commoner Biltaji said that of the 5000 persons employed in the Aqaba port, 2,000 are “uncalled for”.[lxxvii] The presence of major investments in the ASEZ should make re-employing redundant workers relatively easier.
The prospect of inward investment should mitigate an increase in unemployment, but regional events can play a determining role. The ASEZ permits up to 70 percent foreign laborers,[lxxviii] and it is under pressure to reduce the figure to 30 percent, and the prospect of higher unemployment may accelerate this change.
The environmental dimension of public life in general and business in particular has developed substantially in Jordan over the past decade; Aqaba has been no exception to this trend. Jordan’s accession to the WTO, Euro-Med Partnership, and FTA with the US, require the application of more effective environmental policies. This means that if Jordan does not enforce environmental laws and regulations, its goods are in danger of being rejected by countries with higher standards.[lxxix]
The ASEZA is responsible for ensuring that businesses adhere to prescribed environmental standards. The Aqaba Marine Park and Wadi Rum have been singled-out for special attention. Tourism, transport, and other kinds of economic activity pose a threat to the environment.
So far, the ASEZA has been keeping a strict eye on Jordan’s Red Sea shore. This is crucial, because ecotourism may become a main source of income for Aqaba. The Jordanian coastline is limited to a tiny stretch compared to other Red Sea littoral states such as Egypt or Saudi Arabia. In addition, Aqaba remains a main hub for Iraqi transit trade, not to mention a base for industry. For these activities to flourish alongside ecotourism, the ASEZA will need to balance its interests carefully. An especially important consideration for the ASEZ is the mining industry. Though production takes place far to the north, the Jordan Cement Factories Company owns and operates a terminal in Aqaba used for exports. The potash and phosphate industries are also important for the Aqaba area, and this too has ecological implications.
The ASEZA’s efforts along these lines have so far been good, including the enactment of several environmental legal measures to protect the region’s ecology. However, it remains to be seen what will happen if a tourist boom occurs. With strict ASEZA control forming the background for proper regulation, the Jordanian section of the Gulf of Aqaba could support lucrative ecotourism, while sustaining other types of coastal investment, such as industry.
In sum, for the environment as for other areas, the success of the ASEZ involves keeping a careful balance among various factors while expansion and development of the zone takes place.
The national reform process launched by the King in 1999, and being detailed by the combined forces of the private and public sectors, anticipates deep structural changes in five key areas: finance, legislation, administration, education and the judiciary. Though it might be far too early to draw firm conclusions, one observer feels that the ASEZ is the “first place [in Jordan] that the five reforms together are being implemented [simultaneously]”.[lxxx]
That the ASEZ methodology has so far emphasized economic development, with governance less so may yet prove to be a complication. That a boom has yet to occur in the ASEZ may in fact be a blessing in disguise, allowing the Jordanian public and private sectors alike to adjust to new rules and methodologies.
VI. LESSONS & CONCLUSIONS
Has ASEZ eased governance or made it more difficult? The answer so far is unclear. For example, in a recent complication, the question of the delineation of the authority of the Governor on the one hand and that of ASEZA on the other has resurfaced. The newly appointed Governor has made several statements in the past few weeks (late 2003-early 2004) suggesting that his role may once again be important in the region’s governance. His authority had at first appeared to be confined to the rump left after the ASEZ was detached from the old governorate.[lxxxi] However, at least recent remarks by the Governor seemed to suggest otherwise. On one occasion, the Governor is quoted as calling on residents of a neighborhood in Aqaba and the ASEZA to work out a solution to overcome obstacles related to the area's organizational plan.[lxxxii] On another, he is reported to have attended a meeting organized by the Land Transport Association to discuss solutions to the congestion problem at the port of Aqaba.[lxxxiii]
Potential weaknesses in ASEZ governance have also emerged at the management level in ASEZA:
▪ The Management Team: The team has seen several changes. The president was changed early in the life of the project. The investment commissioner left and returned after spending time in the Royal Court. On his return he effectively demoted his colleague, the infrastructure commissioner who also acted as deputy president. In late 2003, both the finance commissioner and the customs commissioners left. This leaves the environmental commissioner as the only one to have kept his responsibilities unchanged since ASEZA’s inception. These changes may have acted against building a coherent management team with clear individual responsibility and accountability.
▪ The Position of the President: There is no doubt that the incumbent ASEZ president is a high profile figure that enjoys the confidence of the Chief Executive. However, insofar as he de jure reports to the Prime Minister there may be a problem. For example, in a recent interview with Jordan’s leading newspaper, Al-Ra’i, Chief Commissioner Biltaji seems to blame interference by “Amman’s” private and public sectors for the Port’s problems. Confusion then might arise if in any disagreement with the Prime Minister the Chief Commissioner appeals to the King, thereby short circuiting the chain of command.
▪ The Aqaba Port: The port is clearly at the heart of the Aqaba region, and therefore whatever else it may accomplish, the ASEZA must tackle issues related to its problems. As of mid-2003, the port has clearly once again been in crisis. Congestion at the port of Aqaba is now the biggest problem Jordanian policymakers need to address. Ever since the beginning of July 2003, the APC has been handling the highest volume of containers in its history; much of this volume resulting from the shipment of humanitarian aid to Iraq.
This has meant that ships bound to Aqaba have had to queue much longer than usual to discharge their cargo. As a result of these delays, QIZ manufacturers – who remain heavily reliant on imports of raw materials – had no choice but to look for alternative ports in the region, often more expensive than Aqaba.
The congestion also prompted international shipping firms to either suspend any dealings they have with the port of Aqaba or simply impose extra charges on containers destined to / or coming from Jordan’s only seaport.
ASEZA’s response came from the newly appointed deputy Chief Commissioner Imad Fakhoury who presented his plans to immediately restructure and privatize the management of the container port (with the infrastructure remaining in the hands of the state). Fakhoury described the step as “strategically very important to Jordan, its economy and its in-transit trade”.[lxxxiv]
Over the medium-term, plans are that the winning company will be required to totally computerize the operations of the container port in order to save time and boost the volume of work.
However, this process has so far not gone smoothly and the measure has been postponed, indicating possible complications in solving the port’s problems. One such complication is the need to start making people redundant. Other things being equal, it could be no more than a year before unemployment becomes an issue in the ASEZ. This in turn could exacerbate social problems, from which Aqaba’s generally stable and conservative society has suffered less than other parts of the Kingdom.[lxxxv]
The King personally intervened in this process and demanded that a plan be implemented within 3-months to solve the container port problem. Calling for intensified efforts to tackle the congestion problem, the Monarch said port staff should receive more training to boost their efficiency.[lxxxvi]
The head of state’s personal intervention is not rare in Jordan, but it usually comes as a sign of crisis and the need to find urgent solutions. The process re-emphasizes that individuals in Jordan often carry more political weight than institutions. In any case, it remains to be seen what ASEZA’s direct role will be in solving the port’s problems.
The main drivers of the governance reform explicit or implicit in the ASEZ, the nature of the demand for it, who championed reform, and how the momentum was created, all point to a top-down approach to improved governance. However, that may after all be appropriate to Jordan in the present phase of its development. Processes by which the ASEZ governance initiative was implemented have proven to be reasonably smooth and successful, despite the complications inherent in transferring authority among institutions that are overseen through nascent, timid democratic practices. Success or failure, and lessons that can be learned from it, are probably still too early to be determined.
The success of the ASEZ is dependent upon the ASEZA’s ability to balance competing interests - human development, regional development, economic growth, environment and the national interest. It is a very tall order. Without doubt, Aqaba has considerable potential; and it could serve as an engine for the rest of the country. Hence, the ASEZA is under tremendous pressure to realize its mandate. There is little room for disappointment, as the government’s expectations are high, and the King has invested his own personal prestige in the project. Regional events have given the private sector, and Jordan’s population, time to adjust to the ASEZ’s new rules and methodologies, and given the ASEZA more time to help prepare Jordan for globalization and balance the interests of constituents.
The conclusion of the US-led War on Iraq has given rise to speculation that Aqaba will once again become an important hub in the region. Jordan’s policy towards the US is being rewarded, and that means linking Aqaba with Iraq’s new supply lines. Those behind the ASEZ probably have something similar in mind for Aqaba. However, more serious thought has to be given to the problems of the city’s port. The degree to which the ASEZA helps tackle fundamental problems such as that of the port, or simply engages in window-dressing gestures, will determine the longer-term success of the venture.[lxxxvii] The Israeli element could also be important if the US chooses to coax Jordan in the direction of closer ties with the Jewish state.
The ASEZ has already attracted local and international investors in real estate and infrastructure development, hospitality industry, utilities, education, distribution and manufacturing, and is experiencing significant growth in tourist and commercial activity. The ASEZ has the legal framework for private sector participation in utilities, real estate development, the port, and key infrastructure projects. However, the difficulties involved in such tasks should not be underestimated, nor should the need for governance in Aqaba to catch up with the project’s development ambitions.
The partial answer to any governance difficulties that the ASEZ may have experienced or would experience is to co-opt two important groups into the process: the private sector and the people of Aqaba. Of course, these two may overlap. However, for the time being, both are taking a back seat to public sector and external players who, though they are working hard for the promotion and success of the ASEZ, may be turning the whole project into a traditional Jordanian partnership between the higher echelons of the government and foreign actors.
That Israel is one of the latter may yet prove to be a complication. That the US is also heavily involved in the ASEZ has so far been a plus, but it remains to be seen how Jordanians can be weaned off the extensive American aid that helped to put the whole project together to begin with.
To allay some of these concerns, it would be interesting to redefine the posts of the ASEZA Commissioners to bring in, formally or otherwise, one person from Aqaba. He (or for that matter she) could play a valuable part in making the development of the ASEZ more attuned to local sensibilities; at worst, such a step would defuse some of the arguments that anti-the ASEZ forces have deployed in the past few years.
To end on a positive note, it must be admitted that the ASEZ is an exciting and potentially valuable exercise in the development of governance in Jordan. However, its original aims were more or less economic, with less consideration for social, demonstrative, or political goals; whether that remains the case is perhaps the most intriguing questions that future observers of the ASEZ will have to answer.
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The Services Group, “Aqaba Freeport and Special Economic Zone Study,” 1999.
Aqaba Special Economic Zone Website:
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“Iraq replaces Aqaba with Syrian, Dubai ports for its imports” 13 X 1998
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Burdette, J “Jordan's New Cabinet is Economy-Minded” US-Arab Tradeline, 23 VI 2000
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Endnotes
-----------------------
[i] According to Article 4 of the ASEZ Law, “The perimeters of the Zone shall be determined by a decision of the Cabinet upon the recommendation of the [ASEZA] Board. The Cabinet may amend these perimeters according to the business requirements of the [ASEZ] Authority and the exigencies of public interest”. For our purposes, it is important to note that, though these perimeters have been fixed since the project was launched, they were the subject of some previous debate and may now also possibly be subject to change.
[ii] The population of the ASEZ is not known with great precision: Despite its autonomy from the central government of Jordan in several important respects, the ASEZ, after almost four years of activity, still has no dedicated statistical department. The ASEZA has partly filled this gap by emphasizing computerization in gathering and processing information, and transparency in its release and availability. The Aqaba Technical Assistance Support Project, which is funded by USAID, has also attempted to fill this gap, working for example on a Business Census for the ASEZ.
[iii] Downloaded from the ASEZ website:
[iv] Provided that such appointments shall be endorsed by a Royal Decree
[v] Statement of Chief Commissioner of the ASEZA Aqel Biltaji before the United States House of Representatives International Relations Committee, 24 VII 2002
[vi] Ibid
[vii] The basis of the ASEZ as it exists today was in the study by US consultants TSG. In that 55-page study the word “governance” is only mentioned twice, as opposed to, for example, the words “investment” or “employment” which were mentioned dozens of times. This suggest that better governance, though desirable, was a not a primary goal of this project. In fact, the report deals with governance in a rather general fashion in a few paragraphs.
[viii] The World Bank - Social and Economic Development Sector Unit Middle East and North Africa Region, Report No. 24425-JO “Jordan Development Policy Review: A Reforming State in a Volatile Region” November, 2002 pp.16-17
[ix] For example, the rate of illiteracy in the Aqaba governorate is 24 percent – almost two and a half times the national average (as cited in Tarawneh, K “Local government reforms in public sector reforms process” a presentation made at the “Conference on Intergovernmental Fiscal Reforms in the EU Member and Applicant Countries” in Ankara, Turkey, 6-8 October, 2003.
[x] Brand, L “Jordan's Inter-Arab Relations: The Political Economy of Alliance Making”
[xi] “Iraq replaces Aqaba with Syrian, Dubai ports for its imports” 13 X 1998
[xii] "Sector Report on Transportation", Export & Finance Bank - RESEARCH & STUDIES Investment Banking Unit, February 2002
[xiii] In December 1975, King Khalid made a three-day visit to Jordan ostensibly to win support from Jordan and its then close ally Syria, for Egypt's Sinai disengagement agreement with Israel. Any sympathy gained, however, appears to have been purchased, as only days after the visit, the Kingdom promised to contribute $215 million to help implement Jordan's $2.3 billion 1976-1980 Development Plan. The aid, to be provided in instalments over several years, was in addition to regular Saudi budgetary support payments, estimated in 1975 at $36 million. To help further with development, Saudi Arabia agreed to cede to Jordan a 14-mile strip along the Red Sea coast to allow for the expansion of the port of Aqaba. Iraq had promised to help finance the expansion project, hoping to import up to 300,000 tons of transit goods per year through the port. Source: Brand, L “Jordan's Inter-Arab Relations: The Political Economy of Alliance Making”
[xiv] Since 1989, the exchange rate of the Jordan dinar has been approximately JD1.4 to the US dollar.
[xv] Majdalani, R “Municipal Governance and Expanded NGOs Role in Selected Countries in the Middle East” paper presented at the 3rd Mediterranean Development Forum, Workshop on “Institutional Reforms and Sustainable Development” Cairo, 2000
[xvi] Royal Scientific Society, “The Feasibility of Converting Aqaba into a Free Zone,” 1994
[xvii] Jordan Ministry of Planning, “Jordan, a Winning Business Destination: An Overview of Economic and Business Opportunities,” pp. 14-17 The MENA Economic Conference, Doha, 1997.
[xviii] Ibid
[xix] “European fund to improve Aqaba port” 10 XI 1997
[xx] “King: Aqaba projects should serve higher national interests” The Jordan Times, 18 IV 1998
[xxi] “In Focus: Aqaba Special Economic Zone”, Export & Finance Bank, RESEARCH & STUDIES - Investment Banking Unit Issue 4, November 2000
[xxii] The Services Group, “Aqaba Freeport and Special Economic Zone Study,” 1999
[xxiii] Ibid
[xxiv] Majdalani op cit
[xxv] These are special industrial zones that give Jordanian exports manufactured within the preferential treatment in the US market, provided they meet certain conditions, including having a certain percentage of Israeli value added. For details see Kardoosh, M “Qualifying Industrial Zones and the Quest for Sustainable Development: A Jordanian Perspective” Jordan Centre for Policy Analysis (JCPA), forthcoming.
[xxvi] “Plan in the works to turn Aqaba into a special economic zone” in Al Ra'i, 10 IV 2000
[xxvii] “King endorses master plan to turn Aqaba into a Special Economic Zone” The Jordan Times, 21-22 IV 2000
[xxviii] See also below details of the Peace Airport project with Israel
[xxix] Special Economic Zone project to change face of Aqaba, coast” The Jordan Times, 8 VI 2000
[xxx] “Aburragheb tipped to form new government next week” The Jordan Times, 15 VI 2000
[xxxi] Al-Khalidi, S “Jordan King seen appointing new PM to push reforms” Reuters, 17 VI 2000
[xxxii] “Where did Rawabdeh go wrong?” The Jordan Times, 20 VI 2000
[xxxiii] Burdette, J “Jordan's New Cabinet is Economy-Minded” US-Arab Tradeline, 23 VI 2000
[xxxiv] However, the Governorate of Aqaba has resurfaced as a development institution, to care for the socio-economic needs of poor villages outside the ASEZ (for details see Al-Ra’ i14 XII 2003)
[xxxv] Article 20- section C of the ASEZ Law (No. 32 of the year 2000)
[xxxvi] It is not unusual in Jordanian political life for such seemingly contradictory positions to be taken by the same person.
[xxxvii] “Lower House approves the ASEZ draft law” The Jordan Times, 26 VII 2000
[xxxviii] “King pledges to pursue modernization, democratization drives” The Jordan Times, IX 2000
[xxxix] “Jordan appoints body to manage the ASEZ” Reuters, 26 IX 2000
[xl] “Aqaba SEZ” in the International Herald Tribune, 30 XI 2000
[xli] Ibid
[xlii] Jordan's “the ASEZ sparks concern” AFP, 31 XII 2000
[xliii] “King urges expediting legislative groundwork for Special Economic Zone” The Jordan Times, 4 I 2001
[xliv] “40 deputies protest `unjust appointments' at the ASEZ” The Jordan Times, 13 II 2001
[xlv] Kanaan, T “the ASEZ: an Economic Review,” Arab Bank Review, vol. 2, no. 2, October 2000.
[xlvi] “The Aqaba Special Economic Zone (ASEZ)” in the Jordan: Country Report, Atlas Investment Group, April 2001 pp 31-34
[xlvii] According to the ASEZA Commissioner for Environment Bilal Bashir interviewed by the author in December 2003
[xlviii] According to the ASEZA Commissioner for Environment Bilal Bashir interviewed in December 2003
[xlix] “Aqaba launched as special economic zone” Jordan Times, 18 V 2001
[l] In 2000, the Jordanian government amended the radio and television bylaws to break its monopoly on broadcasting and open the door for the private sector to enter this field. So far, however, the country has only the Jordan Radio and Television Corporation, which is a government-controlled entity, operating in this field.
[li] “Cabinet reshuffled; Parliament dissolved” Jordan Times, 17 VI 2001
[lii] “Head of Jordan Flagship Economic Plan Resigns; List of Potential Developers Released” 9 VII 2001 AFP
[liii] “King briefed by Bechtel on the ASEZ development”, 28 IX 2002 Petra
[liv] Testimony by Biltaji op cit
[lv] Ibid
[lvi] “The ASEZA outperforms expectations, but patience advised - consultant” JT, 5 VII 2002
[lvii] the ASEZ Model experience at World Economic Forum” The Star (Amman) 29 VI 2003
[lviii] Majdalani, op cit
[lix] “USAID grant aims at enhancing skills and participation of women in Aqaba” JT, 17 VII 2003
[lx] SABIS signs with the ASEZA for a new International School in Aqaba” Jordan Times 24-25 X 2003
[lxi] Petra “the ASEZA to assume Aqaba education authority by 2007, 6 VIII 2003
[lxii] Information provided by the ASEZA
[lxiii] See for example “Jordan Valley Authority Studies Construction of Canal from the Red to the Dead Seas at a Cost of JD850 MILLION,” Al-Ra’i, 4 March 2002, for an illustration of the role of the JVA in such schemes. In any case, the article is notably subtitled “Execution of Project is Linked to Political Calm in the Region,” suggesting that implementation will not be soon.
[lxiv] Testimony by Biltaji op cit
[lxv] “Stef Wertheimer seeks US finance for Middle East industrial parks”, published by Globes [online] globes.co.il, 22 September 2003
[lxvi] “Peace through industrial parks” as cited in The Economist print edition, 18 IX 2003
[lxvii] "Netanyahu emulates Peres" as Published by Globes [online] - globes.co.il - November 13, 2003
[lxviii] "Israel, Jordan to jointly market Red Sea brand" as published by Globes [online] - ww.globes.co.il - on November 27, 2003
[lxix] Ibid
[lxx] The ADC will be entrusted to carry out the implementation of the ASEZ Master plan and to ensure that the development of the ASEZ is carried out in an integrated and holistic manner that maximizes opportunities for private sector participation in the Zone. As cited in a power point presentation entitled “Desalination Options in Aqaba Special Economic Zone Aqaba: Demands, Challenges & Technology Solutions”, ASEZA Movenpick Dead Sea 8-19 August, 2003
[lxxi] Information on Imad Fakhoury is from pages/ download/02multi/Fakhoury.doc
[lxxii] Levy, M “Eilat, Aqaba is coming after you” Erev: Erev In Eilat, 18 December 2003, p 12
[lxxiii] Ibid
[lxxiv] See for example Al-Ra’i, 11 April 2002 for details of a meeting in Aqaba between Jordanians and German businesses to discuss investment.
[lxxv] For details and a discussion of the issue of the nationality of investors in QIZs, see R. al Khouri, “QIZs as a Model for Industrial Development: The Case of Jordan and Its Implications for the Region,” Friedrich-Ebert-Stiftung, December 2001 (fes-).
[lxxvi] In 2002, the rate of unemployment in Aqaba stood at 16.1 percent, compared with 21.1 percent for Ma’an, 20.5 percent in Karak and 19.4 percent for Tafila (Tarawneh, K op cit).
[lxxvii] Erev Erev in Eilat, op cit p 14
[lxxviii] According to the ASEZ website
[lxxix] ESCWA, “Foreign Direct Investment Legislation Reflecting Environmental Concerns in the ESCWA Region,” (E/ESCWA/1997/11), pp. 30-31 Regarding trade and environment, the Jordan-US FTA specifically contains an environmental clause that seeks to ensure that traded the goods and processes involved in producing them are environment friendly.
[lxxx] Khouri, R “Jordan Governance Paper” World Bank, 2003
[lxxxi] See endnote number 34
[lxxxii] “Aqaba governor seeks solution for land issue” in the Jordan Times 14 I 2004
[lxxxiii] “Truckers end strike in Aqaba” in the Jordan Times 9-10 I 2004
[lxxxiv] “ASEZA floats tender for managing, developing Aqaba's containers port” in the Jordan Times 28 XII 2003
[lxxxv] For a more sceptical view of ASEZA’s plans to privatize the management of the container port see the statements made by Mahmoud Khatib, president of the Jordanian Ports and Clearance Workers Association in the Jordan Times “ASEZA floats tender for managing, developing Aqaba's containers port” 28 XII 2003
[lxxxvi] “King calls for plan in 3 months to tackle Aqaba congestion” in the Jordan Times 16-17 I 2004
[lxxxvii] See an interview with Chief Commissioner Biltaji in Al-Ra'i 8 XII 2003, in which he seems to blame interference by “Amman’s” private and public sectors for the Port’s problems.
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