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Ammon News - AMMONNEWS - The European Union (EU) recently finalized a trade deal with Jordan, granting the Hashemite Kingdom relaxed rules of origin for 52 product groups manufactured in special economic zones. These zones—which are subject to less government regulation and taxes compared to the rest of Jordan’s economy—will be able to export made-in-Jordan products that include over 70 percent of non-local production inputs to European markets tariff-free.

In exchange for these relaxed rules, factories exporting products to the EU under the deal must derive 15 percent of the labor from Syrian refugees. This rate will increase to 25 percent in the deal’s third year. Once 200,000 Syrian refugees are employed, the deal’s relaxed rules will further extend to other product groups across Jordan.

According to the Jordanian Deputy Prime Minister for Economic Affairs and Minister for Industry, Trade and Supply Jawad Anani, the deal aims to attract foreign capital, boost employment, and strengthen competitiveness in Jordan. This could occur particularly by turning Jordan’s 650,000 Syrian refugees from a resource burden to an economic asset.

economy is currently struggling. The Kingdom’s debt-to-GDP ratio is 90 percent and unemployment is around 15 percent with youth unemployment nearly double that. The influx of Syrian refugees has further strained the economy, increasing youth unemployment by 30 percent and growing demand for basic commodities by 40 percent.

This deal could accordingly prove equally beneficial to Jordan’s society and economy. Special economic zones have often drawn significant foreign investment and infrastructure development, and easier access to European markets make those investments especially attractive. This has already led to companies like Asda, a British Walmart subsidiary, and IKEA, a Swedish home-furnishing store, signaling their interest in this opportunity. Should this deal succeed in attracting capital, Jordan could further become a leading destination for Gulf states seeking to invest their oil wealth abroad. All this could compensate the Hashemite Kingdom for economic losses resulting from instability in Syria and Iraq.

New manufacturing prospects in Jordan could also improve job growth. Jordanians would have access to greater employment opportunities, especially in managerial roles. Syrians could formalize their businesses from the informal economy and replace much of the foreign labor that sends most of their remittances abroad. With steady and secure wages, a larger permanent workforce would boost consumer spending in the Jordanian economy and drive wages upward. Syrian workers and their employers would also pay work permit fees and taxes, generating needed government revenue.

Yet even the deal’s successful implementation will not be a magic bullet for Jordan’s economic woes, and there are risks. It is unclear whether the strong incentives for foreign investment will be sufficient to overcome the dangers of investing and operating nearly adjacent to the turbulence in Iraq and Syria.

Like many Jordanian economic projects this one also relies on foreign investment and international aid, forcing the Kingdom to focus on short-term outcomes instead of long-term, sustainable economic reform. Sustainable reform must include trimming deficit-enabling redundancies in government, gradually waning unsustainable commodity subsidies, and improving ease-of-business for small-to-medium sized Jordanian enterprises—which make up 95 percent of Jordan’s private sector yet are largely exempt from the benefits that large and multinational enterprises receive from special economic zones.

*Global Risk Insights