The Mediterranean Middle East and North Africa 2018

Chapter 9. Jordan

The foundations of SME policy: definitions, statistics and institutions

Jordan has made little progress since the publication of the SME Policy Index 2014. The main positive development back then was the finalisation of the National Entrepreneurship and SME Growth Strategy, developed with the support of the EU. Four years later, the SME Strategy is yet to be approved, funded and implemented. The SME Strategy puts forward an official definition of SMEs which would enter into force once the strategy is adopted (Table 9.1).

Table 9.1. SME definition in the SME Strategy

Type of enterprise	Employees	Turnover
Micro	1 to 4	≤ JOD 100 000 (EUR 115 438)
Small	5 to 19	≤ JOD 1 m (EUR 1 154 382)
Medium	20 to 99	≤ JOD 5 m (EUR 5 771 912)

Source: Jordan National Entrepreneurship and Small and Medium Enterprise Growth Strategy 2016-2020, p. 36.

On SME and entrepreneurship statistics, the main source of data continues to be the Establishment Census undertaken every few years by the Department of Statistics (DOS). The latest census was published in 2011 and the new one will be realised later in 2018.1 Furthermore, one of the main developments in this area over the past few years has been the creation of an SME Observatory hosted by the SME agency, the Jordan Enterprise Development Corporation (JEDCO). The SME Observatory collects data from different sources including the Establishment Census and the Global Entrepreneurship Monitor (GEM) and has published comprehensive studies of the state of SMEs in the country based on that data.2 It is also planning to launch a web portal to widely disseminate its information. The OECD is working with the DOS, the Companies Control Department, the Customs Department and others to improve the SME data collection and dissemination mechanisms under the MENA Transition Fund project SME Policy Effectiveness in Jordan.

The wider economic context in Jordan and its policy agenda continue to be highly affected by the large number of refugees escaping conflict from neighbouring Syria and Iraq. It is estimated that Jordan hosts more than 1.3 million Syrians, with 83% of them living outside refugee camps. To help the country to cope with this burden, the Jordanian government and the international community signed the Jordan Compact in 2016, which has provided concessional loans and preferential trade terms in return for opening the labour market to refugees. However, the actual effects of the Jordan Compact on job creation and entrepreneurship among refugees remain unclear. Furthermore, according to the consultations for this interim assessment, two of JEDCO’s flagship support programmes funded by donor money, the Jordan Upgrading and Modernisation Programme (JUMP) and the Jordan Services Modernisation Programme (JSMP), were closed due to the redirection of funds towards supporting refugees.

Jordan’s wider economic policy is also guided by Jordan 2025: A National Vision and Strategy,3 a long-term strategic plan to be implemented through three-year development programmes and development plans at governorate level. Jordan 2025 sets a number of priorities for private sector development including improving the business environment, increasing the availability of capital for growth, promoting clusters and SMEs. However, no clear monitoring and evaluation mechanism yet exists to track the effectiveness of Jordan 2025.

Concerning the institutional framework and co-ordination for SME development in Jordan, the Ministry of Industry and Trade continues to be in charge of enterprise and SME policy development, with the support of JEDCO. The Ministry of Planning and International Co-operation continues to be responsible for implementing the broader country development strategy and mobilising donor support, while SME policy implementation is delegated to a number of specialised agencies.

JEDCO, in its role of SME agency is supervised by a board of directors, chaired by the Minister of Industry and Trade and composed of representatives of key economic ministries and the private sector. JEDCO is identified by the SME strategy as the main SME policy co-ordination agency. Yet, the pending approval of the SME strategy has resulted in a reduced technical and financial capacity and a weak convening power for JEDCO to act as policy co-ordinator.

The SME strategy includes a complete policy framework covering six strategic pillars: 1) a more conducive legal and regulatory environment, 2) entrepreneurship awareness and culture building, 3) entrepreneurial skills and business development services, 4) access to finance, 5) innovation and technology adoption/development and 6) market access.

The SME strategy also puts forward a comprehensive governance structure that includes 1) a high-level committee (formed by relevant ministers, the governor of the central bank and private sector organisations); 2) a technical level committee composed of focal points in relevant public sector institutions; 3) an SME Advisory Committee composed of private sector and non-governmental organisations (NGOs), which are very active in providing SME and entrepreneurship support in Jordan; and 4) SME regional committees in each governorate. The SME strategy also foresees to designate JEDCO as the SME co-ordination agency and as the secretariat to the high-level committee. In this context, the OECD is working with JEDCO and other Jordanian counterparts in establishing the governance mechanisms of the strategy and in setting up a monitoring and evaluation mechanism.

In terms of public-private dialogue (PPD), the SME Policy Index 2014 noted that consultations were already a common practice through the Economic and Social Council which met at least twice a year. Furthermore, the preparation of the national SME strategy in 2013-2014 involved extensive consultations with different participants. However, the pending implementation of the SME strategy means that the PPD mechanisms foreseen in that document, especially the creation of an SME Advisory Committee composed of private sector and non-governmental organisations, are not yet operational. JEDCO and the OECD are currently working on making such mechanisms operational through the MENA Transition Fund project SME Policy Effectiveness in Jordan.

For further action: One of the most important areas of progress found by this interim assessment in terms of SME policy co-ordination and implementation is the initial establishment of the SME Observatory to better disseminate data and information on SMEs and entrepreneurship in Jordan. Yet the main stumbling block is the lack of implementation and funding of the SME strategy developed in 2013 and expected to enter into force in 2015. The strategy is intended to increase the synergies and impact of the various support measures; however, one of the key impediments for its execution has been the difficult political environment in the country and the constantly changing leadership at JEDCO, the SME agency. Furthermore, political and economic instability linked to the Syria crisis has shifted attention and resources away from existing SME programmes, and the sustainability of some of the actions taken is at risk. This is particularly affecting programmes that had been developed to facilitate finance and business support services for SMEs (see respective section below); therefore, future attention could be paid to avoid the reversal of actions taken and to step up support programmes. The role of JEDCO as SME policy co-ordinator and secretariat for the implementation of the SME strategy could be reinforced. The OECD is supporting Jordan in this regard through the MENA Transition Fund project SME Policy Effectiveness.

Improving the business environment for SMEs and entrepreneurs

The SME Policy Index 2014 recognised Jordan’s initial efforts to improve the regulatory framework and reduce the administrative burden for SMEs. These efforts were initially framed by the United States Agency for International Development (USAID) Jordan Economic Development (SABEQ) Programme (2006-2012) which laid the ground for a public-private Reform Steering Committee and three technical committees representing the regulating institutions and business associations. These committees implemented a pilot regulatory guillotine process although in very few areas (vocational licensing and construction permits) in order to systematically review, eliminate, and streamline business constraints and procedures.

After the closing of the SABEQ project and the ceasing of operations of the regulatory guillotine, a MENA Transition Fund project Jordan Economic Legislation Reform 2016-2018 continued to review and modernise laws and regulations in consultation with the private sector.4 This project takes the regulatory guillotine further by, among other activities, enhancing the regulatory reform unit at the Prime Minister’s Office to build its capacity to supervise reform activities; developing a comprehensive reform roadmap and identifying capacity building needs; and implementing the roadmap and conducting the capacity building. The project also aims to establish a regulatory impact analysis (RIA) mechanism to ensure the quality of new laws and regulations and the quality of regulatory delivery.

On the implementation of the SME test, a capacity building workshop was organised by JEDCO, the European Union (EU) and the project Enhancement of the Business Environment in the Southern Mediterranean (EBESM) in March 2016. The aim of the workshop was to raise awareness of international best practice concerning the measurement of the impact of new regulations on SMEs, the development of a simple SME test model for measuring the impact of new regulations on SMEs, and the creation of champions for the model who can initiate the development of the model in Jordan. However, an SME test is not yet in place.

Concerning the facilitation of procedures for the creation of new enterprises, the SME Policy Index 2014 noted that Jordan was one of the few MED economies to have a single identification number for firms, although this applied only for a few agencies (the Companies Control Department, the Chambers of Commerce and Industry, the Greater Amman Municipality, and the Income and Sales Tax Department). Back then, however, there was no online registration system, although the forms could be downloaded from the Companies Control Department website.

Since then, a Local Enterprise Support project (LENS) has been established by USAID to, among other things, improve business registration. It is currently working with the Ministry of Industry and Trade and the Companies Control Department to improve the efficiency of business registration process for SMEs. This includes upgrading the Companies Control Department’s server storage capacity to handle more data for registered businesses and developing a business registration manual (in co-operation with the Financial Services Volunteer Corps) that clearly outlines the registration process for different types of businesses in order to motivate people to formalise their businesses. The manual has been published and widely disseminated; however, there is no evidence on the impact of this initiative on new enterprise registration. Furthermore, there is no evidence on progress on online registration services and one-stop shops for companies’ registration.

In terms of bankruptcy, a new Reorganisation, Bankruptcy and Liquidation Law was approved in April 2018, aiming to establish a legal framework for distressed companies. Furthermore, the Doing Business indicators note that this is a particularly complex procedure in Jordan, with the lowest recovery rates in the MED region (USD 27.7 cents on the dollar, compared to over 71 in the OECD) and a cost of 20% of real estate.

For further action: In recent years Jordan has continued its efforts to improve the business environment by implementing donor-sponsored projects towards the establishment of regulatory impact assessments and an SME test. These efforts, however, remain initial and need continuation and formalisation beyond pilot projects. Indeed, the SABEQ project and the MENA Transition Fund project Jordan Economic Legislation Reform, as well as the initial efforts with the EBESM project to introduce an SME test should be continued and be translated into the implementation of permanent RIA mechanisms. This interim assessment did not find any details of how that will be achieved, though. Jordan could also move forward with the implementation of its new Bankruptcy Law, which, like the SME strategy, is pending final government approval.

Fostering access to finance

In terms of the legal and regulatory environment for access to finance, the SME Policy Index 2014 noted the existence of a credit register at the Central Bank, although its coverage was limited and individuals and firms could not consult its information. Since then, a new credit bureau (CRIF), was launched in December 2015. The new credit bureau aims to centralise and aggregate credit information on individuals and businesses provided by financial institutions, microfinance organisations, insurance companies, and eventually public agencies such as JEDCO. The credit bureau is intended to increase transparency of companies and to help to mitigate the information asymmetries that obstruct lending to SMEs. This would accelerate lending processes and minimise default rates. The credit bureau collects information from 39 sources and, according to Doing Business, covers 15.3% of the adult population, still much lower than the OECD average of 63.7%.

There has also been some progress in the establishment of a collateral registry of moveable assets. An Online Movable Collateral Registry was made operational on April 2017. This project is led by the Ministry of Industry with the support of the International Finance Corporation (IFC) and USAID. During its first phase, the collateral registry focused on leasing contracts. On May 2018, the Secured Lending Law was approved, which will allow the registry to provide services for a full range of assets and contracts.

The new Companies Law, which was approved in September 2017, contains provisions on venture capital. The Companies Control Department has begun working on the relevant regulations as identified in the Law, including those governing the registration of venture capital companies.

Regarding access to sources of finance for SMEs, the Jordan Loan Guarantee Corporation (JLGC) is the main body in charge of the provision of credit guarantee schemes for SMEs. The JLGC has a capital base of nearly JOD 30 million (about EUR 35.7 million) and provides five major programmes including an SME loan guarantee, export and domestic credit insurance, a microbusiness loan guarantee, an Islamic financing guarantee and a financial leasing guarantee.5 The JLGC is a well-established organisation producing regular reports on its activities.6 This interim assessment finds progress in the provision of credit guarantees by the JLGC, in particular the establishment of two special funds in 2016 to provide guarantees for start-ups. The first fund focuses on loans by commercial banks whereas the second one is devoted to loans extended by Islamic banks. These programmes provide a guarantee of 85% of the value of the loan for up to JOD 100 000 and a fee of 1%. In addition, JLGC also launched the Jordan Renewable Energy and Energy Efficiency Fund to provide a guarantee of 70% for households and SMEs to increase their use of renewable energy and reduce dependence on energy subsidies.

Other developments regarding access to finance include the continued operation of the Governorate Development Fund (GDF), which has supported 96 projects between 2012 and 2018. However, the staff of the GDF has been reduced due to budget constraints at JEDCO. In addition, the JLGC made efforts to set up an Early Stage Venture Capital fund to provide equity for innovative products; nonetheless, due to funding issues it has not yet become operational. The JEDCO’s Banking Window Programme was also closed due to funding problems.

For further action: Although some progress has been made over the past few years in terms of access to financing, the efforts are still very preliminary. On access to credit, a new credit bureau and an online registry of moveable assets have been established but have yet to become fully operational. Approval of the Secured Transactions Law will allow the implementation of phase II of the collateral registry. Furthermore, other sources of finance and initiatives such as the GDF, the JLGC’s early-stage venture capital mechanism and the JEDCO’s banking window have seen setbacks due to lower availability of resources for their operations. On the other hand, a positive development has been the expansion of the guarantees by the JLGC. A general message, though, is that several efforts for increasing access to finance for SMEs have been negatively affected by the slow pace of reforms and the more general difficulties resulting from the political and institutional environment in Jordan.

Nurturing entrepreneurship and SME growth

Jordan continues to have a diversified and extensive market for business development services (BDS) for SMEs. Some of the most important and active organisations in this regard include JEDCO, the Business Development Centre, several NGOs and private service providers, and the Business Associations and Chambers of Industry and Commerce. The information about all these support services is scattered across a large number of sources, although one of the missions of the SME Observatory established at JEDCO is to facilitate an easier access to this information.

This interim assessment finds that new business development services have been introduced since the SME Policy Index 2014. For example, a MENA Transition Fund project – the Accelerate with JEDCO programme – is supporting the establishment of a programme aimed at supporting high potential firms. This programme provides comprehensive business diagnostics to help SMEs and start-ups managers to identify barriers to growth as well as a business coaching support to overcome these barriers. At the time of writing, Accelerate with JEDCO had received 373 applications from all governorates in Jordan, an initial diagnostic had been made for 313 companies, 124 growth plans had been developed, 70 business managers had been coached, and 15 employees from JEDCO had become growth managers. Regarding financial assistance initiatives, USAID’s Local Enterprise Support Project (LENS) supports small business growth and provides direct support to micro and small enterprises. Also, JEDCO has launched the Rural Economic Growth and Employment Project (REGEP), which provides technical and financial support to small-scale farmers, farmers’ associations and producers and exporters of agricultural crops and SMEs.

The MENA Transition Fund project SME Policy Effectiveness in Jordan is working to increase co-ordination and dialogue among all these initiatives to enhance their impact. The framework used is based on the SME strategy, which is still pending approval but which provides a good agenda to achieve greater policy impact given the large number of support services and agencies already operating in the country.

Unfortunately, this interim assessment found that other flagship initiatives – such as the Jordan Upgrading and Modernisation Programme (JUMP) for industrial firms, and its equivalent for services firms (JSMP), operated by JEDCO – were closed due to lack of funding.

On SME access to public procurement opportunities, this interim assessment finds that the most important area of progress since the SME Policy Index 2014 is the ongoing work to establish an e-procurement system. This is based on the publication of an update of the Supplies Act concerning the implementation of electronic systems for government inventory management and for e-procurement. In this area, a new e-procurement system is being developed with the support of the Korean International Cooperation Agency (KOICA) with the aim of centralising information for procuring entities and for bidders/suppliers, including SMEs.

Some progress has also been realised in terms of SME access to international markets. In June 2015, JEDCO and the Higher Council for Science & Technology (HCST) signed an agreement with the EU Executive Agency for Small & Medium Enterprises (EASME) for Jordan to join the Enterprise Europe Network (EEN). They have set up a consortium to provide support for companies seeking to export, and to facilitate technology transfers and business and research co-operation. In 2017, the Amman Chamber of Industry joined the consortium. Nonetheless, Jordan is not yet part of the EEN.

Additionally, in July 2016, an agreement was reached with the EU to simplify the rules of origin set out in the EU-Jordan Association Agreement in order to incentivise integration of Syrian workforce in Jordan.7 But the challenge lies in implementation. By July 2017 some estimates reported that only eight firms had been deemed to meet the conditions and just two of them actually benefit from it.8

Several projects have been put in place to provide technical and financial assistance to support SME internationalisation. In September 2014, JEDCO, the International Trade Centre (ITC) and the World Bank launched the MENA Transition Fund project Development of SMEs Exports through Virtual Market Places (VMP) to develop e-commerce. The project is training export advisors and coaching exporting SMEs, and it has created an Inter-Institutional Committee on E-Commerce.

Finally, Jordan’s Economic Growth Plan 2018-2022 foresees the creation of an export co-ordination unit at JEDCO to provide technical support to enterprises seeking to export. JEDCO is expected to establish a fund dedicated to supporting and financing exports, introduce an export coaching program, and provide technical support to enterprises seeking to export.

For further action: Nurturing entrepreneurship and SME growth is the policy area where Jordan has achieved the most progress in this interim assessment. Positive results include the expansion of business support services, despite the closure of some programmes. The SME Observatory will have an important role in facilitating easier access to the disperse information on the diversity of these services. Jordan also could continue its efforts towards the full implementation of the new e-procurement system, which remains in pilot stage. Jordan could also move forward in joining Europe Enterprise Network to facilitate SME internationalisation. And to improve access the EU single market, it could also assess, with the support of the EU, what have been the barriers to the success of the initiative to relax the rules of origin.

Investing in entrepreneurial human capital

Since the last assessment, Jordan has demonstrated progress in deploying entrepreneurial learning in education. Entrepreneurial learning promotion is part of the Jordan Economic Growth Plan for 2018-2022 (JEGP), and a national event (the Generation Dialogue Program) in 2016 presented a platform that includes key bodies of the government, private sector, young entrepreneurs and international partners for discussing the importance of entrepreneurial learning for youth.

INJAZ9 supports the Ministry of Education and runs programmes in both public and private schools, such as the Company Start-up Program – Schools & Competition, which provides high school students with hands-on experience and practical training in business; the CP National Competition, which supports student teams in presenting their companies to a panel of business leaders and experts; and the My Entrepreneurial Project (MEP), which offers youth career opportunities in entrepreneurship and self-employment. The Business Development Centre (BDC) supports the application of the entrepreneurship key competence approach in vocational education and training (VET) schools. In co-operation with the Jordanian Ministry of Education, The BDC trained over the last period more than 120 vocational school teachers and technical community college instructors on the application of entrepreneurship key competence approach, thus benefitting 4,000 students in 20 pilot institutions. These initiatives are excellent examples of school‑enterprise co-operation.

Women's entrepreneurship training has become a policy priority, as reflected in the JEGP, and in the Strategic Plan for Empowering Women of the Jordanian National Commission for Women 2013-2017. In Jordan, only 3.3% of women are involved in entrepreneurship (JEDCO, 2017), and the share of firms with a female top manager is as low as 2.4% (World Bank, 2013). Jordan demonstrated substantial progress in addressing this critically important policy area. The Women Economic Participation conference addressed women's entrepreneurship development, and a number of studies have been published focusing on women's entrepreneurship, such as JEDCO's 2017 Women entrepreneurship in Jordan: women empowerment, and the 2017 EBESM report Women’s entrepreneurship & SME development in Jordan.

There are also publicly and privately funded programmes to support women entrepreneurs in the rural and urban areas. These include the BDC’s programme with the Ministry of Tourism for to enhance the local tourism capacity of women entrepreneurs; BDC’s business mentorship program, which focuses on training female graduates to be mentors (SEEDS); the Shorouq project, implemented by Etihad Bank to support financial services for women entrepreneurs, networking events, coaching, advisory services, and mentorship; and the Village Business Incubator, which promotes the role of rural women in economic development by encouraging them to establish micro and small enterprises far beyond traditional home or gender-based models.

In addition, Jordan has developed initiatives to provide training for the internationalisation of SMEs. One example is the activity of the Inter-Institutional Committee on E-Commerce, which provides independent recommendations to create an enabling environment for e-commerce, and supports SME internationalisation. Policy dialogue on skills development for SME internationalisation was advanced within an open policy consultation process that led to the National SME Strategy 2016-2020.

JEDCO has also been implementing SME internationalisation training programmes in the garment and services sectors. Information on training programmes and providers for SME internationalisation is extensive and publicly available from the key players: the Jordan Chamber of Industry, the National Fund for Enterprise Support (NAFES) and the BDC.

For future action: The Jordanian government should implement further system-level actions to embed entrepreneurship key competence in education curricula and teacher development in life-long learning perspective. National authorities could support practitioners’ efforts to apply advanced tools for the development of entrepreneurial culture, such as the European Entrepreneurship Competence Framework (EntreComp). In order to better support women's entrepreneurship, cross‑agency and cross‑sectoral efforts are needed, given it is a transversal issue. JEDCO could play a critical role, building on the strength of its programmes engaging the key policy partners both from the public and private sectors. In order to continue supporting training programmes for the internationalisation of SMEs, the government could consolidate its international trade policies, and support JEDCO in scaling up its activities on this field.

The way forward

Overall, Jordan has made limited progress in the implementation of the reforms identified by the SME Policy Index 2014. The reasons for this seem to be derived from the difficult institutional situation and the large inflows of refugees which have diverted attention and resources from SME development policies. The SME Strategy is still pending approval. Furthermore, as in 2014, Jordan continues to be greatly reliant on donor and international assistance, which is not necessarily negative as long as these initiatives are sustainable in the long term and lead to greater domestic capacities for policy design and implementation. Nonetheless, that sustainability is not very clear. In this view, the main actions put forward by this interim assessment are as follows:

• Moving forward with the implementation and funding of the SME Strategy, including reinforcing the role of JEDCO as secretariat for its execution. JEDCO and the OECD will continue advancing on this area, but the ultimate impact will depend on the actual enactment of the strategic document and its action plan.

• Advancing with the full-fledged establishment of RIA and the SME test.

• Moving forward with the full implementation of e-procurement, the joining of EEN and the maximisation of the opportunities provided by a greater access to the EU market for those companies which can benefit from the relaxed rules of origin.

• Entrepreneurship as a key competence should be better promoted in education curricula and teacher development in life-long learning perspective.

• Cross‑agency and cross‑sectoral efforts are needed to enhance women entrepreneurship, given it is a transversal issue.

• Training programmes for the internationalisation of SMEs, would benefit from consolidated international trade policies, and support to JEDCO to scale up its activities on this field.

Notes

← 1.  Department of Statistics, “Economic Establishments Census”, http://dosweb.dos.gov.jo/censuses/economic-establishments-census/.

← 2.  Jordan Enterprise Development Corporation, “SME’s Observatory”, www.jedco.gov.jo/Pages/viewpage.aspx?pageID=171.

← 3.  http://www.jordanembassyus.org/blog/jordan-2025-national-vision-and-strategy.

← 4.  Middle East and North Africa Transition Fund, “Jordan Economic Legislation Reform”, www.menatransitionfund.org/documents/jordan-economic-legislation-reform.

← 5.  The Jordan Loan Guarantee Corporation, www.jlgc.com/en/page/about-us.

← 6.  The Jordan Loan Guarantee Corporation, “Annual Reports”, www.jlgc.com/en/page/annual-reports.

← 7.  Decision No 1/2016 of the EU-Jordan Association Committee (19 July 2016), http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:22016D1436&from=EN.

← 8.  Ghazal, M. (24 July 2017), “Only two Jordanian companies benefiting from EU relaxed rules of origin”, The Jordan Times, www.jordantimes.com/news/local/only-two-jordanian-companies-benefiting-eu-relaxed-rules-origin.

← 9.  A youth-centred non-profit organisation established in Jordan in 1999 active in the European Union and worldwide, including in the Middle East, North-Africa and Pakistan.