A strategic overview of the entrepreneurship sector in Jordan

Jordan lacks clarity in the entrepreneurship sector, according to experts, which leaves business owners unsure of where to turn and what to invest in. (Photo: Shutterstock)
AMMAN – For the past 15 years or so, official interest in entrepreneurship has been rising across various industries and sectors, yet the entrepreneurial sector in Jordan still lacks clarity, in terms of definition and the roles of its stakeholders, and integration between its various components, officials, and experts argue.اضافة اعلان

However, as economist and ex-banker Mufleh Akel highlighted in remarks to Jordan News, for entrepreneurship to have any meaning on the macroeconomic scale, it has to be institutionalized at a national level.

Institutionalization, to Akel, means the establishment of distinctive, integrative sector, with all of the elements that help revolutionize it, from the individual phenomenon that it is to the nation-wide state of development that is required to kick-start a new economic model, driven by creativity and ingenuity.

To that end, the government, based on interviews with officials, is working on developing the sector into maturity, but with a more hands-off laissez faire approach, like many other countries.

Since the crash of the global financial market, governments around the globe have been turning to entrepreneurship to stimulate the market and generate new jobs, experts told Jordan News previously.

But it is not as easy for Jordan, given the country’s economic situation, they said.

Unemployment rates have been on a steady climb for years, further exasperated by the coronavirus pandemic and the pursuant closures, which dealt a devastating blow to many businesses in the Kingdom.

In the wake of the pandemic

With the exception of some major manufacturers, such as the Arab Potash Company (APC, local businesses in Jordan have suffered greatly the implications of the pandemic.

Worldwide, extreme poverty is projected to skyrocket in the upcoming years due to the COVID-19 crisis and its repercussions, according to the World Bank.

According to the International Monetary Fund (IMF)’s World Economic Outlook report, Jordan is expected to realize a growth rate of 2 percent in 2021, compared to -2 percent in 2020, which is indicated from the growth in the construction and real estate sectors, the economist underlined. 

However, to compare the year 2021 to the year 2020 is misleading, Akel told Jordan News.

“The comparison should be made with the year 2019, to reflect the real state of the economy, which is the baseline year predating the pandemic, as GDP growth in 2020 was in the negative,” he underscored.

Otherwise, it would not be reflective of the actual economic status of the country, if the comparison is made with the bottom of the growth curve in such an exceptional circumstance, the expert noted.

This is evident in the dramatic increase in unemployment rates during the pandemic, omening great hardships yet to come, despite potential improvements in the economy.

Government agendas

Yet, for any effort, like the ministry’s, to yield feasible results in Jordan in the next few years, institutionalization would require active prioritization of certain sectors, entailing preferential treatment. This in turn requires a degree of positive regulation that the Ministry of Digital Economy and Entrepreneurship is not so eager to enforce, according to officials.

The distinction, however, between mere support or encouragement within a sector; e.g. the investment laws, and the active participation of an official entity in a regulatory role; e.g. the ministry issuing sector-specific laws to guide or direct the sector, is that in the case of the latter, there is a specific public agenda that the government is trying to achieve.

According to Akel, integration between the components of the entrepreneurship ecosystem is necessary to maximize the benefits of the practice, as opposed to the current ad-hoc conjunction of these elements.

When asked about the future of the sector, director of the ministry’s investment department, Nael Adwan, said that the ministry is working on the National Policy for Entrepreneurship and an action plan, which will help set up Jordan as a regional and international player in technology adoption, development, and services.

Yet, there is very little historical data on the feasibility of entrepreneurial activity in Jordan — most of it is indirect — as there are no established Key Performance Indicators (KPIs), since the ministry is newly established, Adwan explained

More so, he added, “there is no entrepreneurship sector in Jordan per se, as it is a cross-over practice evident in all industries and sectors, and therefore requires clear definition of the characteristics of entrepreneurship and the roles of its stakeholders, in order to set it apart from other sectors, which is what we are working on” he said.

The ministry intends to set itself up as a referential party to the sector, but not a regulator, according to Adwan.

“Our job is to come up with facilitations, such as tax exemptions, holidays, and regulatory incentives, and organize the relationship between entrepreneurs, the private sector, and the public sector,” he reaffirmed, noting that entrepreneurship in IT “is a free market”.

Unlike the telecommunications sector, he underlined, where there are interventionist measures placed by the regulatory authority, the ministry “cannot regulate an innovative market.”

Nonetheless, there are priority sectors that the ministry intends to target indirectly, in the form of recommendations issued officially to investors.

“Indeed, there are sectors that yield higher national benefits than others, but our role, given that we are not a regulatory authority, is not to direct investments towards these sectors, nor to conduct feasibility studies to identify them, in particular, that is the role of the investor and the entrepreneur,” he underlined.

On the other hand, both Akel and Adwan agreed that most investments in Jordan pour into the ICT sector, which even though it is the highest yielding sector in terms of returns on investment, it may not provide the national benefits desired from the focus on entrepreneurship, on the national level, in terms of employment for example.

“Investments in the industrial sector are of the utmost importance,” Akel said.

The labor density involved in industrial enterprises makes industry in Jordan an economic priority, not to mention the influx of foreign hard currency both in the form of investments and in the form of exports, or the amounts saved in hard currency from the substitution of imported commodities with local products, economist concluded.

Abdullah Freihat, owner of the Jordan Screws project, applied for funding to establish the first stage of his screw production operation, with 10 employees, at an initial investment of JD50,000, and a step-one production scale of some 50 tonnes a year.

According to Freihat, the monthly consumption of screws between carpenter and construction material shops in the governorate is around 10-15 kilos of screws per month for each of the shops, not to mention furniture shops and local producers.

In the near future, Freihat’s plan includes expanding to other varieties of screws and employing an additional 100 employees, to substitute imported Chinese screws, and to export to Syria and Iraq.

The sales value of the plant’s first annual batch ranges from JD75,000; at JD1,500 per tonne of screws in the wholesale market; to JD175,000, at 3,500 per tonne in the intermediate market.

Regulate or liberate?

To the economist, all of that is reason enough to reinforce entrepreneurship in industrial and agricultural sectors in Jordan through positive regulation, and Adwan does not disagree.

Yet, the ministry’s role is not to make distinctions for a specific sector over other sectors on behalf of entrepreneurs and investors, the official insists.

According to the official, there are other priority sectors that could use investment in entrepreneurship, such as transportation, health, education, cybersecurity, e-commerce, financial technology (fin-tech), and energy in Jordan.

However, the official explains that the ministry’s work is done through facilitating legislation, access to finance and markets, simplifying government procedures, and issuing incentives to grow and expand locally and globally. Primarily by promoting investment opportunities to potential investors.

“Attracting foreign investment is in and of itself a perk of entrepreneurship in Jordan, whatever the sector, and we cannot effectively say that we prefer on sector over another, even though there are priorities.”

The approach to entrepreneurship in Jordan is to attract investors with the promise of profitability through the facilities provided by the ministry and its partners, now and in the future, and encourage entrepreneurs to step up their game, according to Adwan.

 “Foreign Direct Investment (FDI) is the dynamic element of GDP growth, driving production and employment alike. It affects the consumer market and government resources, by creating new demand and supply on one hand, and increased tax revenues on the other.”

“FDI triggers technology spill-overs, assists human capital development, contributes to international trade integration, helps create a more competitive business environment, and enhances enterprise development. All of these contribute to higher economic growth,” Adwan added.

There is always the prospect of exporting services, technology, and replacing huge foreign tech-industries, and solutions with local ones, which can carry significantly enrich various service sectors, he underlined.

Globally, service sectors comprise the larger chunks of some of the world’s most advanced economies, contributing the lion’s share to their GDPs, such as the US.

In Jordan, 72.6 percent of the country’s workforce is employed by the service sector, according to Statista, as of the year 2020. Whereas the Jordan Investment Commission 2017 Sector Profile shows that the Information and Communication Technology (ICT) sector alone directly contributed by 12 percent to the country’s GDP, while exports of the ICT sector amounted to $207.4 million.

In other words, Adwan’s proposition for free-market entrepreneurship does carry merit as to the premise of economic growth pursuant to the influx of investment into the sector.

Between macroeconomic and social necessities on one hand, and the perks of a free market in driving innovation and creativity on the other, both the official and economist agree on the premise of prioritization but disagree on the method of implementation.

Is the ministry going to regulate the sector to direct investments into entrepreneurship in high-labor density sectors, such as industry and manufacturing, to help realize the macroeconomic goals of entrepreneurship? Or is the ministry going to liberate the sector to capture the greatest possible innovative value of entrepreneurship to help stimulate GDP growth regardless of the sector?

The upcoming National policy for Entrepreneurship and the impending action plan will answer this question, which Adwan ensured would be announced in the second half of this year

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