Unleashing Jordan’s innovative economy

Jordan is at the cusp of making a structural transition from an efficiency-based to an innovation-based economy.

Why is this important? Why should investors pay attention? And what are current challenges and how are they being addressed?

A confluence of factors, including human resource, and institutional and technological readiness represents an opportunity for investors to make Jordan the “solution” hub for the region.

Why innovation?

The world’s focus on innovation is not a fad. It reflects a global transformation where more than 80 per cent of all new wealth created by nations is coming from the creation of intangible capital, i.e., from new patents, designs, adaptations of existing technologies, processes and solutions to human needs that disrupt the traditional ways business and life are carried out.

Ever smaller contributions are coming from natural resources or from physical capital.

Countries cannot simply “decide” to jump from a natural resource or industrial-based economy to an innovation economy.

Considerable market institution building, human resource development and infrastructure need to be in place to support such a transformation. 

Figure 1 shows the Global Competitiveness Index captures the critical ingredients in transitioning from factor-driven (i.e., natural resource) to an efficiency-driven, to an innovation-driven economy.

Why Jordan?

The useful aspect about the index is that it allows countries to see their strengths and weaknesses and compare themselves to other countries.

According to the index, Jordan is comfortably within the efficiency stage of development (see Figure 2). Based on a review of 12 factors (institutions, infrastructure, macro-environment, health, education, market efficiency, labour market, financial markets, technological readiness, market size, business sophistication and innovation), and ranking each from 1 to 7 (worst to best), Jordan (grey line) can clearly see where it is running ahead of other countries (black line) and where it is behind in transitioning towards innovation.

The good news is that Jordan is indeed on par or ahead in 10 out of 12 factors; especially impressive is higher education and institutions, two factors which take years to develop.

The bad news is that Jordan is behind in two factors, macroeconomic environment (i.e., instability resulting from high deficit and public debt rates) and, to a lesser extent, market size.

Overall, however, Jordan is better positioned than most countries of the region to make such a transition.

The silver lining behind the bad news, however, is that macroeconomy and market size are surmountable challenges.

Jordan’s macroeconomic vulnerability is mainly related to energy. With the gradual freeing up of energy prices, a process that has already started, and with diversifying sources of energy, which is also under way, Jordan will greatly reduce its macroeconomic vulnerability.

As for market size, Jordan is one of the most open economies in the world, with regional and international trade agreements that allow it to access markets in the region as well as the US, Canada, Latin America and the Far East.

Thus, a focused and consistent energy strategy, macroeconomic stability, active export promotion within and beyond the region, combined with improvements in the ecosystem of innovation and business development will foster an environment in Jordan conducive to a leap into innovation.

Such a “leap” to innovation is not far fetched for the country. It has jumped from rank of 64 to 13 in availability of scientists and engineers in the Competitiveness Index, a key ingredient in the transition.

Due to this advantage, Jordan has pioneering innovative/export -oriented industries in pharmaceuticals, air-conditioning and information technology.

It also has a strong service sectors in finance, education, ICT, HR management and health, which are already exporting their services to the region and beyond.

Finally, many of the elements of an ecosystem for entrepreneurs and innovators are in place in the form of incubators and accelerators of startup businesses, such as Oasis 500, etc. 

Going forward, Jordan can become the” solution” hub for the region.

Opportunity for investors?

Jordan combines three assets that give it a unique position in the region: human resources, internal stability and openness to the global economy.

In terms of human resources, Jordan has traditionally provided some of the best innovators in the region and exported its brightest and most creative scientists and professionals to the Gulf and elsewhere around the world.

But Gulf countries’ demographic and economic needs are gradually encouraging a new model of exporting products and services and business process outsourcing.

Second, a stable Jordan within a sea of regional turmoil is crucial for delivering aid and reconstruction going forward. 

Good investors, be they local, regional or international, know well that every crisis can also represent an opportunity, and countries that have been severely affected by the aftermath of the “Arab Spring”, such as Syria and Iraq, will need basic goods and services in the short term, as well as heavy investments in reconstruction and development in the medium to long term.

Jordan is well positioned to assist on both fronts.

Third, Jordan ranks high among the most open economies of the world, with good standing at international and regional levels.

It can thus play a critical role in adapting international innovation to regional needs, whether in Arabising web content, adapting green technology to local conditions, health research, or the many other areas in which innovation needs to be localised.

A role for government?

It is a myth that government has no role to play in an entrepreneurial and innovative economy.

Recent books such as “The Entrepreneurial State” and the “Solution Revolution” show beyond doubt the important interplay between economic policies, incentives, funding and the explosion of innovation taking place around the world.

In Jordan, government resources are very limited and no one should expect subsidies and R&D financing to fuel the transition.

Government has rightly focused its attention on getting the macro-environment right. Its attention to micropolicy, regulatory and business process issues is key as well, namely, targeting tax exemptions to new products, new markets and new technologies for a predetermined finite amount of time to incentivise investment.

Such incentives should replace exemptions in the tax code that are broad based and often target the traditional sectors.

The newly approved streamlined regulation for the one-stop shop, combined with an amalgamated Investment Authority under new leadership, is starting to make a difference in investors’ experiences on the ground.

Jordan’s main resource is its well-educated and skilled labour force. Recent deteriorations in quality at the basic, vocational and higher education levels have to be reversed and a recently appointed national committee is doing just that.

Brain drain to the Gulf, while useful as far as remittances are concerned, is costly unless it is turned into a virtuous brain circulation where diaspora Jordanians return to start their companies at home.

Transforming public expenditure into a catalyst to drive innovation forward, and government’s adopting a bottom to top approach to transforming its organisations into open labs that contribute to validation and global rollout is important.

Jordan now ranks 35th on the government procurement of advanced tech products. It should aim at being among the top 10.

Yes Jordan faces great challenges due to its neighbourhood. But the opportunities are even greater.

Judging by indicators of political stability, institutional development, technological readiness and knowledge economy, Jordan is well positioned to become an economic engine that helps the region recover through an efficient, export-driven, innovative economy.

The writer is chairman of Jordan Ahli Bank and of Jordan Strategy Forum. He contributed this article to The Jordan Times.