Preface
Revitalising the contribution of international investment to sustainable development in Jordan is more imperative than ever. While the economy is recovering from a 1.6% GDP contraction in 2020, the COVID-19 crisis has amplified existing socio-economic vulnerabilities. Foreign direct investment (FDI) – an important source of external financing, with the FDI stock-to-GDP ratio exceeding 80% – can help unlock the country’s export potential and drive economic growth. However, the lack of a vibrant private sector, combined with global shocks and regional instability, have gradually eroded Jordan’s performance in attracting foreign investors. At the same time, FDI held up during the first year of the COVID-19 pandemic, with Jordan’s FDI inflows growing by 4% in 2020 compared to a drop of 18% across the Middle East and North Africa region – Jordan’s FDI inflows strongly fell in 2021. Furthermore, the proportion of foreign firms in Jordan that permanently closed their doors during 2020 was six times lower than for domestic firms.
Multinational enterprises in Jordan may have acted as a buffer during the pandemic, but the contribution of FDI to sustainable development has been limited over the past decades. Some of the sectors that attract the most FDI in Jordan – including real estate, construction and oil and gas-related energy – are not the sectors that contribute the most to productivity and innovation, decarbonisation or the creation of quality jobs for a young and educated workforce. Although still modest, growing FDI flows in Jordan’s renewable energy, business services, ICT and transport have a stronger potential to support a sustainable recovery. Overall, Jordan’s comparative advantages present clear investment opportunities in highly skilled tradable services and, to a lesser extent, in some manufactured exports such as chemical goods and apparel. Consideration of the export potential of sectors that attract FDI – and reducing barriers to investment in these sectors – is crucial in view of Jordan’s small market size and large current account deficit.
Timely action is needed to harness the potential benefits of FDI as Jordan embarks on ambitious reforms to reignite private investment. The government has created a new Ministry of Investment that will host all investment-related bodies, including the Jordan Investment Commission. Beyond improving the investment climate, the government is undertaking other legal and regulatory reforms to boost competition, streamline tax incentives, address labour market inefficiencies and skills shortages, foster gender equality and advance the low-carbon transition. Further efforts to implement these reforms effectively will support the government’s goal of leveraging investment for sustainable development.
The OECD FDI Qualities Review of Jordan aims to support these reform efforts. The Review is based on the OECD FDI Qualities Policy Toolkit, which is the first government-backed tool for helping policy makers to leverage the catalytic role of FDI in financing the SDGs and optimising the strength and quality of the recovery. The Review provides policy options to increase the positive impact of investment on productivity and innovation, job quality and skills, gender equality and decarbonisation. It shows that FDI can support the sustainable development agenda of Jordan if coherent strategies are developed and implemented through strengthened co-ordination platforms. Going forward, policy interventions should adapt to evolving global FDI trends – along with other trends such as trade, digitalisation, climate change, and the future of work – to support the emergence of a more inclusive, greener and knowledge-based Jordanian economy.
The Government of Jordan – an adherent to the OECD Declaration on International Investment and Multinational Enterprises – and the OECD are pleased to have joined forces in producing this Review and believe that it will help lay the foundations of a more inclusive and sustainable recovery.
