Jordan is often seen as one of the most stable and business-friendly countries in the Middle East, attracting foreign investors with its strategic location, skilled workforce, and favorable investment policies. However, like any country, Jordan presents a set of challenges that foreign investors must consider before making decisions. These challenges, although not insurmountable, require careful planning and understanding of the local business environment. In this article, we will explore some of the key challenges that foreign investors may face in Jordan and provide insights on how to navigate them.
1. Bureaucratic Procedures and Administrative Delays
One of the most common challenges that foreign investors may face in Jordan is the bureaucratic nature of some administrative processes. Although the government has made significant strides to streamline investment procedures, there can still be delays in obtaining permits, licenses, and other necessary approvals. This can be particularly challenging for foreign investors who may not be familiar with the local legal and regulatory frameworks.
- Delays in Licensing and Permits: Despite the existence of the “one-stop-shop” for investment services, foreign investors may still face delays in obtaining the required business licenses, particularly for certain types of businesses that fall under specific regulatory frameworks (e.g., healthcare, financial services).
- Inconsistent Enforcement of Regulations: The application and enforcement of laws and regulations can sometimes vary, leading to uncertainty for investors. This inconsistency can create challenges in planning long-term business strategies and ensuring compliance with local rules.
2. High Operating Costs
Although Jordan offers many advantages for investors, operating costs can be relatively high compared to other countries in the region. High costs for raw materials, utilities, and labor can make it more expensive to run a business in Jordan.
- Energy Costs: Jordan’s energy sector is heavily reliant on imports, which makes energy costs high. For businesses in sectors like manufacturing and technology, energy consumption is a significant operating cost, and fluctuations in energy prices can negatively impact profit margins.
- Labor Costs: While Jordan has a skilled workforce, labor costs can be higher than in some neighboring countries. This is particularly true for industries that require specialized skills or higher levels of education. Companies looking to hire skilled labor may need to offer competitive salaries to attract talent.
- Real Estate Costs: Real estate prices in urban areas like Amman can be high, particularly for businesses seeking prime locations for offices or retail outlets. This adds an additional layer of cost for foreign investors looking to establish a physical presence in the country.
3. Limited Access to Capital and Financing
Access to capital can be a challenge for foreign investors in Jordan, especially for small and medium-sized enterprises (SMEs) or new startups. While the government and financial institutions offer some support, the financing options for foreign investors may not be as diverse or accessible as in other more developed economies.
- Limited Venture Capital: Although there is a growing startup ecosystem in Jordan, venture capital funding and private equity investments are still relatively limited. This can be an obstacle for tech startups or other high-growth companies looking for early-stage funding.
- Banking Sector Constraints: The banking sector in Jordan is conservative when it comes to lending, particularly to new or foreign businesses. High interest rates and stringent loan conditions can make it difficult for investors to secure the necessary financing to grow their businesses.
4. Regulatory and Tax Complexities
While Jordan offers attractive tax incentives to foreign investors, navigating the country’s regulatory and tax systems can be complex. Different sectors are subject to varying rules and regulations, and understanding these nuances is essential for successful investment.
- Complex Tax Laws: Jordan’s tax laws can be complicated, particularly for foreign investors who are unfamiliar with the local tax regime. In addition to corporate taxes, there are various other taxes such as sales tax, social security contributions, and customs duties that investors need to consider. Investors must ensure they comply with these regulations to avoid penalties and fines.
- Changing Regulations: Like many countries, Jordan occasionally revises its laws and regulations. While this is part of the government’s effort to improve the business environment, these changes can lead to uncertainty and require investors to adjust their strategies to remain compliant.
- Ownership and Investment Restrictions: In certain sectors, foreign ownership of businesses may be restricted, limiting the degree of control foreign investors can have over their operations. For instance, the Jordanian Investment Promotion Law places restrictions on foreign ownership in certain areas, such as agriculture and real estate. Understanding these restrictions is crucial for investors before entering these markets.
5. Political and Geopolitical Instability
While Jordan itself is a politically stable country, it is located in a region that is often marked by geopolitical tensions. The political instability in neighboring countries such as Syria, Iraq, and Palestine can have indirect effects on Jordan’s economy, business climate, and investor confidence.
- Regional Conflicts: The ongoing conflicts in Syria and Iraq have had ripple effects on Jordan’s economy. Refugee influxes and changes in trade routes can disrupt markets and supply chains. Foreign investors in sectors like logistics, manufacturing, and retail must consider the potential impact of regional instability on their operations.
- Security Concerns: Although Jordan is generally considered safe for foreign investors, the political situation in the region can create occasional security concerns. Investors need to be aware of these risks, particularly when planning long-term investments.
6. Cultural and Market Understanding
For foreign investors who are new to Jordan, understanding local culture and consumer behavior can be a significant challenge. Business practices in Jordan can differ from those in Western countries, and successfully navigating these cultural differences is essential for building strong relationships and ensuring business success.
- Negotiation Styles: Business negotiations in Jordan can be more formal and relationship-oriented compared to more transactional approaches in some Western countries. Developing trust and building long-term relationships with local partners, suppliers, and customers is crucial for success.
- Consumer Preferences: Understanding local consumer preferences is important for businesses looking to enter the retail or service sectors. Cultural and social norms, particularly in relation to marketing and product offerings, must be considered to ensure that products and services align with local tastes and expectations.
7. Economic Dependence on External Factors
Jordan’s economy is highly dependent on external factors such as foreign aid, remittances from Jordanians working abroad, and imports for key goods like oil and water. This economic dependency can create instability for businesses that rely on a steady domestic economic environment.
- Dependence on Foreign Aid: Jordan’s economy has historically relied on foreign aid and support from international organizations and foreign governments. Fluctuations in the level of foreign aid or changes in global economic conditions can have an indirect impact on the business environment.
- Water Scarcity: Jordan is one of the most water-scarce countries in the world, which can affect industries such as agriculture and manufacturing that rely on large quantities of water. This challenge may increase operating costs and require businesses to adopt water-conservation strategies.
Conclusion
While Jordan offers many attractive benefits for foreign investors, including its strategic location, skilled workforce, and favorable investment climate, it is important to recognize and prepare for the challenges that exist in the country. Investors must be aware of potential bureaucratic delays, high operating costs, limited access to financing, and the complexities of the regulatory environment. Additionally, regional instability, cultural differences, and economic dependencies can all impact the investment landscape in Jordan.
With the right research, local partnerships, and a strategic approach, foreign investors can navigate these challenges and successfully tap into the promising opportunities that Jordan has to offer.
M. Rami Maki
Business Consultant