Identifier
Created
Classification
Origin
04AMMAN2553
2004-04-01 14:36:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Amman
Cable title:  

AQABA SPECIAL ECONOMIC ZONE MAKES STRIDES, BUT

Tags:  ASEC EAID ECON JO KISL KWMN PGOV 
pdf how-to read a cable
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 03 AMMAN 002553 

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: ASEC EAID ECON JO KISL KWMN PGOV
SUBJECT: AQABA SPECIAL ECONOMIC ZONE MAKES STRIDES, BUT
HURDLES REMAIN


-------
SUMMARY
-------

UNCLAS SECTION 01 OF 03 AMMAN 002553

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: ASEC EAID ECON JO KISL KWMN PGOV
SUBJECT: AQABA SPECIAL ECONOMIC ZONE MAKES STRIDES, BUT
HURDLES REMAIN


--------------
SUMMARY
--------------


1. (SBU) The three-year-old Aqaba Special Economic Zone
Authority (ASEZA) has made significant progress in promoting
Aqaba's tandem appeal as a tourism destination and a
well-equipped industrial hub friendly to foreign investors
and the environment. ASEZA is based on King Abdullah's
vision for Aqaba as a model of governance for Jordan, based
on accountability and transparency. As such, ASEZA enjoys
almost complete decentralization from Amman, controls
municipal affairs in Aqaba, and owns 90 percent of the land
in the 375 square km area. ASEZA is positioning itself to
rival the neighboring Red Sea resort towns of Eilat and Sharm
al-Sheikh, and key to ASEZA's economic goals is showcasing
Aqaba as the gateway to the Iraqi market. Significant
challenges to its economic development plan remain:
attracting investment, creating jobs, improving
communications with the local business community, and
limiting the bureaucracy that manages its activities. Given
the King's personal stake in Aqaba -- and the USG's
significant financial investment in the project -- ASEZA's
success has broader implications for Jordan's (and the U.S.)
reform agenda.

This is the first of two messages resulting from a recent
visit by ECON, PA, POL and USAID officers to Aqaba. The
second will assess the social and regional challenges ASEZA
faces as it enters its next phase of development. End
Summary.

--------------
AQABA: A MODEL FOR JORDANIAN GOVERNANCE
--------------


2. (SBU) The transformation of the sleepy Red Sea port city
of Aqaba into an economically vibrant and decentralized
region under the guidance of the Aqaba Special Economic Zone
Authority (ASEZA) continues to make significant strides since
its establishment three years ago. As envisioned by King
Abdullah and with significant assistance from USAID, ASEZA,
the governing body of the zone, is mandated to manage,
develop, regulate, and oversee the needs of 90,000 residents
in the 375 square kilometer area (90 percent of which is
owned by ASEZA). It promotes itself as a governance model
for the country based on the principles of transparency and

accountability. ASEZA Commissioners say they seek to
maximize the benefits of the city's Gulf of Aqaba's port
location to challenge the tourist appeal of its Red Sea
neighbors in Eilat and Sharm al-Sheikh, as well as revitalize
the industrial sector.


3. (SBU) ASEZA has assumed complete responsibility for
municipal affairs and boasts many "firsts" among its
accomplishments. ASEZA is the first model for decentralized
authority from Amman. It is the first city to enforce a
stringent environmental regime. It also is home to the
first airport with an "open sky" policy. Aqaba is the first
municipality in Jordan to separate its development arm, the
Aqaba Development Corporation (ADC),from its regulatory
body, ASEZA. It is also the first to establish an industrial
park managed by an international firm.


4. (SBU) To infrequent visitors, the physical changes are
obvious. Dozens of new shops, cafes, and restaurants have
cropped up throughout Aqaba. The streets and public areas
are well-kept and clean while manicured landscaping and
attractive pedestrian areas dot the city. The public beach
area is freshly groomed and new construction projects --
large and small -- abound. Several multi-level indoor
shopping malls are under construction. The Lagoon Project, a
massive $500 million waterfront shopping, entertainment and
residential complex due to open in 2008, represents the
largest single source of foreign direct investment in
Jordan's history.

--------------
DOING BUSINESS IN A DIFFERENT WAY
--------------


5. (SBU) Attracting investment and creating jobs is one of
ASEZA's top priorities, and it forecasts 5,000-10,000 new
jobs in the Aqaba Qualified Industrial Zone and up to $90
million in additional investment. To achieve these goals,
ASEZA decided to spin off investment and commercial
development responsibilities to the ADC so that ASEZA can
focus more on regulating development, public health and
safety, security and immigration, the environment, and public
services. ASEZA Deputy Chief Commissioner and ADC Head Imad
Fakhoury notes that an inherent conflict of interest exists
when a single body is responsible for developing and
regulating the interests of the business community.


6. (SBU) Industrial development has taken a new approach in
Aqaba as well. A U.S.-based civil engineering subsidiary,
Parsons Brinckeroff International (PBI) Aqaba, is managing
the USAID-built Aqaba International Industrial Estate (AIIE),
and CEO Sheldon Fink notes that his company has taken a
different approach than other industrial parks in Jordan,
which have tended to build cookie-cutter factory shells and
then seek to lease them. PBI Aqaba works with prospective
investors to build process-specific factories from the ground
up. One year after site delivery, the infrastructure for the
first stage of the project is complete, and two factories are
operational. PBI Aqaba is negotiating with at least six
other prospective foreign investors, including an Indian
garments producer from Dubai, a Turkish ceramics company, and
an Israeli packaging firm.


7. (SBU) AIIE has its share of critics, however. Jamal
Zaitoun, Vice President of Aqaba's Chamber of Commerce,
complained that after a year, the industrial park has
virtually nothing to show for its efforts. Local businessman
Jamal Quteish minimized the criticism, however, saying that
residents are impatient for more investment and to average
people, building more factories equal more jobs, and thus
provides proof that the economic development plan is yielding
real benefits for locals. Fink noted that inaccurate press
about AIIE also has contributed to its image problem.

--------------
POSITIONING AQABA TO SERVE THE IRAQ MARKET
--------------


8. (SBU) Increasing the capabilities of the Port of Aqaba
will be key to ASEZA's success. Port Authority Director
General Saud Soror underscored to EmbOffs that Aqaba is the
main port of entry for Iraqi-bound goods, noting that
dramatic increases in traffic after the Iraq war -- coupled
by outdated and inadequate systems and equipment --
contributed to the port crisis last year. Despite the
problems, the Port experienced a 25 percent increase in
business in 2003. Aqaba's Port has three components: the
main port (handles rice, cement, passengers, and
roll-on/roll-off cargo); the container port (handled 300,000
containers in 2003); and the industrial port (handles potash,
salt, and 18,000 tons of oil per day). To improve the
capabilities of the container port, the ADC on March 9 signed
a two-year USAID-brokered management contract with the Danish
company APM Terminals. Soror noted, however, deficiencies in
Jordan's transportation sector -- particularly road
infrastructure and within the trucking industry -- is a major
hurdle to developing Aqaba.

--------------
LACK OF CLARITY, COMMUNICATION RILES LOCALS
--------------


9. (SBU) In meetings with a wide range of businesspeople,
politicians, community activists, and residents, most praised
the King's vision for Aqaba and expressed an understanding
for ASEZA's goals. However, they repeatedly expressed their
frustration that they have little say in important decisions
taken by ASEZA. Locals complain there is no mechanism for
regular consultation, such as town hall meetings. Aqaba's
members of Parliament appear to have taken the lead in
criticizing ASEZA, a point that has not been lost on the
Commissioners. Fakhoury acknowledges that relations with
the local community could be better, and that ASEZA needs to
reach out more. Outgoing Chief Commissioner Akel Biltaji
gave EmbOffs a sense of the tensions between the two sides.
He openly derided Aqaba's two MPs -- one of whom is an
outspoken member of the Islamic Action Front -- while
complaining about the developmental hurdles thrown up by the
more conservative elements of the zone.


10. (SBU) Jobs are a major issue of contention. ASEZA
officials say that finding qualified workers in Aqaba is
difficult. Even once trained, local employees often do not
meet expectations. They predict that 60 percent of factory
labor will have to be imported, despite what they say have
been sincere efforts to recruit locally. Fink notes that
some locals resent working long hours and have not proven
reliable (or retainable). However, during a meeting in his
home, Aqaba MP and IAF member Shaykh Bader al-Riyati said
that ASEZA is not taking advantage of a large pool of local
capable workers, choosing instead to "import" employees from
Amman and put them up at hotels during the week while they
fly back to Amman for the weekend, adding unnecessary costs
to AZEZA's budget.


11. (SBU) The high salaries of ASEZA employees are also a
major gripe. Businessman Ziyad al-Shweikh, a former member
of Parliament and local businessman who is building one of
the large shopping complexes in Aqaba, says that salaries of
all the leaders in the previous government -- municipality,
GID, PSD, and others -- combined equaled less than the ASEZA
Chief Commissioner. Aqaba MP Dr. Mohammad al-Badri says his
constituents regularly complain that ASEZA employees are
receiving disproportionately high salaries compared to local
employees holding similar jobs. According to al-Shweikh, an
ASEZA employee earning 800 JD monthly would only earn 200 JD
for the same job outside ASEZA. He says that residents have
no outlet for their complaints and resort to grumbling among
themselves or complaining to their MPs -- who themselves have
a poor relationship with ASEZA.

-------------- ---
INCREASED RED TAPE FRUSTRATES BUSINESS COMMUNITY
-------------- ---


12. (SBU) EmbOffs heard repeated complaints that ASEZA's
growing bureaucracy has complicated life for local
businesspeople who claim that ASEZA still is a source of
subsidized and non-market oriented services, including
preferential treatment of businesspeople, and a top-down,
non-consultative approach to regulation. Businesspeople said
they have difficulty navigating the multitude of new laws and
regulations, shared personal stories of exorbitant fees
assessed for supposed code violations, and complained they
have little recourse when seeking to protest a decision.
Businessman al-Shweikh complained that before ASEZA, an
entrepreneur could obtain permission within one day to begin
a project. Now, it can take as long as 12 months. He said
that he obtained his license for building his mall in 1995,
but was required to reapply and pay additional fees upon
ASEZA's establishment, which he understands. However, he
currently is disputing in court more fees exceeding $450,000
which he says ASEZA levied a year later. Despite his
difficulties, he continues to laud ASEZA's goals, saying the
organization's main weakness is poor communication.


13. (SBU) Despite efforts of the Commissioners to eliminate
the "wasta" factor in doing business, the practice seems
alive and well. President of the Aqaba Business and
Professional Women's Club and director of public relations at
the Movenpick hotel Liali Nashashibi says that local
residents frequently ask her to intervene on their behalf
when they are unsuccessful in obtaining help or clarification
from ASEZA offices. She says a more responsive attitude from
ASEZA employees towards the public would go a long way in
breaking down the image locals hold of ASEZA as an
unapproachable and aloof institution. Several interlocutors
say they are hopeful that the new ASEZA chief commissioner
will improve the situation.

--------------
COMMENT
--------------


14. (SBU) The creation of ASEZA is by far the GOJ's boldest
move to develop a prosperous economic foundation for
political and social liberalization to flourish in Jordan.
However, poor relations between ASEZA and the local business
community and a failure to increase transparency and
efficiency of ASEZA's functions provides an opening to
ASEZA's critics, including Aqaba's members of Parliament.
This point was hammered home during a recent visit to Aqaba
by Prime Minister Faisal al-Fayez and members of his cabinet,
who heard many of the same complaints from the local business
community. Given the King's personal involvement in
establishing ASEZA and USAID's significant financial
investment in this experiment, the future success -- or
failure -- of ASEZA will influence GOJ (and U.S.) reform
efforts more broadly in Jordan.

Visit Embassy Amman's classified web site at
http://www.state.sgov.gov/p/nea/amman or access the site
through the State Department's SIPRNET home page.
GNEHM