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Last update: February 2008

Swiss economic development cooperation with Jordan

1. Economic context: an overview
The Hashemite Kingdom of Jordan is a small country with a highly urbanized population of 5.9 million inhabitants, expected to grow to 7 million by 2015. With a relatively open economy, located in one of the politically most unstable regions of the world, Jordan has experienced above-average development ever since the financial crisis of 1989. The economy is dominated by the services sector which accounts for close to 70% of Gross Domestic Product (GDP). Manufacturing (mainly textiles) and construction make around 20% of GDP whereas both agriculture and mining due to the pervasive water scarcity and lack of oil are under 5% of GDP each. Tourism accounted for up to 10% of GDP in the years after the OSLO accord of 1993, but suffered a lot since the beginning of the 2003-4 war in Iraq and again during the latest Israeli-Lebanese conflict in July/August 2006. Between 2000 - 2004, average growth amounted to 5% as compared to less than 3.5% over the 1996 2000 period. Despite the recession in the aftermath of the Iraq war, growth rates were back to more than 7% in 2004 and 2005, with inflation remaining at moderate 3.5% and 4.5% in the respective years. By the end of 2005, Government debt was down to 83% of GDP as compared to more than 200% in the early 1990s, due to effective fiscal consolidation along with a series of Paris Club debt restructuring agreements. As a result of the strong commitment of the former king Hussein I and his wife, positive trends have also been felt by human development indicators: since 1970, life expectancy went up from less than 60 to more than 70 years, adult literacy increased from 60% to 90%, and infant mortality was halved. Today, social indicators are better than the average in the Middle East and North Africa (MENA) region, and education and health expenditures outperform other regional countries, even some richer ones. The main driving forces behind the remarkable development in Jordan are sound development policies, capital inflows and unilateral transfers in the form of workers remittances and public grants, together amounting to an estimated 25% of GDP. Wideranging economic reforms have been undertaken since 1989, including: domestic taxation (broadening of the tax base, introduction of a Value Added Tax), tariff reductions, free trade agreements1, the financial sector, public utilities (privatisation, adjustment of administered
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With the EU (1999), the US (2001) and EFTA (2002).

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prices), the regulatory environment, the energy and environment sector, etc. Furthermore, the so-called Qualifying Industrial Zones giving exporters duty- and quota-free access to the US market have a positive impact on textiles and clothes exports. Eventually, a stable exchange rate policy with the Jordanian Dinar fixed to the US dollar at a constant rate, has helped reduce inflation and stabilize the economy. In recent years, Jordan has benefited from an influx of immigrants and money from Iraq (estimated at above 5% of GDP) as well as from higher Foreign Direct Investments (estimated at 10% of GDP). As a consequence, real estate prices and private consumption increased considerably. It remains to be seen whether or not this development is sustainable. The positive economic development has been attenuated by two external shocks, one of them being the absence of free oil supply from Iraq and the consequent doubling of oil prices since 2004, the other one being a significant reduction of foreign grants in the same period. As a consequence, Government expenditure for oil subsidies increased dramatically, leading to the decision to reduce oil subsidies successively by 2007 and to fully liberalize the domestic oil market by 2008. The budget deficit before grants remained on a relatively high level at around 10% of GDP, while the current account deficit amounted to almost 18% as a result of the above mentioned oil shock. Furthermore, the per capita income (Gross National Income (GNI)) of USD 2140 in 2004 has not yet rebounded to the 1980ies boom level. Despite the positive development of Jordans economy, unemployment and poverty remain as the two most important economic problems to be solved. Both depend significantly on political developments in the region and their respective impacts on the economy. Strong increases in poverty and unemployment have been observed in the aftermath of the Gulf wars as well as in the context of the 2006 Israeli-Lebanese conflict. Unemployment has been down to around 15% of the total labour force since 2002, whereas a poverty assessment prepared by the Jordanian Government and the World Bank shows that the national poverty line has dropped from 21% to 14% of the population since 1997. However, there remain many pockets of deep poverty and a high number of working-poor throughout the country. In late 2005, a National Agenda was completed aiming at the doubling of income per capita over the coming ten years. Broad strategies, policies and objectives to modernize the countrys economic, institutional and political infrastructure are outlined in order to provide guideline actions to the Government. Education, the business environment and the reduction of poverty are at the core of this long-term development vision. Despite the noticeable achievements of the recent years, Jordans development prospects and its fight against poverty are inhibited by a series of significant challenges, including:

Regional political situation: the country is affected by its geo-political situation, in-between
Iraq and Palestines West Banks. Each crisis has sent waves of refugees to Jordan, whose population is now mostly of Palestinian origin. Likewise, the Iraq wars as well as the 2006 Israeli-Lebanese conflict have resulted in masses of workers returning from the Gulf, declining remittances and tourism revenues.

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Scarcity of natural resources: with no oil and 92% of desert land, Jordan is one of the 5 most water-stressed countries in the world. Water scarcity, water quality and distance to populated areas make resource management and financial requirements huge challenges for Jordan, in view of an already unsustainable water consumption and with respect to the expected needs of the growing population, the industry and tourism. Population growth, poverty and unemployment: Population growth is among the highest in the world, currently at about 2.6% per year. Remarkable progress has been made on the poverty issue, and unemployment is estimated to persist on todays level. A yet unfinished reform agenda: Budget deficits are estimated to remain high, while the private sector is still underdeveloped and domestic private investment remains weak at an estimated 7% of GDP. The implementation of the above mentioned 2005 National Agenda and its corresponding impacts in the years to come remain to be seen.
In spite of a long tradition of political parties as well as free and fair elections in June 2003, power is very concentrated. Next elections are scheduled for September 2007. All these challenges present risks for Jordans economic development. The ongoing instability in Iraq and the Israeli-Lebanese conflict have brought very concrete threats such as a disruption of trade with Iraq, the interruption of imports of Iraqi oil and decreasing tourism revenues. On the other hand, both Iraqs and Lebanons reconstruction could benefit Jordan through increased transit trade and other exports of goods and services. In the struggle to fight poverty and increase employment, it will be important to implement policies aiming at broadening sources of growth through additional domestic and foreign private sector investment and export diversification. In terms of bilateral economic relations, Jordan is a modest partner for Switzerland. Trade has witnessed a regular, one-way increase since the 1990s, with Swiss exports worth CHF 150 million in 2005 while imports decreased from CHF 8.5 million in 2004 to 4.7 million in 2005. Parallel to the conclusion of the Euro-Mediterranean partnership (bilateral Association agreements with the EU), EFTA signed a free-trade agreement with Jordan in 2001, in force since September 1, 2002. This agreement is an important achievement, ensuring a new basis for expanding trade as well as a non-discriminatory treatment of EFTA States enterprises in their economic and trade relations. A bilateral agreement on the promotion and protection of investments between Switzerland and Jordan is in force since December 11, 2001.

2. Past experiences and lessons learned

The economic cooperation of SECO with Jordan dates back to 1985 and has mainly been anchored around infrastructure financing and macroeconomic aid, linked to a recognition of both Jordans needs and efforts towards poverty reduction. Some elements of SECO's assistance also derived from the political situation (Gulf War).

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The financing of basic infrastructures accounts for the biggest part of the bilateral cooperation, with two Mixed Financing Agreements (MF I and II) in a total amount of CHF 83 million. Furthermore, Jordan received substantial financial aid in the context of the Swiss debt reduction facility (CHF 35 million worth of bilateral debt plus a contribution of CHF 5 million towards the multilateral debt service). The following lessons have been learnt from almost 20 years of SECO cooperation with Jordan:

Project performance has generally been very satisfactory. Mixed Financing should be reformed: (i) the instruments attractiveness is relative, as
around 50% of the respective project have to be financed using commercial credits. This is a disadvantage as compared to generous alternatives from other donors and explains a slow pace of use of the line; (ii) the instruments use was very demand-driven: more proactiveness and selectivity in project selection is required, implying, e.g. a sector concentration; (iii) only projects which are commercially non-viable should be considered for funding; (iv) sustainability of projects requires a combination of technical assistance, institution building and policy dialogue.

Potential to increase coherence in the cooperation program: Past interventions were motivated by a mix of specific development concerns and political requirements. This situation led to the implementation of valuable individual projects but also to a deficient coherence in the overall intervention rationale and program. Coordination with other donors results in greater aid effectiveness (definition of tasks, concentration of capacities) and efficiency (targeting of contributions). Coordination efforts initiated by the UN in the environment sector (incl. healthcare waste) are to be encouraged through active participation by SECO/the Embassy.
Jordan has benefited from substantial debt relief from Switzerland. The bilateral debt reduction has provided high visibility and effectiveness. The implementation of the SECO program requires adequate local liaison, monitoring and supervision. In this regard, the Swiss Embassy in Amman has played an important role over the past years. The visibility of the SECO cooperation over the past years in Jordan has been rather limited when considering the nature and scope of the assistance. More efforts are required to improve the situation.

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3. Future orientation
Switzerlands strategy towards the Mediterranean Region adopted by the Federal Council in 2001 and currently under revision underlines the importance of this nearby region (on grounds of trade, investments, environment, energy, security, migration, culture etc). It is a stated objective of the Swiss foreign policy to strengthen links with the countries of the region, in the same spirit as the EU-Mediterranean Partnership. This economic dimension was taken into consideration when identifying the future axes of cooperation with Jordan. A bilateral Memorandum of Understanding (MoU) on technical and financial assistance was concluded in parallel to the EFTA negotiations. Based on recognized needs as well as on lessons and experiences from the past, the MoU sets out the future orientation of SECOs cooperation program with Jordan. It will aim at supporting the countrys continued efforts towards sustained and strong economic growth in the frame of a market-based and open economy and thereby contribute to the overarching goal of reducing poverty. In view of the preceding, SECO's cooperation will be articulated along the following lines: Building on the positive experience gained in basic infrastructures while fully integrating SECO's policy on mixed financing (sector concentration, related technical assistance, joint project implementation unit, non commercially viable projects only, etc.);

Close coordination with other key donors, especially in basic infrastructures;

Densification of SECO's participation (with the assistance of the Embassy) in policy dialogue (bilateral or multi-donor) related to intervention sectors in basic infrastructures; Development of more active partnerships with the private sector, particularly to address needs of the small and medium-size enterprises (SMEs), including for increased internationalisation;

Results-based management of projects and activities, incorporating clearly defined

performance indicators, including expected contribution to poverty reduction; More attention given to partners' institutional and capacity building requirements; Further efforts to increase the visibility of SECO's projects.

Thematic focus / domains of action

After due consideration of the priorities set by the Government in its Poverty Reduction Strategy, taking into account other donors programs and their experiences in the country, and after assessing SECOs capacities and resources, the main avenues for future co-operation have been identified in close consultation with the Jordanian Government - as follows:

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Improvement of basic infrastructures

Despite the high priority given by the Jordanian Government to effective delivery of key essential public services such as education, health and water as reflected by large budgetary allocations and above-average human development indicators many constraints and inefficiencies are still remaining. Moreover, the level of public infrastructure must increase in order to meet the demands of a fast-growing population and to impact positively on the level of private (domestic and foreign) investments. In this context, Jordan is in need of further access to foreign grants and soft loans in order to overcome its public funding constraints; the Swiss Mixed Financing instrument offers a valuable option for the Jordanian Government in sub-sectors which are not massively funded through foreign grants (such as the water sector).

Strategic Orientation:
SECO continues with the implementation of the second MF line signed with Jordan on 04.10.2002 (in an amount of CHF 30 million, up to 50% grant). This MF line being used for the financing of commercially non-viable projects focussing on two priority sectors: health and environment.; An amount of up to CHF 3 million (grant) has been made available for technical assistance and capacity building related to the implementation and sustainability of MF projects; SECO undertakes to liaise and coordinate closely with the like-minded bilateral and multilateral donors involved in the two priority sectors, in order to participate and contribute to the sector policy dialogue with the Government.

SME development and internationalisation

Jordans private sector is still underdeveloped, with limited competitiveness. Instead of a few successful recent privatisations (in telecommunications, cement, potash etc), private investment is sluggish, with a large remaining public sector and foreign investors intimidated by the regional situation. Sustainable economic development requires a better recognition and use of the potential of small and medium-size enterprises (SMEs) contributing to job creation, technical innovation, export diversification and industrial decentralization, as well as the related impact on poverty reduction. Jordan is undertaking significant efforts to face the huge needs and requirements to develop its SME sector. SECO will continue to privilege an approach aiming at very selective and targeted niches in which SECO avails of a comparative advantage and can contribute to innovation and demonstration.

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Strategic Orientation:
Active contribution of the SECO-funded Swiss Import Promotion Program (SIPPO) to assist Jordanian exporting SMEs to better access markets in Switzerland and OECD countries, with a special focus on bio products (olive oil, dates, cosmetics) as well as fashion and clothes; Operation of a business-to-business (B2B) internet e-commerce platform between Jordan and Switzerland to stimulate business contacts and match-making opportunities between companies in both countries; Continued involvement of the SECO-funded Swiss Organization for Facilitating Investments (SOFI) to inform potentially interested enterprises on the evolution of the business environment and investment opportunities in Jordan, to assist potential investors in making business contacts and matchmaking, and to offer limited initial seed-funding (Start-up Fund). Promotion of eco-efficient production techniques and sustainable modes of production through the establishment of a close cooperation with the Royal Scientific Society (RSS) for advising SMEs on how to optimise their production processes while adopting environmentally sound technologies (focus on a maximum of three sectors including chemicals and food such as olive oil).

Indicative financial disbursements

For the implementation of its program during the period 2006-2010, SECO plans subject to continued commitment to reforms and satisfactory performance by the Government and the Jordanian partners the mobilization of an envelope of about CHF 18 million. Efforts will be undertaken to smoothen annual disbursements, but the nature of the main operations (Mixed Financing) will most probably lead to continued erratic annual flows.

4. Program management
In Berne, the directly involved SECO-cooperation (WE) divisions are: i) Infrastructure financing (WEIN, Mr. David Kramer, david.kramer@seco.admin.ch), ii) Trade and clean technology cooperation (WEHU, Mr. Stefan Denzler, stefan.denzler@seco.admin.ch) and iii) Investment promotion (WEIF, Mrs. Antonia Schaeli, antonia.schaeli@seco.admin.ch). Mr. David Kramer (kmd/WEIN) is the WE country coordinator (david.kramer@seco.admin.ch). The Swiss Embassy in Amman is SECOs main Swiss partner in Jordan. It contributes very efficiently to the local coordination and management of the program. Its main tasks are to assume coordination and representation/liaison with authorities and to ensure logistical assistance and trouble-shooting when necessary. Exchanges will take place in order to clarify the respective tasks and responsibilities for each new project.

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Annex 1 Swiss development aid flows (million CHF)

Between 2002-2007, the Government of the Swiss Confederation has disbursed about CHF 27 million in bilateral aid to Jordan: Swiss Development Cooperation Flows (million CHF) 2002 SDC* Bilateral development Contributions to NGOs Humanitarian Aid SECO Grants Mixed Financing Loan 0.5 0 0.7 0.4 0 2.1 1.8 0.2 1.3 1.8 0.2 2.1 0.3 0 2.8 1.17 0 6.23 2003 2004 2005 2006 2007

Total SDC

1.2

2.5

3.3

4.1

3.1

7.4

Total SECO

3.8
0

2 1.8

1.15
0

0.45 0.7

0.5
0.2

0.5 0

0.55 0.5

1.05
0.1

0.7 0.15

0.85
0

0.5 0.23

0.73
0

Others Political Affairs Division IV** Total (excl. loan)

*

Total others

0.2
4.0

0.1

3.2

2.95

4.75

3.95

8.13

Swiss Agency for Development and Cooperation, Division of the Swiss Department of Foreign Affairs

** Division of the Swiss Department of Foreign Affairs

Comments and remarks

The above-mentioned figures do refer exclusively to the bilateral annual net flows and exclude aid to Palestinian refugees (through United Nations Relief and Works Agency for Palestine Refugees (UNRWA), etc), some of whom live in Jordan. The above table does not take into account the benefits derived by Jordan from global or regional SECO programs such as SOFI, SIPPO, Start-up fund, etc. The erratic flow of SECO disbursement is due to the (large) number and (small) size of MF projects, which covered the quasi-totality of SECO funding to Jordan since the late 1990ies.

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Annex 2 On-going projects and programs

Basic infrastructures

Mixed Financing lines I and II

A first Mixed Financing line (MF I) of CHF 53 million (40% grant vs. 60% loan) has been in force since 1986. Projects currently in implementation focus on the supply of essential medical equipment to Jordanian hospitals and of emergency vehicles for Jordans international airports. Commitments made under these projects have exhausted the balance under this line. A second Mixed Financing line (MF II) amounting to CHF 30 million entered into force on 04.10.2002. It is open for commercially non-viable projects in health and environment sectors. The grant element remains at 40%, except for health projects (50%). The following projects are under implementation: Strengthening Hospital Hygiene, Laboratory Diagnostics and Eye Care in public hospitals Amount: CHF 11 million Healthcare Waste Management in Northern Jordan Amount: CHF 5.2 million Emergency Vehicles and Ambulances for Jordans Airports Amount: CHF 2.9 million Sectors: Amount: Duration: Partner: Mixed Financing line I: health, cadastre, milling, port infrastructure, electricity Mixed Financing line II: health, environment total of CHF 83 million I: 1985 2005 II: 2002 2005 (extended to April 2009) Ministry of Planning (http://www.mop.gov.jo/)

SME development

OECD-MENA Initiative on Investment for Development

This Initiative is a regional effort, initiated and led by MENA countries with the support of the OECD secretariat. It is a results-based policy dialogue involving policy officials from MENA countries and their OECD counterparts, focusing on policy formulation and implementation. The program seeks to mobilize investment - foreign, regional and domestic - as a driving force for growth, stability and prosperity throughout the MENA region. The main objective is to upgrade investment policy standards, track progress in implementing new policies, and support policy makers at regional and national level, all with the aim of attracting more investment to the region. The last ministerial meeting was hosted by Jordan.

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Sectors: Amount: Duration: Partner:

Investment promotion EURO 70000.2005-2007 OECD (http://www.oecd.org)

Business-to-Business (B2B) Platform Jordan-Switzerland

A Business-to-Business (B2B) platform was launched during the visit to Berne of King Abdullah of Jordan in October 2002. This platform is aimed at enabling IT firms especially SMEs in Jordan and Switzerland to make direct and immediate trade and investments contacts. Financed at start and for two years by SECO, the platform was developed by SIPPO in coordination with the Swiss and Jordanian IT national associations, simsa (Swiss interactive media und software association) und INTAJ (Information Technology Association Jordan). Sectors: Location: Amount: Partner: information technologies (IT) internet: www.trado.org CHF 855000.in CH: SIPPO (http://www.sippo.ch/) ; simsa (http://www.swissmedia.ch) in JO: INTAJ (www.intaj.net)

Swiss Organisation for Facilitating Investments (SOFI)

Jordan is among the 22 countries selected to benefit from SECOs investment promotion mandate executed by the Swiss Organisation for Facilitating Investments (SOFI). Apart from information dissemination on investment conditions and opportunities (e.g. trough internet, conferences, missions), SOFI provides advices in identifying potential partners. In addition and on a commercial basis, it supports enterprises in preparing and implementing their investment projects.. Sectors: Location: Amount: Duration: Partner: investment promotion Zurich CHF 4.5 million per year for the mandate but non country specific End 2007 in CH: SOFI (http://www.sofi.ch/) in JO: Jordan Investment Board JIB (http://www.jordaninvestment.com/)

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SECO Start-up Fund

To encourage and facilitate the preparation and initial phases of new investment projects, SECO provides Swiss entrepreneurs with up to 50% of the financing needs in the form of loans. This credit line is being administered by SOFI. Sectors: Location: Amount: Duration: Partner: investment promotion Zurich CHF 18 million for the revolving fund (all eligible countries) 1997 - 2009 SOFI (http://www.sofi.ch/)

Trade promotion
Jordan Cleaner Production Center (CPC)
Since 2004, SECO supports the establishment of a Cleaner Production Center within the Royal Scientific Society (RSS) in Jordan. The center aims at increasing the competitivity of enterprises while reducing their environmental pollution by applying cost-effective measures and technologies. The project enhances the capacity of RSS in the area of Cleaner Production, provides high quality services to enterprises in the metal, chemical and food industry sectors, and fosters the creation and expansion of a Cleaner Production market in Jordan. The center is involved in knowledge exchange within the SECO-UNIDO network of Cleaner Production Centers all over the world, and particularly with other Arab speaking countries. Sectors: Location: Amount: Duration: Partners metal, chemical, food industry Amman CHF 2.1 million 2004 - 2009 in CH: FHNW/SBA (http://www.fhnw.ch) in JO: Royal Scientific Society (http://www.rss.gov.jo)

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Swiss Import Promotion Programme (SIPPO)

Since 1999, SIPPO promotes imports to Switzerland of products from developing and transition countries, including Jordan. It selects and supports local SMEs (eg. product adaptation, participation to fairs, matchmaking) to access the Swiss market. In Jordan, the program follows a "branch-approach", with focus on Bio products (olive oil, dates, cosmetics) as well as fashion and clothes. SIPPO has a representative in Amman. Sectors: Location: Amount: Duration: Partners bio-products, fashion and closing Zurich CHF 6 million per year for the mandate but non country specific, about CHF 490000 are directly aimed at activities in Jordan since 1999 in CH: SIPPO (http://www.sippo.ch/) in JO: Jordan Export Development & Commercial Centers Corporation - JEDCO (http://www.jedco.gov.jo/)

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Annex 3 Main current development partners

Type Domains Infrastructure financing Public Ministry of Planning (MOP) Ministry of Health (MOH) SME Development JEDCO JIB and Internationalisation RSS INTAJ Enterprises World Bank Private Multilateral World Bank

This Table refers only to local (national or international) partners. Swiss executing agencies or development partners are not included.

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