MIXED SIGNALS OUT OF AQABA

UNCLAS SECTION 01 OF 03 AMMAN 000244

SIPDIS

SENSITIVE

USTR FOR NED SAUMS
COMMERCE FOR 4520/ITA/MAC/ONE/PTHANOS
TREASURY FOR PIPATANAGUL
DEPT FOR NEA AND PRM

E.O. 12958: N/A
TAGS: EINV ETRD PREF KPAL JO
SUBJECT: MIXED SIGNALS OUT OF AQABA

REF: A) 02 AMMAN 7255 B) 02 AMMAN 5331 C) TEL AVIV 183

SENSITIVE BUT UNCLASSIFIED; PLEASE HANDLE ACCORDINGLY


1. (SBU) SUMMARY: Over the past year, impressive progress in
a number of areas in the Aqaba Special Economic Zone (ASEZ),
much of it due to US Government support, is evident.
However, in areas in which USAID assistance has not been
deployed, significant obstacles remain, such as an
inefficient bureaucracy, a lack of transparency in Zone
transactions, and a vision that, while progressive, is at
times clouded by insufficient foresight and coordination.
The indications are that, while much headway has been made to
develop Aqaba as a model of transparency, deregulation, and
economic and social development, more work needs to be done
to make the ASEZ the model of progress that King Abdullah
envisioned when he inaugurated the Zone in May 2001. END
SUMMARY

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PROGRESS ON PAPER . . .
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2. (SBU) The Zone was inaugurated in May 2001, charged to
become Jordan's "gateway to global commerce and a premiere
tourist destination" with streamlined labor, investment, and
immigration procedures. The ASEZ is a tariff and import duty
free zone, includes a Qualified Industrial Zone (QIZ),and
reduced business income taxes and zero land and property
taxes for registered enterprises. Capitalizing on its
location on the northern tip of the Red Sea, the Zone's
"master plan" includes a coastal zone with tourism amenities
and attractions, retail and entertainment complexes, and
modern, expanded port facilities. The Aqaba Special Economic
Zone Authority (ASEZA),which administers the Zone, is made
up of six minister-level commissioners and is relatively
autonomous from the national government in Amman. The US
Government, through USAID, supports aspects of development in
the ASEZ through the Aqaba Technical Assistance Support
Program (ATASP),a capacity building effort.


3. (SBU) The Zone has made much headway since its
inauguration. In July, 2002 Bechtel was selected by the
ASEZA to market, manage, and promote the "master plan". The
ASEZA has implemented the concept of a one-stop shop for
investors, who formerly had to work through a number of
ministries to get business permits and license approved.
Since May 2001, 355 new enterprises, with total capital of
approximately $1 billion, have registered in the Zone, and
tax revenues have grown 620% since 2001. Cargo can now clear
local customs in thirty minutes, and cargo transit rose 29%,
to 720,000 tons, for the first three quarters of 2002. The
Aqaba Port Corporation (APC) expects to post record revenues
of $70 million for 2002, generating approximately $26 million
for the Treasury.

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. . . AND IN THE FIELD
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4. (SBU) After a five-month delay, progress is readily
visible at Tala Bay, a 2.7 million square meter tourist
resort project now under construction just south of Aqaba.
The five year, $440 million project will include a new
marina, a golf course, hotels, and condominiums, and
construction has moved ahead quickly since ground was broken
this summer. Shells of buildings and the outline of the
marina have sprung up since early fall, a strong contrast to
the plot of land that had lain idle for some time. ASEZA
officials told us that some of the beach-front condos have
already been snapped up, and the condo offering should be
fully subscribed in time for opening in 2004.


5. (SBU) The Aqaba International Industrial Estate (AIIE) is
coming in on time and on budget. With technical and
financial support from USAID, the engineering and
construction company ABB Susa has been working on the 530,000
square meter site since September 2001. The park is owned by
the parastatal Jordan Industrial Development Corporation and
has QIZ status for duty-free exporting to the U.S. We saw
the site October 2001 when it was nothing more than a
collection of working huts. Now the administration buildings
are finished, as is the water tower, utilities'
infrastructure, and new roads connecting the site to the Dead
Sea Highway as well as directly to Aqaba International
Airport. More importantly, light and medium industrial
buildings are ready for occupancy, and Parsons-Brinkerhoff
International, site managers for the AIIE, have signed
agreements with two companies to lease the buildings and some
adjacent parcels of land. In addition, through a
USAID-funded program in cooperation with the Aqaba Chamber of
Commerce, a sewing training center close to the AIIE is
nearing completion, and the first 100 trainees, all from
Aqaba, have been chosen.


6. (SBU) The remodeling and upgrading of Aqaba International
Airport is nearly complete. The airport, which has handled
everything from the Concorde to C-130s, now has four check-in
counters, an expanded lounge area, new souvenir and gift
shops, and a new restaurant. Airport Director Omar al-Minha
calls the airport "the Peace Airport", as foreseen by the
1994 Jordan-Israeli Peace Treaty, and is still hoping for a
time when his airport may receive planes previously bound for
Eilat, Israel, despite the obstacles currently in the way
(REFTELS).

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BUT OBSTACLES REMAIN
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7. (SBU) Outgoing Bechtel Project Director Bob Burnett
briefed the DCM on obstacles he saw to the fulfillment of the
ASEZA vision during a short visit to Aqaba in December.
Following up on previously-expressed concerns that there may
have been some "cherry picking" of choice parcels of Aqaba
land slated for development, Burnett said that Aqaba was a
difficult environment for Bechtel to operate in, given the
perceived inability of the commissioners to fully delegate
authority effectively. Consequently, he said, decisions can
be delayed, and that the concept of a one-stop shop is not
yet implemented. He added that, while the commissioners
themselves are competent, the next level and below of ASEZA
officials can be ineffective. Nonetheless, Burnett, who is
leaving Bechtel after 30 years with the company, said he
expected Bechtel to stay the course in Aqaba and to see the
project through. (Note: It is important to report that
Burnett's somewhat negative take is not shared by all, (or
indeed most) associated with the Zone and its development.
End note.)

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PLANNNING DOES NOT ALWAYS MATCH VISION
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8. (SBU) We also met Irving Yeaworth, a contractor for
Communications Strategies. Yeaworth's firm is building the
Hydraulic Motion Theatre, part of the Aqaba Gateway
Entertainment Center Project. In addition to the theatre,
which will feature a multimedia audio and visual journey
across Jordan, the complex purportedly will include retail
and souvenir shops, restaurants, and cafes. But while taking
us on a tour of the theatre, an impressive and elaborate
venue slated for a Spring 2003 opening, Yeaworth said that,
to the best of his knowledge, no other tenants had been
signed for the complex. He said it appeared that the
Center's ownership, a consortium of Jordanian banks and
individual investors, was not proactively managing and
marketing the project. For example, Yeaworth told us there
were some "vague plans" for an Italian restaurant, and that
he, someone with no restaurant experience, had been asked by
one of the owners if he'd be interested in running it, an
offer he said he declined. He said he found it strange that,
for such an important and prominent project, more had not
been done in terms of a coordinated strategy for the center,
a shortcoming he attributed to the dispersed nature of the
Center's ownership. (Note: The severe downturn in tourism in
Aqaba and the region suggests the current supply of tourists
would not come close to supporting the Entertainment Center.
Also, Jordanians would be the first to admit they lack
expertise and operational abilities in expensive business
ventures such as this. Hence the need for a Bechtel to pull
this all together. End note.)

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OF SLUMS AND SQUATTERS: DISLOCATION OR RELOCATION?
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9. (SBU) Shalala, the poorest neighborhood in Aqaba,
occupies prime real estate overlooking the city and the Red
Sea. Accordingly, ASEZA plans to move its inhabitants, many
of whom are squatters living in creaky, rusty shanties, to
land outside of the AIIE. The move would ostensibly open up
the hilltop for development and bring the Shalalans closer to
much-needed jobs that may materialize as the industrial park
grows. At present, however, neither ASEZA nor the Government
of Jordan have earmarked resources to make the move happen.



10. (SBU) During a tour of the area, Communities Habitat
Finance (CHF) Country Director Rafael Jabba told us that
people were moving into the neighborhood having heard the
government would "give them a free house." (Note: Econoff
noticed approximately 30 additional shanties that had gone up
since his last visit in September. End note.) Jabba pointed
out that the project was still in a pre-engineering phase,
and that much work on infrastructure and planning remained
before the Shalalans could be moved; in the meantime, he
said, the shanties would continue to expand. He estimated
relocation costs alone would be close to $15 million, not
including a $4 million flood control project that city
planners now realized was necessary. He added that not all
Shalalans wanted to move; some of CHF's clients in the
neighborhood were unsure how or if their small businesses
would survive relocation. Jabba is troubled by the
repercussions and social disruptions a forced move of the
Shalalans may bring, something the ASEZA wrestles with daily.


11. (SBU) Note: Shalala's population is a mix of Jordanians,
Iraqis, and Palestinian refugees. UNWRA estimates that
16,000 Palestinian refugees live in Aqaba, divided evenly
between Shalala and the Old City. UNRWA believes that up to
8,000 of the Palestinian refugees may be Gazans, who do not
hold Jordanian citizenship and do not qualify for government
services such as free health care. Other than one social
worker, two women's program centers, and quarterly food
distribution to 180 registered special hardship families,
UNRWA does not provide services in Aqaba. UNRWA staff, who
have conducted a survey of the Palestinian population in
Aqaba, reports that Aqaba is among the poorest and most
troubled Palestinian population centers. The UNRWA social
worker told refcoord she routinely encounters cases of drug
abuse, domestic violence, and sexual abuse of children,
social problems that, while they likely exist in other
Palestinian communities, rarely are discussed or are obvious
to the casual observer. Neither ASEZA nor UNRWA have
policies in place to address these issues, and it is unlikely
that this community's social problems will be solved by mass
relocation. End note.

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COMMENT
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12. (SBU) With USAID and USG assistance and support, Aqaba
has clearly generated some momentum as it strives to fulfill
the lofty, and sometimes burdensome, expectations placed on
it by the King, investors, and supporters. Evident and
impressive progress in Aqaba's physical plant must be
complemented by a transparent and streamlined bureaucracy, an
aggressive and well-coordinated marketing strategy, and a
perception among all Aqabawis that the benefits of the ASEZA
vision will trickle down. Otherwise, it may take much longer
for the vision to be realized than was hoped for in the heady
days of ASEZA's inauguration.

BERRY