Achieving economic resilience and a more balanced development

Since 2012, Jordan has been classified by the World Bank as an "upper-middle income" country due to steady growth rates of between 4% and 8% during the years 2000s. Following the onset of the global financial and economic crisis, the first half of the years 2010s has seen significantly lower levels of growth, averaging around 2.6% between 2010 and 2015 according to data from the World Bank.4 This is due to, among other aspects, a decline in remittances and foreign grants and increasing oil and commodity prices amidst the economic slowdown in Europe and Gulf Council countries. Over the 2010-2015 period, GDP per capita declined by 0.6% on average, while it increased by 1.4% in the MENA region.5 Although the country has suffered a drop in tourism and the collapse of trade with Iraq and Syria, the announcement of investments in large-scale infrastructure projects (e.g. the Red-Dead Sea Canal and the national rail network) has raised hopes that economic resilience could be enhanced.

Despite its strategic location at the intersection of Europe, Africa and Asia, Jordan’s economy suffers from structural challenges. For instance, in light of weak private sector activity, the OECD SME Policy Index recommends Jordan to improve the regulatory framework to support entrepreneurship and SME development, in particular in nonenergy-intensive and high-technology sectors, and continue efforts aimed at building a knowledge economy (OECD, 2014a). On a similar note, to spur private sector development, the World Economic Forum refers to the need to remove bureaucratic obstacles, strengthen investor protection and improve access to credit and the tax system (World Economic Forum, 2014). Moreover, Jordan is extremely scarce of water, energy and arable land. With the third lowest water resources in the world, only around 3% of arable land, and energy (97%) and food (81%) consumption that is largely satisfied by imports, the economy is vulnerable to external shocks, in particular to the fluctuations in international commodity prices. The situation is exacerbated by increasing consumption needs due to the influx of large numbers of refugees fleeing the war-torn areas in Syria and Iraq. In the water sector, OECD analysis has pointed to the uncertainty surrounding the institutional and legislative framework for water and private sector participation as a major impediment to private sector activity (OECD, 2014b).

In 2010, 14% of the population was considered poor according to national poverty lines affecting both the rural (16.8%) and urban (13.9%) populations.6 According to Jordan 2025 (Inform, 2015a), the country’s ten-year national strategy, poverty remains a national challenge and is more pronounced the further a governorate is located from Amman, which stresses the urgency that disparities between governorates must be reduced.

  • 30%
  • 25%
  • 20%
  • 15%
  • 10%
  • 5%
  • 0%

Figure 1.1. Poverty rates by governorate (2014 and 2025 target)

Source: OECD's own work based on data in Inform (2015a), Jordan 2025, Ministry of Planning and International Cooperation, Amman,

http://inform.gov.io/en-us/Bv-Date/Report-Details/ArticleId/247/Jordan-2025.

The Executive Development Programme 2016-18 acknowledges the large variations in local economic development between regions and governorates, especially between the governorate centres, Badia7 and rural areas (Government of Jordan, 2016). It highlights that regular and up-to-date evidence on development is lacking, and there is little research on local investment opportunities, as well as limited capabilities of and co-ordination among bodies working in local development. The reduction of the development disparities between the governorates is an explicit objective of the decentralisation reform.

The considerable disparities in economic weight across the territory go along with a challenging macroeconomic environment. The twin deficit of a negative fiscal (-3.6% of GDP in 2015) and current account balance (-9.0% of GDP in 2015)8 has put a major strain on the economy and restricts the policy options available to the government. The chronic trade deficit is acknowledged to be “one of the most important challenges facing [Jordan’s] national financial position” in Jordan 2025 (Inform, 2015a).

The challenging macroeconomic conditions are mirrored by weak private sector activity, unemployment levels and low economic participation rates among all groups in society. In 2014, only 67% of men were economically active compared to 75% in the MENA region and 77% in the group of upper middle-income countries.9 The job challenge is somewhat more acute for women, as Jordan displays one of the lowest female labour force participation in the world (16% compared to 22% in MENA countries and 57% in upper middle income countries).10 As in many MENA countries, young job seekers, especially well-educated graduates, are disproportionally affected by the lack of economic opportunities as well as limited opportunities to shape (labour market) policy outcomes in their favour as noted by the OECD report “Youth in the MENA region: How to bring them in” (2016). According to data from the Department of Statistics, the unemployment rate for young men (15-24) in 2014 was 39% in the Aqaba Governorate, for young women in the Mafraq Governorate it was around 79%.11 The absence of economic opportunities translates into low levels of economic inclusion (see Figure 1.2). The lack of job prospects has led many Jordanians to seek employment opportunities elsewhere, in particular in Saudi Arabia, the United Arab Emirates and Kuwait (Inform, 2015a).

Figure 1.2. Economic activity among young men and women aged 15-24 (2014)

Source: OECD's own work based on: Department of Statistics (2014), Jordanian Woman Indicators, Gender Perspective 2014, http://www.dos.gov.io/dos home e/main/population/gender/wom index2.htm.

 
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