Business environment is referred to as a collection of all internal and external factors that influence business activities. Each factor contributes to organisation’s working environment; hence, impact the ways of conducting business. Below are the key factors that influence new and existing businesses in Jordan.
Intro: Why Jordan?
Doing business in Jordan presents many opportunities for existing and new businesses. Key benefits and advantages of investing in Jordan are delineated below:
- Its strategic location provides business an opportunity to grow in Middle East region. The country act as a gateway to MENA countries. MENA countries include big economies such as Saudi Arabia, Qatar and UAE.
- A stable currency with Jordanian Dinar pegged to USD at a rate of 1 JOD: 1.41 USD.
- Modern Investment laws are implemented to establish a constant business development environment. The laws are discussed in detail in legal system section.
- Jordan has acceded to various international and bilateral free trade agreements that provide businesses with an opportunity to gain access to global market. Free trade agreements with US, EU, Arab and MIGA are discussed in the article.
- Jordan has developed infrastructure of ports, airports, roads networks. The country is also seeking to establish a rail network to link with neighbouring countries.
- The country has implemented major advances in structure and legal reforms to pave ways for the private sectors to contribute as a key driver in economic activities. This practice aims to promote entrepreneurship and foreign investment.
Jordan’s Position in Global Businesses Indexes
Jordan was ranked 75 out of 190 countries in the Ease of Doing Business index by the World Bank. This ranking secured a top position for Jordan in the MENA region and among top 10 countries worldwide with regards to business opportunities and improvement. Furthermore, the World Economic Forums ranked Jordan at 70th position out of 141 economies in Global Competitiveness Report 2019 index. Jordanian market secured 35th ranking in intellectual property protection index, 37th in legal framework adaptability to digital business model, 31st in manifestation of digital skills among the active population and 24th in finding skilled employees. The position of Jordan and its market in global business indexes clearly indicates that there are several key opportunities available for new and existing businesses to accelerate success. Under these ranking, Jordan has secured a strong position in the global market in terms of sustainable business. To seize opportunities for successful implementation of businesses, organisations should capitalise on sustainability, digitalisation, and skills. These are active agent of change on which Jordanian government is focusing to expand across different business sectors.
Moreover, Jordan implemented a unified legal structure to improve legal rights of borrowers and lenders. The country improved access of credit bureau to credit information by providing credit scores to banks, borrowers, and financial institutions. As a result, Jordan market secured 95 ranking on 100 in Doing Business category related to the ease of accessing credit. These reforms created an effective business environment; since it cut red tape to stimulate business sectors grow and improve competitiveness. These two attributes make Jordan market a more attractive business destination for investors.
Economic Considerations
When starting a new business in Jordan a prudent investor is advised to properly understand the plethora of matters to easy comprehend the factors that may influence business activities. Potential investors are provided with detailed explanation regarding economic progress, business environment, legal systems and specific investment opportunities. It is significant to plan businesses activities around these factors to ensure successful implementation of business in Jordan.
Economic Progress
Economic progress is directly linked with a successful implementation and stability of a business. Economic growth is the result of increase in the value of country’s goods and services. This creates more opportunities for a business to generate profits. The economic progress of Jordan is evaluated by analysing its key economic indicators and banking and financial services.
Key Economic Indicators
Jordan is expected to witness economic growth by 2027. The GDP rate of Jordan is projected to increase from 2022 to 2027 by 15.6 billion USD, which means a growth rate of more than 32.45 per cent. Faster growth in GDP entails that the overall size of the Jordan’s economy will be expanded, provide an opportunity for organisations to generate profits in different business sectors. High GDP growth rate leads to technological breakthroughs that increase confidence of firms to adapt to innovative and modern methods of doing businesses.
The economy of Jordan is segmented into three sectors: Agriculture sector, Industry sector and Services sector. Major contribution to GDP is made by services sectors as in comparison to industry sector and agriculture sector. In 2021, services sector contributed around 61.05 per cent to GDP; whereas 23.7 per cent was contributed by industry sector and 4.74 per cent came from agriculture sector. These statistics clearly indicates that businesses operating in services sector are experiencing high competition. Furthermore, industry and agriculture sector have great hidden potential that new investors can unveil.
Furthermore, the average inflation rate of Jordan is projected to continuously decrease between 2020 and 2027. In 2022, inflation rate in the country was 3.8 per cent; however, in 2027 it is expected to reach 2.49 per cent. Continuous decrease of inflation rate delineates the fact that in Jordan, exports values are expected to get increased since the prices are lower. Furthermore, businesses can take advantage of low inflation to maintain real income and purchasing power to the employees. In this regard, it can be pinpointed that low inflation rate is maintained in Jordan to open different business sectors for potential investors.
Banking and Financial Services
Jordan has a well-developed banking and financial sector by regional standards. It includes a wide array of business, retail services and investment. Both local and international banks are operating in Jordan. The country has around 25 banks; 16 Jordanian banks out of 3 are following Islamic banking and 9 are non-Jordanian banks.
The Amman Stock Exchange is established to manifest modern financial services. This institution enjoys no capital gains, no taxes on cash dividends, no taxes, free repatriation of income and investment, no foreign equity ownership and privatization. Moreover, it follows a comprehensive legal infrastructure to comply with internationally recognised financial environment that makes a well-established stock market. As a result, investment is bankable and allows investors to grow their profits. In the last few years, Jordan has incurred a positive growth due to investment inflows and unprecedented performance of banks with regards to deposits, credit facilities and operating revenues. High investment portfolios have generated high revenues that led an overall expansion of Jordan’s economy. Since banks and financial services are managed by using solid financial fundaments, the credit outlook for Jordanian institutions is stable.
Legal System
Different countries have different legal system that allows businesses to operate in a specific market. It includes rules, polices, procedures and institutions applying which public and private organisation carry out their business activities in a legitimate way.
International Trade Agreements: A series of business reforms has been introduced to leverage the capacity of doing business in the local market of the country. The Jordanian government entered into a wide range of bilateral and multilateral trade agreements to give businesses with the ability to gain access to more than one billion customers. The country is focusing on trade liberalisation to manage major economic and financial crisis. International trade agreements are made reduce the barriers that could impede the flow of goods and services. The reduction and elimination of trade tariff does not only support local businesses, but also encourage foreign investment. Following are the bilateral and multilateral trade agreements that Jordan has made with other countries:
- Greater Arab Free Trade Agreement (GAFTA): Jordan has entered in Greater Arab Free Trade Agreement (GAFTA) with 17 Arab neighbours. Greater Arab free trade agreement secured full trade liberalisation of goods in 2005. This agreement exempts customs duties and charges for all 17 Arab member states. In 2022, Jordan’s export and import to Greater Arab free trade was increased up to 22.6 per cent and 38.1 per cent respectively. Saudi Arabia, Iraq, Palestine, and UAE were the top importer of Jordanian exports. New and existing business in Jordan has the opportunity to explore 17 Arab markets free form trade duties that helps balance cost-benefit.
- European Free Trade Association (EFTA): Jordan enjoys a rock-solid strategic relation with European countries under the European free trade association (EFTA). The relation act as a catalyst for private and public businesses to carry out their economic and investment plan. The European free trade association provides new and existing international businesses to pitch Jordan as a nearshore hub for EU industries. European free trade association includes Iceland, Liechtenstein, Norway and Switzerland.
- Free Trade Agreement (FTA) with the USA: Jordan signed free trade agreement (FTA) with the USA in 2000 which entered its full implementation in 2010. Since the inception of free trade agreement, bilateral trade relation between the USA and Jordan has been cordial. The trade between two countries in goods and services reached $5.174 billion in 2021. With the help of free trade agreement, Jordan has provided its businesses with the ability to explore new international markets. Furthermore, the country has encouraged foreign investment by making Jordanian market available for international business.
Labour Legislation: Labour legislation aims to facilitate the efficient utilisation of labour, which is the driving force of successful business. The Jordanian Labour Law preserves labour rights for employees to establish a positive business environment in the country. The Legal working hours in Jordan is maximum forty-eight during six days.
Tax Laws: Jordan has amended the income tax law that impacts a wide range of tax aspects applied to corporations and individuals. In development zone, 5 per cent income tax is applied on manufacturing companies. Other companies registered in this zone shall be taxed at 10 per cent. Following changes are applied on individual, and corporates:
Figure: Key summary of income tax changes
Individuals’ Income Tax Exemption
Details
Exemptions (JOD)
2019
2020 onwards
Personal Exemptions
10,000
9,000
Dependents Exemption
10,000
9,000
Additional exemptions for medical expenses, educational expenses rent and home loan interest
1,000 for each child up to 3,000
1,000 for the individual, 1,000 for the spouse, and 1,000 for each child up to 3,000
Individuals’ Income Progressive Tax Rates
Taxable Income (JD)
Rate
0 – 5,000
5%
5,001 – 10,000
10%
10,001 – 15,000
15%
15,001 – 20,000
20%
20,001 – 1,000,000
25%
1,000,000 +
30%
Industrial Sector
Tax Year
Industrial, Pharmaceutical and Clothing
All Other Industrial Activities
National Contribution
Tax Rate
Tax Rate
Rate
2019
10%
15%
1%
2020
14%
16%
1%
2021
16%
17%
1%
2022
18%
18%
1%
2023
19%
19%
1%
2024
20%
20%
1%
Other Sectors
Sector
Tax Rate
National Contribution
Banking
35%
3%
Electricity generation
24%
3%
Basic mining companies
24%
7%
Finance, financial intermediary, and financial leasing
24%
4%
Telecommunication
24%
2%
Insurance and reinsurance
24%
2%
Other sectors
20%
1%
Foreign Investment Legislation: Recently, the Government of Jordan focused on reforms, including regulatory and procedural reforms as well implementing investment policies to enhance the investment environment in specific relating foreign investments. However, some sectors which are considered related to national security, public order, public morals, and public health are prohibited for non-Jordanian investors. While other sectors are restricted and requires a Jordanian partner to invest in for economic and political reasons. Notwithstanding the afore mentioned, special exceptions may be granted depending on the importance and location of the investment by the cabinet and investments in development zones and free zones can be wholly owned by foreign investors.
Environmental law: Jordan has made it obligatory upon business entities to consider environmental decision carefully to design a sustainable development strategy. In this regard, it can be observed that Jordan is a water scars country; its water resources depend on rainfall. The country is committed to maintain the quality of water that is affected by industrial and agricultural waste. Moreover, as per the UNDP (2021), Jordan is encouraging businesses to contribute to the reduction of greenhouse gas emissions. The country is committed to reduce greenhouse gas emissions up to 31 per cent by 2030.
Development Zones: In order to foster economic development particularly in industrial sector, the government of Jordan has divided market geographics into two segments including: development zones and special economic zones. These segments are overseen by companies to regulate investments. The following snapshot of key investments in the development zones clearly indicates specific areas of Jordan business sectors in which potential investors can invests.
Figure: Key investments in the development Zones
Jordan Development Area
(Ajloun, Dead Sea)
Tourism, Eco-Tourism and Hotel Services
King Hussein Bin Talal Development Area – Al Mafraq
Industrial Sector, Logistics Sector, Housing and Trade Services
Irbid Development Area
Information Technology and Health Care Services
King Hussein Business Park, Amman
Specialised Services, Medical and Health Care Services, Education, Media, and Entertainment Services
Ma’an Development Area
Light, Medium and Heavy Industries, Ceramics, Plastics and Electronic Equipment
Figure: Industrial cities and future projects
Existing Industrial Cities
Abdallah II Bin Al Hussein Industrial City / Amman
Al Hasan Industrial City / Irbid
Al Hussein Bin Abdullah II Industrial City / Al Karak
Al Aqaba International; Industrial City
Al Muwaqqar Industrial City
Future Projects
Al Mafraq Industrial City / Al Mafraq
Al Zarqa’a Industrial City
Madaba Industrial City
Al Sal Industrial City
Investment Opportunities & Future Prospects
Following are the key sectors that can be explored by new and existing business entities:
- Energy and Renewable Energy Sector: Under the climate change commitment, Jordan has decided to improve energy and renewable energy sector. The country has opened avenues for potential investors to invests in solar cell manufacturing and wind turbines project. The country is also committed to harness geothermal energy generation; hence, welcoming new businesses to participate in turnkey projects. As for oil shale exploitation, businesses are encouraged to contribute to water desalination projects. All these initiatives have a primary objective of creating a sustainable business environment in Jordan.
- Tourism Sector: Tourism sector of Jordan has a great potential for revenue generation and profitable growth. This sector is rapidly growing, paving ways for local and foreign organisations to conduct business operations. Despite covid-19, Jordan recorded around one million tourists in 2020. The country ranked 14th in Western Asia and 117th in the world. The total revenue generated by the country in 2020 was estimated at 1.75 billion US dollars in tourism sector alone. As a result, it made a contribution of 3.8 per cent it the GDP. New and existing businesses can take advantage of Jordan’s strategic geographical location and security stability when investing in tourism sectors.
- Telecommunications and Information Technology Sector: Jordan has succeeded in establishing and developing a highly competitive telecommunications and information technology sector. The country has secured a leading position in this sector in the MENA region. In 2021, the revenue share of e-commerce increased up to 22.5 per cent. By 2026, internet penetration in Jordan is projected to increase by 80.7 percent. The total digital revenue in 2024 is estimated to reach 4.79 US dollar. Investment opportunities for new and existing business in telecommunications and information technology sector are available to a major extent. Investors can invest in e-learning, software development, provision of IT solutions in financial sectors and digital customer support to mention only a few.
- Healthcare Sector: Jordan is considered a regional leader for the provision of medical services. In 2020, the healthcare sector contributed to 9 per cent to Jordan’s GDP. The country needs heavy demands for medical supplies because of growing population, impact of covid-19 and high influx of Syrian refugees. The Gulf Cooperation Council (GCC) countries seek treatment in Jordan; hence, the country is a regional leader in medical tourism. Many foreign patients visit Jordan for medical treatment due to limited wait times and availability of high quality of medical treatment at an affordable cost. The World Bank ranked Jordan first in the MENA region with regards to best healthcare service and top destination for medical tourism. Currently, growth areas for new and existing businesses in healthcare sectors of Jordan include e-health, software modules for healthcare management, integrated medical insurance, mobile healthcare application and online medical content distributor.
Conclusion
From the above analysis, it can be concluded that Jordan offers efficient and stable business opportunities to potential investors. It has secured a prominent position in international, and regional arena. The country has established adequate economic progress, business environment, legal system, and specific investment opportunities. The above provide relevant information that new and existing organisations can use to ensure successful implementation of their business. Key statistics and graphical representation are included to provide better understanding of the subject. The aforementioned information can be used to make informed decisions regarding business initiatives in the state of Jordan.
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