Foreword J ordan and the World Bank have been partners in development for nearly 35 years. Over this peri- od, successive Jordanian governments have trans- formed Jordan's economy into one of the most open, dynamic and socially advanced in the Middle East. Today, the people of Jordan are poised to seize the new opportunities and meet the new challenges pre- sented by rapid integration into the global economy, with the support of the World Bank and other devel- opment institutions. This booklet is not a typical World Bank report. It is intended to give the general reader a non-techni- cal overview ofJordan's past record of success in pro- viding broad-based social and economic progress for its people. It also describes the wide-ranging nature of the current partnership between Jordan and the World Bank-a partnership designed to promote private sector-led growth and employment creation, productive and environmentally responsible expan- sion of the physical infrastruct~re needed to support growth, and social investments in education and health care that will help reduce poverty, enhance opportunity, and further strengthen Jordan's greatest single asset, its human capital base. The Jordanian authorities are determined to build on yesterday's and today's firm developmental foun- dations to help create a still brighter tomorrow for all the citizens ofJordan. We in the Bank are fully com- mitted to doing all we can to help make that brighter tomorrow a reality. Kemal Dervi~, Vice President Middle East and N orth Africa R egion The World' Bank JORDAN AND THE WORLD BANK: WORKING TOGETHER FOR GROWTH & PROSPERITY I Introduction THE PROMISE OF THE NEW ERA been better. Over the course of the past four decades, political Over the course of the next decade Jordan has the potential to instability and conflict in the Middle East deterred private enter a new era of economic growth and development that will investment and required that the governments of the region raise the standard of living for all citizens, reduce unemployment, devote a disproportionate share of resources to defense and increase life expectancy, achieve higher levels of education, and security. The Arab-Israeli conflict, the Gulf War, and disrup- improve public health for its citizens. New jobs, new technolo- tions in the international oil market were all detrimental to gies, new industries, and new markets are all within reach. How- economic performance, and Jordan was hit particularly hard by ever, the benefits derived from these new opportunities will not these events. But the onset of the peace process has established come automatically. To compete successfully in the global econ- a new political dynamic for Jordan. Peace and regional stabili- omy of the new millennium will require forward-looking poli- ty will improve the outcomes of Jordan's policies designed to cies that energize the private sector, encourage regional cooper- attract investment, enhance the role and competitiveness of the ation, attract foreign investment, and fully integrate Jordan into private sector, and lay the foundation for long-term growth the mainstream of the modern international marketplace. and prosperity. The Government of Jordan has embarked upon a broad- based program of economic adjustment and reform that is PARTNERS FOR PROGRESS designed to transform Jordan's considerable potential into reality. As the Government of Jordan undertakes the process of As a small country with limited natural resources,Jordan's future economic restructuring essential to building a stronger econ- prosperity will depend upon the creation of an investment- omy, some of the leading institutions of the international friendly economy with a strong export base. Fortunately,Jordan's financial community have offered their support. The World four million people are among the most educated in the region. Bank, the International Monetary Fund, the European Union, This talented workforce is Jordan's greatest asset. As the Govern- Japan, Germany, the Arab Fund for Economic and Social ment's economic reforms improve the climate for business activ- Development, the Islamic Development Bank, and several ity, the professional and technical skills of the workforce can be others have all responded to Government requests for assis- applied to increase Jordan's productive capacity and competitive- tance with a series ofloans and-project-oriented financing that ness. At the same time, this combination of business investments is targeted to meet specific needs across all sectors of the econ- and skilled workforce can develop the physical infrastructure omy. Jordan and the donors are active partners in such diverse necessary to sustain a vibrant private sector-led economy. areas as water, energy, education, health, agriculture, tourism, But a high rate of economic growth is not an end in itself. The transportation, and export development. Government ofJordan has repeatedly stressed that progress needs In all of these undertakings, international support has been to be both broad-based and deep so that those on the bottom of guided by the theme repeatedly stressed by the Government: the socio-economic ladder are elevated and not left behind.A pat- rapid and sustainable growth can only be achieved through a tern of growth witnessed in many developing countries, where transformation of the economy that enlarges the role of the the benefits of increased economic activity are absorbed by the private sector, reduces barriers to trade, and enhances Jordan's upper strata of society while the poor remain poor, is unaccept- productive capacity. Thus, Jordan, the World Bank, and the able in Jordan. The Government is determined to chart a course various donors all share a common strategic vision. that combines national prosperity with greater social equity. This booklet will describe the economic transformation that is taking place in Jordan, and how the Government, the THE CHANGING POLmCAL DYNAMIC World Bank and the donor community are all working Politics and economics are inextricably linked. Fortunately, the together to build a secure future on the foundations of pros- political conditions necessary for economic success have never perity and peace. 2 JORDAN AND THE WORLD BANK: WORKING TOGETHER FOR GROWTH & PROSPERITY I Building on the Achievements of the Past RECENT ECONOMIC HISTORY by 16 percent in 1992, 5.9 percent in 1993, 5.8 percent in A brief examination of Jordan's recent past illuminates the 1994, and 6.4 percent in 1995, fueled by a construction boom, need for sustained structural reform. The macroeconomic rapid increases in exports, strong rebounds in several other sec- cycles Jordan has experienced demonstrate the strength ofJor- tors from the recession of 1990-91, and a major expansion of dan's indigenous assets, but they also reveal serious structural remittances from Jordanians returning home as a consequence problems in need of correction. of the Gulf War. These successive years of strong growth are Since independence in 1946,Jordan has invested heavily in also a direct result of the Government's economic adjustment the development of human resources. Education and health program and the improved political situation in the region, care were made accessible to the general public, and the foun- which are stimulating increased and more efficient invest- dation was laid for transforming Jordan into one of the most ments. These are creating jobs at a rate which has cut unem- professionally advanced nations in the region. New schools, ployment in half from its Gulf Crisis peak. universities, clinics, and hospitals have been built, and dramat- ic improvement has taken place in virtually every indicator of PRESENT NEEDS AND FUTURE CONCERNS human well-being: life expectancy, literacy, and school enroll- What does this economic history tell us about present needs ment rates have risen to among the highest in the region, and future concerns? The past illustrates three truths. while infant mortality has fallen to among the lowest. First, a healthy private sector driven by market-oriented The accomplishments that followed independence have been principles is essential to maintain long-term economic substantial and enduring. In spite of these achievements, how- growth. The Government is responding to this need with ever, the economy has undergone periods of"boom" and "bust." reform policies that reward the professional and entrepreneur- Although Jordan is not an oil-exporting country, the oil ial talents of the Jordanian people. An expanding private sector boom years of 1973-1983 were profitable for Jordan because is stimulating job creation and building the production base oil-exporting neighbors were generous in the provision of that is essential to future prosperity. grants and soft loans and in generating employment for Jorda- Second, dependence on regional labor markets and official nians. This helped spark a period of unprecedented economic assistance creates unnecessary vulnerability to political and growth. From 1973 to 1983 Jordan's GDP grew in excess of economic shocks. As recent events in Jordan have demonstrat- 10 percent per year, while per capita income approached an ed, these shocks can wreak economic havoc.Jordan is respond- all-time high of $2,250 in 1987. ing to this lesson by developing its export trade with countries The steep decline in oil prices that hit the region in 1983 outside the region and shifting incentives toward the export of caused a significant economic slowdown in the oil-exporting goods and services rather than people. states, causing grant assistance and remittance income to decline Third, peace and political stability are prerequisites for in Jordan. The growth of the boom years was not self-sustainable long-term economic development. The wars that have rocked due to the excessive reliance on foreign assistance and foreign the Middle East have deterred private investment and encour- labor markets, and after a few years of accumulating costly foreign aged capital flight, while necessitating some of the highest per commercial debt, Jordan began to experience successive years of capita military expenditures in the world. This has had a crip- weak and negative growth. By the time the economic crisis bot- pling effect on all of the economies of the region. The peace tomed out, per capita income had declined from the $2,250 peak process has laid the foundation for the establishment of a of the boom years to $1, 080 in 1991 .The process of recovery was politically stable, business-friendly environment that has the greatly retarded by the 1991 Gulf War, which witnessed the potential to reverse the debilitating trends of the past. By ini- return of more than 300,000 Jordanians from Saudi Arabia and tiating policies designed to attract private capital while grad- Kuwait, and caused unemployment to soar to 25 percent. ually reallocating resources away from national defense to Jordan has rebounded in remarkable fashion, and recent more productive ventures, Jordan is laying the basis for an economic performance has been impressive. Real GDP rose econormc renaissance. 4 JORDAN AND T HE WORLD BANK: WORKING T O GETHER FOR GROWTH & PROSPERITY I Goals & Objectives THE RANGE OF ASSISTANCE The Government of Jordan 1s rapidly moving beyond the macroeconomic shocks of the '80s and early '90s and is build- ing a vibrant national economy that is becoming increasingly competitive in the global economy. Through public-private partnerships, policy reforms, incentives for private investment, the European Mediterranean assistance initiative, and greater economic integration within the region, the Government is moving forward on a broad range of fronts with policies and initiatives that are designed to secure a more prosperous future. As this economic restructuring takes place, the World Bank and other donors have continued their support for investment projects in primary areas of inlportance. The World Bank has also provided non-project assistance in the form of policy loans, analytical studies, policy recommendations, training, and institu- tional development that is designed to spur economic develop- ment from within Jordan. As ofJune 1996, ten Bank-supported projects totaling almost $500 million were in progress, while two other loans totaling an additional $100-$150 million were nearing approval, and sever- al other projects were in various stages of preparation. OVERALL OBJECTIVES The central objective of the World Bank's assistance to Jordan is to promote rapid and sustainable outward-oriented growth. Three sub-objectives support this overall theme: • to support the macroeconomic transition taking place and assist the Government as it builds a market-responsive pri- vate sector capable of creating thousands of new jobs, while offsetting the temporary social adjustment likely to occur as Jordan continues its process of trade liberalization, privatiza- tion, and financial and regulatory reform; • to help the Government address infrastructure constraints while encouraging environmentally sound investment prac- tices by providing investment loans and other forms of assis- tance in key sectors of the economy such as water, energy, telecommunications, transportation, tourism, agriculture, and natural resource management; • to support the Government's attempt to reduce poverty through targeted investments and continue its excellent track record ensuring quality access to education and health care for all Jordanians. 6 JORDAN AND THE WORLD BANK: WORKING TOGETHER FOR GROWTH & PROSPERITY - I The Challenge of A Better Future ASTRONG PARTNERSHIP Jordan and the World Bank Group have enjoyed an ongoing partnership since 1962, when the International Development Association (IDA), the Group's soft loan arm, was invited to assist the Government in financing a water and sewer project for Amman. Since supporting that initial investment in Jordan's economic well-being, the World Bank and IDA have provided assistance as partners in 55 projects. Total lending commit- ments through mid-1996 approached $1.4 billion, with about $500 million committed for ongoing projects. These funds have been used to help the Government finance investments in priority areas of infrastructure devel- opment such as energy, water, mining and transport, as well as in human resource development through programs in educa- tion, vocational training, and health. Since 1989 the World Bank has added a series of quick-disbursing adjustment loans that are designed to assist the Government with sectoral reforms in energy, water, and agriculture, and with the macro- economic restructuring that is ·currently taking place. The World Bank is working with the Government ofJor- dan and other donors on a number of projects that span a broad range of economic sectors. The loan programs and projects identified in this chapter offer a few specific exam- ples of how Jordan, the World Bank, international and regional donors are working together to meet the challenge of a better future. In addition, the World Bank has extended millions of dollars in grants to Jordan for environmental improvements and institution-strengthening, and has administered millions more in grants from other sources for pollution control and . other environmental protection. The World Bank has produced a rich body of reports and non-lending activities applied to practical problems faced by public policymakers. Many of these studies are retained for internal government use; others are made public. 8 JORDAN AND THE WORLD BANK: WORKING TOGETHER FOR GROWTH & PROSPERITY 1979 Arab Potash 35.0 1979 Third Power 15.0 1980 Third Education 15.9 rlSCal 1980 Cities &V'dlages Development Bank (CVDB) 9.2 Year Project 1981 Urban 19.6 1962 Amman Water L8 1981 Fourth Power 25.0 1964 Water Supply 1982 Fourth Education 18l 3.0 35.0 1964 Agriculture Credit 3.6 1982 rlfth Power 1983 Zarqa/Ruseifa Water Sector 17.0 1967 Second Agriculture Credit 3.6 1983 rlfth Education 13.0 1970 Highways 6.3 1984 Amman Transportation and Municipal 23.9 1972 Education 5.4 1984 Energy Development 29.3 1973 Second Amman Water Supply and Sewage 8.7 1984 Sixth Education 37.4 1973 Hussein Thennal Power 10.2 1984 Eight Cities Water 30.0 1975 North East Chor Irrigation/Rural Develop. 7.5 1985 Multi-mode Transport 29.8 1975 Second Education 6.0 1985 Greater Amman Water 30.0 1975 Potash Engineering 10 1985 Primary Health 8l 1975 Second Hussein Thennal Power 5.0 1985 Second Urban 16.4 1976 Industrial Development Bank 4.0 1986 Second CVDB 9.6 1976 Tourism 1986 Manpower 7.5 6.0 1986 Water Supply and Sewerage 50.0 1978 Third Amman Water Supply and Sewage 14.0 26.7 1986 Sixth Power 1987 Arab Potash 12.0 1987 National Urban 26.4 1988 Seventh Education 40.0 1988 Shidiya Phosphate 31.0 1989 Human Resources 73.0 1990 lndusb'y and Trade Policy Adjustment 150.0 1990 Integrated Phosphate 25.0 1991 Emergency Recovery 10.0 Agriculture 1013 1991 Dead Sea Industrial Exports 15.0 Industry/Mining 143.0 1993 Third Transport 35.0 Energy/Power 226.2 1993 Second Health 20.0 Transportation 95.0 1994 Energy Sector Adjustment 80.0 Water Supply and Sewerage 154.5 1994 Telecommunications 20.0 1995 Agriculture Sector Adjusbnent 80.0 Urban 81.2 6.6 1995 Agriculture Sector Technical Support Education 216.6 1995 Second Human Resources Development 60.0 Population/Health 88.l 1996 Economic Reform and Development 80.0 Other 286.0 1996 Export Development 40.0 mAL BANK LOANS Meeting the Challenge of a Better Future ... ...Through the Development of a Dynamic Private Sector 0 fall the challenges confronting Jordan, none is more cru- The World Bank's Economic Reform and Development cial to future prosperity than the attempt to transform the Loan, which was approved in 1995, provided $80 million to help regulated economy of the '70s and '80s into a modern, deepen and strengthen the Government's economic adjustment market- oriented economy. This restructuring is essential to help program. The loan supported Jordan's efforts to establish the out- reduce Jordan's dependence on foreign labor markets and official ward-oriented trade environment and investment-friendly busi- sources of external capital. ness environment needed to pave the way for a stronger export Jordan's small domestic market (and the population's mod- capacity and closer relations with international trading partners. est per capita income) forces it to look outward to sustain It is part of a series of major loans designed to help achieve these long-term growth. Yet a market protected by high import objectives. In addition, the World Bank's $40 million loan for the duties and excessive regulation does not provide the incentives Export Development Project, approved in 1996, will provide bet- for private entrepreneurs to take on worldwide competition in ter access to commercial financing for firms wishing to expand an effort to open new markets . The Government's adjustment their exports. program is therefore designed to strengthen the private sector's Since the Government's program of economic adjustment is incentives and capacity to do this by reducing the barriers to likely to involve some short-term dislocations, the World Bank competition, cutting the costs of imported inputs for ex- Group is also working with the Government to build an effective porters, and eliminating unnecessary red tape. When given "safety net" for the poor and the adversely affected. This includes freer rein to compete in the international marketplace, pro- a microenterprise financing facility by the International Finance ducers and manufacturers can penetrate global markets. Jor- Corporation (IFC), the World Bank Group's private sector arm, dan's ongoing shift toward outward orientation holds the key and a program of public assistance targeted at the most needy. to meeting future demands for job creation and investment opportunities that are vital to the nation's economic and social health. Exports, Imports and Trade Balance of At present, Jordan maintains a high trade deficit, and a large Goods and Services proportion (over one third in recent years) of Jordan's exports is derived from raw materials such as phosphates and potash. The ongoing process of privatization, deregulation, and trade liberal- ization is encouraging diversification of Jordan's exports. Al- though the natural resource base is limited, Jordan's educated workforce gives it the potential to become a regional leader in businesses that rely on "human capital." Tourism, telecommuni- cations, higher education, health, finance, and a wide range of other service industries are but a few examples of areas where the private sector in Jordan possesses a strong potential for growth. The Government's reform program is already generating positive results. Recent trade statistics indicate a narrowing of the import-export gap, and,just as importantly, the recent trans- port agreement with Israel is expected to open a large new mar- ket next door as Jordanian firms are well positioned to export Imports of Goods &Services to Israel and the West Bank and Gaza. With a relatively low- Exports of Goods &Services wage but skilled labor force, it is becoming increasingly appar- ent that Jordan is a good place to invest in order to penetrate Trade Balance of Goods and Services the new and potentially large regional markets. 10 JORDAN AND T HE WORLD BANK: WORKING TOGETHER FOR GROWTH & PROSPERITY A Better Future Through... ... Education and Human Resource Development s mentioned previously,Jordan has an impressive record equipped libraries, and improved the quality of instruction A in education. Thirty years ago, 46 percent of the popu- lation was literate; today that number stands at 80 per- cent. This widespread growth in literacy has been accompanied through the establishment of teacher resource centers, the provi- sion of an improved curriculum and other teaching resource materials, and training for teachers and other education profes- by equally impressive increases in the number of high school sionals. In order to strengthen the link between education and graduates, college graduates, and professionals with advanced employment, a vocational training curriculum has also been degrees. established at community colleges. The emphasis of these educa- As is true in all societies, there is a strong correlation in Jor- tion efforts is strongly on quality-to produce graduates who are dan between low levels of educational attainment and poverty. skilled in problem-solving and creative thinking, as well as Nothing improves a poor child's potential for social and eco- equipped with the traditional knowledge base. nomic advancement like education. In Jordan 80 percent of the Given the Government's continued commitment to edu- poor are employed, but reside in households dependent on wages cation, the outlook for future generations is good. Jordan's earned from menial and low-skill labor. This underscores the greatest economic asset resides in the skill, the talent, and the crucial importance of education in imparting skills necessary to professional know-how of her people. But Jordan's high rate rise above poverty level and low-income employment. Conse- of population growth will place sustained pressure on the quently, the Government has made a commendable effort to education system. Higher enrollments will require more ensure that primary and secondary education is accessible to all teachers, more schools, more textbooks, more libraries. By children-rich and poor alike. working together, Jordan and the World Bank are taking the That goal has, by and large, been achieved for the current steps necessary to meet that challenge. school-age generation. But in the coming years heavy new bur- dens will be placed on the primary and secondary school system. This is due to the fact that Jordan is a young society. More than Jordan's Educational Improvements 67 percent of the population is under the age of25, and the rate of population growth is still in the high range of3.6-3.8 percent per annum. Meeting the needs of future generations will require increased investment in education to ensure the construction of new schools, the training of more teachers, and the availability of textbooks and learning materials. The Government is making this investment and is commit- ted to raising the quality of the educational system. To assist in that process the World Bank has provided funding for nine major education projects in Jordan. Other donors have contributed additional millions by participating as cofinanciers of various education projects. Adult Illiteracy Primary Enrollment Secondary Enrollment Since 1987 the World Bank has committed $173 million in (1970vs1990) (1965vs1989) (1965vs1989) three loans to help Jordan meet the challenge of providing high quality education for its rapidly growing student popclation. • Earlier Year Total Recent Year Total These loans financed the construction of new schools with well- • Earlier Year Females • Recent Year Females 12 JORDAN AND THE WORLD BANK: WORKING TOGETHER FOR GROWTH & PROSPERITY - A Better Future Through ... ...An Advanced Telecommunications Infrastructure A modern telecommunications infrastructure is an absolute prerequisite to the maintenance of a competitive private sector. The telephone, the computer, the fax machine, and E-mail have revolution- ized the way modern corporations (both large and small) transact business. Geographic constraints to foreign mar- kets have been greatly reduced by the communications revolution of the late 20th century. Jordan's telecommunications infrastructure is under- going a rapid expansion to meet all of the demands imposed by modern business practices, and the Govern- ment has adopted a long-term plan for telecommunica- tions network development. To assist the Government in the modernization of Jordan's telecommunications sys- tem, the World Bank in 1994 approved a $20 million investment loan designed to improve the capacity and efficiency of the current system. An additional $81 mil- lion in cofinancing is being provided by other donors. This ambitious project will double the number of lines in Jordan's telecommunications system by the year 2001 while greatly expanding geographic coverage. The modernization of the telecommunications sys- tem will be achieved not only through physical expan- sion of the state-owned Telecommunications Corpora- tion, but also through the recent privatization of cellular telephone and of data transmission and the introduction of a transparent regulatory framework and new technologies. The IFC was instrumental in providing financial and technical support for the start- up of the private firm which installed and operates the cellular network. Direct loan financing provides only a portion of the World Bank's assistance. The Government has also ST\Trs OF [FC'~ PORTFOLIO received a $50 million bond guarantee from the World US$ Mi/lions Bank which paved the way for private sector financing FY Approvals Commitments Disbursements He/J Portfolio on attractive terms. This creative approach has succeeded 1990 2.0 7.2 in leveraging private capital into the telecommunications 1991 2.0 2.0 4.3 1992 3.2 sector and speeding the pace of modernization. 1993 5.0 5.0 7.7 The presence of a modern telecommunications infra- 1994 38.0 5.0 7.3 1995 18.4 38.4 8.4 45.7 structure will help Jordan make the most of its talented 1996 18.0 7.2 6.3.4 human resources by opening new possibilities for out- ward-oriented service industries. 14 JORDAN AND THE WORLD BANK: WORKING TOGETHER FOR GROWTH & PROSPERITY A Better Future Through ... ...Improvements in Public Health A s is true for education, the Government has made a personnel, and the construction of additional hospital emer- concerted effort to ensure that all Jordanian citizens gency rooms. In addition, a program is being designed to have access to adequate health care regardless of their implement measures for higher levels of cost recovery that financial circumstances, and a substantial network of village include more effective collection mechanisms. As a result of clinics, primary care centers, and public hospitals is in place. As this program, it is expected that the Ministry of Health will be a result of these services, health indicators have improved dra- able to contain the rising costs that threaten the system, while matically over the course of the past quarter-century. For medical personnel will be able to provide better quality care example, in 1965 life expectancy at birth for the average Jor- that ensures continued access for the financially disadvantaged. danian citizen was 49 years, but by 1991 life expectancy had By addressing health care delivery problems before they reach risen to 66 years. Over the same period infant mortality fell crisis proportions, Jordan and the World Bank are working from 114 per 1,000 live births to 37 . together to make certain that all citizens continue to receive Although health care in Jordan ranks among the best in the the high-quality health care to which they are entitled. Middle East, the continued viability of the public health care The World Bank is also now working with the Government system is threatened by the increasing demands being placed to prepare a project which would carry these improvements fur- upon it and by persistent deficits within the sector. A high ther. It would help produce more and better services for each 7 .5% of Jordan's GDP is devoted to health services . To help health dinar in several ways: health facility managers would be the Ministry of Health address problems that have caused per- given incentives and flexibility to manage their hospitals and sistent inefficiencies within the system, the World Bank pro- health centers efficiently. Public health programs would be tar- vided it with a $20 million loan in 1993. This loan brought geted better to the major disease burdens facing the population. total World Bank assistance in the health care sector to $55 The private sector would be regulated and coordinated with million. public health services better, cutting down on duplication of World Bank funds will also be used to support a Ministry expensive new technologies and excess hospital capacity. And of Health project that seeks to improve Jordan's health care pharmaceuticals, which account for over a quarter of health system through better organization and management, greater spending, would be procured, stored, and distributed in more reliance on pre-hospital services, increased training of medical cost-effective ways. c LTNTCA L s R V rc ES skilled medical community coupled with low surgical and hospital costs and cul- is growing. In 1993, over 60, 000 ~menis alone came to Jordan for medical treat- A tural !linguistic tiffinities have made Jordan an attractive alternative to Europe ment, and thousands ef other patients come from Iraq, Egypt, Syria, the Uist Bank and the United States for Arabs in the Middle East seeking advanced medical treat- and Gaza, Bahrain and Saudi Arabia. Cost comparisons are dijficult, but a typical me11l. Jordanian surgeons worki11g in state-of-the-art facilities like tl1e $30 million, procedure that costs as much as 114,000 in the United States, averages only 11,000 150-bedArab Heart and Special Surgery Center funded by a.~roup