FDI income

Jordan would do well to invite more multinational corporations (MNCs), which would generate not only FDI inflows but also income from their investments.

An enlightened policy should target the growth of FDI and the income from multinationals, both crucial for the stability of the country’s economy in the coming years.

Due to MNCs worldwide, income in developing countries quadrupled between 2002 and 2011. This is explained by two factors: the increase in FDI stock in developing countries and the higher average profitability of MNCs, especially for those investing in services and manufacture for the domestic market consumption.

Those investing in natural resources also enjoyed high commodity prices and achieved substantial gains and incomes.

On the other hand, export-oriented manufacturers registered modest gains. 

However, overall income has grown worldwide and signs are that such growth will persist for the coming few years at least.

FDI income in the world is now higher than portfolio investment income, and one of the largest contributors to the balance of payments.

Furthermore, FDI inflows are less volatile than portfolio and other investments and rarely become negative during a crisis, possibly because they are more difficult to unload.

Second, income outflows from FDI tend to expand with economic growth, but contract during downturns, producing a counter-cyclical effect on the host economy as less money is leaked out.

This tends to stabilise the business cycle.

Jordan has little if any restrictions on the outflow of FDI income, and can be considered even more advanced in this respect than many developed countries.

The fact that Jordan hosts many significant investments also advertises its capabilities and showcases its merit. Therefore, the steps to be taken to attract more FDI should focus on creating the following: an investment-friendly legislative environment; a hospitable, bureaucracy-free business environment; a list of national mega-projects where the government can seed funds or incubate; a quickly reformed energy sector with energy becoming cheaper; a departure from raising taxes and fees and a move to slashing costs to investors in order to attract growth, production, productivity and Jordanian employability; and a stable business environment, not one undergoing quick legislative changes.

Once this easy to do list is accomplished, the income from such enterprises should be encouraged to grow, as it further expands the economy.

The planner should have his/her eye not only on attracting investment but also on ensuring that such investments thrive in terms of revenue; a win-win situation.

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