Promoting Investment and Business Climate Reforms in Jordan’s ICT Sector
Summary of OECD policy recommendations
2024
Context
Jordan has a long-standing co-operation with the OECD in the area of investment, particularly in the framework of the MENA-OECD Initiative on Governance and Competitiveness for Development, launched in 2005. In 2013, Jordan has also joined the OECD Declaration on International Investment and Multinational Enterprises and related legal instruments.
The government of Jordan is currently embarking on an ambitious reform agenda to promote investment and ensure that its benefits are spread more widely across society. At the forefront of these efforts is the recently launched Jordan Economic Modernisation Plan 2023-2033, which gives private investments a prominent role to support the sustainable development agenda. One of the sectors where Jordan has consistently prioritised investments is the information and communication technology (ICT) sector, where it has managed to establish itself as a regional ICT hub in the Middle East and North Africa (MENA) region The National Digital Transformation Strategy & Implementation Plan 2021-2025 aims to accelerate Jordan's digital transformation, which should be supported by reforms in strong co-operation with the private sector to improve the business and regulatory environment, ICT costs, complementary ICT infrastructure and skills matching
Jordan has been actively involved in the EU-OECD Programme on Investment in the Mediterranean, which supports reform efforts to advance sustainable growth in the MENA region. In this context, the OECD organised three meetings, including private sector dialogues and public private dialogues on promoting investment and business climate reforms in Jordan’s ICT sector in June 2021, 2022 and 2024 to identify challenges and policy priorities regarding the business and regulatory environment, infrastructure, ICT costs and skills.
Meetings were also guided by an the Issues paper on Promoting investment and business climate reforms in Jordan’s ICT sector prepared by the OECD. Participants included representatives from the domestic and foreign private sector, among them ICT associations and chambers of commerce, and international partners.
Key messages and recommendations for reforms from the public-private dialogues
Business and regulatory environment
Context: The ICT sector is one of the fastest growing sectors in Jordan, contributing an estimated 6.9% of gross domestic product (GDP) Attracting and retaining investment in this sector is key to boost innovation, growth, productivity, and exports in Jordan. Foreign direct investment (FDI) is one of the main sources of job creation and the ICT sector in particular generates many skilled jobs per USD million invested While Jordan is currently open to FDI in ICT services, investment in the sector remains below its potential.
o Between 2014 and the first half of 2024, Jordan attracted over USD 22 billion of announced cross-border greenfield FDI.1 The majority of investments is in the renewable energy sector (58% or USD 12.9 billion), while core digital sectors2 received only 3% of the total (USD 713 million).3 This discrepancy could in part be due to the low representation of ICT goods and services exports.
o Yet, greenfield FDI in the ICT sector in the past decade in Jordan generated almost twice as many jobs per million USD invested than the cross-sector average, and 20 times the number of jobs per million USD invested as compared to FDI in the energy sector 4
o More than half of ICT investments (56%) come from the Gulf Co-operation Council (GCC) region, followed by the United States (21%) and the European Union (11%, or USD 130 million, mainly from France).5
Main messages and recommendations
• Ensure consistent implementation of policies and reduce discretion in the interpretation of rules by public officials.
o Why: Overall, the legal framework for ICT regulations in Jordan is solid, but the implementation and accurate interpretation of laws and regulations remains a challenge The fact that regulations can be subject to the particular interpretation of officials of each implementing body has negatively affected the predictability of the business environment for the ICT sector.
o How: The government could develop further practical guidance on how to interpret such laws and regulations. In addition, the government could develop a database for all procedures and guidelines for ICT start-ups to help them understand the steps they need to comply with when registering a business and the services that are available to them.
• Allow ICT investors to have easier access to inputs from other services sectors
o Why: Similar to other MENA economies, Jordan has relatively high equity restrictions in the services sector, with important implications in terms of ICT investment. Equity restrictions are prevalent in business services, distribution, transport and logistics, and tourism, sectors where FDI has high potential to generate economy-wide productivity gains, create low and high-skill jobs – including for young women – and support the low-carbon transition. Such restrictions could limit the quality of service provision and affect the productivity of the Jordanian economy, making investment in ICT less attractive 6
1 Based on data from Financial Times FDI Markets
2 This includes Software & IT services; Communications; Consumer electronics; and Electronic components
3 OECD elaboration in issues paper on ICT in Jordan presented at the PPD in July 2022 based on data from Financial Times FDI Markets.
4 ibid
5 ibid
6 OECD elaboration based on FDI Qualities Review of Jordan (2022), https://www.oecd.org/publications/fdi-qualities-review-of-jordan-736c77d2en.htm#:~:text=The%20FDI%20Qualities%20Review%20of%20Jordan%20is%20the%20result%20of,to%20increase%20its%20positive%20impacts
o How: The government could reassess existing restrictions on foreign ownership, including in non-ICT sectors, against public policy objectives of advancing the SDGs and achieving the goals laid out in the Economic Modernization Plan launched in June 2022
• Reduce costs and procedures for entry and exit in the ICT sector to foster its growth.
o Why: Current procedures for ICT market entry and exit are perceived as complex, lengthy, and costly. According to the private sector representatives who attended the PPD meeting, many investors decide to register holding companies offshore and then register local subsidiaries in Jordan to avoid these complications. While retail prices are amongst the lowest in the region, participants in cited licensing issues as a major contributing factor in the high cost of doing business for the ICT sector in Jordan.
o How: Further simplifying market entry and exit procedures and providing easier access to licensing and permits for ICT companies. This includes providing information on what permits are required, who grants them, and which companies have to obtain these permits in order for them to operate.
• Ensure that tax and investment incentives in digital services contribute to the development of skills and the creation of quality jobs, including for women and youth.
o Why: Tax and investment incentives for the ICT sector are among the most attractive in Jordan and could help keep the competitive edge of companies in the sector. For instance, ICT companies are exempt from sales tax and only pay 5% of income tax, and the government has also put forward an incentives package to enable the three major operators in Jordan (Orange, Umnia and Zain) to move to 5G network The Youth, Technology and Jobs project also provides wage subsidy to create new jobs in the digital economy, covering up to 50% of the new employee monthly salary for up to 6 months. However, there is no assessment of the impact of these measures, and it not clear if they are targeted or expenditure based Currently, the Ministry of Labour has its own package of incentives to target the ICT sector in governorates outside Amman, which is separate from the ones offered jointly by the Ministries of Investment and Digital Economy.
o How: Tax and investment incentives for the ICT sector should be targeted, monitored and evaluated. Unifying the system of tax incentives between the Ministries of Investment and Digital Economy and Entrepreneurship with the Ministry of Labour could be more effective and help create more jobs, including for women in governorates outside Amman.
Improving ICT costs and infrastructure
Context: The development of communication infrastructure and services is important to provide connectivity throughout the country. The Global Infrastructure Hub recently estimated that Jordan needs USD 81bn in infrastructure investment until 2040. For the ICT sector, significant infrastructure investments are still needed, such as those related to cloud services, fibre optics, IoT, 4G expansion and the introduction of affordable 5G.
Main messages and recommendations
• Promoting greater competition in the ICT market to facilitate the emergence of innovative services and ultimately lower prices for users.
o Why: Currently, the ICT sector faces lack of shared digital infrastructure and of competitive offers for 5G. Competitors can eventually be blocked by existing mobile network operators Like many
other services sectors in Jordan, the ICT sector is mostly dominated by incumbent firms, making it difficult for newly established players with fewer business and personal connections to enter the market 7
o How: Stimulate infrastructure sharing mechanisms through voluntary network sharing, coinvestment, or open access, that under certain local circumstances and market structures may enhance competition.
• Assess objectives, direct and indirect impacts and return on investment in ICT infrastructure.
o Why: There is a need to better understand the impact of ICT infrastructure investments and develop targeted and efficient projects This could also inform policy making as well as improve coordination among different ICT projects
o How: Conducting a robust and transparent economic analysis of ICT infrastructure projects in Jordan.
Matching supply of and demand for skills
Context: The quality and availability of skills adapted to the changing needs of employers are an important factor affecting the environment for ICT investment in Jordan. The Jordanian private sector is generally characterised by a skills shortage that creates inefficiencies in resource allocation and limits labour mobility. More effective skills programmes and training can bring greater benefits in terms of attracting investment and increasing employment rates in the fast-growing ICT sector in Jordan.
Main messages and recommendations:
• Upgrading and retraining local talent, engineers, recent graduates could help address the problem of skills mismatch, high unemployment and brain drain.
o Why: One of the biggest challenges for investors in Jordan is the mismatch between the demand and supply of skills for ICT. For instance, out of the 8 000 annual graduates with specialisation in ICT, only about 7.5% of them work in their field. Other factors of skills mismatch include outdated university curricula, lack of soft skills, lack of awareness and experience with global technology trends, little or no practical experience In parallel, more attractive job opportunities abroad produce brain drain to foreign countries.
o How: Upgrading and retraining programmes targeting in particular youth and women. The Youth, Technology, and Jobs project financed by the World Bank could be an opportunity to provide digital skills training to over 15 000 young Jordanians by 2025, and better align the offer of training centres and universities with the needs of the ICT sector. Additionally, the investment community could play an important role by participating in skills development initiatives. The Ministry of Investment, in co-operation with other relevant agencies, could for instance support existing or potential suppliers of foreign firms with relevant training options or support foreign firms that want to establish their own training centres
• The quality of higher education institutions needs to be improved to increase the competitive advantage of the ICT sector in Jordan.
7 International Finance Corporation. Country Private Sector Diagnostic: Creating Markets in Jordan, Nov. 2021, www.ifc.org/content/dam/ifc/doc/mgrt/cpsd-jordan-vol-2-sector-assessments.pdf. Private stakeholders underline that the unbalanced ‘revenue share’ system introduced by the 1994 Telecommunications Law has squeezed profits and undermined investment capacity.
o Why: Currently, few schools are trying to meet the demand from the ICT sector for highly qualified graduates by updating curricula and attracting the best academics High-level training programmes and curricula are useful but alone not sufficient to meet the needs.
o How: Online industry-related higher education courses with updated curricula and internship programmes could be considered to contribute to improve the alignment between the needs of the private sector and the academic offering.
Public-private dialogues
Main messages and recommendations
• PPDs in the ICT sector need to be more systematic and institutionalised. PPDs could address broader but central issues, such as integration into regional and global value chains and how best to maintain and improve Jordan's position as an ICT sector hub in global competition.
o Why: PPDs in the ICT sector in Jordan are considered to be fruitful. There are several PPD platforms on ICT, including the National Digital Transformation and National Entrepreneurship Committees led by the Ministry of Digital Economy and Entrepreneurship, JCORE, DigiSkills, and most recently the Committees on Creative Industries, and the Digital Transformation Committees set up as part of Jordan’s New Economic Modernization Plan While many PPD platforms are active and meet regularly, the outcome of these discussions is often not clear and/or not conducive to major changes in policies, laws or by-laws implemented to achieve the intended goals.
o How: Link PPDs to the mandate of Ministries and ensure that they are co-led by the private sector with a clear action plan and shared responsibility for each partner.
Next steps
Continue the discussion on more focused actions:
o Public sector representatives confirmed the importance of continuing the dialogue with the private sector, stressing that further meetings are needed to fully examine the priorities of the ICT sector and focus on actionable solutions.
o Peer learning activities to share best practices on the promotion of foreign investment in the ICT, advocacy tools for ICT reforms and digital skills agenda from other developing and emerging economies, as well as from the OECD
The OECD can accompany the reform process through capacity building and by sharing international practices. It will continue to support the design of appropriate initiatives and policies for the development of the digital economy in Jordan, building on OECD tools and policy frameworks, including the Going Digital Initiative and the recommendations of the FDI Qualities Review of Jordan