Global donors pledge $1.8bn as Jordan goes through economic transition

Britain's Queen Elizabeth II poses for a photograph with Crown Prince Hussein of Jordan (L), Queen Rania of Jordan (2nd L) and King Abdullah II of Jordan (2nd R) and Britain's Princess Anne, Princess Royal (R), during a private audience at Buckingham Palace in central London, on February 28, 2019. (AFP)
Updated 09 March 2019

Global donors pledge $1.8bn as Jordan goes through economic transition

  • Jordan is at a transition point and it’s economy has been growing steadily for the past couple of years
  • But now there is a huge growth potential, according to the UN

LONDON: Jordan will introduce a slew of economic reforms to help its subsidy-supported economy escape the crippling burden of taking in more than a million refugees.
But planners must ensure that well-meaning policies do not punish the people they aim to protect, warn analysts. 
International donors last week pledged over $1.8 billion as part of the London Initiative at the Jordan: Growth and Opportunity conference, hosted by the UK government. Britain also announced it was underwriting a $250 million World Bank loan to make it easier for Jordan to borrow at lower interest rates. 
“We at the UN would like to be part of this journey and partner with the private sector to generate even more investments for the Jordanian economy,” said Nikolaj Gilbert, director of Partnerships Practice Group at the UN Office for Project Services (UNOPS).
“Jordan is at a transition point and it’s economy has been growing steadily for the past couple of years but now there is a huge growth potential,” Gilbert said.
Gilbert said that the UN and UNOPS will help bring in investments into Jordan by introducing de-risking projects and help convince institutional investors that Jordan is the place to go because the workforce is extremely capable and qualified.

“We are here to support education and equip schools with technology and teaching materials so that the Jordanian and the Syrian population and the refugees in Jordan can attend schools and have quality education.

Young Syrian refugees carry their chairs into a classroom at a UNICEF-run school in the al-Zaatari refugee camp in the Jordanian city of Mafraq. (AFP)

“Beyond that we are also doing ICT projects and empowering women through training programs for start-ups, where the women in Jordan can also help to create a positive change in the Jordanian economy,” he said.
UNOPS helps Jordan’s government and its international partners to respond to the impact of the Syrian crisis.
“Beyond that we are also doing ICT projects and empowering women through training programs for start-ups, where the women in Jordan can also help to create a positive change in the Jordanian economy,” he said.
Jordan’s economy has been battered by the fallout from conflicts in neighboring Syria and Iraq. The country has taken in hundreds of thousands of Syrian refugees and has the second-highest share of refugees compared to population in the world.
At the same time, tax hikes introduced to meet International Monetary Fund (IMF) targets to reduce Jordan’s debt burden have triggered widespread protests.

Jordanian police face off demonstrators during a protest near the prime minister’s office in Amman, Jordan, on June 6, 2018. (AFP)

Now the country is picking up the pace of reform, according to information minister Jumana Ghuneimat.
“We have a program with the World Bank for the next five years to implement many reforms and steps to remove the challenges that are facing investment in Jordan and provide a friendly investment environment to have growth in the future and to build a real opportunity for Jordan,” she said.
Over the past decade, Jordan has pursued a number of sometimes painful structural reforms in education and health, as well as privatization and liberalization. The kingdom has also introduced social protection systems and reformed subsidies, creating the conditions for public-private partnerships in infrastructure and making tax reforms. 
However, further progress is needed so that such reforms lead to concrete outcomes.
The Jordan-World Bank program aims to raise economic participation for women, reduce the cost of fuel and make the Jordanian economy more competitive in the region. 
“We want to tell the international community that Jordan has the capacity and skills to work in the civil sectors and especially in the services sector,” the information minister said.
The World Bank is optimistic about Jordan’s economic future and is committed to the five-year IMF-backed economic consolidation program that includes implementing tough reforms.
“Our engagement with Jordan is a far-reaching, long-haul type of commitment. It aims to frame a new set of reforms that would create jobs,” said Ferid BelHajj, vice president of the Middle East and North Africa at the World Bank.

Syrian refugees attend a sewing class as part of a UN project at the Azraq camp for Syrian refugees in northern Jordan. (AFP)

However, economic analyst Mostafa Al-Bazerghan said Jordan’s economy suffers from many problems and faces challenges associated with the conditions set by the IMF.
“There is the problem of government subsidies for basic goods and fuel, there are also proposals for support from the IMF or loans, but the social situation cannot tolerate the implementation of the IMF’s conditions,” said Al-Bazerghan.
Jordan has youth unemployment of almost 40 percent, possesses few natural resources and is burdened with 1.3 million Syrian refugees on top of the longstanding Palestinian influx.
The World Bank’s BelHajj said that the Jordanian government, under the leadership of Prime Minister Omar Al-Razzaz, had been courageous in pushing reforms that are not popular, but will transform the Jordanian economy.
“This reform must be carried out because Jordan is an important part of the Middle East economy. It is necessary to reduce the economy’s dependence on government subsidies,” Al-Bazerghan said.
The analyst cited three main priorities — reduction of subsidies, supporting those who are vulnerable to the loss of subsidies and encouraging the private sector to invest.

However, he also said that Jordan has a great responsibility that developed with the Syrian and Iraqi crises.

“There is regional support today. Iraq started supplying Jordan with crude oil at reduced prices.”

The Jordanian government revealed preferential tariffs offered by Iraq for supplying oil to Jordan as part of economic partnerships signed by the two countries.

Confident Al-Falih holds out hope for early Aramco IPO

Updated 2 min 40 sec ago

Confident Al-Falih holds out hope for early Aramco IPO

RIYADH: Khalid Al-Falih, the Kingdom’s energy minister and chairman of Saudi Aramco, held out the tantalizing prospect that the giant oil company’s long-planned stock market listing could happen ahead of the previously announced schedule.
Speaking at the Financial Sector Conference in Riyadh, Al-Falih said that preparations for a listing of Aramco shares — an initial public offering (IPO) — could happen “sooner than you think” and that a prospectus for the listing could come “in the not too distant future.”
The listing has been slated for 2021 according to government and company announcements, but Al-Falih’s comments raise the possibility that it could be brought forward to next year, though the minister added the caveat that it could also be later. “That’s the announced date but it could slip a little bit, it could come forward a little bit,” he said.
The successful completion of a $12 billion international bond by Aramco, which attracted more than eight times that amount in interest from investors, has given Aramco a new confidence in international capital markets, in equity as well as bonds.
Al-Falih also said that the intended acquisition of petrochemicals giant SABIC from the Public Investment Fund would also increase its capital-raising ability.
“When the Aramco-SABIC acquisition is consummated — we hope by the end of this year — it will not only be the largest oil company and gas company by a large margin, but also with the combined company will be a very large company in refining and petrochemicals. So its capital base is going to grow and I think right that its balance sheet has an appropriate level of debt.
“Even if Saudi Aramco stays at the lower end of gearing among its peers, it still has the capacity to offer a lot of debt instruments going forward. So I can tell you for sure that the $12 billion is only the beginning, not the end. It establishes Aramco’s presence in the market,” he added.
Al-Falih also indicated that the large amount of disclosure required for the bond issue would be used in the IPO preparation.
“Now that the company has been exposed, investors have reacted so enthusiastically to the company and its quality. We’ve seen the reserves, we’ve seen the financials, we’ve seen the quality in terms of its departmental performance and its safety performance, human capital capability and technology, all of this is appealing.
“It’s been exposed and documented in the prospectus for the bonds and it will be exposed even more in the equity prospectus to come in the not-too-distant future.”
Al-Falih made it clear, however, that the IPO had to await full completion of the merger with SABIC: “Once we’ve done that, the financials are consolidated and exposed to the investors, essentially all the practical steps for
the IPO have been taken both by the company and by the government. So I think we can hit the ground running once we close on SABIC.”
He added that he hoped for speedy approval from regulators for the merger. Finance experts at the conference said that Al-Falih’s comments showed that Aramco and the Saudi government were committed to listing the company, but were skeptical over whether the IPO could happen next year, given the need for full incorporation of SABIC.
“Given the express desire to complete the SABIC deal, it will be challenging to accelerate the time line of the IPO before 2021,” Jamal Al-Kishi, chief executive of Deutsche Bank in the Middle East and Africa, told Arab News. “But I have very little doubt the company will be floated,” he added.
Tarek Fadlallah, chief executive officer of Nomura Asset Management in the region, said: “It seems unlikely that it can take place in 2020 because they’ll want to demonstrate a full year of integration and collaboration with SABIC.”