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Economy, Investment

In October 2017, the government-owned news outlet The Jordan Times reported that Minister of Planning and International Cooperation Imad Fakhoury had met with members of the U.S. administration to ask for additional assistance in carrying out economic development projects in the country. For Fakhoury and the government of Jordan, continual reliance on such assistance from the international community is an important component of their economic development strategy. As one of the few beacons of stability in the region, Jordan has positioned itself as a reliable partner and ally for many countries. Jordan also wants to be increasingly seen as a prime location for international business ventures amidst the crises of the broader Middle East. The government is trying to balance international support with ongoing reform measures to make progress with the Jordan 2025 plan as the guiding mechanism for change.

In fiscal year 2017, the U.S. government reported it provided $1.28 billion in economic aid primarily through macroeconomic growth initiatives via the Department of State and USAID, making Jordan one of the largest recipients for aid.  That was under the Obama administration. Under President Trump, foreign assistance is just one area among several under consideration for deep cuts. As of now, only a little under $400 million is planned for economic assistance to Jordan. Such conversations for the government come at a time when Jordan is leading an ambitious national project to fundamentally revamp many aspects of the country. Launched by King Abdullah II in May 2015, the aforementioned Jordan 2025 plan aims to implement reforms focused on improving the private sector, expanding civil society, and increasing democratic institutionalization. Fakhoury noted, “the main objectives of the blueprint are to address the challenges of rising living costs, poverty and unemployment and to lead the community to a more prosperous level in the coming 10 years.Jordan is just one many countries in the region undertaking ambitious long-term economic plans in this manner. But as the GCC-Qatar rift persists and oil prices continue to fall, Jordan’s path toward diversification puts it further ahead than the Gulf countries.

One way in which these changes are happening on the economic front is through partnerships with other countries and international organizations. The International Monetary Fund (IMF) worked with Jordan to develop an economic development reform package in 2016 to complement the strategy of the Jordan 2015 plan. As part of the reform, an initial assessment of the situation was in order. While Jordan experienced economic progress from 2010 to 2014, stunted growth caused by an influx in Syrian refugees as a result of the Syrian civil war, rising debt and deficits, as well as disruptions in trade caused by regional crises has affected the country since 2015. Though the country is in the process of impleme. These are expected to continue for some time in order to get the country back on track.

Despite these harsh realities, Jordan’s reforms steps are steady. The World Bank recently noted in its 2018 “Doing Business” report that Jordan has improved its ranking to 103 which is not far behind most of the GCC and better than the regional average of 126. “Divided into subnational and regional level analyses, the report covered 11 indicator sets including starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.” Major contributors to this improvement over the last few years included how much easier it is to get credit and streamlining the customs processes at ports.

So what is in store for Jordan? Despite not having a wealth of natural resources like their neighbors in the Gulf and Iraq, Jordan plans to use their strategic geographic location in the region and political stability as a launchpad to the Middle East and Asia for international businesses. As noted in the Jordan 2025 plan, the Hashemite Kingdom wants to become a “regional hub for architectural and engineering services” as well as for transport and logistics. They also plan to further develop several other sectors like tourism, health care, digital business, and financial services. Jordan’s rather liberal society, openness to investment, and stability provide a fertile investment climate for would-be investors.

The major reforms and changes taking place in the country are directed at reducing trade barriers and clarifying and implementing procedures more in-line with international standards. Tariffs and other taxes are still applied to most imports and some items require licenses to import (like pharmaceuticals), but the environment is becoming more friendly to investors and this is a priority for the government. As Jordan moves forward with its reforms, international businesses can look forward to new opportunities in a country in the center of a rapidly changing region.

 

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Economy, Investment

In July 2017 the Central Bank of Egypt announced that they would not issue legislation allowing the trading of cryptocurrencies. The result is that Bitcoin and others are not legal money until they are regulated. Earlier in the summer, Bitcoin Egypt had announced it would go live in August 2017. It was, in fact, this announcement made by Bitcoin that promted the response seen above from the Central Bank of Egypt denying it. Currently the actual launch date is yet to be announced, and there will likely be many more hurdles before Bitcoin and others are able to get the regulation they seek. Cryptocurrency is one of many contentious issues affecting the future of cash in the Middle East.

While there are stark differences in terms of economic development between the oil-rich countries of the Arabian Gulf and the countries of North Africa still reeling from the aftermath of the Arab Spring protests of 2010-2011, there are commonalities. According to Finextra Research, cash is still the preferred method of payment in the Middle East. Most of the region uses smartphones and debit cards, but economic and technological infrastructure is lacking in much of the region. Do a quick Google search on “debit cards in the Middle East” and you will come across endless forums full of would-be travelers asking about the use of debit and credit cards at famous tourist destinations in the region. Unsurprisingly, seasoned tourists recommend they bring the cash and keep the debit card in case they need to use an ATM. While the use of debit cards is on the rise (particularly in the GCC countries), many merchants are not able to handle debit and credit card transactions.

This fact is affecting e-commerce businesses as well. Careem–a ride-sharing competitor of Uber–is currently valued at $1.2 billion and outpaces Uber in the region. One interesting difference: riders can pay in cash. Careem’s success is not felt across sectors. Souq.com, an online shopping platform, was the region’s primary destination for online goods since 2005. In the spring of 2017, Amazon acquired Souq.com in an attempt to expand its reach further into the region after a decline in sales. But much like their earlier venture into e-commerce in the Middle East, a problem remains: how to get customers to pay online?

One idea that has been suggested is the use of Bitcoins, or generally, cryptocurrency. The huge advantage being that a user would not need a bank account, only an internet connection and an e-wallet. With this in mind, it is not surprising that a few Bitcoin companies have emerged in the region. ShuBitcoin touts the benefits, “The Middle East, unfortunately, ranks among the lowest in terms of access to financial services. However it also has one of the highest mobile penetration rates in the world, and Bitcoin has the potential to bring financial services to anyone with a phone.” Not only can this be helpful for the average person wishing to make transactions online, it also provides access to international markets for businesses which has been particularly helpful for startups in the Gulf.

Unfortunately cryptocurrencies have been abused and globally there have been many reports that terrorist groups have used Bitcoin transactions to fund their activities, undetected in the secure blockchain records. For governments that have difficulty monitoring financial activity and without strong institutional capacity to handle corruption, Bitcoin poses a problem. If Bitcoin is attractive because one does not need a bank account and because the transactions are secure, governments are more likely to have an issue.

Whatever the issues are for Bitcoin and other e-commerce activities, it cannot be denied that the use of internet for financial transactions is popular in the region. With a large youth population and high internet penetration and mobile phone usage, it is inevitable that the Middle East will become better integrated into trends of digital transactions and commerce.

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Economy
In April 2016, King Salman and Deputy Crown Prince Mohammed bin Salman Al Saud announced an ambitious ‘Vision 2030’, which mapped out the Kingdom’s social and economic future. It heralded a dramatic transformation in Saudi Arabia’s strategic approach moving forward. At the core of Vision 2030 is the partial sale of shares in Aramco, the world’s largest oil company, as a step toward creating what it hopes can be a country transforming wealth fund.

Is Saudi Aramco the planet’s most valuable company?

In October 2016 Aramco’s CEO Amin Nasser announced plans to sell a 5% stake in its entire business rather than just the downstream business. This puts Aramco in a position to emerge as the world’s most valuable company post-IPO. Aramco’s reserves are twelve times greater than those of their nearest Western competitor, ExxonMobil . The initial listing will be on the Saudi stock exchange and listings on London, Hong Kong and New York may follow.

Why an IPO?

Believe it or not, Saudi Arabia is running out of cash. Years of deficit funding, profligate public subsidies, lavish defense spending and an expensive war in Yemen combined to produce a budget deficit of $79 billion in 2016. All this, despite steep cuts to public spending and state subsidies. Using the Kingdom’s $2 trillion company valuation, a partial sale of Aramco could raise $100 billion, positioning Saudi Arabia for financial independence from oil. “IPOing Aramco and transferring its shares to PIF (the Public Investment Fund) will technically make investments the source of Saudi government revenue, not oil” Deputy Crown Prince Mohammed bin Salman Al Saud said last year. “What is left now is to diversify investments. So within 20 years, we will be an economy or state that doesn’t depend mainly on oil.”

Potential IPO barriers

Traditionally, oil has been one of Saudi Arabia go-to levers of ‘soft power’. Preserving that power has involved shrouding Saudi Arabia’s oil reserves and operating costs behind a veil of secrecy that is a poor fit with the levels of transparency investors expect. With management and the board all being government appointments, this sets the scene for potential conflicts between the demands of the Saudi state and the need to serve its public investors. Similarly, much of Saudi Aramco’s income from operating the world’s largest onshore oil field flows through a complex mix of royalties and taxes laid out in an opaque concession agreement. An IPO would require Saudi Aramco to open its books for the first time in 2017 and provide accurate data on the Kingdom’s total crude reserves as preparation. Yet that very mystery enables the Saudis to exert significant influence over global oil prices so effectively.

So what?

Turbulence can, of course, be the investor’s friend by opening up new opportunities. Equally, turbulence can wreak havoc with carefully weighted investment decisions. The mooted Saudi Aramco IPO offers a ringside seat to Big Oil’s river of cash and the October statement could be a game changer for investors now the whole Saudi Aramco business is likely to be included in the IPO. However, as always the devil is likely to lie in the detail around pricing, and the level of information investors can expect to receive around profits, operating costs and particularly – reserves.In April 2016, King Salman and Deputy Crown Prince Mohammed bin Salman Al Saud announced an ambitious ‘Vision 2030’, which mapped out the Kingdom’s social and economic future. It heralded a dramatic transformation in Saudi Arabia’s strategic approach moving forward. At the core of Vision 2030 is the partial sale of shares in Aramco, the world’s largest oil company, as a step toward creating what it hopes can be a country transforming wealth fund.
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