Jordan Competitiveness and Innovation Partnership: Promoting Reforms at the National and Sector Levels


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Executive Summary

·   The report identifies three key sectors for in-depth analysis: ICT and IT enabled services, tourism sector with a medical tourism sub-sector, and renewable energy/energy efficiency

·   Within the three selected sectors and in Jordan in general, there are numerous hindrances to competitiveness including:

o   Difficulty in coordinating and implementing initiatives

o   Absence of a link between national targets and implementation measures

o   General lack of reform action and strategy planning

o   Weak public-private dialogue

o   Weak monitoring and evaluation of results

·   Steps to increase competitiveness at the national and sector level include strengthening the policy framework for competition, further developing investment-promotion policies, and creating a culture that promotes knowledge transfer

Key Findings

FDI in Jordan

·   A decrease in FDI in Jordan has been noticeable beginning in 2007-2008

o   FDI as a percent of gross fixed capital has declined from 51% in 2000 to 25% in 2010

o   FDI in 2010 was USD 1.7 billion, a large decline from USD 3.6 billion, the historical high experienced in 2006

o   FDI as a percentage of GDP has also decreased from a historical high of 11.5% to 7% in 2010, with further decreases expected into 2016

·   The key causes for the decrease in FDI are believed to be the diminishing investment and competitiveness climate, insufficient incentive regimes, failure to build on the successes of Qualified Industrial Zones (QIZ), the global financial crisis, the Arab Spring, and decreasing FDI associated with privatization

 

Jordan’s Innovation Efforts

·   Jordan is considered to have high potential for innovation as it has strong education scores, a large proportion of bilingual Arabic-English speakers, a highly skilled diaspora, and a history of successful innovative companies. However, R&D expenditure remains low, at less than 0.5% of GDP. Funding for innovation is very limited, as almost no national funding goes to the private sector or seed, angel, and VC funds

·   There is generally a lack of awareness among the private sector of the benefits of a fully articulated innovation strategy. An undeveloped intellectual property regime and limited financing further restrict innovation in Jordan

·   A key exception to low levels of innovation and R&D can be seen with the pharmaceutical sector, which undertakes substantial levels of R&D to produce for its export-based market

·   Despite low levels of R&D in Jordan, there is an unusually large amount of R&D that is performed within firms, which suggests that there is limited interaction between academic research and business development, and that academic research remains theoretical and is often inapplicable to the needs of the private sector

 

ICT and IT-Enabled services

·   In Jordan, ITC and IT-enabled services (ITES) contributed about 14% of GDP in 2010, though ITC and ITES only account for 1.2% of national employment. Unemployment among graduates who have specialized in ICT-related subjects is approximately 20%, indicating a skill mismatch. At the same time, the ICT sector is also affected by a large brain drain

·   The ICT sector is the fastest growing segment of the economy, growing at 25%. The sector still has large potential in Jordan partly driven by the fact that while 5% of the world’s population speaks Arabic, only 1.5% of internet content is in Arabic

·   Key initiatives Jordan is currently undertaking include increasing the rate of internet penetration, developing Jordan’s participation in Business Process Outsourcing (BPO) and Information Technology Outsourcing (ITO) segments, and marketing Jordan as a location for Middle East operation headquarters

 

Tourism and Medical Tourism sub-sector

·   Tourism contributes about 20% of GDP, and employed in 2010 41,900 directly and 126,000 indirectly. Female participation in the sector is low, at approximately 10%

·   Key constraints in the tourism sector include a poor infrastructure in the sector, limited ability to align tourism products with changing demand characteristics, weak ability to attract investment in tourism, and difficulty branding Jordan as a final and independent tourism destination

·   Medical tourism is a critical way to maximize value-added in Jordan as medical tourists spend the most of all tourists with an average of  JOD 91 per day

·   In 2008, Jordan’s private hospitals, clinics, and medical centers treated 250,000 patients from 84 different countries. Jordan’s private health services have grown by 9.5% annually, and the sector has contributed to 4.5% of GDP in 2010. The private health sector accounts for comparatively large share of the medical labor force, as it accounted for 7% of all jobs created in 2010

·   Jordan’s medical tourism sector brands itself as a low cost medical care provider, although only 9% of medical tourists report the low cost as the main reason for coming to Jordan. This mismatch may be compromising Jordan’s brand by associating medical tourism with budget healthcare as opposed to value and a premium level of healthcare

·   Other limitations in the medical tourism sector include low physical capacity with too few hospital beds, a brain drain that is reducing the amount of qualified medical professionals, and branding limiting Jordan as a medical tourism destination for the MENA region only

 

Renewable Energy

·   Jordan imports 96% of its commercial energy, and only 1.5% of its total energy demand is met with renewable energy. Importing foreign energy sources costs approximately 20% of GDP

·   Demand for energy is rising, while use of solar panels and other efficient energy is declining. Jordan remains on track to meet goal of 300 MW of wind and 300 MW of solar energy generation

·   Given its technically skilled labor, high insulation rates, and very high irradiation levels, Jordan is seen to have a strong potential to build upon its comparative advantages in the renewable energy sector. These factors enable Jordan to stimulate more new renewable energy interest in addition to converting existing interest into firm investment decisions

·   Challenges Jordan may face in the renewable energy sector include limited progress towards stated renewable energy goals, weak public-private partnerships in the renewable energy sector, and low investor confidence

Recommended Actions and Initiatives

Investment Policy

·   Review the provisions of business and investment regulations, with emphasis on barriers placed on market entry, the process of starting and closing a business, and investor guarantees

·   Increase transparency and coherence of the legal framework for investment

·   Review the investment incentives regimes by conducting a cost-benefit analysis regarding different policy instruments and their impact

·   Review the effectiveness of the various existing special zone regimes in Jordan

·   Support the government’s efforts to encourage technological spillovers and economies of scale

·   Develop an effective monitoring and evaluation framework for investors

 

Innovation Policy

·   Review the draft Innovation Strategy and develop a specific implementation plan

·   Review the framework for private sector innovation and expand Jordan’s national innovation effort by improving funding and raising awareness

 

ICT Sector

·   Update the investment policy to enable spillovers that will drive productivity of associated sectors

·   Strengthen the focus on foreign and domestic investment in the ICT industry by developing a master plan to define institutional responsibilities

·   Conduct benchmarking and cost-modelling to identify areas of comparative advantage, and develop an ICT sector-wide value proposition for BPO, ITO, and headquarter operations

·   Reform ICT-related registration and employment laws

·   Reduce bureaucratic overlap for ICT-promotion initiatives and create bureaucratic accountability

·   Establish effective public-private dialogue and initiatives to enhance the ITO/BPO/call center and business services ‘product’

·   Link industry and academia to improve the level of training students in IT-related fields receive

 

Medical Tourism

·   Create specific steps outlining progress in the sector

·   Ensure that public-private dialogue triggers reform and creates a competitive investment climate

·   Strengthen the medical tourism value chain through strategic investment

·   Clearly define the medical tourism sector’s value proposition, and end emphasis on low cost medical care and instead focus on high quality medical care

·   Conduct further segmentation of the medical tourism market to differentiate Jordan from other competitive medical tourism markets

 

 

Renewable Energy

·   Set a strategic goal to make Jordan a MENA energy efficiency center of excellence by 2020

·   Design renewable energy and energy efficiency policy reforms that are linked to economic frameworks that focus on job creation

·   Develop mid-stream services in renewable energy and energy efficiency by creating sourcing opportunities for local companies to prove necessary hardware and services

·   Promote collaboration between sector players and foreign investors

 

Report Name

Date

Timeline

Jordan Competitiveness and Innovation Partnership: Promoting Reforms at the National and Sector Levels

November 2013

Not Relevant

Author

Supporting Donor

The World Bank

The World Bank

Sector

Lead Ministry

Enabling Environment

Ministry of Planning and International Cooperation

Key Topics

Arabic internet content – Brain Drain – Branding – Competitiveness – Diaspora – Energy efficiency – FDI – ICT spillover – Investment promotion –Innovation – Medical Tourism – Policy reform – Public-private dialogue –R&D – Regulatory burdens – Renewable energy – World Bank

 

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