This assessment aims to recommend interventions to support the Government of Jordan in identifying, designing and implementing specific reforms to improve the business environment. The report aims to answer the following questions.
- What are the main business environment constraints in Jordan?
- Why have prior (or current) government and donor initiatives to support business environment reform not made more progress?
- What approaches can be recommended that might be different, innovative and more effective?
- How can the UK support existing commitments in partnership with the Government of Jordan and other donors?
Commonly cited business environment constraints in Jordan include a lack of predictability and transparency, labour restrictions, burdensome approvals needed for business registration and investment, high costs, and for some industries, price controls. While this situation is characteristic of the region, in Jordan’s case there are several factors which exacerbate these challenges. Firstly, due to geopolitical considerations, the Jordanian government sees its primary role as that of maintaining stability. Second, the country has a deeply established tribal tradition. Since its establishment in the 1920s, Jordan has had an unwritten compact with its people, which was renewed following armed conflicts between the Jordanian government and the Palestinian Liberation Organization in the 1970s. The understanding that keeps the peace is that the East Bank tribes run the government, and Palestinians run the private sector, without a lot of trust between the two groups. The result has been an unsustainable fiscal burden, an uncompetitive private sector, and an inability to articulate and agree on a clear set of policies that will drive economic growth.
Jordan experienced more than a decade of strong economic performance and poverty reduction during the late 1990s and early 2000s. During the high growth period, reform proposals moved quickly through the law-making process. Often, however, the new laws were not fully communicated through the government hierarchy, and many have still not been fully implemented at the regulatory and administrative procedure levels. The reform process faltered as the country faced a series of shocks beginning in 2008 with the global financial crisis; a rise in oil and food prices; the Arab spring; border closures with major trading partners Iraq and Syria, and massive refugee inflows relative to the size of the population.
At a conference on “Supporting Syria and the Region” held in London on 4 February 2016, Jordan requested that donors provide a holistic response to the refugee crisis, offering support for Jordan’s economy and Jordanian citizens as well as Syrian refugees. The Government of Jordan committed to issue more than 130,000 Syrian work permits, advance business environment reform activities, and support investment facilitation and promotion. In return, the World Bank and other donors pledged $40 billion in aid, with the World Bank Programme for Results (P4R) illustrating the donors’ latest thinking on dealing with refugee crises, i.e. an approach that prioritises economic development, recognising that refugees need jobs and that host country governments will need resources to invest in building infrastructure and delivering social services to long-term displaced populations. The Bank has set up a Project Management Unit in the Ministry of Planning and International Cooperation to track results and coordinate donor activities related to the Compact. The Ministry of Planning and International Cooperation and the Project Management Unit would be a natural partner for the activities recommended in this report.
Our research found that the international rankings used by the Government to organise and track business environment reforms (i.e., Doing Business and World Economic Forum), and the activities supported by donor programmes, were not well aligned. Donor programmes often have multiple goals, and though they may use international rankings to measure progress, their work is not necessarily designed to directly impact them. Of sixteen activities implemented by nine donor programmes aiming to improve the business enabling environment, only two, which are discussed in the report, were identified as likely to have a direct impact on the rankings.
The Prime Minister’s office, conscious of the need to improve Jordan’s score, coordinates with donors to issue instructions to ministries and agencies, but the instructions are not sufficiently detailed to result in concrete actions. Meanwhile, government ministries, primarily the Ministry for Public Sector Development tasked with improving the business environment, see the donor programmes and even the higher-level instructions as only part of their mandate – which they view as achieving improvements at scale, to what they call government services. Actions taken by the ministries do not correspond to any change in the international rankings, and the lack of a structured public-private dialogue or mechanism by which to communicate progress means that hard work (such as a process led by the Ministry of Public Sector Development to harmonise over 2,000 procedures) is not publicised, recognised or appreciated.
The research conducted for this assessment identifies an immediate opportunity to focus on the stock of already mandated reforms, by systematically channelling them through existing committees, set up with the purpose of improving the business environment.
Committees that could be candidates for hosting such a reform process could be the “ReDo” committee, which sits under the Economic Policy Council that reports directly to the Royal Court; the Cluster Committee, under the Competitiveness Council of the Ministry of Planning and International Cooperation, or even the Central Licensing Committee. Reform proposals could be selected from the categories defined in the World Bank’s Program for Results (P4R), the European Union’s budget support program, and existing donor projects including those funded by the United States International Agency for Development (USAID). It is recommended to select pending reforms at the lowest level and to address them as a group. For example, the World Bank Group’s International Finance Corporation (IFC) technical assistance team has inventoried 156 procedures including sectoral and vocational licenses and pre-approvals that businesses need to go through before registering their company.
The committee chosen to host the process will then need to form a working group consisting of representatives of the entities affected by the specific reform, assign a neutral facilitator, and task the group to come up with agreed-upon simplifications to the procedures. Out of this discussion will come a list of actions needed on the part of each government entity to make the reforms a reality. For example, in the case of the 156 procedures, the outcome might be to remove 20 entirely, and to streamline the other 136. While this particular outcome might seem like a minor victory, the existence of a sustained process to advance reform proposals is critical to the government’s credibility vis-à-vis the private sector, donors, and citizens. Experience shows that over time, the benefits of dynamic reform processes accumulate in the form of greater transparency, investment, and jobs.
Some donors have pointed to the need for a consultative process which would allow the public to comment on, and oppose, unnecessary new laws and regulations. While this could be a useful process to introduce, the challenge today is first to review and clean up the old stock of pending regulatory and administrative actions that would make investors’ lives easier, before embarking on a new wave of legislation. Stated high-level objectives are frequently frustrated by the faulty implementation of reforms. A simple “notice and comment” function associated with the committees’ work would be enough to inform the public and allow for any major concerns to be aired.
Others propose that reform advocacy and proposal development be organised by sector. We argue that to set up and maintain a whole new set of industry-specific dialogue processes would be more than merited, given the cross-cutting nature of many needed reforms, and the tendency of sector-specific dialogue towards a highly politically sensitive nature (for example, minimum wage for apparel manufacturing).
By working through existing committees to address the pending stock of already proposed regulatory and administrative simplifications and instituting a simple public notice and comment system, the Government of Jordon would achieve compliance with two of the World Bank P4R disbursement-linked indicators (3.1 regulatory reform and 3.2 predictability index). This work is a prerequisite to achieving longer-term goals, such as the declared objective to have a paperless government by 2020.
Additional recommendations are detailed in the report, all with a common theme of providing clarity for the private sector in its dealings with government. The introduction of e-Government services would require the creation of detailed procedures and minimise the disparity between quality of services delivered; the introduction of a coordination with the UK’s Regulatory Delivery would help provide coherence in the process by which the government manages the stock and flows of reforms. The outsourcing of investment facilitation services would address the immediate need for increased investment, and a focus on customs improvements would provide a proof of concept for Jordan to apply cutting edge technologies to introduce service delivery improvements. Finally, efficiency improvements in communications between the Ministry of Labour and its Directorates as well as a concerted effort to match available jobs with job seekers would address the critical objective of increasing employment.