The money into the pockets of foreign companies
The political instability in the region, along with Jordan’s maturing economy, has prevented the domestic private sector from playing an integral role in privatisation and has opened the way for foreign investors to take over many previously public enterprises. As a result, profits made from privatised companies do not contribute to the Jordanian treasury, as structural adjustment continues to challenge welfare policies. Reduced public spending combined with low growth will increase poverty, which is already aggravated by high population growth.
Theregional and global context
Inevery decade since Jordan’s independence, the Middle East has witnessed majorwars. Most of these have had severely negative impacts on Jordan’s economy andability to make social progress for its citizens, especially children and women.This decade is no exception. The January 2000 entry of Jordan into the WorldTrade Organisation and the 2001 Free Trade Agreement with the United States arealso very significant developments for Jordan’s future. Major economic and legislative reforms have been made tobring the Jordanian foreign trade regime into conformity with WTO requirements.In addition, Jordan made commitments on a wide range of services with liberalaccess for foreign suppliers and investors. Tariff rates were lowered with boundrates ranging from 0% to 30%; by the year 2010, the highest bound rate forspecific tariff lines will be 20%. Concern has been expressed in several areas,especially industry, banking and customs. These sectors are not fully developedand fear competition on a global level; the Jordanian economy is still toounder-developed to thrive under the rules and regulations of the WTO.
Jordanis facing some very significant challenges, many of which are largely beyond itscontrol. Since September 2000, when the Palestinian independence uprisingescalated, Jordan’s economy suffered greatly from the drastic loss of tourism,which had been one of its largest foreign currency earners. Continuing strife inPalestine has drastically reduced Jordanian-Palestinian trade, negativelyimpacting both economies. Since the September 2001 attacks on the United States,the global security situation has further undercut tourism and capital flows.Furthermore, continued international sanctions and US war threats against Iraqstifle Jordan’s economy, as Iraq was one of Jordan’s largest trade partners.Nonetheless, economic growth in 2001 was high and the Kingdom closed the yearwith a 4.2% growth rate.
InNovember 2001, the government presented an Economic Social Development Plan(1999-2003) to accelerate reforms so that ordinary citizens could better enjoythe benefits of the country’s development. Recognizing that a high povertyrate of 30% and a high population growth rate of 2.8% are among the obstacles todevelopment, the plan called for accelerated globalisation to encourage privatecapital investment, and strengthened export development. It also called fortargeted investments in human development areas such as health, education andrural development, as well as public sector reforms.
Politically,until a just peace settlement is reached in the Israeli-Palestinian conflict,securing the right of return and indemnity for Palestinian refugees, Jordan islikely to continue to experience external shocks that will have a negativeimpact on growth and sustainable development. Properly navigating globalisationand structural adjustment poses, in addition to opportunities, greatrisks for Jordan. Poverty eradication may accelerate or be impeded. Insuch a situation, Jordan’s continued foreign aid should be used strategicallyto nurture policy changes to strengthen the position of women and children.
Civilsociety organisations need to gain access to information related to futureprivatisation plans and develop strategies to challenge them to protect therights of the poor to quality, affordable and accessible public services.
StructuralAdjustment Programme and privatisation
Theeconomy is private sector oriented, with direct state ownership being relativelyrare. The state plays a major role only in the mining sector and in publicutilities (electricity, water, communications, and bus, railway and airtransport). A series of policy initiatives were launched to reduce thegovernment’s direct participation in the productive sectors and allow theprivate sector to manage them.
Jordanstarted privatisation in the year 1996 by reducing the government stake instate-controlled enterprises. The programme aims at increasing the efficiencyand productivity of the privatised firms, attracting foreign investments,deepening and developing the financial market, and limiting the role ofgovernment to be a regulator rather than an inefficient producer of goods andservices.
Thegovernment considers privatisation as one of the centrepieces of its economicreform policy agenda. With reference to the Privatisation Law, a PrivatisationCouncil, an Executive Privatisation Commission, and a Privatisation ProceedsFund were established. Consistent with the government’s strategy to avoid anunsustainable increase in public expenditure as a result of privatisation, thebulk of the proceeds will be invested in financial assets, used to retire publicdebt, or re-train or compensate dismissed workers. Also, the government intendsto spend up to 15% of the privatisation proceeds on infrastructure and socialsectors as well as on poverty reduction objectives.
Jordanhas adopted a multi-track approach to privatisation. The most commonly appliedmethod has been the sale of government shares in the public shareholdingcompanies. Other privatisation methods include exclusivity agreements, as in thecase of the Public Transport Corporation (PTC); leasing contracts, as in thecase of the Aqaba Railway Corporation (ARC); and management companies, as in thecase of the water and sewage systems in the Greater Amman area.
Privatisationis being implemented in two phases. During the first phase, several entitieswithin the telecommunications, tourism, energy, industrial, transport, miningand water sectors are at some stage of privatisation. Achievements todate are the sale of the Jordan Cement Factories Company (JCFC); the granting offour bus concessions in the Greater Amman area; the Public TransportCorporation; the granting of a concession for the Ma’in Spa; the sale of theJordan Telecommunication Corporation (JTC); a water management contract for theGreater Amman area; the Water Authority of Jordan (WAJ); the granting of aconcession for the Aqaba Railway Company (ARC); and the sale of governmentshares in approximately 44 companies. Privatisation proceeds to date haveexceeded USD 900 million.
Thesecond privatisation phase entails restructuring options for privatising theNational Petroleum Corporation, the Arab Potash Company, the Jordan PhosphateMines Company, Royal Jordanian Airlines (RJ), the electricity sector(distribution and generation), the Petra Drilling Corporation, the Assamra WaterTreatment Plant, the Royal Jordanian Air Academy, the Ministry of Supplyagriculture business facilities, the Customs Department warehouses, thepostal services and others. Efforts aimed at privatising government services arein full swing and are scheduled for completion in the latter part of 2002 or in2003.
Economistsexpress fears at the growing multinational dominance in these sectors. Thelatest official reports indicate the government is considering the sale of evenmore of its shares in local companies to private sector entities, both foreignand domestic, in order to generate more revenues. Already 51 institutions havebeen privatised, and provide USD 1 billion a year in profits for theirinvestors. Privatisation’s greatest problem is that money made from privatisedcompanies goes into the pockets of foreign and domestic owners instead of intothe Jordanian treasury.
Researchindicates local investment in Jordan was reduced between 18% and 20% in thesecond half of the 1990s. The main reasons behind this reduction are theeconomic recession, the increase in interest rates, and the gradual slowing ofeconomic growth following the Gulf War. The political instability in the regionalong with Jordan’s maturing economy has prevented the domestic private sectorfrom playing an integral role in privatisation and has opened the way forforeign investors to take over many previously public enterprises.
Jordan’sfiscal budget has a deficit of 7% of GDP, largely due to shrinkage in publicrevenues; to close this gap the only option for the government is to raise taxesand the prices of local state-controlled commodities, which is happeningalready. The government is currently paying out 30% of its budget to service itsdebt, a burden that hinders any real economic and social development in theforeseeable future.
Socialimpact of privatisation policies
Forprivatised enterprises, the government tailored its solutions to the labourissue on a case-by-case basis, but with some common underlying trends. First,the government set up general rules preserving the rights of employees in allprivatised enterprises. Second, in some cases, packages including compensationwith share ownership, training, and placement assistance helped the workers withthe transition. But, in most cases, particularly in rural areas wherealternative employment opportunities are limited, the government decided toprivatise first and solve the redundancy problem later.
Infact, the little privatisation or divestiture that took place in Jordan over thepast few years has had little local impact on employment. The three mainexamples of this have been the government’s divesting itself of the majorityof shares in the Jordan Hotels and Tourism Company and a minority holding in theJordan Cement Factories Company, as well as the franchising of Public TransportCorporation bus routes in the Amman area. In these examples, most of therelatively small number of employees worked in areas of the country that enjoyrelatively high employment. In such cases, the direct creation of new jobs andthe elimination of old ones resulted in little net effect on unemployment. Thesethree cases may prove easy compared to other, imminent privatisations, includingRoyal Jordanian Airlines (RJ) and the Aqaba Railway. The workforce of the formeris bloated and nationally distributed, while cutting the number of workers inthe latter will have an impact in areas with high unemployment.
Theprivatisation of the Rashadiya Cement Factory
TheRashadyia Cement Factory is located five kilometres North of Qadissiya in thesouthern part of Jordan and plays a significant role in the local economy. Asthe Jordan Cement Factory Co. Ltd., it was established by the Government ofJordan in 1984 as a state owned enterprise and was a major employer in the area.The factory hired local people and provided vocational training to developnecessary skills.
Inthe 1990s, the government adopted an IMF structural adjustment package, whichincluded a commitment to privatise inefficient state owned enterprises. Thecement industry was one of the first sectors to undergo this process. InNovember 1998, 33% of the JCF’s capital was sold to the Lafarge Group. Lafargealso bought shares from private investors and entities increasing its initialshares to almost 43% by the end of 1999. One percent of the shares were sold ata subsidised price to employees.
Underthe terms of the privatisation a considerable number of staff was laid off inorder to increase efficiency. The company’s clinic, security, transport andeducation (training) departments were privatised first. Those who were workingin these departments were offered a compensation package as an incentive tovoluntarily leave their jobs. Laid-off staff received between USD 21,000 and USD85,000, depending on their years of service and their last salary. Although thetotal amount of cash compensation appears large in many cases, the local peoplequestioned the terms of the deal, and the limited power they had to influencethe process.
Theloss was not simply one of direct income, but of security in the longer term.Few other jobs were available in the area. Few of the laid-off employees hadreached the social security retirement age; therefore the majority would have topay the full amount themselves (their share of the social security tax and theemployer’s) until they reached the age of eligibility. They also lost theother benefits of employment, like health insurance. As a result, they felt thatin the long term their loss was greater than the immediate cash compensation.
ComprehensiveNational Strategy, Poverty Alleviation for a Stronger Jordan.
Export& Finance Bank, Privatisation Update, February 2002.
Ministryof Planning, Jordan, www.mop.gov.jo
TheDevelopment Forum Discussion Archives.
TheExecutive Privatisation Commission, www.epc.gov.jo
TheStar,Jordanian weekly, May 2002, Issue No. 93.
TheWorld Bank, www.worldbank.org
UNDP,Human Development Report 2002.
UNICEF,The Situation of Children, Youth and Women in Jordan, 2002.