Executive Summary

MACROECONOMIC FUNDAMENTALS Since 1989 Jordan has implemented a series of economic structural adjustment programs to encourage growth. The main features of these programs remain in streamlining fiscal and monetary policy, enhancing the role of private enterprise, improving the overall business environment, and undertaking measures to minimize transaction costs in order to make Jordanian markets attractive for investments- especially FDI-. Legal reforms have accelerated growth levels as well by decreasing barriers to trade. Growth. Jordan has experienced positive levels of growth over the last five years, as measured by increases in GDP. In 2004 this growth peaked at 8.6%, compared to a 4.2% increase in 2003. The last three years have witnessed a slight regression in overall growth rates. This decrease is partly attributable to the government’s attempts to control the public deficit as well as the security concerns in Iraq which have hampered the development of the transport and storage sector. Iraq continues to be a major trading partner of Jordan, however Jordan’s exports to the country decreased substantially over 2004-2007. Jordan’s ability to withstand the region’s negative shocks over the past four years without strong commodity exports is a sign of the country’s ability to adapt.

Jordan has recorded higher growth levels than the MENA average for every year over the past five except 2003. Its 6% rate of growth in 2007 places the country in the middle of the MENA region and equal to Oman. This represents a slight drop in position over 2006.

Trade. Jordan’s growth remains largely a function of its trade position. Total external trade levels recorded an increase of 11% in 2006, significantly lower than the 23.5% growth in 2005. This decrease is largely attributable to the deceleration of import levels which is supported by the country’s emphasis on export-led growth and the reduction of its Balance of Payments deficit. Over the period 2004-2006 Saudi Arabia, U.S., China, Germany, India, Egypt and Iraq accounted for more than half of Jordan’s external trade volume. Saudi Arabia, the country’s largest trading partner in terms of volume, accounted for 21.2% of total external trade in 2006, while the share of trade with the U.S. stood at 11.7%, making it the country’s second largest trading partner. A growing Chinese economy increased its demand and supply of goods to Jordan, while the security and economic uncertainty in Iraq has caused this country’s total trade levels with Jordan to fall over the past three years.

Export levels continue to rise after years of positive but somewhat varied growth. This growth is likely to continue in the short-run. The government has made the promotion of exports a top priority, and continues to attract increased FDI flows from Arab nations and China. The accessibility of cheap imported labor will strengthen the export base in labor intensive industries, while capital intensive industries can take advantage of the QIZs to ship goods to the U.S. market. Moreover, Jordan should be able to leverage its relationship and proximity with Iraq in creating new business opportunities in the region. For Jordan to maintain successful export growth levels in the long-run, it must continue to diversify its export offering as well as increase the value-added of its current and future products.

Clothing accounted for 31% of total exports in 2006, up 18.4% from 2005. This reliance on the textile industry as a chief export base is dangerous on several levels. First, it is dependent on the U.S. for 93.4% of clothing exports. Were it not for the QIZs in the country which allow producers to ship goods to the U.S. exempt from many restrictions, Jordan would have little competitive advantage in this sector. Second, textile products allow for low value-added production potential; this limits the return producers can reap from their products along with the contribution to GDP this would entail. Third, prolonged textile production is not conducive to the development of human capital. If a country limits itself to making clothing and miscellaneous textile products, there is no incentive to train its labor force. Monies reaped from the production of labor intensive industries must be invested wisely in support of new industries to realize sustained and diversified growth.

The government of Jordan realizes the need to diversify its export base. It commits roughly 20% of its budget to education in the hopes of training a work force that can support its growing export offering. This commitment to education has, in part, helped increase the production of higher value-added export goods such as medical and pharmaceutical products, which experienced a 6.1% growth in 2006, and machinery and transport equipment, which saw export levels rise 23.5% in 2006. Jordan will have to continue to diversify its export base to be successful. These newly emerging sectors represent opportunities for increased investment from abroad and at home. The total value of imports increased by 10% in 2006, having grown 28.3% in 2005. This represented a substantial decrease in the rate of import increases experienced over the last two years. At the end of 2006, the ratio of imports/GDP fell 1.6% over 2005 to reach 81%. The surge in imports over 2003-2005 is largely attributable to rising oil prices. Jordan received large shipments of discounted Iraqi oil prior to the invasion of Iraq in 2003. Due to increased security concerns these shipments fell off sharply after the invasion; this forced the country to rely on other sources for crude oil. Saudi Arabia provided temporary oil grants to alleviate some of the inflationary pressure, and Jordan has since signed agreements with the Iraqi government to secure subsidized oil in 2006 and 2008. However, the country currently remains dependent on the international market for its oil supply and will stay that way until Iraq can provide increased security for its transport trucks on the highway to Jordan. As suggested by the above analysis of total imports, oil remains Jordan’s largest imported commodity with all crude oil in 2006 imported from Saudi Arabia. Imports of transport equipment and spare parts ranked second in terms of value increasing 11.7% over 2005. The chief suppliers of these imports are Japan, Germany and South Korea. Imports of textile yarn, fabrics & related products increased by 8.2% in 2006, most of this increase is attributable to rising quantities of Chinese exports.

Saudi Arabian, Chinese, German, U.S., Egyptian, and Italian markets accounted for 57% of total imports in 2006; this represented a slight increase over 2005. It is interesting to note the pronounced differences in exports and imports for Jordan’s trading partners. The U.S., for example, is the destination for 31% of Jordanian exports but represents only 5% of the country’s imports. This is partly attributable to the U.S.’s desire to support the development of allies within the MENA region, but it is also indicative of Jordan’s pattern of trade which exists in importing crude and intermediate goods and exporting consumer goods. For Jordan’s export-led growth strategy to be effective in the long run it must cultivate relationships with its East Asian partners that reflect positively on it balance sheet. This includes increasing exports of goods and services to China. Inflation: Jordan’s ultimate potential for growth is threatened by its inflation levels which have risen almost 5% since 2000. Inflation can signal structural problems in a government’s finances and can also to lead to political instability as the population becomes dissatisfied with rising prices. Moreover, high inflation rates can deter investors by creating uncertainty regarding the value of their investment.

Jordan’s inflation rate does not seem to represent entrenched structural problems in government finance, and the prospect of it creating increased political instability is low. Although Jordan’s inflation rate of 5.4%, as measured by the change in the Consumer Price Index (CPI) is high by western standards, it represents a decrease over the 2006 rate of 6.25%. Moreover, the country’s current rate is a substantial decrease over the double-digit inflation rate experienced in 1990. Over the past two decades the government has taken measures to control inflation, including pegging the Jordanian Dinar to the dollar.

As regards investor uncertainty, the recent devaluation of the dollar is likely to help Jordanian exporters, making the country more competitive in attracting FDI. However this devaluation could have the opposite affect on foreign investment in domestic securities, making them less competitive sources of income.

EXTERNAL INDEBTEDNESS Sustainable growth requires that a country be able to service its debt in the long run. Much of the risk associated with country default is mitigated by investing capital stocks in areas of high return. Country debt does not necessarily signify impending crises; like individuals, countries can borrow in order to realize increased wealth.

The table above expresses Jordan’s external indebtedness as a function of key debt indicators. The first four indicators (External debt/GDP, External debt/CA receipts, External debt/foreign reserves, Short-term external debt/total external debt) can generally be viewed as representative of Jordan’s solvency. These indicators link Jordan’s total external debt with its overall assets. Jordan’s External debt as a % of GDP stood at 93% in 2007, roughly 30% higher than the MENA average. This debt burden by almost any account is high. In fact, out of all the regional countries that comprise the MENA average, only Lebanon and Bahrain have higher debt burdens relative to GDP. Despite Jordan’s high level of external debt, the country has experienced a significant decrease in debt over the past five years. Total external debt as a % of GDP was 132% in 2002, meaning that it has decreased by 39% to reach its current level of 93%. Moreover, its short-term debt position remains in-line with the MENA average.

Jordan’s External debt as a % of Current Account (CA) receipts is also higher than the regional average. With regard to the regional competitors analyzed here, only Lebanon can currently lay claim to a higher ratio. However, Jordan’s recent emphasis on export-led growth has helped to raise its receipts and reduce its external debt as a % of GDP by 33% over the last five years.

To further protect the country from currency volatility and external shocks, Jordan has steadily increased the levels of its foreign reserves over the past five years. The government has increased its position, more than doubling reserve levels since 2002. Jordan’s current external debt stands at 216.7% of its foreign reserve holdings, besting the MENA average of 265.4%. This trend is likely to continue, although due to the depreciation of the U.S. dollar the increased diversification of future currency holdings is likely.

The final two indicators contained in the table (Debt servicing ratio, Current Account/GDP) are useful for evaluating liquidity as it regards external indebtedness. While solvency indicators provide useful insight into current asset and debt stocks, liquidity indicators can gauge asset and debt flows, i.e. can Jordan service its debt given the amount of money generated by its exports. Jordan’s debt servicing ratio, calculated by dividing its debt payments by its CA receipts, suggests that it can. Although slightly higher than the MENA average of 8.3%, Jordan’s 13% ratio affords the country the ability to service its current debt. This ability, however, rests on the continued increase in export levels that Jordan has experienced over the last several years.

Jordan’s Current Account/GDP ratio of -16.6% is significantly lower than the MENA average of 11.1%. This negative ratio represents a current account deficit of $2.66 billion in 2007, up from $1.6 billion in 2006. Jordan will need to improve the value added of its exports in the future to mitigate continued deficits. Unlike many of its regional competitors, it cannot rely on the rising prices of oil and natural gas to fuel its growing economy.

PEOPLE Jordan lacks the natural resources that many countries in the MENA region possess. The country has limited deposits of oil, little of which can be extracted, and few minerals that are worth exporting. Its greatest resource remains the human capital to be garnered from its youthful and highly educated population. Population Demographics. Jordan’s population is heavily concentrated towards the bottom end of the distribution. Out of the estimated 6,198,677 people that live in the country in 2008 roughly 11% are 50 years of age or older.

A population bulge seems to exist within the 5-19 age groups. This group of young Jordanians will likely increase demand in the economy for housing, jobs and consumer goods over the next decade or so. These increased demand levels will put pressure on the domestic economy, forcing the country as a whole to adjust. The “new” economy will have to continue to grow in order to support the changing needs of its population. Increases in urbanization as well will necessitate an emphasis on job creation in the service sector. The current government seems to understand the inevitability of this economic transition. In the government’s National Agenda three phases of Jordan’s political and socio-economic transition are laid out complete with timetables. The first phase taking place over 2007-2012, emphasizes an export-led growth strategy predicated on labor intensive industries. This is to be followed by an expansion of the service sector and strengthening of capital intensive industries, 2013-2017, and a transition to a knowledge economy, 2018-onward. In part a function of higher fertility rates in the past, the youthful bulge in the population distribution is beginning to smooth out due to a reduction in total fertility rates. This reduction can most likely be attributed to access to better healthcare, the increased use of contraceptives, lower infant mortality rates, higher education levels, and the increased urbanization of the population as a whole. Increased urbanization signals a shift from the agrarian economy of the past and corresponds to a reduction in the amount of labor needed for agriculture. Fewer farms means less children are necessary to cultivate crops. Urbanization levels have also been drastically affected by Iraqi immigration to Jordan following the U.S.-led invasion of Iraq in 2003. Estimates place the total Iraqi immigration to Jordan between 250,000 to 2 million people. The Iraqis arriving in Jordan since the invasion have typically been a wealthier subset of the population, their poorer counterparts finding refuge in countries such as Syria. This rapid influx of wealthy Iraqis has placed a strain on the economy, causing increased prices for housing, consumer goods, and general services. It has also served as a source of increased investment in the domestic economy. The end result of this massive migration has yet to be fully realized. Education. Jordanians are highly educated, boasting a literacy rate of 91.1%. Only Israel and Kuwait can lay claim to a higher rate within the region. Source: UNDP Human Development Report 2007/8, CIA World Factbook The government spends 20.6% of its total spending on education, which is high for a country of Jordan’s resources. This commitment to education by the

government seems to have paid off. Total enrollment in primary education for of-age students stood at 90% in 2006, six points higher than the regional average. Likewise, enrollment in secondary and tertiary institutions remained high at 82% and 39%, besting the regional averages of 68% and 22%, respectively. Moreover, Jordan’s enrollment rates have remained consistent over the last decade suggesting that both current and future generations of Jordanians will benefit from a strong institutionalized education system. Despite the high levels of education within the country, Jordanian tertiary education is highly concentrated in social sciences, business and law. Considering that the highest growth rates over the past several years have been primarily in construction and manufacturing, a disconnect seems to exist between the types of labor currently being utilized and the jobs Jordanians are being trained for. In preparing for the future Jordanians must not lose sight of their current operational needs.

Labor. High increases in FDI levels in Jordan over the past five years have brought new industry to the country. However, this new industry has not resulted in tangible levels of job creation. Official unemployment levels remained high at 13.5% in 2007, while unofficial estimates place this number as high as 30%. The fact that total unemployment in the country has changed only marginally over the past decade or so is cause for concern. A major problem exists in the types of FDI Jordan is attracting. The QIZs in the south of the country allow companies to export goods duty and quota free to the U.S. This is an attractive proposition to many foreign firms involved in manufacturing who face quota restrictions from the biggest consumer market in the world. As a result, some firms, particularly Chinese companies, have located operations in Jordan. The problem is that these firms often import labor from their home country or from other counties within the region. Egypt, for instance, remains a highly attractive source of labor for construction and manufacturing projects as Egyptian workers are willing to work for far less than their Jordanian counterparts. The net result of this importation of foreign labor is little to no job creation for Jordanian citizens. Jordan is chiefly a service economy, with 82% of its labor force operating in this sector. Its top four employers by economic activity are Public Administration, Wholesale and Retail Trade, Education, and manufacturing, with an 18.6%, 17.4%, 11.8%, 11.2% share of the employed population, respectively. Over the past three years these ratios have remained more or less unchanged.

The highest wages can be found in the financial services sector, but very few Jordanians work in this area. The government is the largest employer in the economy and pays out an estimated average of 300 JD/$423.00 a month. With increases in housing prices in Amman this salary makes it very difficult to live in the city. As a result, many government employees reside in the smaller towns surrounding the capital.

Source: DOS To realize reductions in unemployment levels Jordan must start attracting FDI that not only increases its export totals but employs its citizens. The government has expressed interest in pharmaceutical and IT companies, however it is not clear how well suited the current population is to fill the roles necessitated by these companies.

Human Development. Successful economies cultivate the development of human capital. For Jordan, the development of its citizens’ capabilities remains all the more important due to the country’s lack of natural resources. High unemployment currently prevents the country’s young, educated population from reaching its full productive power. This has resulted in one of the lowest GDP per capita (PPP) in the region. Jordan’s GDP per capita (PPP) of $5,530 bests four countries in the MENA region, with ten nations posting higher numbers. It should be noted that the GDP per capita (PPP) indicators of the Gulf coast countries within the region are surely inflated. This indicator is by no means representative of equality of income; these oil rich countries possess massive wealth deposits that remain relatively consolidated but are still reflected in average income measures. Nevertheless, Jordan must continue to emphasize targeted training and education programs in order to raise the demand for the skills of its workforce, which will ultimately be reflected in the price of its labor.

A comprehensive measure of development that takes into account measures in addition to GDP can be found in the Human Development Index (HDI) developed by the United Nations Development Program (UNDP). The index takes into account indicators for education, literacy, life expectancy, and GDP per capita, and then normalizes them to create a concise measure of total human development. Jordan has demonstrated significant improvement in its HDI score over the twenty-five years. If the government continues its commitment to education and succeeds in increasing employment levels this trend is likely to continue. Jordan’s quality of life, although tempered by rising prices, can certainly continue to rise in the foreseeable future. INVESTMENT ENVIRONMENT Jordan’s continued growth depends on its ability to attract investment. Several government agencies within the country are tasked with establishing long-term relationships with Transnational Corporations (TNCs) and foreign investors. In order to attract these investments, Jordan must differentiate itself from regional and global competitors. This includes providing a stable business environment complete with a variety of investment incentives. FDI. Jordan’s FDI inflows in 2006 were $3.12 billion, the majority attributable to industrial products. This represents a 710% increase in FDI since 2003. Moreover, annual FDI growth rates have increased substantially over the past five years. Jordan’s ability to attract increasing levels of investment is a promising sign for the country and for investors. Jordan’s most recent FDI totals make the country the fourth highest FDI recipient in the region trailing Saudi Arabia, Egypt and the UAE. It falls just behind the MENA average, which remains a function of the top three countries disproportionate share of regional FDI. Bahrain and Qatar’s share of regional FDI is on the rise and threatens to capture future investment; while Lebanon’s recent political instability has rendered the country less competitive.

Non-Jordanian investments in 2006 grew by 205%, making the ratio of foreign investment/local investment 85.6%. While foreign investment is on the rise, 91% of it comes from the Arab world; 62% originates from Saudi Arabia alone. Jordan currently experiences a lack of diversification in foreign investment akin to its export position. The country is having a hard time attracting companies outside of Arab firms. This is attributable to the perceived instability within the region and Jordan’s proximity to Iraq, the lack of natural resources many of its regional counterparts have in abundance, and competitive investment incentives offered in other regions of the world.

Unfortunately for Jordan, it occupies space in a region that is currently associated with terrorism concerns, civil war and political instability. This regional perception is most pronounced in the U.S. which accounts for only 2% of Jordan’s foreign investment. As emphasized in this report’s section on political risk, Jordan is one of the safest and most stable countries in the region. The pro-western sentiment advocated by the government is generally accepted by the people, and behavior of a radical or terrorist nature has been effectively marginalized. Moreover, Jordan’s proximity to Iraq should represent opportunities for investment assuming the country stabilizes over time. Jordan’s lack of natural resources, most notably oil and natural gas, are a large disadvantage in a region flush with resource stocks. Increasing oil prices have given many MENA countries the ability to realize increased export revenue

and budget surpluses; this allows for increased investment in infrastructure including ports, roads, office space, and telecommunications, all services necessary for business operation and expansion. Despite Jordan’s lack of resources it has managed to develop the infrastructure necessary to support its growing economy in the short-term. If investment in the country continues to increase at its current rate, this development will need to keep pace or risk damaging future investment plans. Underdeveloped infrastructure and regional instability could force companies interested in operating within the region to consider other alternatives. East Asian economies such as Singapore and Thailand offer powerful alternatives for investment if distribution needs are flexible, most former Soviet republics would provide better access to European markets, and a vibrant Turkish economy is located close by. Ultimately, Jordan’s capacity to attract investment is dependent on its ability to differentiate itself from other economies through a combination of investment incentives and political and economic stability. Investment Incentives. Prior to 1995, investment regulations in Jordan explicitly differentiated between Jordanian and Non-Jordanian investors. Jordanian investors were given preferential treatment, while their foreign counterparts were prevented from repatriating profits and salaries. The Investment Encouragement law of 1995, followed by the Investment Law of 2003, removed the majority of these structural impediments to foreign investment. With some restrictions non-Jordanians can now own, manage or operate projects across the economy and receive the same benefits as Jordanian citizens.

The Jordanian government has made a concerted effort over the past five years to develop an incentive program that encourages foreign investment while recognizing the need to cultivate investment originating at home. The result has been a comprehensive incentive structure encompassing most sectors of the Jordanian economy that foreign investors can readily benefit from. Over $2.5 billion worth of projects benefited from the current Investment Law(s) in 2006, an increase of 144.7% over 2005.

Jordan’s potential to attract foreign investment is further strengthened by the series of Tax Free Zones and QIZs located throughout the country. The tax free zones are located in Aqaba, Zarqa, Irbid, and the Sahab industrial estate. Projects granted a license in a Free Zone enjoy the following privileges: (1) exemption of profits from income tax for a period of twelve years; (2) exemption of non-Jordanian employees from income tax on their remuneration and from the social service tax; (3) exemption for goods imported into or exported from Free Zones from customs duties, import fees and any other fees and taxes; (4) exemption of lands, buildings and properties in free zones from licensing fees and taxes; and (5) freedom to repatriate capital investment and profits earned, subject to prevailing laws and regulation.

The QIZs were established through an agreement between Jordan, Israel and the U.S. and allow companies to export duty free and quota free to the U.S. market. Thirteen QIZs currently exist in Jordan with more than 50 companies operating in them.

Doing Business 2007: How to Reform, produced by the World Bank and International Finance Corporation (IFC), provides a useful rubric to gauge the overall success of Jordan’s current investment environment. The report allows for a comparative assessment of investment structures and policies across the MENA region. Jordan’s aggregate ranking of 78 places the country sixth in the region for ease of doing business. Taxes, at 31.9% of commercial profits, are some of the lowest in region, 3 while the procedural elements necessary to operate a business all receive mid-high ratings relative to the region. The number of procedures required to start a business (11) ranks in the middle of MENA countries, and only Tunisia and Morocco require less time to start a business, which you can accomplish in Jordan in 18 days. Legal rights in Jordan also remain high as exhibited by the report’s Legal Rights Index.

While Jordan exhibits the procedural and legal capacity necessary to start a business, the cost of starting a business is high. According to the report, an average of 73% of income per capita is required to start a business. Moreover, the minimum capital required to start a business stands at 864.4% of income per capita. While these figures may be prohibitively high for domestic investors, they give little indication as to the true cost of starting a business for a foreign firm. As Jordan’s income per capita is one of the lowest in the region, the cost of starting a business experienced by many foreign firms would be less burdensome. Projects and Opportunities. Current non-Arab foreign investment in Jordan is concentrated almost exclusively in industrial projects. The good news for prospective investors is that these projects are still relatively untapped by foreign firms-this means there is still a lot of money floating around. The four primary development zones in the country (King Hussein bin Talal Economic Zone, Irbid, Ma’an, King Hussein Business Park) provide great incentives to exporters and offer real opportunities for healthcare/pharmaceutical manufacturers as well as firms engaged in heavy industrial production. The government remains keen on promoting several large projects of significant national importance as well. These include a massive water transfer from the Red Sea to the Dead Sea, the relocation and development of the port at Aqaba, upgrading and developing electricity plants and refineries, and the development of a Jordanian rail system. The sum total of these projects should well exceed the current estimate of $12 billion (railroad not included in this estimate). In addition, there exist opportunities for investment in renewable and nuclear energy. The duration of sunshine in Jordan averages 300 days per year, allowing for potential in solar power; the average wind speed exceeds 7 m/s (at 10 m height) in many areas of the country, lending itself to the derivation of energy

from wind; and 80,000 tons of proven uranium reserves could be exploited for use in nuclear power facilities. While Jordan may suffer from a lack of proven oil reserves, the current global emphasis on alternative sources of energy might offer opportunities for investment in an underdeveloped energy sector.

Country Risk Diamond. In a concluding attempt at comparative analysis, an analytical tool in the form of the Country Risk Diamond is employed here. A total of four countries are compared within this framework: Jordan, Egypt, Lebanon, and Tunisia. Egypt, Lebanon and Tunisia, being regional competitors of Jordan, are included in order to measure Jordan’s overall performance relative to the region. In addition, indicators of the countries composing the MENA Region are taken into account to calculate a MENA average and compare it to Jordan’s indicators. The diamonds are used to measure the overall risk of doing business within each country examined, the greater the level of risk the larger the total area of the diamond itself. Four indicators affecting investment climate are used in order to complete the diamond: Corporate Governance, Political Governance, Country Liquidity, and a Fiscal measure. Each country is evaluated independently and then ranked. Its ranking is then divided by the total number of countries examined, to achieve a score between 0 and 1, where the closer the score is to 0 the better the country’s performance. The last ranked country, i.e. the worst scorer in its category, would receive a score of 1. Jordan performs well in the Corporate and Political Governance Indices in both diamonds; the country outperforms the MENA average in both categories. However, in the Liquidity and Fiscal Indices Jordan lags behind the MENA average. Only Lebanon registers a worse Liquidity Index, and although Jordan’s Fiscal Index places the country in the middle of the pack, its score signifies high investment risk, particularly for government bank loans.

APPENDIX Investment Incentives Complete list (Source: JIB) • The following components of qualifying projects shall be exempt from fees and taxes: Imported fixed assets; Imported spare parts, provided that their value does not exceed 15% of that of the fixed assets; Fixed assets that are needed for expansion, provided that this results in an increase in production of at least 25%. • Qualifying projects shall be exempt from income and social services taxes (from 25% up to 75%, depending on the investment area) for a period of 10 years. The exemption period is extended upon expansion of more than 25%. • Projects in the Hotel and Hospital sectors shall be granted additional exemptions from fees and taxes once every seven years for purchases of furniture and supplies for renewal purposes. • Fixed assets of any project may be mortgaged as security for extended credit facilities. • Transfer of a project from one investment area to another entails exemptions in accordance with the classification of the new area of location for the remainder of the exemption period. • The investor has the right to manage the project in the manner he deems appropriate. • If the ownership of a project is transferred during the exemption period, the project shall continue to enjoy the exemptions, provided that the new owner continues in the same vein as before. • Non-Jordanian investors may invest through ownership, partnership, or shareholding. • Non-Jordanian investors may own any project wholly or partially (see restrictions below) • Foreign investors may not have whole or partial ownership of:

Investigation and security services; Sports clubs (except for health clubs); Stone quarrying for construction purposes;

Customs clearance services; Land transportation of passengers and cargo using trucks, buses and taxis.

• Except for the limitations of the previous article, a non-Jordanian investor shall be treated in the same manner as a Jordanian investor. • Non-Jordanian investors shall be entitled to remit abroad the foreign capital transferred to Jordan for investment, together with any returns and profits. Non-Jordanian employees also have the right to transfer their salaries abroad without hindrance. • No project is allowed to be expropriated, unless this is done by way of compulsory purchase for public interest, and in return for a just compensation to be paid to the investor. • Disputes between a non-Jordanian investor and the Jordanian government shall be first attempted to be settled amicably. Failing that, either party may resort to litigation or may refer the matter to the International Centre for the Settlement of Investment Disputes (ICSID).

Country Risk Diamond Indicators (PIRC analysis): A) Corporate Governance: Two reports were used in order to develop the Corporate Governance indicator: The “Ease of Doing Business” and the “Regulatory Quality” rankings. The former ranking is developed by the World Bank (Doing Business 2007) on a yearly basis and weights a series of variables concerning legal regulations faced by enterprises while doing business in a certain country. The latter is also based on a ranking developed by the World Bank (Worldwide Governance Indicators 1996-2005) that measures law enforcement capability and political stability in each country. With this in mind, an overall rank is made among the total countries being analyzed (175 for the “Ease of Doing Business” and 203 for “Regulatory Quality”). Next, the ranking of each of the countries subject to our analysis is computed and divided by the total number of countries being ranked. An estimator between 0 and 1 is thus obtained for each country for each of the rankings. The final step was to average out the estimators, resulting in our Corporate Governance Indicator for each of the countries. (0 = excellent, 1 = poor). B) Political Governance: The two rankings used to develop the Political Governance indicator, “Political Stability” and “Government Effectiveness,” were collected from the World Bank’s Worldwide Governance Indicators (1996-2005).The procedure used to develop the Political Governance Indicator is similar to that for the Corporate Governance Indicator and utilized an average of two estimators calculated from the rankings (0 = excellent, 1 = poor). For the “Political Stability” index, a total of 213 countries were ranked, while for the “Government Effectiveness” one, 210 were used. C) Liquidity Index: An indicator to measure the difference in the likelihood of each government to fulfill its obligations was taken into account. The statistic used to develop the Liquidity Index was the Net Debt, as a percentage of the Gross Domestic Product, of each country within our analysis. To develop this indicator, the countries (subject of our analysis) with the highest and lowest Net Debt / GDP ratios were used to create a range. Next, the range was “normalized” between 0 and 1, so that the Net Debt / GDP ratios of the rest of the countries fell within it. For the Liquidity Index, the number of countries analyzed was 18 (including Singapore) (0 = excellent, 1 = poor). D) Fiscal Index The Fiscal Index was developed in order to measure the effectiveness of revenue collection relative to government expenditures. In this case, the Budget Deficit/Surplus, as a percentage of the Gross Domestic Product, was taken into account. The countries (subject to our analysis) were subsequently ranked and the methodology employed remains similar to that used in calculating the other indexes.