ANNEX IV

C. Draft Papers Received

b. The Aqaba Special Economic Zone, Jordan

The
World
Bank

Governance Knowledge Sharing Program (GKSP)

Policy Initiatives and Reforms in the MENA Region

Review Workshop

The Aqaba Special Economic Zone, Jordan

Draft Paper By

Marwan A. Kardoosh

23-24 February 2004

 Beirut, Lebanon

ACKNOWLEDGEMENTS

I would like to thank Aqel Biltaji, Chief Commissioner of the Aqaba Special Economic
Zone Authority, and his colleagues and staff for their hospitality and their assistance in
researching this work. Thanks also to Taher Kanaan and Wahib Shair for their insights.
Special thanks to Riad al Khouri.

EXECUTIVE SUMMARY [to be written at the end]

CONTENTS

I. Introduction

II. Background to the Reform

III. Analysis and Description of the ASEZ

IV. ASEZ Management and Implementation

V. Initial Results of the Reform

VI. Lessons & Conclusions

Bibliography

Endnotes

2
I. INTRODUCTION

Following the passage of the Aqaba Special Economic Zone Law, No. 32 of the year
2000, the Aqaba Special Economic Zone (the ASEZ) began functioning in early 2001 and
was formally established in May of the same year. Covering the Kingdom’s sole seaport
of Aqaba and its environs, including Wadi Rum, the zone is currently established on 375
sq kms of territory1 in the south of Jordan. (See Figure 1 below) The ASEZ currently has
an estimated population of about 90,000.2

Figure 1 Map of the ASEZ3

3
A six-member Commission, headed by a Chief Commissioner, forms the board of the
Aqaba Special Economic Zone Authority (the ASEZA). Appointed by the Cabinet and
reporting to the Prime Minister4, the Commission has the task of running the ASEZ, and
is vested with zoning, licensing, and other regulatory powers that distinguish it from the
rest of Jordan. The ASEZ enjoys a special fiscal regime, which is much milder than that
of the rest of Jordan:

 There are no custom’s duties on imports into the Zone.

 There is no social services tax, or annual land and building taxes on improved
property.

 A 5 percent tax rate is applied on all net business income (in contrast with a 35
percent rate for other parts of the country), except that from banking, insurance
and land transport activities.

 A 7 percent sales tax is limited to the consumption of selected personal goods and
hotel/restaurant services (as opposed to a 13 percent levy for other parts of the
country).

The ASEZA’s stated vision is to (1) make Aqaba a world-class business hub and leisure
destination, enhancing the quality of life and prosperity of the regional community
through sustainable development, and (2) to turn the city and its environs into a driving
force for the economic growth of Jordan and the entire Middle East.5

The ASEZA’s declared mission in translating this vision into reality is to:
 Improve the quality of life for all community members
 Create, regulate and sustain a globally competitive investor-friendly environment
 Optimize the efficient utilization of entrusted resources in harmony with a master
plan to internationally recognized best practices; and
 Effect a transparent and accountable corporate structure, governance, and culture
that synergize the activities of the organization.6

Though this case study of the ASEZ focuses on governance reform, the ASEZ is not
exclusively or even mainly a governance-related initiative. 7 Nevertheless, the project is a
major one in the Jordanian context, and has important governance dimensions. This
study will therefore stress, as relevant, the implications of the ASEZ vis-à-vis key
dimensions of governance including structure of government, political accountability,
private sector environment, civil society voice and participation, and public sector
management. However, as will be seen in the following pages, greater or lesser stress on
one or more of these themes depends on how much or how little aspects of the ASEZ are
governance-related, and how such relationships developed, intentionally or otherwise.

4
In the final analysis, no matter how tenuous or unintentional the links between the ASEZ
and governance issues may be, the project has a very high profile, has been tried over
several years, and even has some history in its formal inception phase and before. For
the researcher, the ASEZ is therefore worthy of study. Hopefully, the present
examination of the ASEZ will lead to further work that will analyze the project more
deeply and further promote fruitful interaction between researchers and policymakers
to the benefit of society as a whole in Jordan and the rest of the MENA region.
.

5
II. BACKGROUND TO THE REFORM

A. Problems of Jordanian growth and development

With a large stock of foreign debt, high unemployment, and much of the population
living below the poverty line, Jordan has for the last couple of decades struggled to
achieve expansion of gross domestic product (GDP) greater than population growth.
Some external factors over which Jordan had little control contributed to the slowdown,
but many internal ones were also to blame. In any case, the Kingdom in the second half
of the 1990s suffered from a weak economic performance as a series of wide-ranging
structural reforms were implemented and GDP growth barely averaged 3 percent. As the
same period witnessed more than 3 percent annual population growth, real per capita
GDP stagnated.

The past few years have witnessed an increasing recognition of the need to move
economic policy away from pre-occupation with macro-economic stabilization embodied
in the successive structural adjustment programs, to an explicit growth orientation. To
make the Jordanian economy move ahead substantially, a growth rate of 6 percent or
higher is required to create new employment opportunities and absorb part of the
unemployed.8 For this to happen, Jordan will need viable reform processes that are rooted
in sustainable, effective institutions. At the same time, Jordan’s efforts to globalize and
undertake structural adjustment continue. However, initiatives in the context of
globalization may not quickly or dramatically bring about necessary efficiencies. For
example, privatization will not necessarily have the effect of rapidly raising productivity
and output.

As economic reform policies in Jordan target the privatization of state enterprises, the
important social dimension of globalization and its implications, particularly when it
comes to the issue of unemployment, are beginning to be taken more seriously in Jordan.
In general, the state will have to play a stronger role in helping to improve the situation in
the labor market, while at the same time the government's role as an employer shrinks.
The situation in the labor market remains problematic, with the most worrying feature the
inability of the economy to develop fast enough to provide employment for young
people.

Related to this problem of labor force restructuring is the issue of regional development.
Trying to shift from the traditional pre-occupation with the metropolis of Greater Amman
as a means of addressing some of the regional divides in Jordan has also become a
national priority in the late 1990s. The Jordanian government has been busy for the last
few years investing in the development of the south of the country, with the designation
of the city of Aqaba and its environs as a special economic zone representing the
spearhead for such efforts.

6
We will endeavor to show that behind the ASEZ reform lie important unemployment and
regional development issues. Specifically, the question of social stability in Aqaba and
the problem of over manning in the port are significant problems. These are being,
directly or otherwise, addressed through the ASEZ.

B. The position of Aqaba in the Jordanian and regional economies

As Jordan’s only port, Aqaba enjoys a key position in the country’s economy, and to
some extent in adjoining areas outside the Kingdom. Tourism, transport and certain kinds
of industry could be important for Aqaba, partly thanks to the city’s location and the
natural endowments of its hinterland. However, the region remains an underdeveloped
part of the country.9

The city of Aqaba and its hinterland also have the potential to attract a wide range of
business. However, the current infrastructure is poor, and the facilities barely reach
international standards. At the same time, Aqaba and Jordan’s strategy to attract
international investments is vulnerable to events in Palestine and Iraq.

Aqaba is potentially an important seaport and regional transport center. The oil price
correction of 1973 illustrated its importance, as Jordan’s transport network focused on
developing Aqaba. During the Iran-Iraq War, Aqaba became an indispensable part of
Iraq’s supply line. By early 1981 Jordan had already become the main supply route for
war materiel and civilian goods destined to Iraq, and appeared to be holding up well
under the strain of massive expansion.

In addition to the Jordanian-Iraqi connection, Aqaba had also become a key transit point
for war materiel going from Egypt to Iraq, and for Egyptian workers going to and from
Jordan and Iraq.10 Jordan's restoration of relations with Egypt in September 1984 had
provided the necessary political underpinnings to develop further the infrastructural
requirements for increased Egyptian-Jordanian-Iraqi cooperation, in the short term to
support the Iraqi war effort but in the longer term to increase regional economic
cooperation and integration.

However, the Second Gulf War and the imposition of UN sanctions against Iraq, curtailed
the utility of Aqaba as a regional seaport. Aqaba then faced stiff competition from
Latakia, Beirut and Dubai. The port, which employed around 5,000 workers, was by the
late 1990s underutilized, handling 12.5 million tons of goods each year, whereas its
annual capacity is estimated at 30 million. (During its peak in the late 1980s, Aqaba was
handling 21 million tons per annum.)

The crunch seemed to come in 1998, when Syria offered facilities in using the Syrian
ports for shipping Iraqi commodities. That caused Aqaba the loss of a great share of its
regional trade, after being the gateway of Iraq to the world since the 1970s. Iraq by the
late 1980s had changed the destination of its European and Western imports from Aqaba
to alternative ports, foremost being the Syrian port of Tartous, as well as Dubai.11

7
Drastic measures were needed for the port to realize its potential, and the government
began to realize that it needed to abandon ad hoc nibbling around the edges of Aqaba’s
problems for a radical solution.

However, Aqaba did not have an edge over other regional facilities that would allow it to
overcome a shift in the strategic balance against Jordan. Aqaba and almost all of the
region’s other seaports are mainly run by semi-autonomous public enterprises; they have
separate budgets, and most of them are subject to supervision by various ministries. No
serious consideration has been given by the private sector to involvement in Arab
maritime transport infrastructure, Salalah (Oman), the region’s first privately owned port,
being a notable exception.

In Aqaba as almost everywhere else, surpluses from port operations go to the public
treasury. Most ports in the region including Jordan’s only seaport generally suffer from
state control, though some in the United Arab Emirates (UAE) and a few other places
have managed to reduce government intervention. Most MENA ports including Aqaba
are intended to and actually serve as a source of government revenue and employment.
Few port enterprises in the region pay much attention to trade facilitation through
flexibility of tariffs and fees and diversification of services, ports in the UAE again being
notable exceptions.

Interference by governments in administration, operation, investment and pricing,

combined with public sector control over port activities, causes confusion in port
planning and operation, thus raising the cost of services and rendering them
uncompetitive with other ports in neighboring regions. Aqaba is no exception to this
trend.

Ports in the MENA region, including Aqaba, also need to become more integrated into
the overall transport chain, and not act as separate entities. Instead, the segmented nature
of MENA transport networks necessitates the duplication of several handling operations
and leads to higher costs.

In fact, Aqaba, like most other ports in the MENA region, is characterized by delays
exacerbated by lack of trained workers. The immediate consequences of the poor
interface facilities are increased transport cost, poor security of consignments and above
all additional requirements for large storage facilities at the ports, which add to expenses
and investment requirements.12 Another problem is that the transport network in Aqaba
and most of the rest of the region do not yet utilize much modern information technology.

8
C. The role of Aqaba in previous Jordanian planning and development efforts

1. Before the 1994 peace treaty with Israel

Prior to 1948, under the British Mandate in Palestine, Jordan’s international maritime
transport went through the Mediterranean port of Haifa. That strategic factor, in addition
to paucity of tourism and industry in the country, meant that Aqaba was simply a small
rural settlement that played no role in Jordanian development. After 1948, Jordan’s
maritime transport passed through Beirut, while tourism and industry developed slowly.

In 1966 the government of Jordan engaged international consultants Doxiadis Associates

to prepare a development plan for the coastal stretch (4 kms deep) extending from the
southern outskirts of Aqaba to the Saudi border, an area of less than 70 sq kms. In 1968,
Doxiadis submitted a final report, which however had to be abandoned because it did not
take into consideration the effect of the Israeli occupation of the West Bank on Jordan in
general and the region of Aqaba in particular. This meant that Aqaba’s development was
slow; but with the oil boom of the 1970s, plus the border settlement with Saudi Arabia
that extended Jordan’s Red Sea shoreline to 27 kms 13, Aqaba acquired a new importance.
Jordan’s first free zone was set up in Aqaba in 1973, when a small facility was
established at the port to serve transit trade. More modest efforts at regional planning
followed, until the creation of the Aqaba Regional Authority (ARA) in 1983.

Under the ARA, Aqaba was finally afforded a special status as the government of Jordan
sought to develop the southern part of the country. The ARA, established under a special
law, began operating in 1984. The ARA became by far the most important and best-
financed public institution in Aqaba and had no equivalent in Jordan. The ARA was a
financially independent institution, gaining its revenues mainly from land-sale and
directly linked to the Prime Ministry. The ARA was responsible for socio-economic
development in the region, and the formulation of strategic structure and some detailed
plans, in addition to co-ordination functions with other public and private agencies. This
included design and execution of industrial, tourist, agricultural and infrastructure
development projects in the region, control and modification of the unbalanced growth of
Aqaba town, and supervision of the execution of works carried out by public and private
agencies.

The primary objective of the ARA was to act as the planning, research and regulatory
body to co-ordinate the other government agencies in Aqaba. However, its power was
later extended, as the ARA was eventually responsible for all infrastructure work in
Aqaba City.

The ARA formulated a five-year development plan for the southern region (1986-1990),
but it was interrupted by the country’s economic crisis of 1988. The sharp drop in oil
prices during the mid-1980s, the resulting concretionary policies adopted by the Arab oil-
producing states and the subsequent slowdown in their economies negatively affected
both Jordan’s trade with these countries and the inflow of expatriate remittances and
financial aid.

9
Real economic growth slipped and the deficit in the budget surged, which prompted
excessive government borrowing domestically and internationally. The government’s
escalating debt weakened its creditworthiness. Additionally, the mounting deficits in the
balance of payments depleted the Central Bank’s foreign reserves; and the government
had to devalue the Jordanian Dinar (JD) in 1988.

In 1990, Aqaba was designated as a Governorate. As a result, a number of Government

departments, such as the Electricity and Water Authorities, financial bodies, and other
institutions, opened regional offices in Aqaba, leading to an additional demand for
infrastructure, health and social services, as well as affordable housing. Different public
actors could then be identified in Aqaba and its surroundings. The three most important
were the ARA, the city Municipality, and the Aqaba Governorate.

In the early 1990s, the Municipality of Aqaba lost part of its functions to the ARA or
other departments, such as the state Housing and Urban Development Corporation, as a
result of administrative restructuring. The municipality was mainly involved in planning
and maintenance of public spaces, providing car parks, street paving, street lightning and
cleaning, garbage collection, maintenance of public areas and facilities, and monitoring
health and sanitation institutions.

The total budget of Aqaba municipality did not exceed JD 1.5 million 14 annually, of
which up to 90 percent was generated from municipal revenue, such as fuel taxes and
vehicle licenses. The limited budget revenue narrowed the possibilities of the
municipality to plan and implement large-scale development projects.

The ARA remained the dominant player in the southernmost part of Jordan in the 1990s.
According to Article 10 of ARA Law, the agency had legislative and administrative
authority over both the municipality and the governorate. That caused a good deal of
confusion and competition, even though some degree of co-operation and sharing of
responsibilities also existed. The governor had, from a legal point of view, all government
institutions and agencies in Aqaba under his mandate, but according to the ARA law, the
governor was just a member of the Authority board, chaired by the president of the ARA.

Despite the broad development mandate of the ARA, it did not have direct control over
other central government agencies operating in Aqaba. Those agencies instead reported
on their activities, plans, and projects to their respective head offices in Amman.

In most cases however, institutional governance bottlenecks did not result from
administrative overlap but more so from lack of real decentralization. All public
institutions remained closely monitored by the central government in Amman. A large
number of essential aspects of the ARA’s work, like budgetary matters, and sale of land
or other changes in land lease, required approval from the Cabinet.

As a result of some later decentralization measures, coordinating committees between the

10
concerned bodies were institutionalized. However, the ARA, the Municipality, and the
Governorate of Aqaba were de facto restricted to a monitoring and implementing role,
rather than fully assuming planning functions.15

Studies after that started to look at efforts to make Aqaba a free zone with special
economic regulations. One of these exercises was the study by Jordan’s Royal Scientific
Society (RSS) in 1994,16 which expressed reservations concerning turning the entire
Aqaba region into a free zone. The RSS recommended instead that three separate free
zones be set up around the city, covering an area of just over 60 sq kms, but this
recommendation was not considered in the wake of the peace treaty signed between
Jordan and Israel in late 1994.

2. The immediate post-peace era

The Jordanian peace treaty with Israel pushed Aqaba to become the focus of a joint
initiative between the former foes. In particular, Aqaba was promoted as a hub for intra-
regional co-operation in the form of the Jordan Rift Valley (JRV) scheme, and the Taba-
Eilat-Aqaba Macro (TEAM) zone.

a. JRV

The JRV, which includes Wadi Araba and the Northern Red Sea shore, possess a unique
topography, natural trade routes and historical sites. Infrastructure bottlenecks, closed
borders and territorial insecurity in the region, had previously deterred private investors
from exploiting its potential. US officials played an integral role in helping Jordanians
and Israelis think through issues of co-operation during the final phases of the treaty
negotiations. Civil aviation and tourism were at the soft end of the agenda.

The aim of this multisectoral cross-border development plan was to integrate the interests
of the region by providing essential infrastructure and services, and encouraging private
sector investment. The plans included improved transport links in the region and joint
promotion of tourist destinations on both sides of the valley. The plan was designed to
introduce mutual development strategies that were based on a core package of projects.
The primary focus was on infrastructure. The US funded a feasibility study for the
proposed joint-use airport in Aqaba. The EU also assisted with regional transport
planning, which included the JRV.

b. TEAM

The TEAM area refers to the neighborhood of Egypt, Israel and Jordan. The development
of the TEAM area was one of the focal points of the EU activity in the region. The
project’s primary objective was to prepare a legislative and administrative environment
that would be conducive to attracting international and local investment in the Taba-Eilat-
Aqaba area.
The concept was based on two approaches: a fast-track planning model, which was
designed to stimulate economic growth; and a broader approach designed to strengthen

11
links between the three states, by exploiting economies of scale, and developing the
region’s comparative advantage (including tourism infrastructure and services).

The EU strongly supported the TEAM project, and encouraged the private sector to
engage more fully. Project ideas were circulated and included the following: the Red Sea
Riviera; a free zone for tourists; an underwater coral reef park; and underdeveloped
maritime activities in the Gulf of Aqaba, such as sailing, cruises and off-shore fishing.

3. The search for a new role for Aqaba after 1996

Before the election of Benjamin Netanyahu’s government in mid-1996, Jordan and Israel
had come to accept a common vision for development, based on the TEAM and JRV
projects. Aqaba was central to both projects. In particular, extension of border services
and facilities along the TEAM and JRV areas could have had a major impact on tourism
and affirmed Aqaba’s role as a tourism hub in the region. These schemes sought to
develop the Aqaba region not so much by attracting Arab businesses, as by hoping to
bring foreign investment into the region. Transport and tourism in particular were to have
been emphasized, with industry less so.

Netanyahu’s election, however, ushered in an era of confrontation. The peace process

stalled, and regional projects such as JRV and TEAM were put on the back burner. Aqaba
started to fade in importance. Nevertheless, the Jordanian government sought to
capitalize upon Aqaba’s strategic importance. After all, the US and EU had recognized its
importance to both Jordan’s development and the promotion of the peace process.

The big change in the Jordanian vision for Aqaba came in late 1997 when a Jordanian
presentation to the Middle East and North Africa Economic Conference at Doha, Qatar,
mentioned that the government was embarking on a comprehensive plan to transform the
entire Aqaba region into a “world class”17 Freeport area, the first phase of which was
expected to include an area of 34 sq kms, to be completed by mid-1999. Nearly $3 billion
were earmarked for the project.18

This phase was characterized by various new measures in support of Aqaba. For example,
the Jordanian government reached an agreement with the European Investment Bank to
borrow 30 million Ecus for modernizing the Aqaba Port through buying equipment and
constructing two new tanker docks. At the same time, studies were launched by an
Egyptian group to establish a major tourist investment project in Aqaba to include a
cinema and theater, among other new leisure facilities, while Jordan’s then Minister of
Tourism Aqel Biltaji revealed that his Ministry was preparing a plan to establish a series
of marinas in the port city.19

In this atmosphere, King Hussein headed a joint meeting of the Jordanian Cabinet and the
ARA in Aqaba in April 1998, and stressed the necessity of plans to improve the situation
in the port in all aspects. The King said that “the meeting in the port city should serve as a

12
positive turning point” for this part of the country emphasizing the need for sound careful
planning to develop the Aqaba region in a manner that would contribute to the overall
development of Jordan. In response, the Cabinet decided to entrust a study on converting
the Aqaba region into a free trade zone to a consultant, who should finish the job in six
months. A cabinet spokesman expressed hope that the region could be declared a free
zone in early l999. 20

The ARA subsequently signed a contract with a consortium led by The Service Group
(TSG) and made up of two other consulting firms specialized in free zones. The $1.2
million agreement was financed by the World Bank and stipulated conducting a study to
transform Aqaba into an economic zone under “special provisions”. At the time, there
was a sense that the (then) existing mechanism for attracting investment into Jordan was
ineffective, in that the incentive regimes needed to attract FDI were fragmented (QIZ,
Investment Promotion Law, Free Zones, etc.) and could not be attained in one single
package.21 The proposed regime in Aqaba would aim to combine all the existing scattered
incentives and benefits into one package in one geographical area, in addition to adding
other incentives that are alluring to foreign investors.

The study aimed at laying down the implementation plan and the mechanism to set up a
free zone. Other objectives included an evaluation of the Aqaba port in terms of location
and the commercial activity compared to other ports. Furthermore, the study evaluated
the infrastructure, services and the mechanism for modernizing the general design in
addition to evaluating the legal and institutional infrastructure for all government
departments in Aqaba. 22 On the institutional level, TSG’s (brief) analysis revealed that
the ARA lacked real operational autonomy and that the relationship between the Aqaba
Ports Corporation (APC) and the ARA was unclear and had been problematic. “There
was little integration of views in policymaking and planning”, the report noted, adding
that most infrastructure and facilities were in the hands of government bodies, and that
private sector participation was limited.

The TSG report recommended instead:

1. That the Aqaba SEZ should report directly to the Prime Minister, through its
president.

2. That the ASEZA president should be vested with significant powers and
autonomy, including the Prime Minister’s authority over privatization policies
within the ASEZ.

3. To permanently designate the ASEZ Authority President as ex officio Aqaba

Region Governor to ensure that the Governorate’s policies are in harmony with
ASEZ’s development.

4. To create a strong ASEZA management team.

13
 5. To dissolve the Aqaba Municipality.

6. To have the APC report directly to the ASEZA to ensure that its functions and
operations are integrated with ASEZ’s policies and directions.

Applying a new methodology of taxation and administration for Aqaba was thus seen as a
step towards resolving the problems of the city’s port. In any case, the situation in Aqaba
could not continue, and blaming the woes of the port on the vagaries of Iraq-bound
shipping would no longer function as an excuse.

Apart from the Iraqi connection what therefore were possible options for Aqaba? One
would be for Aqaba to serve international trade more efficiently. Jordan like other MENA
states had to consider the development of hubs trans-shipping to other ports. For ports to
operate trans-shipment activities, more free-trade zones may be required. There is also
potential for some of the region’s ports to operate in tandem with export processing
zones. A successful example of this is the large facility at Jabal Ali in the UAE, which
processes and exports to Iran, Pakistan, and Jordan, as well as to Azerbaijan and other
countries in the former Soviet Union. Many international corporations have factories,
assembly lines, and warehouses at the port. Aqaba, it was hoped, would emulate the
flexibility, efficiency and success that Jabal Ali enjoyed in the late 1990s. For that to
happen, major changes would need to take place in the system under which Aqaba was
run, and many of these would involve governance.

III. ANALYSIS AND DESCRIPTION OF THE ASEZ

The study by TSG recommended the replacement of the ARA by a broader authority with
widened powers and full autonomy. This authority would be responsible for decisions on
economic planning, investment promotion, industrial estate management and marketing,

14
privatization and private provision of public infrastructure, environment regulation and
monitoring and licensing, permits and approvals. 23

This in fact was the beginning of the inception phase of the ASEZ. TSG’s report
suggested turning Aqaba into a Freeport similar to the UAE’s Jabal Ali. The study was
presented to Prime Minister Abdurra'ouf Rawabdeh’s government, the first to be formed
under King Abdullah II, who had succeeded his father and ascended the throne in
February 1999.

In the first half of 1999, the new Cabinet decided major institutional changes for Aqaba.
The president of the ARA was named Governor to avoid confusion among the authorities
and to improve co-ordination between public bodies active in the city and its hinterland.
Since the municipal elections of July 1999 were cancelled and the Aqaba municipality
connected to the ARA, the President of ARA became the de facto appointed Mayor of
Aqaba.24 However, more radical changes were in the offing for Aqaba as well as for the
country as a whole.

King Abdullah, inheriting a moribund peace process and generally unsatisfactory

economic growth, took new measures to spur the country’s development. Among these
was his personal push to move towards a new system in Aqaba. However, the cabinet
remained divided over the controversial TSG plan and froze the project. Several ministers
said in private they were in favor of restricting the projected free zone to the industrial
area located on the southern coast to host a Qualifying Industrial Zone (QIZ) 25 similar to
the ones operating in northern and central parts of Jordan.

The King then moved to sidestep the cabinet on this and other issues through several
measures. These included, among other things, the creation of the Economic Consultative
Council (ECC) in December 1999 to monitor the implementation of vital socio-
economic, administrative and educational reforms. The 20-member ECC, whose sessions
are attended by the Prime Minister and concerned ministers - even though none is a
member – acts as an advisory body to the King and debates socio-economic development
plans and projects presented to it before sending final recommendations to the
government.

The ECC was noteworthy for two things: the young technocrats from the private sector
who were among its members, some of whom would soon become ministers and key
ambassadors, and the fact that a new body appointed by the king and personally
supervised by him was charged with this massive task of national economic
transformation, rather than the existing institutions of the state, such as parliament and
the cabinet.

In fact, the ECC undertook the final stage of work on the ASEZ, with Member of
Parliament and former minister Ali Aburragheb, heading a task force formed by King
Abdullah from within the Council in February 2000 to develop an integrated plan for
Aqaba. The recommendations on the ASEZ, part of an overall plan, were presented to the
ECC by late April (2000).

15
The King gave ECC member Aburragheb six weeks to complete the plan. Aburragheb, a
former trade minister who headed the Financial Committee of the Lower House of
Parliament, and a group of ECC members and independent experts prepared a master
plan built upon a dozen local and international studies on Aqaba. “We are trying to find a
system with a legal and economic framework to administer the proposed plan for Aqaba
that entails investment incentives that ensure fair competition,” Aburragheb said. The
ECC entrusted the task force with laying down the legislative, executive and legal
framework for the project, charting a set of rules and regulations.26

The study envisaged an economic zone with tempting regulations to attract local and
foreign investment under a comprehensive development scheme, he told the ECC.
Aburragheb said Aqaba had all the incentives and prerequisites for a special economic
zone. “The city enjoys advanced infrastructure, an international airport, a port, booming
tourism and modern road grids,” Aburragheb noted. Aburragheb and his team had sought
the views of various government departments and the private sector before they drafted
the plan, which the King's endorsed in April 2000. 27

The project to turn Aqaba into a special economic zone was about completely
transforming the city, including its administrative system and institutions. The plan
promised to radically change the face of the city and the coast by, among other things,
moving and restructuring the port. The target date for the opening of the ASEZ was
January 2001, and Aburragheb attached an implementation plan to the project.

The administrative and institutional system of Aqaba as the ASEZ hinged on a

commission formed of six members including the president who will be directly
accountable to the King, and could be called for questioning by the government and
Parliament. One point that emerged clearly from the plan was that the ARA would be
abolished. The Cabinet would retain the power to approve the budget for Aqaba, and set
the regulations and by-laws for the sale of land (for housing, offices, and small hotels)
and the leasing of land (for warehouses, factories and large hotels). The government will
also get 75 percent of the ASEZ's revenues. “The government will not need to search into
its pockets for this project, Aqaba will support itself, and the plan can be achieved with
almost zero cost to the government,” Aburragheb said. “But we need the right people in
the right place, and an upgraded bureaucracy”, he added.

Plans were also being drawn to move the port from its then present location. “The port at
its present location is hindering tourism development and increasing pollution”, said
Aburragheb, explaining the reasons for phased relocation of the container port and
allowing it to handle general cargo as well. “We came up with a concept, a general idea.
The master plan will need to be looked into from technical, financial, and economic
points of view,” Aburragheb stressed.

16
Also according to the plan, the airport should be moved 15 kms north of its present
location to accommodate the city's future needs. “Airplanes would not have to circle over
the town because of the wind, and would not be a nuisance,” Aburragheb commented.
According to the plan, the then present airport was to be used for recreational flights and
helicopters, while concessions for a new airport would be given to the private sector, thus
making this operation cost-free for the government.28

The transport revolution in Aqaba would also include building a new road behind the
mountains for trucks to relieve pressure on the coastal road that will be used solely for
tourist transport as a “scenic road”. The present railway would be extended to reach the
port in the planned “heavy industrial area” and to handle all potash transport, possibly
also from Israel, with a possibility of connecting the railroad to the Mediterranean in the
more distant future. 29

As chairman of the Lower House Financial and Economic Affairs Committee and as head
of a special task force entrusted by the King with drawing a comprehensive master plan
for Aqaba, Aburragheb had reportedly risen in the King's eyes. Aburragheb has given the
impression of being swift and efficient, by putting together a master plan in only six
weeks - though heavily relying on international consultants and studies conducted in
previous years.30

Aburragheb was assigned by the monarch in May 2000 to implement the ASEZ in the
face of Rawabdeh's opposition. “The policies pursued by Rawabdeh fall short of
aspirations of Jordanians and lost him the confidence of their representatives in
parliament,” MP Mahmoud al-Kharabsheh said. Kharabsheh was one of more than 50
deputies who sent a letter to the monarch in April 2000 deeply critical of Rawabdeh in the
first widespread public sign of disaffection with the government. However, the move that
sped Rawabdeh's loss of favor was his opposition to the ASEZ in a slap to the monarch's
own pitch to attract foreign capital to Aqaba. 31 The ASEZ was seen clearly as a brainchild
of the King.32

King Abdullah accepted the resignation of Prime Minister Abdurra’ouf Rawabdeh's

government in June 2000 and appointed Aburragheb to his post. In doing so, King
Abdullah has entrusted Aburragheb with implementing judicial, legislative, and
educational reforms, accelerating privatization, on which the outgoing cabinet had
minimal success. The monarch in his letter of designation said “Our national economy
should be liberalized, the private sector should play a role in decision-making, and we
should put an end to monopoly and re-examine the system of choosing government
representatives”.
MP Mohammed Abuhudeib described Aburragheb as “The architect of economic
legislation. “While the previous government was seen as having had difficulty initiating
some of King Abdullah's structural reforms, the outgoing government did not succeed in
creating a bridge with parliament and society” added MP Bassam Haddadin. “We need a
political, technocratic government that does not isolate economics from politics”. Many
in Jordan were hoping that Aburragheb's appointment would better facilitate economic

17
recovery through reforms, especially regarding free trade and privatization, based upon
his past record.

A two-time minister of trade and industry (1991-3 and 1995) and Lower House member
in two legislatures, Aburragheb had chaired for the past year the Lower House Financial
and Economic Affairs Committee. Aburragheb also played a prominent role in King
Abdullah's “shadow cabinet,” the ECC, which aimed to decentralize the economy.
Moreover, he led a special task force charged by King Abdullah with devising a
comprehensive master plan to convert Aqaba into a special economic zone. “There is now
a clear mandate to push reforms through, particularly privatization,” an analyst for
Standard and Poor stated at the time. Aburragheb had also expressed his desire to
privatize the state airline Royal Jordanian, and expand QIZs. According to Aburragheb,
his program would require years, not months, to be achieved, and that no one should
expect an overnight revolution, but a gradual, systematic, restructuring process.33

The Lower House of Parliament then endorsed a draft law on the establishment of the
ASEZ (July 2000), not before laying down more explicit curbs on the sale of land in
Aqaba. In any case, the move was not made with great enthusiasm by the legislature: on
the day of the vote, the House Speaker was compelled to adjourn a morning session until
the afternoon due to lack of quorum. The afternoon meeting also barely mustered a
quorum.

Several deputies had said they were concerned that creating a special zone would
undermine Jordan's sovereignty over Aqaba. However, both King Abdullah and Prime
Minister Aburragheb assured lawmakers, on different occasions, that Aqaba would
remain an indivisible part of Jordan.

According to the ASEZ Law, the ASEZA will become the legal heir of both the ARA and
the Aqaba Municipality,34 and therefore, all the employees in the two bodies will
automatically be transferred to work at the ASEZ authority.

The ASEZA tasks are to include developing the area for investments, increasing job
opportunities and giving priority to Jordanians, and preventing monopoly of economic
activities. To achieve those objectives, the authority would have command over a wide
range of affairs including financial regulations in the region, labor issues, health
inspection, environmental protection, and project licensing as well as municipal affairs.

According to Article 13 of the ASEZ law, none of the council members, or their spouses
or sons, should have any “interest,” of any kind in the ASEZA, nor should they have any
“commercial ties” with companies or investors in the ASEZ. The authority will have an
independent budget, which will have be endorsed by the council of ministers. Any budget
surplus will be transferred to the national treasury. 35 To benefit from the financial

18
incentives, companies should register at the ASEZA, in which case they do not have to
register with the Companies Comptroller at the Ministry of Trade and Industry.

However, there were dissenting voices. Deputy Mahmoud Kharabsheh - who is a member
of the joint Legal Affairs, and Economic and Finance committees who recommended
endorsing the draft - charged that the project would “jeopardize the safety of the
country”.36 In a written statement presented to the House, Kharabsheh claimed that the
ASEZ would become “a stage for Zionist and foreign investments, [which will be
established] under different names”. He also warned that according to the law Israelis
will be able to buy land in Aqaba, and that Israel would dump its “environmental waste”
in the area.37

Later seeking to deny these and similar charges, the King in his first interview with local
papers since he ascended the throne said he was optimistic that Jordan would start to reap
the fruits of economic reform in 2001. He strongly defended plans for the ASEZ, and
dismissed some popular fears that the scheme will turn Aqaba into a self-rule haven for
money laundering, smugglers, and moral corruption. “As for those who are promoting
that this step will cut Aqaba off from the homeland or will change its identity and culture,
this is talk of the ignorant, as every inch of land, whether in Aqaba or else-where, is holy,
and I will not allow anyone to tamper with it,” he said. “Those who are spreading these
rumors should look at the experience of the Dubai Jabal Ali Free Zone Area” which has
attracted massive foreign investment and promoted trade. “We will provide Arab
investors with all possible incentives to encourage them to invest in Aqaba and across
Jordan,” the King added (The Cabinet had approved the draft the ASEZ plan and passed a
law that curbs the sale of land in Aqaba, which will depend on the “principle of
reciprocity” - thus effectively ruling out Israel, which bans land sales to foreigners38).

The government then moved to appoint a commission to manage the transformation of

Aqaba into a special economic zone by early 2001. The ASEZA includes five main
branches: “Administration and Finance”, “Customs and Revenues”, “Investment and
Economic Development” as well as “Land, Infrastructure and Services” in addition to
“Environmental Regulation and Enforcement”. Former Transport Minister Mohammad
Kalaldah was named Chief Commissioner, heading a team of technocrats from the private
and public sectors. The new commission's main task was to put in place the legislative
and administrative structures to launch the zone.39

However, this process did not go completely smoothly, and the government was seen as
“jumping into the deep end” with the ASEZ. 40 After King Abdullah had given the ASEZ
the go-ahead in April 2000, the speed of its implementation had aroused opposition in
Jordan.

19
Opponents were concerned about a range of issues, including the possibility of heavy
Israeli investment, moral issues (the possibility of the establishment of casinos, for
example) and fears that Aqaba’s special status will undermine Jordanian sovereignty over
a large area of the country. Imad Fakhoury, the ASEZ commissioner for investment, saw
the zone in different terms. ‘‘We expect the ASEZ to make Aqaba a key engine for
Jordan’s economic growth,’’ he said. Fakhoury added: ‘‘we want to see Aqaba deliver the
full potential of its existing infrastructure and serve as a gateway to the global economy
for investors. The combination of the ASEZ’s location, its incentives, its one-stop-shop
approach for investors and the opportunities opened up by Jordan’s easy access to the
world’s major markets, including both the US and the EU, should make it a great
business, logistics and leisure destination’’.41

Nevertheless, alarm bells continued ringing in Jordan over the ambitious government
plan for Aqaba into a duty-free special economic zone. Aqaba's proximity to Israel was
fanning passions. Aqaba was seen as “very sensitive” as it shares borders with Israel and
Saudi Arabia and is the country’s only port. Several MPs expressed concern that custom-
made legislation for the ASEZ will undermine sovereignty, consecrating “Aqaba's
separation from the rest of Jordan”. Deputy Salameh Al Hiyari was blunter. “It is as if we
will set up a state in a state”.

However, the then Deputy Prime Minister Muhammad Halaika strongly refuted
suggestions that Aqaba will fall prey to such evils. “Jordan's sovereignty in Aqaba will
not be undermined in any way. We are only trying to find an engine to create economic
growth... attract foreign investment and create jobs to overcome unemployment and
poverty,” Halaika said. Halaika is a former secretary general of the Trade Ministry and
led Jordan into the WTO after tough negotiations, for which King Abdullah decorated
him. Halaika added, “Investors come to a region wanting an easy export route, water,
manpower, infrastructure, good living conditions and easy investment procedures. Aqaba
is the only place in Jordan with those conditions”. Legal safeguards have been drawn up
to monitor the sale of land only to investors rather than foreign settlers and the
government is determined “to preserve Jordan's moralistic values and Arab and Islamic
culture”. “There won't be any investment without scrutiny or controls,” he said.

Lawyer Salah Bashir, a key architect of the legal framework for the Aqaba development,
argued that parliament, the prime minister and the cabinet will always have their say in
Aqaba. “The law is providing for specific provisions that relate to economic activity... the
rest of Jordanian law will apply,” Bashir said. “We are putting the legal framework that
will allow us to reap the benefits of the investment that has been done in Aqaba over the
past 30 years,” he added, also noting that the total revenue to the central government
budget from Aqaba in the late 1990s was “less than $1.4 million annually. The projection
is 20 times that per year”. 42
As 2001 began and the project moved too slowly, the King ordered the ASEZ Board of
Commissioners to expedite the legislative groundwork for the ASEZ, a process then
already weeks behind schedule. It was the first board meeting after the Cabinet officially
endorsed the ASEZ as the legal successor to the ARA and the city's municipality. “We
hope the ASEZ will bolster the national economy, cut unemployment rates and attract

20
foreign investment,” the King told the commissioners. Prime Minister Aburragheb
attributed the delay in launching the ASEZ on 1 January 2001, as initially scheduled, to
hold-ups in Parliament. He pledged to finalize the zone's bylaws and regulations by
January 25, on time for the official launching. The prime minister underscored the “need
to develop the [southern] region and support the country at a faster pace to the best of our
ability”.

Chief Commissioner Kalaldah re-assured the King that his team had drafted a full-
fledged “master plan” for the transformation of the country's sole maritime outlet into a
regional economic hub. By 25 January [2001], Kalaldah noted, the board would have
finalized 17 bylaws and 17 regulations as well as 18 memoranda of understanding with
various ministries. Part of the services provided by those government arms will be made
the responsibility of the new ruling body, as it will operate independently, except for
“foreign and defense affairs”. Likewise, Kalaldah added, the authorities would have
crystallized by then “the strategic plan and the operating budget” for the ASEZ. Only the
building code for the targeted area would take some more time before it is prepared.

Ultimately the Board of Commissioners would operate as a regulator of the ASEZ, and a
private sector shareholding company would be assigned as a “developer” to invest in
infrastructure and promote the ASEZ worldwide. With an expected capital of $100-$200
million, the “developer” would be a consortium of foreign and local investors including
the government.

The planning and inception efforts received foreign backing. By 2001, the government
has secured a three-year technical assistance program worth $15 million from the US
Agency for International Development (USAID) and another for 10 million euros from
the EU. Backed by USAID, the ASEZ Board started work on a 500-dunum QIZ opposite
the Aqaba Airport. An Internet site was also to be launched as part of a promotional
scheme to sell the project abroad.43

However, though such financial support may have made ASEZA’s emergence smoother,
eyebrows were raised in some quarters about other spending aspects of the Authority. A
petition signed by at least 40 Lower House deputies in early 2001 was presented to the
House Speaker, protesting what they called “unjust” appointments in the ASEZ, Deputy
Ziyad Shweikh said. Shweikh, an MP form Aqaba who initiated the motion, said he found
the recent appointments in the zone to be “unjust” because the employees' assigned
salaries “were very high” and that favoritism played heavily in their being hired. The
salaries they will get, he noted were “high compared to ordinary people”. “It is clear that
those employees are sons of officials and former ministers,” Shweikh charged.

However, the ASEZ Board of Commissioners Chairman Mohammad Kalaldah retorted

that the board adopted a “very transparent and systematic recruitment process. The jobs
were filled by employees of the defunct ARA and the Free Zone Corporation as is
stipulated by the ASEZ law”. He said a special company screened the applicants’ CVs
and when they were submitted for review to the board of commissioners, the names of
the candidates selected by the firm did not appear on the CVs “just to avoid such

21
allegations”. “We want to set an example of governance for the whole country and we
were extremely careful in that [matter],” Kalaldah said.

Shweikh also alleged that the employees would earn salaries of JD 1,200-1,700. “This is
very high,” the deputy said adding that the number of employees recruited at the ASEZ is
estimated at 250. The ASEZ board chairman countered that “only eight employees” will
get such salaries and those are heads of departments. He said the ASEZ had to offer such
salaries to attract applicants with high qualifications needed for “a high-profile project”.
He added that all the employees, whom he estimated at 170, were given a one-year
contract and will undergo “a trial” period of three months in which to prove their
capabilities. According to Shweikh, the petition also charged that Aqaba residents were
excluded from the appointments. “This project is very vital to Jordan, and we are being
optimistic about it. There should not be shortcoming[s] in it from the beginning. We hope
the prime minister will fix this,” the deputy said.

Kalaldah responded to the charge, saying that at least 20 percent of the 150 persons
appointed in the ASEZ customs department were Aqaba residents. He also added that the
commission has established a recruitment office where the commission is collecting and
working on the CVs of young university graduates from Aqaba to create a database that
would eventually put investors in contact with job candidates to match the investors'
requirements with the qualifications of the young job seekers. “We are trying to help
create jobs for the residents of Aqaba through the private sector, and looking to donors to
provide training skills programs to assist young Aqaba men and women in entering the
job market. We have had several meetings with these young professionals and are
working closely with them so that they benefit clearly from this initiative,” Kalaldah said.

Shweikh also said “the government could have seconded [more] experienced employees
from other institutions like the Ministry of Public Works or the Greater Amman
Municipality... the ASEZ appointed people who have little experience that could affect
the work in such a vital project,” he said. Again Kalaldah countered that the employees
were “extremely experienced” and have undergone special training and passed efficiency
tests. “Our minimum prerequisite was that all be university graduates,” he said.

Spending by the ASEZA was also an issue as signatories to the petition charged that the
ASEZ commission leased a building to house the ASEZ board of commissioners at an
annual cost of JD 100,000. “They could [easily] use the building of the ARA which can
be renovated and would allow for additional floors,” Shweikh noted.

The board chairman confirmed that the building was rented at JD 100,000 but added that
the building space was 12,300 sqms. “We absorbed three organizations and we had to rent
a building that would house all the employees. We were under pressure to launch the
ASEZ by the start of this year and we wanted to avoid building a new building,” he
said.44

22
Critics of the ASEZ’s economic aspects were also in evidence from outside the public
sector. A discussion of issues related to the ASEZ was initiated by, among others, the
Arab Bank’s then newly founded think tank, the Arab Bank Center for Scientific
Research. Its director, economist Taher Kanaan, ex-minister of planning in the Jordanian
government, took a somewhat questioning view of the new scheme, publishing articles to
that effect in Arabic and English.45 However, public skepticism expressed concerning the
ASEZ seemingly failed to make a significant impact.

On the other hand, behind the scenes it seems that some pressure was being exerted on
the ASEZ task force to limit the tax cuts within the Zone for fear of diversion of
investment from other parts of Jordan to the Aqaba. The Amman Chamber of Industry
was forthright in this respect.46

In any case, as the ASEZ moved to its formal launch, the scheme’s autonomous
administration and independent tax structure was seen by many others as having the
possibility to turn the city and its environs into a boom area. Unlike earlier plans for
Aqaba, the ASEZ methodology goes beyond the city to cover the region and everything
in it, including transport. The constellation of stakeholders that proposed the reform was
a powerful one headed by the King, though those who opposed it were also of some
influence. The interplay of these forces affected the design of the reform, but its
adoption in the form more or less foreseen by the King was a foregone conclusion in a
system like Jordan’s

In other words, the reform was top-down, initiated by a government genuinely wishing
to address a long-term development problem crisis by reform. In the process, the
government was not really reacting to pressures from various quarters, such as civil
society, the private sector and the media. Nevertheless the legitimacy of the reformers
and the political and institutional processes by which they pushed reform was not in
question.

IV. THE ASEZ MANAGEMENT AND IMPLEMENTATION

King Abdullah formally launched the ASEZ on 17 May 2001, in the presence of hundreds
of high profile Arab and international investors, representatives of aid agencies,
consultants, diplomats and Jordanian entrepreneurs; more than 400 enterprises had
already registered to operate in the zone since its “soft” opening a few months earlier.

23
Under the new system, the ASEZA is invested with authority over legal and
administrative affairs as well promoting the ASEZ both at home and abroad. The ASEZA
also shares power with some service ministries in Amman. For example, the ASEZA is
responsible for the provision of healthcare, in accordance with a memorandum of
understanding (MoU) signed with the Ministry of Health (MoH). The MoU stipulates that
the ASEZA is responsible for granting permits to medical and health-related enterprises.
It is also responsible for monitoring and evaluating hospitals, pharmacies, food
establishments, potable water and mineral water factories and laboratories. In other
words, the ASEZA is responsible for upholding national health and safety standards
throughout the Zone, and this applies to new investment projects - the maintenance of
recognized standards is intended to attract investors.

The MoH, on the other hand, remains entirely responsible for licensing medical
practitioners in the ASEZ. Services such as vaccinations, combating diseases, health
awareness and other issues pertaining to health centers remain under the jurisdiction of
the ministry. The acceptance, rejection or withholding of imported food consignments
also comes under the purview of the MoH.

King Abdullah thus officially brought to life a project that he nurtured since his early
months on the throne. The opening crowned a difficult but speedy legal and
administrative process in the hope of unlocking the potential of this port city as a regional
tourism, industrial and business hub. A bold integrated master plan for the development
of residential, tourism, light and heavy industrial zones, including schools, hospitals, a
university and business parks promised to change the face of the city of 70,000 residents,
expected to grow to 250,000 in the next two decades.

To answer the skeptics, the ASEZ’s first tourism project – worth $450 million - was
launched on the same day as the Zone’s official opening, with King Abdullah laying the
cornerstone for `Tala Bay' - an Egyptian-Jordanian joint venture for a marina town 14
kms south of the actual city. Built by Egypt's powerful Orascom Group, Tala Bay is to
include several hotels of all categories, villas and apartments, a school, commercial,
cultural, entertainment and sport centers, as well as an 18-hole golf course, and a marina
to accommodate over 70 boats.

Having formulated a master plan for the ASEZ, the ASEZA continued the process of
selecting a strategic developer that would implement the master plan, and develop needed
infrastructure and services. Once the developer is in, the ASEZA would confine its work
to legal and administrative functions and the promotion of the zone.

Fourteen companies answered the ASEZA's request for credentials, and proposals were to
have been submitted by mid-June [2001]. Some $200 million would be required for a
developer to carry out its mandate. The ASEZA would continue being in charge of all
legal and administrative functions and the promotion of the zone in the region and
abroad.

24
The ASEZA also addressed public concerns on environmental protection. The ASEZA
Commissioner for Environment Bilal Bashir said legislation for the protection of nature,
and aquatic life in particular, had been passed, while developers would be working in
conjunction with the Aqaba marine science station. 47 A major concern revolved around
the issue of conservation. Aqaba’s short coastline contains some of the world’s most
delicate ecologies. Since the oil-boom of the 1970s, Aqaba’s shoreline has been
increasingly subject to the needs of commerce. As a result, ports now occupy more than
40 percent of the shore, while industry, hotels, and private clubs occupy about 30 percent,
and the rest belongs to the government and public beaches.

Since its inception, legislation has been passed to protect the ASEZ’s ecology. Moreover,
the ASEZA has commissioned the Aqaba Marine Science Station to monitor the status of
the coral reef, with a view to satisfying ecological needs while pursuing economic
development. The ASEZA Commission of the Environment has managed to prevent an
ecological disaster from occurring along the Aqaba coast, so far. However, the pressure
on Aqaba to perform as a regional growth engine is growing at the same time as a culture
of environmental protection.48

Talks on the possible construction of a casino in Aqaba had drawn the attention of many
Jordanians, among fears that the venture would clash with national religious values and
provoke Islamic political movements and groups. “We have been approached by two
companies, one Western, one Arab, interested in building a casino,” Kalaldah said. “But
we have not looked into their requests, because we simply do not have the authority to
license a casino”. That would be, the chief commissioner said, “a major political
decision”.49

More innovation was manifested as telecoms and information technology companies had
asked for more decisive liberalization measures to ensure the success of the ASEZ at a
“town meeting” there under the chairmanship of King Abdullah. Liberalization measures
to be requested by the private sector included the request Jordan Telecom rescind its
exclusivity rights on fixed telephony services in the ASEZ's boundaries. “Major
multinationals could then be free to start call centers in Aqaba, as the cost of international
calls from there would decrease significantly”.

The meeting was “held behind strictly closed doors” and included some 50 people such
as the then Chief of the Economic Unit at the Royal Court Basim Awadallah, some
Cabinet members, the commissioners of the ASEZA, representatives from Jordan's
telecoms and IT companies, and regional and international investors.

That this closed, ‘elitist’ gathering was hardly a town meeting in the tradition of liberal
democracies was a point missed by the organizers. Otherwise, the meeting, which came
one day after the official launch by King Abdullah of the ASEZ, was an innovative
governance measure by Jordanian standards, bringing together as it did representatives of
the public and private sectors to discuss how to improve the investment climate in Aqaba.

25
In the same vein of innovation, the ASEZA was studying a request by a major investor
for licenses to operate a television station and an FM radio station in the country's sole
maritime outlet, Imad Fakhoury, the ASEZ commissioner for investment and economic
development, said. The ASEZA is still “studying this request in co-operation with the
pertinent government branch in the Information Ministry”.

According to the “Organizing the Investment Climate” regulation, one of 17 bylaws and
rules governing the ASEZ, certain spheres of investment must be dealt with in co-
ordination with the government and its related organs. Those categories include certain
activities in which the state has a monopoly “such as media-related businesses and school
certificates,” explained Fakhoury.50

A few weeks after the launch, new ministers entered the government of Aburragheb, who
fine-tuned his one-year-old government with a long-awaited shuffle that involved various
posts, notably releasing Tourism Minister Aqel Biltaji from his post. Biltaji was widely
tipped to take the helm of the ASEZA after Chief Commissioner Mohammad Kalaldah
had resigned a few days before.51 The King accepted the resignation of the head of the
Kingdom's flagship economic scheme as it moved ahead with plans to select a ‘strategic
developer’ for the ASEZ.

Six international companies had been "short-listed" to run and develop the zone. The
firms vying for the position included Hillwood Strategic Services, which belongs to a
group run by US industrialist and former presidential candidate Ross Perot and Jabal Ali
Free Zone International of the UAE. The other bidders included the US-based firm Fluor
Daniel, the British firms TCI Infrastructure Limited and Mersey Docks and Harbors as
well as the Greece-based Consolidated Contractors International. The winner was to be
selected on technical and marketing capabilities as well as on its capacity to bring in
investors and develop a zone that can bring in meaningful returns to the Jordanian
economy. It would run and operate the development corporation with an initial capital of
$150 million and eventually open up to other local and international investors.52

Of the six companies that were short-listed, only three submitted proposals: Hillwood
Strategic Services, part of the Ross Perot group of the US; Mersey Docks and Harbors of
the UK; and Athens-based Consolidated Contractors International. However, regional and
international events dissuaded Hillwood Strategic Services and Consolidated Contractors
International from submitting their bid on time.

The ASEZA had hoped to announce its choice of a strategic developer by 15 September
2001; however, it was compelled to extend the deadline until 25 October 2001 after two
of the three bidders asked for a deferment. Only one bidder, Mersey, made the October
deadline. As a result, the bidding process was suspended, only to be revived in spring
2002 in a slightly different form.

26
The events of 9/11 undermined the ASEZA’s vision of turning Aqaba into an international
tourist spot, as tourism in the region dipped to new lows. The effects of 9/11 went
beyond tourism. Transport companies in Aqaba increased their fees to cover their
premiums for operating in a declared war zone. The increase, which was reversed the
following year, was effective from 1 October 2001 and added $100 to the fee for a 20-
foot container heading to the Gulf or Asia, whereas the quote for a 20-foot vessel heading
to Europe and the US was increased by $125.

Eventually, in June 2002, the ASEZA chose Bechtel Corporation as an interim manager
and signed an agreement with the engineering giant to manage, market and promote the
Red Sea hub in conjunction with a private sector development company. Bechtel began
work in Aqaba in July.53

V. INITIAL RESULTS OF THE REFORM

The events of 9/11 dampened interest in the ASEZ. The Al-Aqsa Intifada had already
created an atmosphere of gloom, and the War on Terror added to the mood. So, was the
ASEZA moving too fast in the turbulent waters of the post-9/11 era?

27
Skeptics argued that the transformation of Aqaba into a Special Economic Zone lagged
behind initial expectations, but others insisted that the “best is yet to come”. “We have
just begun fast-track projects in the fields of tourism, industry and services” 18 months
into launching the zone, said the ASEZA Chief Commissioner Biltaji. He noted that the
government and the ASEZA have finalized “a solid infrastructure, sound legislation...and
a culture of governance where business licenses are issued in a one-stop shop”. With the
right level of support, the ASEZ could become “a pilot for successful regional economic
integration initiatives that are private-sector driven and that aim to increase the standard
of living as well as the quality of life for the residents of the region”, Biltaji added. The
realization of this vision, according to Biltaji, was “the raison d’être behind the creation
of the ASEZ”.54

In testimony before the US House of Representatives in late 2002, Chief Commissioner

Biltaji offered a “few examples to demonstrate the potential: developing the regional
Riviera whereby peace through tourism using Aqaba as a regional gateway can serve as a
true passage for historical and natural wonders to four neighboring countries; developing
the peace airport initiative with the Aqaba airport serving both the cities of Aqaba and
Eilat; developing a railway connection linking the Red Sea with the Dead Sea which will
bring Israeli and Jordanian Dead Sea products to the Gulf of Aqaba to be exported to the
markets of the Far East; developing the Red Sea-Dead Sea water conveyance system,
which will generate electricity, produce water, save the diminishing water levels of the
Dead Sea, and restore the biblical green meadows across the entire Araba Valley;
development of border industrial and business parks such as IT/cyber parks, logistics
parks, industrial parks that will be the incubators for regional joint ventures in businesses,
technologies and industries […] to enable Jordanians to be employed by the emerging
joint ventures; technological and vocational training that produces skilled workers that
can be plugged immediately into the emerging joint venture industries and businesses;
not to mention the need to create the needed social uplift in the ASEZ”.

He added, “We in Jordan stand ready to deliver this vision of regional economic
integration. We have to start with a strong core to be partners in a vibrant region, to reach
the world at large,” viewing the ASEZ as “a hub that will jumpstart the potential for
regional economic integration”. 55

Jim O'Gara, a senior consultant at TSG, the US firm that conducted the initial study for
the zone, was optimistic about Aqaba and future prospects. O'Gara stressed that the ASEZ
has outperformed expectations in spite of “very adverse circumstances in the market”
referring to the Palestinian Intifada and the 9/11 attacks. O'Gara singled out the ASEZ as
a project realized “in record time”. “The bylaws were actually passed in 8 months as
opposed to 2 years in other cases,” O'Gara said.
O'Gara, however, cautioned against unrealistic, buoyant anticipation. “The leadership has
set very high expectations from the government and the Cabinet,” he said. “Sometimes
the expectations are higher than they really should be from a zone like this”. For O'Gara,
who has gauged the feasibility of similar projects around the world, “a zone like this
normally takes five to seven years to become an effective tool for economic growth and
development”. Biltaji and Fakhoury pointed out that the UAE took at least 10 years to

28
turn Jabal Ali into a free zone. The ASEZA Commissioner for Investment and Economic
Development Imad Fakhoury cited a construction boom as progress. Fakhoury added that
Aqaba was the only part of Jordan where unemployment rates are declining.56

Irrespective of any role that the ASEZ could eventually play in local or regional
development, from a purely financial point of view, in its first year of operations, the
ASEZA boosted transfers to the state treasury by about 600 percent from less than JD 1
million in 2000, before the port city became a free zone, to more than JD 6 million in
2001. In the second year (2002), the ASEZA raised further its revenue transfers by 38
percent.

At a major international gathering in Jordan in 2003, officials from the ASEZA said the
two-year experience of the ASEZ stands out as a showcase for good governance. 57 One of
the ways in which this was being promoted was through civil scoitu activities.

The NGO scene in Aqaba was traditionally weak in drawing adherents and consequently
in its human, capital and institutional resource bases. Most NGOs had budgets that did
not exceed a few thousand JDs annually and those organizations were dependent on a
limited number of volunteers. The integration of NGOs in public development programs
– despite the official mandate of ARA to co-ordinate with them – remained low before the
ASEZ was set up. There were few cases of collaboration between NGOs and local public
authorities, however such attempts remain ad hoc and participatory initiatives come to a
standstill with the completion of the projects life cycle. NGO activities in Aqaba
previously concentrated on social service provision, such as running kindergartens,
nurseries and orphanages, providing care for people with special needs as well as on
vocational training and financial assistance.58

Under the ASEZ, the previous situation may now be changing. One example is in
developing the socio-economic role of women. To that end, the Aqaba Business and
Professional Women Association (BPWA) received a grant from USAID through the
Aqaba Technical Assistance Support Program (ATASP). Through a Small Grants
Program, the $86,000 donation aims at enhancing programs designed to increase
women's representation and participation in society and the different economic sectors in
the ASEZ.

The ASEZA Chief Commissioner Biltaji noted that the grant was essential for opening
opportunities for women of Aqaba, especially in tourism. The grant will help the BPWA,
a nonprofit voluntary organization operating since 1991, to launch and develop a
comprehensive training unit to provide coaching services and enhance the skills of Aqaba
women, in a bid to supply the ASEZ tourism with skilled labor.

29
Given the importance of tourism as one of the major areas of developmental concern and
attention, specialized training programs will be tailored to build the capacity of women.
The courses will focus on English language proficiency; competence in customer
services, hospitality and catering; and advancing communication skills and creative
thinking. BPWA President Layali Nashashibi indicated that improving the status of
women in society and encouraging them to take the lead in socio-economic development
as well as assume leadership and decision-making positions are among the main
objectives of the association.

The association will also start an Internet café for women only, to encourage them to
benefit from information technology to widen horizons and enhance their knowledge
base. “Exposure enables women to increase awareness and chances are they will be more
competitive in the labor market as viable partners in building society,” Nashashibi said.
The BPWA, the ASEZ's first and only business women association, is also laying out an
Arabic website and preparing advertising material to spread awareness and publicize the
association's activities. BPWA current membership stands at 35 working women from
different professional backgrounds. Since its inception 12 years ago, the BPWA has
operated without a physical location or a long-term strategic plan. However, after the
ASEZ was set up in 2000, members of the BPWA mobilized their efforts to strengthen the
association's operations with the goal of empowering women in different aspects of life,
particularly in the economic realm given the diverse opportunities that are now available
at the ASEZ.59

Education is also becoming a more important issue in Aqaba for both the public and
private sectors. Traditionally, Aqaba was not well endowed with good schools. However,
that may now be changing as for example the SABIS Corporation and the ASEZA signed
a MoU for the establishment of new International School of Choueifat in Aqaba. This
facility is being developed on a 60,000 square meters plot of land, in the vicinity of the
lagoon project in the town. King Abdullah stressed the need for a world-class educational
system to be in place for the Aqaba region to accommodate expected growth. 60 The
ASEZA will take over the education authority from the Education Ministry in the port
city by 2007 as part of the implementation of its strategy.61

In that respect as in others, the ASEZ is attracting reasonable business interest. The
number of the companies registered at the zone up till October 2001 was 761, increasing
to 810 by March 2002, reaching 849 in April 2002, and 1132 in November 2003.62

Initial plans for the ASEZ had called for tourism projects to make up half the new
investments in Aqaba, but how realistic is this in the present difficult business climate in
the region? Though efforts are now being made to attract Jordanian and other Arab
tourists to Aqaba, the medium-term outlook for such business remains unclear.
Meanwhile, many foreign tourists remain reluctant to visit Middle Eastern destinations,
including Aqaba.

30
A casino would serve the tourist market, especially visitors from the Gulf countries.
Casinos have proven to be lucrative investments in Egypt. However, the prospect of a
operating a casino in Aqaba has drawn criticism from many Jordanians. Conservatives
argue that a casino would import unwelcome values into Jordanian society. A
compromise solution might be to locate the project on a ship, somewhere off the Aqaba
coast. However, it is unlikely that a casino will be introduced until the regional
environment has changed.

Meanwhile, the answer for the ASEZ in the current climate might be to shift more
towards industry. The QIZ extraterritorial model has started to have an impact on
employment in light manufacturing sector, elsewhere in Jordan.

Among other important projects, the Dead-Red Canal, linking the Dead Sea with the Gulf
of Aqaba, is underway with terms of reference now being prepared by the World Bank.
The Dead Sea is around 400 meters below sea level, and is separated from the Red Sea by
desert. The Canal will connect the two seas – saving the Dead Sea from excessive falls in
its level - and provide major scope for tourism. However, the ASEZ’s jurisdiction covers
only part of the "Dead Red" canal area; the Jordan Valley Authority is responsible for the
remaining sector.63 The project received the backing of the emergency meeting of the
World Economic Forum, hosted by Jordan in June 2003, and this might add a new
impetus and clear the path for extending the ASEZA’s zone of the authority. However, the
proposal might run into trouble due to the inclusion of Israel into the overall project.

Israel has expressed its desire to invest in the Dead-Red Canal project and the new airport
in Aqaba. One notable methodology proposed by Israel for these and other investments is
that the land on which any such border-straddling schemes are based should be mainly
Jordanian. At present, this remains speculative, although there are indications that Jordan
is preparing to co-operate with Israel on the Canal project.

In an ideal world of perfect regional harmony, it would be unreasonable to ignore the

Israeli factor in the development of the ASEZ. However, in the present atmosphere in the
region, the juxtaposition of the ASEZ and Israel could prove problematic. It should be
recalled that Jordan was the first Arab country to confirm its participation in the Middle
East-North Africa Conference held in Qatar November 1997. Among most other Arab
states, Saudi Arabia, the UAE, Syria, Lebanon, Libya, and Sudan did not participate in
the conference. However, Jordan did participate, and it was there that projects with Israel
were advanced at the same time as the new methodology for Aqaba was presented.
One of those proposals involved a plan for Jordan and Israel to participate in the
construction of an Aqaba-Eilat airport, though several years later, that project is still
seemingly suspended.

Jordanian authorities have generally complained of the Israeli side not respecting the
terms of an agreement signed in July 1997. The agreement underwent a trial period of
four months, ending in March 1998; during that period aircraft bound to Eilat used the
Aqaba Airport and were treated as if they had taken off from or landed at Eilat. The
agreement stipulates that airport service fees paid by the Israeli carrier El Al to Royal

31
Wings, a subsidiary of the national carrier Royal Jordanian, will be equal to those charged
by Israeli airports, which amount to four times those charged by their Jordanian
counterparts.

For Jordan to refuse to co-operate with Israel would be difficult, but for the Jordanian
government to be seen to be leaning too far towards the Jewish State is no longer
acceptable politically among most sections of the population.

However, the ASEZA seems to be setting a different tone. Chief Commissioner Biltaji
stated last year that 10 percent of the containers coming through the port of Aqaba are
destined to Israel. Israeli and Jordanian scientists and experts meet regularly to improve
environmental protection of the Gulf of Aqaba. Model farms along the Aqaba Valley in
Jordan use Israeli agricultural know-how. Every day 200-300 Jordanian workers cross the
border to work in Eilat as part of labor protocol between the two cities, “which we
[ASEZA] are about to renew”. Eilat and Aqaba also implemented the initiative of the Red
Sea Marine Peace Park as a model for regional environmental co-operation, he declared,
adding that the ASEZ was created with the vision of regional economic integration in
mind and as a vehicle to create a critical mass of regional initiatives.64

Applying this vision practically, the major Israeli industrialist Stef Wertheimer in early
September 2003 signed an agreement to found an industrial park near Aqaba Airport in
Jordan, in partnership with other major investors. For the Aqaba industrial park,
agreements were signed to manufacture parts for DaimlerChrysler, Harmon International
(audio components)65 and two machine tool firms: South Korea’s Taguetak and
Germany’s Gildmeister.66

From the side of the public sector in Israel, Minister of Finance Benjamin Netanyahu
pushed an Aqaba connection with his project for a railroad crossing the Negev, a
"continental Suez Canal" linking the Mediterranean and Israel’s Red Sea port of Eilat.
Perhaps the most important aspect of the project for Netanyahu is its regional potential.
“We can go it alone, but we prefer working with Jordanian and Palestinian partners,” he
said. Netanyahu will propose to the Jordanians to “join the Israeli rail network… In
future, this will a part of a regional Middle East railway network”. 67.

Efforts at tourism co-operation also came from Israel, as Chief Commissioner Biltaji and
Israeli Minister of Tourism Binyamin Elon met in Aqaba late 2003. Elon and Biltaji
agreed that Eilat and Aqaba would jointly market the Red Sea brand (Egypt has recently
been marketing the Red Sea brand without co-operating with Eilat and Aqaba, including
at the World Travel Market convention in London 68 in November 2003 and in satellite TV
advertising). During that meeting, the Jordanians told Elon that there was no need to
build a new international airport for Eilat. They proposed that Israel use Aqaba
International Airport, only a few hundred meters from Eilat. Elon replied that Israel
needed its own international airport in Eilat,69presumably for military reasons.

32
Another newly promoted player in the ASEZA also has the background to deal with
Israel: Returning to Aqaba after a stint at the Royal Court in Amman, Imad Fakhoury in
late 2003 became responsible for several of the ASEZ portfolios, the first as Deputy
Chief Commissioner for the the ASEZA, the second for setting up and running the Aqaba
Development Corporation (ADC) that will be responsible to develop and manage the
zone (including land, infrastructure, ports, airport and utilities) 70 and the third to start a
process to gradually privatize the different port operations. Fakhoury was Director of
Research and Economic Affairs at the Embassy of Jordan in Israel in 1995-9, having been
selected by the Amman government as part of the first post-peace treaty Jordanian team
to set up the Jordanian Embassy in Israel. He was subsequently President and Chief
Operating Officer of the Century Investment Group (1999-2000) 71 a business that was
familar with Israel.

In a recent interview with an Israeli weekly, Chief Commissioner Biltaji was forthright
about the place of Israel in Aqaba. “Our mission is to make sure that people from Eilat
and Aqaba find a common denominator so that they can come closer to each other”.72 The
interviewer and author of the article was also quite direct in this repect when he noted
that “three years after stagnation in the relations between Aqaba and Eilat, something is
starting to move”.73

Investors from outside the Arab world have so far been scant in Aqaba. However, some
Western companies have shown signs of interest. 74 One firm, for instance, has indicated
its interest in building a casino in Aqaba. Irrespective of that so far illusory project or
others in the tourism sector, international investors will most likely operate in the Aqaba
QIZ, as they have done elsewhere in the Kingdom75. These will be needed to solve any
unemployment problems resulting from restructuring businesses in Aqaba. Aqaba has
managed to avoid the high levels of unemployment suffered by Jordan’s other southern
governorates76, partly by tolerating excess employment in such entities as the port. The
APC is a major employer in the ASEZ, and restructuring the port will affect Aqaba’s
employment environment. In a recent interview, Chief Commoner Biltaji said that of the
5000 persons employed in the Aqaba port, 2,000 are “uncalled for”.77 The presence of
major investments in the ASEZ should make re-employing redundant workers relatively
easier.

The prospect of inward investment should mitigate an increase in unemployment, but

regional events can play a determining role. The ASEZ permits up to 70 percent foreign
laborers,78 and it is under pressure to reduce the figure to 30 percent, and the prospect of
higher unemployment may accelerate this change.

The environmental dimension of public life in general and business in particular has
developed substantially in Jordan over the past decade; Aqaba has been no exception to
this trend. Jordan’s accession to the WTO, Euro-Med Partnership, and FTA with the US,
require the application of more effective environmental policies. This means that if

33
Jordan does not enforce environmental laws and regulations, its goods are in danger of
being rejected by countries with higher standards.79

The ASEZA is responsible for ensuring that businesses adhere to prescribed

environmental standards. The Aqaba Marine Park and Wadi Rum have been singled-out
for special attention. Tourism, transport, and other kinds of economic activity pose a
threat to the environment.

So far, the ASEZA has been keeping a strict eye on Jordan’s Red Sea shore. This is
crucial, because ecotourism may become a main source of income for Aqaba. The
Jordanian coastline is limited to a tiny stretch compared to other Red Sea littoral states
such as Egypt or Saudi Arabia. In addition, Aqaba remains a main hub for Iraqi transit
trade, not to mention a base for industry. For these activities to flourish alongside
ecotourism, the ASEZA will need to balance its interests carefully. An especially
important consideration for the ASEZ is the mining industry. Though production takes
place far to the north, the Jordan Cement Factories Company owns and operates a
terminal in Aqaba used for exports. The potash and phosphate industries are also
important for the Aqaba area, and this too has ecological implications.

The ASEZA’s efforts along these lines have so far been good, including the enactment of
several environmental legal measures to protect the region’s ecology. However, it remains
to be seen what will happen if a tourist boom occurs. With strict ASEZA control forming
the background for proper regulation, the Jordanian section of the Gulf of Aqaba could
support lucrative ecotourism, while sustaining other types of coastal investment, such as
industry.

In sum, for the environment as for other areas, the success of the ASEZ involves keeping
a careful balance among various factors while expansion and development of the zone
takes place.

The national reform process launched by the King in 1999, and being detailed by the
combined forces of the private and public sectors, anticipates deep structural changes in
five key areas: finance, legislation, administration, education and the judiciary. Though it
might be far too early to draw firm conclusions, one observer feels that the ASEZ is the
“first place [in Jordan] that the five reforms together are being implemented
[simultaneously]”.80
That the ASEZ methodology has so far emphasized economic development, with
governance less so may yet prove to be a complication. That a boom has yet to occur in
the ASEZ may in fact be a blessing in disguise, allowing the Jordanian public and private
sectors alike to adjust to new rules and methodologies.

34
VI. LESSONS & CONCLUSIONS

Has ASEZ eased governance or made it more difficult? The answer so far is unclear. For
example, in a recent complication, the question of the delineation of the authority of the
Governor on the one hand and that of ASEZA on the other has resurfaced. The newly
appointed Governor has made several statements in the past few weeks (late 2003-early
2004) suggesting that his role may once again be important in the region’s governance.
His authority had at first appeared to be confined to the rump left after the ASEZ was
detached from the old governorate.81 However, at least recent remarks by the Governor
seemed to suggest otherwise. On one occasion, the Governor is quoted as calling on

35
residents of a neighborhood in Aqaba and the ASEZA to work out a solution to overcome
obstacles related to the area's organizational plan.82 On another, he is reported to have
attended a meeting organized by the Land Transport Association to discuss solutions to
the congestion problem at the port of Aqaba.83

Potential weaknesses in ASEZ governance have also emerged at the management level in
ASEZA:

 The Management Team: The team has seen several changes. The president was
changed early in the life of the project. The investment commissioner left and
returned after spending time in the Royal Court. On his return he effectively
demoted his colleague, the infrastructure commissioner who also acted as deputy
president. In late 2003, both the finance commissioner and the customs
commissioners left. This leaves the environmental commissioner as the only one
to have kept his responsibilities unchanged since ASEZA’s inception. These
changes may have acted against building a coherent management team with clear
individual responsibility and accountability.

 The Position of the President: There is no doubt that the incumbent ASEZ
president is a high profile figure that enjoys the confidence of the Chief
Executive. However, insofar as he de jure reports to the Prime Minister there may
be a problem. For example, in a recent interview with Jordan’s leading newspaper,
Al-Ra’i, Chief Commissioner Biltaji seems to blame interference by “Amman’s”
private and public sectors for the Port’s problems. Confusion then might arise if in
any disagreement with the Prime Minister the Chief Commissioner appeals to the
King, thereby short circuiting the chain of command.

 The Aqaba Port: The port is clearly at the heart of the Aqaba region, and
therefore whatever else it may accomplish, the ASEZA must tackle issues related
to its problems. As of mid-2003, the port has clearly once again been in crisis.
Congestion at the port of Aqaba is now the biggest problem Jordanian
policymakers need to address. Ever since the beginning of July 2003, the APC has
been handling the highest volume of containers in its history; much of this volume
resulting from the shipment of humanitarian aid to Iraq.

This has meant that ships bound to Aqaba have had to queue much longer than
usual to discharge their cargo. As a result of these delays, QIZ manufacturers –
who remain heavily reliant on imports of raw materials – had no choice but to
look for alternative ports in the region, often more expensive than Aqaba.

The congestion also prompted international shipping firms to either suspend any
dealings they have with the port of Aqaba or simply impose extra charges on
containers destined to / or coming from Jordan’s only seaport.

ASEZA’s response came from the newly appointed deputy Chief Commissioner
Imad Fakhoury who presented his plans to immediately restructure and privatize

36
 the management of the container port (with the infrastructure remaining in the
hands of the state). Fakhoury described the step as “strategically very important to
Jordan, its economy and its in-transit trade”.84

Over the medium-term, plans are that the winning company will be required to
totally computerize the operations of the container port in order to save time and
boost the volume of work.

However, this process has so far not gone smoothly and the measure has been
postponed, indicating possible complications in solving the port’s problems. One
such complication is the need to start making people redundant. Other things
being equal, it could be no more than a year before unemployment becomes an
issue in the ASEZ. This in turn could exacerbate social problems, from which
Aqaba’s generally stable and conservative society has suffered less than other
parts of the Kingdom.85

The King personally intervened in this process and demanded that a plan be
implemented within 3-months to solve the container port problem. Calling for
intensified efforts to tackle the congestion problem, the Monarch said port staff
should receive more training to boost their efficiency.86

The head of state’s personal intervention is not rare in Jordan, but it usually comes
as a sign of crisis and the need to find urgent solutions. The process re-emphasizes
that individuals in Jordan often carry more political weight than institutions. In
any case, it remains to be seen what ASEZA’s direct role will be in solving the
port’s problems.

The main drivers of the governance reform explicit or implicit in the ASEZ, the
nature of the demand for it, who championed reform, and how the momentum was
created, all point to a top-down approach to improved governance. However, that may
after all be appropriate to Jordan in the present phase of its development. Processes by
which the ASEZ governance initiative was implemented have proven to be reasonably
smooth and successful, despite the complications inherent in transferring authority
among institutions that are overseen through nascent, timid democratic practices. Success
or failure, and lessons that can be learned from it, are probably still too early to be
determined.

The success of the ASEZ is dependent upon the ASEZA’s ability to balance competing
interests - human development, regional development, economic growth, environment

37
and the national interest. It is a very tall order. Without doubt, Aqaba has considerable
potential; and it could serve as an engine for the rest of the country. Hence, the ASEZA is
under tremendous pressure to realize its mandate. There is little room for disappointment,
as the government’s expectations are high, and the King has invested his own personal
prestige in the project. Regional events have given the private sector, and Jordan’s
population, time to adjust to the ASEZ’s new rules and methodologies, and given the
ASEZA more time to help prepare Jordan for globalization and balance the interests of
constituents.

The conclusion of the US-led War on Iraq has given rise to speculation that Aqaba will
once again become an important hub in the region. Jordan’s policy towards the US is
being rewarded, and that means linking Aqaba with Iraq’s new supply lines. Those behind
the ASEZ probably have something similar in mind for Aqaba. However, more serious
thought has to be given to the problems of the city’s port. The degree to which the
ASEZA helps tackle fundamental problems such as that of the port, or simply engages in
window-dressing gestures, will determine the longer-term success of the venture. 87 The
Israeli element could also be important if the US chooses to coax Jordan in the direction
of closer ties with the Jewish state.

The ASEZ has already attracted local and international investors in real estate and
infrastructure development, hospitality industry, utilities, education, distribution and
manufacturing, and is experiencing significant growth in tourist and commercial activity.
The ASEZ has the legal framework for private sector participation in utilities, real estate
development, the port, and key infrastructure projects. However, the difficulties involved
in such tasks should not be underestimated, nor should the need for governance in Aqaba
to catch up with the project’s development ambitions.

The partial answer to any governance difficulties that the ASEZ may have experienced or
would experience is to co-opt two important groups into the process: the private sector
and the people of Aqaba. Of course, these two may overlap. However, for the time being,
both are taking a back seat to public sector and external players who, though they are
working hard for the promotion and success of the ASEZ, may be turning the whole
project into a traditional Jordanian partnership between the higher echelons of the
government and foreign actors.
That Israel is one of the latter may yet prove to be a complication. That the US is also
heavily involved in the ASEZ has so far been a plus, but it remains to be seen how
Jordanians can be weaned off the extensive American aid that helped to put the whole
project together to begin with.

To allay some of these concerns, it would be interesting to redefine the posts of the
ASEZA Commissioners to bring in, formally or otherwise, one person from Aqaba. He
(or for that matter she) could play a valuable part in making the development of the
ASEZ more attuned to local sensibilities; at worst, such a step would defuse some of the
arguments that anti-the ASEZ forces have deployed in the past few years.

38
To end on a positive note, it must be admitted that the ASEZ is an exciting and potentially
valuable exercise in the development of governance in Jordan. However, its original aims
were more or less economic, with less consideration for social, demonstrative, or political
goals; whether that remains the case is perhaps the most intriguing questions that future
observers of the ASEZ will have to answer.

Bibliography

Petra News Agency, various bulletins

al Khouri, R “QIZs as a Model for Industrial Development: The Case of Jordan and Its
Implications for the Region,” Friedrich-Ebert-Stiftung, 2001, www.fes-jordan.org
“ASEZ: Perspectives and Prospects” 2001, www.fes-jordan.org

Al-Ra’ i various issues

Jordan Times various issues

39
Jordan Ministry of Planning, “Jordan, a Winning Business Destination: An Overview of
Economic and Business Opportunities,” The MENA Economic Conference, Doha, 1997.

Kanaan, T “ASEZ: an Economic Review,” Arab Bank Review, vol. 2, no. 2, October
2000.

Royal Scientific Society, “The Feasibility of Converting Aqaba into a Free Zone,” 1994

Hatter, S “ASEZ: Ambitious Dreams, Conflicting Realities,” Friedrich Ebert Stiftung,

2001 www.fes-jordan.org

The Services Group, “Aqaba Freeport and Special Economic Zone Study,” 1999.

Aqaba Special Economic Zone Website: www.aqabazone.com

Khouri, Rami “Jordan Governance Paper” World Bank, 2003

Statement of Chief Commissioner of the ASEZA Aqel Biltaji before the United States
House of Representatives International Relations Committee, 24 VII 2002

“Iraq replaces Aqaba with Syrian, Dubai ports for its imports” www.arabicnews.com 13
X 1998

Majdalani, R “Municipal Governance and Expanded NGOs Role in Selected Countries in

the Middle East” paper presented at the 3 rd Mediterranean Development Forum,
Workshop on “Institutional Reforms and Sustainable Development” Cairo, 2000

“European fund to improve Aqaba port” www.arabicnews.com 10 XI 1997

Al-Khalidi, S “Jordan King seen appointing new PM to push reforms” Reuters, 17 VI

2000

Burdette, J “Jordan's New Cabinet is Economy-Minded” US-Arab Tradeline, 23 VI 2000

“Jordan appoints body to manage the ASEZ” Reuters, 26 IX 2000

“Aqaba ASEZ” in the International Herald Tribune, 30 XI 2000

Agence France Presse, various bulletins

“Jabal Ali seeks development contract for Aqaba Economic Zone” Gulf News, 1 V 2001

Mughrabi, H “Jordan's port of Aqaba keen on success” www.arabia.com 9 X 2001

“ASEZ Model experience at World Economic Forum” The Star (Amman) 29 VI 2003

40
Globes [online] - ww.globes.co.il

eisenhowerfellowships.org/pages/ download/02multi/Fakhoury.doc

Levy, M “Eilat, Aqaba is coming after you” Erev: Erev In Eilat, 18 December 2003

ESCWA, “Foreign Direct Investment Legislation Reflecting Environmental Concerns in

the ESCWA Region,” (E/ESCWA/1997/11)

Endnotes

41
1
According to Article 4 of the ASEZ Law, “The perimeters of the Zone shall be determined by a
decision of the Cabinet upon the recommendation of the [ASEZA] Board. The Cabinet may amend
these perimeters according to the business requirements of the [ASEZ] Authority and the exigencies of
public interest”. For our purposes, it is important to note that, though these perimeters have been fixed
since the project was launched, they were the subject of some previous debate and may now also
possibly be subject to change.
2
The population of the ASEZ is not known with great precision: Despite its autonomy from the central
government of Jordan in several important respects, the ASEZ, after almost four years of activity, still
has no dedicated statistical department. The ASEZA has partly filled this gap by emphasizing
computerization in gathering and processing information, and transparency in its release and
availability. The Aqaba Technical Assistance Support Project, which is funded by USAID, has also
attempted to fill this gap, working for example on a Business Census for the ASEZ.
3

Downloaded from the ASEZ website: www.aqabazone.com

4
Provided that such appointments shall be endorsed by a Royal Decree
5

Statement of Chief Commissioner of the ASEZA Aqel Biltaji before the United States House of
Representatives International Relations Committee, 24 VII 2002
6

Ibid
7

The basis of the ASEZ as it exists today was in the study by US consultants TSG. In that 55-page study
the word “governance” is only mentioned twice, as opposed to, for example, the words “investment” or
“employment” which were mentioned dozens of times. This suggest that better governance, though
desirable, was a not a primary goal of this project. In fact, the report deals with governance in a rather
general fashion in a few paragraphs.
8

The World Bank - Social and Economic Development Sector Unit Middle East and North Africa
Region, Report No. 24425-JO “Jordan Development Policy Review: A Reforming State in a Volatile
Region” November, 2002 pp.16-17
9
For example, the rate of illiteracy in the Aqaba governorate is 24 percent – almost two and a half
times the national average (as cited in Tarawneh, K “Local government reforms in public sector
reforms process” a presentation made at the “Conference on Intergovernmental Fiscal Reforms in the
EU Member and Applicant Countries” in Ankara, Turkey, 6-8 October, 2003.
10
Brand, L “Jordan's Inter-Arab Relations: The Political Economy of Alliance Making”
11
“Iraq replaces Aqaba with Syrian, Dubai ports for its imports” www.arabicnews.com 13 X 1998
12

"Sector Report on Transportation", Export & Finance Bank - RESEARCH & STUDIES Investment
Banking Unit, February 2002
13
In December 1975, King Khalid made a three-day visit to Jordan ostensibly to win support from
Jordan and its then close ally Syria, for Egypt's Sinai disengagement agreement with Israel. Any
sympathy gained, however, appears to have been purchased, as only days after the visit, the Kingdom
promised to contribute $215 million to help implement Jordan's $2.3 billion 1976-1980 Development
Plan. The aid, to be provided in instalments over several years, was in addition to regular Saudi
budgetary support payments, estimated in 1975 at $36 million. To help further with development, Saudi
Arabia agreed to cede to Jordan a 14-mile strip along the Red Sea coast to allow for the expansion of
the port of Aqaba. Iraq had promised to help finance the expansion project, hoping to import up to
300,000 tons of transit goods per year through the port. Source: Brand, L “Jordan's Inter-Arab
Relations: The Political Economy of Alliance Making”
14
Since 1989, the exchange rate of the Jordan dinar has been approximately JD1.4 to the US dollar.
15

Majdalani, R “Municipal Governance and Expanded NGOs Role in Selected Countries in the Middle
East” paper presented at the 3rd Mediterranean Development Forum, Workshop on “Institutional
Reforms and Sustainable Development” Cairo, 2000
16

Royal Scientific Society, “The Feasibility of Converting Aqaba into a Free Zone,” 1994
17

Jordan Ministry of Planning, “Jordan, a Winning Business Destination: An Overview of Economic and
Business Opportunities,” pp. 14-17 The MENA Economic Conference, Doha, 1997.
18

Ibid
19

“European fund to improve Aqaba port” www.arabicnews.com 10 XI 1997

20

“King: Aqaba projects should serve higher national interests” The Jordan Times, 18 IV 1998
21

“In Focus: Aqaba Special Economic Zone”, Export & Finance Bank, RESEARCH & STUDIES -
Investment Banking Unit Issue 4, November 2000
22

The Services Group, “Aqaba Freeport and Special Economic Zone Study,” 1999
23
Ibid
24

Majdalani op cit
25

These are special industrial zones that give Jordanian exports manufactured within the preferential
treatment in the US market, provided they meet certain conditions, including having a certain
percentage of Israeli value added. For details see Kardoosh, M “Qualifying Industrial Zones and the
Quest for Sustainable Development: A Jordanian Perspective” Jordan Centre for Policy Analysis
(JCPA), forthcoming.
26

“Plan in the works to turn Aqaba into a special economic zone” in Al Ra'i, 10 IV 2000
27

“King endorses master plan to turn Aqaba into a Special Economic Zone” The Jordan Times, 21-22 IV
2000
28

See also below details of the Peace Airport project with Israel
29

Special Economic Zone project to change face of Aqaba, coast” The Jordan Times, 8 VI 2000
30

“Aburragheb tipped to form new government next week” The Jordan Times, 15 VI 2000
31

Al-Khalidi, S “Jordan King seen appointing new PM to push reforms” Reuters, 17 VI 2000
32

“Where did Rawabdeh go wrong?” The Jordan Times, 20 VI 2000

33

Burdette, J “Jordan's New Cabinet is Economy-Minded” US-Arab Tradeline, 23 VI 2000

34

However, the Governorate of Aqaba has resurfaced as a development institution, to care for the socio-
economic needs of poor villages outside the ASEZ (for details see Al-Ra’ i14 XII 2003)
35

Article 20- section C of the ASEZ Law (No. 32 of the year 2000)
36

It is not unusual in Jordanian political life for such seemingly contradictory positions to be taken by
the same person.
37

“Lower House approves the ASEZ draft law” The Jordan Times, 26 VII 2000
38

“King pledges to pursue modernization, democratization drives” The Jordan Times, IX 2000
39

“Jordan appoints body to manage the ASEZ” Reuters, 26 IX 2000

40

“Aqaba SEZ” in the International Herald Tribune, 30 XI 2000

41
Ibid
42

Jordan's “the ASEZ sparks concern” AFP, 31 XII 2000

43

“King urges expediting legislative groundwork for Special Economic Zone” The Jordan Times, 4 I
2001
44

“40 deputies protest `unjust appointments' at the ASEZ” The Jordan Times, 13 II 2001
45

Kanaan, T “the ASEZ: an Economic Review,” Arab Bank Review, vol. 2, no. 2, October 2000.
46

“The Aqaba Special Economic Zone (ASEZ)” in the Jordan: Country Report, Atlas Investment Group,
April 2001 pp 31-34
47

According to the ASEZA Commissioner for Environment Bilal Bashir interviewed by the author in
December 2003
48

According to the ASEZA Commissioner for Environment Bilal Bashir interviewed in December 2003
49

“Aqaba launched as special economic zone” Jordan Times, 18 V 2001

50

In 2000, the Jordanian government amended the radio and television bylaws to break its monopoly on
broadcasting and open the door for the private sector to enter this field. So far, however, the country has
only the Jordan Radio and Television Corporation, which is a government-controlled entity, operating
in this field.
51

“Cabinet reshuffled; Parliament dissolved” Jordan Times, 17 VI 2001

52

“Head of Jordan Flagship Economic Plan Resigns; List of Potential Developers Released” 9 VII 2001
AFP
53

“King briefed by Bechtel on the ASEZ development”, 28 IX 2002 Petra

54

Testimony by Biltaji op cit

55

Ibid
56
“The ASEZA outperforms expectations, but patience advised - consultant” JT, 5 VII 2002
57

the ASEZ Model experience at World Economic Forum” The Star (Amman) 29 VI 2003
58

Majdalani, op cit
59
“USAID grant aims at enhancing skills and participation of women in Aqaba” JT, 17 VII 2003
60

SABIS signs with the ASEZA for a new International School in Aqaba” Jordan Times 24-25 X 2003
61

Petra “the ASEZA to assume Aqaba education authority by 2007, 6 VIII 2003
62

Information provided by the ASEZA

63

See for example “Jordan Valley Authority Studies Construction of Canal from the Red to the Dead
Seas at a Cost of JD850 MILLION,” Al-Ra’i, 4 March 2002, for an illustration of the role of the JVA in
such schemes. In any case, the article is notably subtitled “Execution of Project is Linked to Political
Calm in the Region,” suggesting that implementation will not be soon.
64

Testimony by Biltaji op cit

65

“Stef Wertheimer seeks US finance for Middle East industrial parks”, published by Globes [online]
www.globes.co.il, 22 September 2003
66

“Peace through industrial parks” as cited in The Economist print edition, 18 IX 2003
67

"Netanyahu emulates Peres" as Published by Globes [online] - www.globes.co.il - November 13, 2003
68

"Israel, Jordan to jointly market Red Sea brand" as published by Globes [online] - ww.globes.co.il - on
November 27, 2003
69

Ibid
70

The ADC will be entrusted to carry out the implementation of the ASEZ Master plan and to ensure that
the development of the ASEZ is carried out in an integrated and holistic manner that maximizes
opportunities for private sector participation in the Zone. As cited in a power point presentation entitled
“Desalination Options in Aqaba Special Economic Zone Aqaba: Demands, Challenges & Technology
Solutions”, ASEZA Movenpick Dead Sea 8-19 August, 2003
71
 Information on Imad Fakhoury is from eisenhowerfellowships.org/pages/
download/02multi/Fakhoury.doc
72

Levy, M “Eilat, Aqaba is coming after you” Erev: Erev In Eilat, 18 December 2003, p 12
73

Ibid
74

See for example Al-Ra’i, 11 April 2002 for details of a meeting in Aqaba between Jordanians and
German businesses to discuss investment.
75

For details and a discussion of the issue of the nationality of investors in QIZs, see R. al Khouri, “QIZs
as a Model for Industrial Development: The Case of Jordan and Its Implications for the Region,”
Friedrich-Ebert-Stiftung, December 2001 (www.fes-jordan.org).
76

In 2002, the rate of unemployment in Aqaba stood at 16.1 percent, compared with 21.1 percent for
Ma’an, 20.5 percent in Karak and 19.4 percent for Tafila (Tarawneh, K op cit).
77

Erev Erev in Eilat, op cit p 14

78

According to the ASEZ website

79

ESCWA, “Foreign Direct Investment Legislation Reflecting Environmental Concerns in the ESCWA
Region,” (E/ESCWA/1997/11), pp. 30-31 Regarding trade and environment, the Jordan-US FTA
specifically contains an environmental clause that seeks to ensure that traded the goods and processes
involved in producing them are environment friendly.
80

Khouri, R “Jordan Governance Paper” World Bank, 2003

81

See endnote number 34

82

“Aqaba governor seeks solution for land issue” in the Jordan Times 14 I 2004
83

“Truckers end strike in Aqaba” in the Jordan Times 9-10 I 2004

84

“ASEZA floats tender for managing, developing Aqaba's containers port” in the Jordan Times 28 XII
2003
85

For a more sceptical view of ASEZA’s plans to privatize the management of the container port see the
statements made by Mahmoud Khatib, president of the Jordanian Ports and Clearance Workers
Association in the Jordan Times “ASEZA floats tender for managing, developing Aqaba's containers
port” 28 XII 2003
86

“King calls for plan in 3 months to tackle Aqaba congestion” in the Jordan Times 16-17 I 2004
87

See an interview with Chief Commissioner Biltaji in Al-Ra'i 8 XII 2003, in which he seems to blame
interference by “Amman’s” private and public sectors for the Port’s problems.