VII. Investment Climate Statement Openness to Foreign Investment The government of Jordan (GOJ) officially encourages foreign and private investment through the encouragement of Investment Law No. 11 of 1987 and the Foreign Investments Law of 1992. In reality, both laws have the unintended effect of hindering, rather than facilitating some types of investment. Under the encouragement of Investment Law, an investment meeting the definition of an "economic project" or an "approved economic project" qualifies for tax holidays and other exemptions for up to five years. Profits accruing to registered foreign investment companies, which have been examined by the investment committees, may be freely remitted beginning two years from the date of production. The Foreign Investment Law makes a distinction between Arab and non-Arab foreign investments It permits an Arab to invest in any project in industry, tourism, health, agriculture, and housing, provided that his investment, share or contribution is at least JD 30,000. An Arab investor satisfying these requirements is treated as a Jordanian investor. Foreign (non-Arab) investors are not permitted to invest in any of the above-mentioned sectors unless the minister of industry and trade recommends the project and the council of ministers gives its approval. The foreign (non-Arab) investor's capital, share or contribution should be at least JD 50,000. Arabs or non-Arabs may invest in trade, contracting, and transport business with a Jordanian partner provided that the Arab or foreign investor's share in the project is at least JD 100,000 in transport or JD 200,000 in trade or contracting, and that it does not exceed 49 percent of the capital invested in the project. Before initiating an investment, a foreigner must transfer his capital into Jordan in a convertible foreign currency. In addition, Arab nationals may buy shares of public shareholding companies listed on the Amman financial market in any convertible currency or in Jordanian dinars. The law is now being interpreted to the effect that non-Arab investors require cabinet approval before they can purchase shares on the financial market. The government of Jordan recognizes the limitations of both investment laws. The encouragement of investment law establishes a bureaucratic regime that is given only vague guidelines in determining what constitutes an economic or an approved economic project. In addition, the tax exemption provisions encourage shorter rather than longer term investment. The Foreign Investment Law restricts anything but Arab direct investment. The government is currently studying ways to amend both laws. Conversion and Transfer Policies There are no restrictions on transferring funds associated with investment. Transfers within the Jordanian banking system are permitted in any major world currency at the legal market clearing rate, which is the Central Bank of Jordan's (CBJ) official rate. CBJ regulations permit non-residents and foreign investors who transferred their funds into the kingdom to remit their funds abroad in the same or any other transferable currency. To transfer funds outside Jordan, a local bank must obtain a foreign currency transfer permit from the CBJ. Furthermore, the CBJ must be informed when an investor transfers funds into the kingdom, opens a non-resident account at a local bank or seeks to transfer foreign currency funds outside Jordan before an investment has been made. CBJ approval for these transactions is generally granted on the spot. Foreigners can get clear regulations governing their specific needs from the CBJ or a local bank before investing in Jordan. There are no limitations on the inflow or outflow of funds for remittances of profits, debt service, capital gains, returns on intellectual property or imported inputs, as long as authorization from the CBJ is obtained first. Expropriation and Compensation There have been no cases in Jordan where the government has expropriated the private property of an investor. Embassy thinks it unlikely that the government's policies regarding expropriations will change in the near future. Dispute Settlement The Jordanian government has not been a party to investment disputes with foreigners in recent years. The court system is used to enforce Jordanian laws and regulations regarding property and contractual rights. Embassy has received no complaints about judicial application of Jordan's commercial code or of government interference in commercial cases; most complaints concern the excessive time it takes for a case to go to court. Jordanian courts enforce international arbitration decisions on investment disputes between foreign investors and the state only if the case had previously been registered with another court. Jordan is not a member of the International Center for the Settlement of Investment Disputes. Performance Requirements/Incentives For investments that fall under the encouragement of investment law, investors are required to submit to the Minister of Industry and Trade semi-annual reports on the progress of their projects during the years of tax exemption. The Minister stipulates the standards for developing such projects, plus the date of production start-up. In the case of imported raw materials, which receive tax exemptions under the law, investors must document the value of imports which have been used or installed at the project. In return for satisfying these performance requirements, an investor benefits from the following incentives offered under the encouragement of investment law: A. Exemption from customs and import duties on fixed assets; B. Exemption from income and social service taxes on net profits for five years from the date of production; C. Exemption from building and land taxes for five to seven years from the date of project approval; D. Free grants of state-owned land outside the cities of Amman and Zarqa as approved by the council of Ministers; E. Repatriation of imported capital in three equal annual installments starting two years after production begins; F. Exemption from income taxes on interest and dividends; and G. Annual repatriation of dividends. Right to Private Ownership and Establishment In general, prevailing Jordanian laws on investments and property ownership permit domestic and foreign entities to establish and own business enterprises and engage in remunerative activities. However, activities that concern the military and national security interests of the kingdom are subject to different provisions and procedures. Foreign companies may open regional and branch offices to conduct business. Under the Registration of Foreign Companies Law, branch offices may carry out full business activities in Jordan while regional offices may serve as liaisons between their head offices and Jordanian or regional clients. No foreign firm may import goods into the country without appointing a registered agent. The agent's connection to the foreign company must be direct, without a sub-agent or intermediary in between. There are no regulations governing the contract between the foreign firm and the commercial agent. Private foreign entities that are registered, licensed and permitted to operate in Jordan, whether under sole foreign Ownership or as a Jordanian-foreign joint venture, compete equally with local companies. Protection of Property Rights The Jordanian legal system facilitates and protects the acquisition and disposition of property rights. However, no government measures have been put into place to enforce IPR laws in Jordan. The Jordanian copyrights law, adopted in 1992, only protects foreign works that are made and registered in Jordan, are subject to an international agreement to which Jordan is a party, or are subject to reciprocal protection. Foreign works made abroad must be registered in Jordan in order to be protected and recognized. The law gives the IPR holder the exclusive right to copy and reproduce works; translate, revise, adapt, or prepare derivative works; distribute copies of works; and publicly communicate works. Royalties may be remitted under licensing agreements approved by the ministry of Industry and Trade. Trademarks and patents registered at the Ministry of Industry and Trade, in accordance with Jordanian law no. 33 of 1952, are protected for a period of seven years from the date of registration. Registration may be renewed once, for a total period of 14 years. Trademark fees are nominal. A foreign company may have its trademarks or patents registered in Jordan by sending a power of attorney to a trademark agent or to a lawyer. In practice, local businessmen have been known to register internationally-known trademarks without the holders knowledge. Regulatory System: Laws and Procedures While the government has announced its intention to streamline regulatory systems, especially those that inhibit business activity, progress has been slow. Local businessmen frequently complain about the cumbersome procedures for registering companies or clearing goods through customs. The government has had some successes in eliminating unnecessary bureaucracy. Import licensing procedures have been simplified and export licensing procedures have been eliminated. The government is currently looking at ways to facilitate company registrations. In general, tax, labor, health and safety laws do not distort or impede the efficient mobilization and allocation of investment. In late 1993, the investment directorate at the Ministry of Industry and Trade was established as an independent agency to serve as a one stop servicing center for investors. This agency will seek to streamline foreign investment procedures and eliminate bureaucratic impediments to investment. Efficient Capital Markets and Portfolio Investment The Central Bank of Jordan (CBJ) is the ultimate authority on capital and credit markets in Jordan. Its policies are aimed at facilitating the flow of financial resources in and out of Jordan. Jordanian citizens are permitted to invest in other Arab countries in order to encourage reciprocal treatment. The recession in the late 1980's exacerbated weaknesses within the banking system, which culminated with the collapse of Petra Bank in 1989. The Central Bank responded by reorganizing a number of other banks and instituting strict capital sufficiency requirements, which restored the health of the financial sector. For the past two years, the banking system has been one of the fastest growing sectors of the economy. Total assets grew by 12.7 percent in 1992 and seven percent in 1993, reaching USD 9.8 billion. The total assets of the five largest banks are about USD 6.5 billion. The Jordanian banking system offers all types of banking, investment and portfolio services, involving local or international accounts and transactions. Foreign firms, as non-resident account holders, enjoy access to banking credit and loans. The interest rate charged on credit facilities granted to foreign firms may be decided on a case-by-case basis and may differ between banks. However, foreign investors must receive the approval of the CBJ before applying for credit locally. There are a number of internationally-recognized accounting and auditing firms in Jordan. The government's accounting and auditing regulations are consistent and internationally recognized. Political Violence Except for food riots in Ma'an following the devaluation of the dinar in 1988, there have been no politically-motivated damage to foreign investment projects in Jordan since the early 1970's. The embassy does not anticipate any civil disturbances in the near future. Bilateral Investment Agreements Jordan has not entered into any bilateral investment agreements. OPIC and other investment insurance programs OPIC has an investment agreement with Jordan. While the agreement requires the Jordanian government to approve OPIC Insurance for certain types of investments, the embassy has been officially informed that the government considers approval to be automatic. Jordan has never shown interest in joining the Multilateral Investment Guarantee Agency (MIGA). Labor Jordan has one of the highest population growth rates (3.8 percent) in the world. About half of the population of 4.3 million is under the age of 15. The government estimates unemployment at about 15 percent; unofficial estimates are higher. To avoid aggravating the unemployment problem, the government does not permit foreign labor to work in Jordan, except in exceptional circumstances. The Minister of Labor must approve the hiring of foreign workers by private businesses. Previously, approximately 180,000 foreign workers, mostly Egyptians, Filipinos and Sri Lankans, made up a large percentage of the Jordanian labor force. About 75 percent have left Jordan Since the Gulf crisis; the remainder work primarily as household servants and in agriculture and construction. Many of the 300,000 Jordanians who returned from the Gulf states at the outbreak of the Gulf crisis have specialized skills in fields such as computer programming and marketing that previously were in short supply in Jordan. This has enhanced the attractiveness of the kingdom as a source of high-skilled labor. Labor unions exist in Jordan but serve primarily as intermediaries between workers and the Ministry of Labor. Although unions may engage in collective bargaining on behalf of workers, they cannot organize demonstrations without a permit. Foreign Trade Zones/Free Ports Jordan's free zones corporation has developed two trade and industrial zones near Aqaba and Zarqa, which offer foreign investors substantial financial incentives, including duty-free importation, tax relief, and guaranteed repatriation of foreign exchange. Although the Aqaba free zone offers facilities for industrial manufacturing, its activities concentrate on transit, cold storage, and warehousing. The Zarqa zone offers automobile and commercial sales opportunities, plus manufacturing and warehousing. The free zone facilities are available to local Jordanian companies, joint ventures, and regional offices of foreign firms. Tenants enjoy six principal benefits: 1. Exemption from income and social security taxes for twelve years, except for profits realized from the commercial storage of goods released for domestic consumption; 2. Exemption from income and social security taxes on salaries and allowances earned by non-Jordanians working in free zone ventures; 3. Exemption from import and custom duties, as well as other taxes and fees, on goods imported to or re-exported from the zones, except for service dues and wages; 4. Exemption from real estate taxes and license fees on buildings property erected in the zones; 5. Guarantee of full repatriation of foreign exchange invested in and profits earned from free zone ventures; and 6. Exemption from customs fees of industrial projects that will supply the domestic market. Importers using the free zones to supply the local market avoid import license fees amounting to five percent of cargo value until the goods are actually cleared for release from the zone. Similarly, importers may simply issue invoices to purchasers who then assume responsibility for clearing their goods; Importers thereby avoid tying up large sums of cash for extended periods. Capital Outflow Policy Private individual capital outflows are restricted by law. CBJ regulations issued in 1988 provide that: A. Any person leaving the kingdom may take up to JD 5,000 in cash out of the country; B. A person holding a resident account in dinars may not draw on it in favor of a person outside the kingdom, unless given approval by the CBJ; C. A person residing in the kingdom may not open a dinar account overseas, unless granted approval by the CBJ; D. A person departing the kingdom may take, or transfer annually, up to JD 35,000 in foreign currency for studying, medical treatment, family remittance, travel or pilgrimage purposes; E. A person residing in the kingdom may not maintain foreign currency accounts overseas, except for banks and financial companies; F. A bank or financial company may export foreign currency, provided that CBJ approval is obtained beforehand; G. A bank or financial company may open foreign currency accounts with branches or correspondent banks overseas, provided that the CBJ is kept informed of these relationships. The CBJ maintains the right to object to a relationship with any correspondent bank; H. Resident Jordanians are allowed to open foreign currency accounts of up to JD 500,000 per year; I. Banks and financial companies must obtain CBJ approval in order to issue foreign currency transfer permits for import licenses from the Ministry of Industry and Trade; and J. Purchasing foreign banknotes from the Jordanian banking system to pay for goods imported to the free zones is prohibited. Foreign Direct Investment Statistics Industrial Registration in 1993 ----------------------------------------- Total Non-JD Number/ Capital Capital Number/ Sector Projects JD mil JD mil Employees ------ -------- ------- ------- --------- Engineering 228 64.1 5.8 2,871 Food 191 49.3 1.2 2,593 Chemicals 88 17.8 0.4 971 Plastics/rubber 119 17.0 3.4 1,598 Medical 34 33.0 0.5 986 Cosmetics/perfumes 43 3.0 0.6 356 Textiles 99 16.1 2.8 2,127 Paper/printing 70 6.0 0.6 709 Wood/furniture 45 2.7 1.0 324 Construction 57 24.3 0.5 1,039 Leather 8 0.4 0.3 51 Miscellaneous 8 1.2 0.08 93 --- ----- ------ ------ Totals 990 234.8 17.3 13,718 Notes: - the engineering sector includes electrical and mechanical Industries - miscellaneous industries includes arts and production - total Jordanian capital: JD 217.5 million - total foreign capital: JD 17.3 million - total capital: JD 234.8 million Capital Registration by Foreign Nationality (1993 vs 1992) Registered capital (JD 000's) No./investors ------------------ ------------- Nationality 1993 1992 1993 1992 ----------- -------- -------- ---- ---- U.S. 70 630 1 3 Australia -- 120 -- 1 Britain 600 700 1 4 Brazil -- 50 -- 1 China 75 106 1 1 Cyprus 270 75 3 1 Egypt 890 1,601 23 10 France 337 -- 1 -- Germany 100 -- 2 -- India 110 -- 2 -- Iran -- 500 -- 1 Iraq 10,362 14,093 63 92 Italy 227 285 3 2 Kuwait 40 -- -- 1 Lebanon 420 765 6 5 Libya 200 130 1 2 Palestine 900 283 9 7 Pakistan 370 260 4 2 Russia -- 728 -- 1 Sudan -- 50 -- 1 Spain -- 75 -- 1 Saudi 90 225 2 3 Syria 2,205 2,989 43 46 Turkey -- 190 -- 2 ------ ------ --- --- Totals 17,266 23,855 166 186 Major Foreign Investors The Ministry of Industry and Trade and the Amman Chamber of Commerce do not maintain comprehensive lists of major foreign investors.