Developing Aqaba - The Gateway to Jordan

UNCLAS AMMAN 002017

SIPDIS

SENSITIVE BUT UNCLASSIFIED
SIPDIS

STATE PLEASE PASS TO USTR
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TAGS: EAID ECON EINV ETRD EWWT PGOV SENV SOCI JO
SUBJECT: Developing Aqaba - The Gateway to Jordan

REFS: A) 04 Amman 2554; B) 04 Amman 2553


1. (SBU) SUMMARY: During a May 2-3 trip to Aqaba, the Ambassador
discussed the significant achievements in development of the Aqaba
Special Economic Zone (ASEZ) with local officials, shipping agents,
students, young entrepreneurs, scientists, and environmental
activists. The private sector has invested over US$2 billion in
large scale projects in real estate, airport services, logistics,
and the container port in Aqaba in recent years. A pending project
to relocate the main port further south and turn the current
property into a commercial and residential waterfront has lagged,
however, due to contract issues with the Jordan Phosphate Mining
Company. While economic growth has been the driving force in Aqaba,
local authorities recognize the need to ensure parallel social
development, address environmental issues, and build the necessary
infrastructure to support fast-paced development. Following the
motto "Build It, and They Will Come," the Aqaba Development
Corporation is positioning Aqaba to become a logistical hub that
will attract more business and investment, particularly in the
shipping industry which is feeling the impact of a drop in the
transit trade with Iraq. End Summary.

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Background
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2. (U) As described in reftels, the Aqaba Special Economic Zone is a
375 square kilometer area launched in 2001 as a duty-free, low tax
multi-sectoral development zone. It encompasses 27 kilometers of
coastline, Jordan's only sea port and container port, King Hussein
International Airport, and the city of Aqaba with about 100,000
people. The Aqaba Special Economic Zone Authority (ASEZA) manages
and regulates municipal functions for the zone; as a decentralized
agency, it enjoys relative autonomy from Amman, although any surplus
in ASEZA's budget returns to the federal treasury. The Aqaba
Development Corporation (ADC),a private shareholding company owned
by ASEZA and the GOJ, has the mission of implementing the King's
vision of turning the area into a leading leisure and business hub.


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Development Moving Forward
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3. (SBU) In a meeting with the Ambassador, ADC's CEO Imad Fakhoury
enthusiastically endorsed the scale of development plans in Aqaba as
"realistic" and achievable over the next 20 years. Comparing ADC to
the New York/New Jersey Port Authority, he said that ADC was able to
manage the initial challenge of building its departments and people,
experiencing lower than expected turn-over. With development plans
underway and largely financed by the private sector on a
Build-Own-Transfer (BOT) basis, he expected ADC to receive a "death
certificate" in ten years or possibly transform itself into a
monitoring body.


4. (U) Fakhoury noted that the private sector has invested over US$2
billion in projects in real estate, ports, the southern industrial
zone, and the airport since 2001, and projected that investment in
Aqaba will continue to grow to least US$3.8 billion. Investment
projects have included a $700 million public-private partnership to
upgrade and expand the container port, whose now-streamlined
operations were taken over by the Danish company APM Terminals. The
Tala Bay, Saraya, and Ayla real estate development projects are
under way with the goal of turning Aqaba into a resort destination
that rivals neighboring Red Sea resorts. A Logistics Village (USD
70 million) was launched through a BOT 21-year concession agreement
with Jordan's Kawar Group and Agility/OPM Singapore. A newly
constructed 70,000 square meters warehousing facility is also ready
for use.


5. (SBU) Fakhoury spoke proudly of the "world class," open skies air
airport in Aqaba, which is currently managed by Aqaba Airport
Corporation, a subsidiary of ADC, and earmarked for privatization in

2007. He also highlighted a new cargo terminal that he hopes will
attract more traffic to and from Iraq. The airport lost US$2
million initially, he said, but he expects it to go into the black
in 2007. Fakhoury also mentioned that the airport lost cargo
shipments to Turkey and the UAE when Russian aircraft were denied
entry due to noise levels. Although an exemption was eventually
given, Aqaba's airport lost credibility with the market in
Fakhoury's view.

Relocation of the Port Stuck
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6. (SBU) ADC's biggest challenge right now, according to Fakhoury
and Acting ASEZA Commissioner Dr. Bilal Bashir, is relocating the
main port further south to increase port capacity and turn the
current property into a cruise terminal and commercial and
residential waterfront, similar to those in Baltimore or Boston.
Fakhoury commented that the 300 hectares of port land represent the
most strategic real estate holding today in Jordan, and will be sold
to the highest bidder to subsidize the port relocation.


7. (SBU) Fakhoury said that the project is currently stuck due to
legal issues with the Jordan Phosphate Mines Company (JPMC),whose
lead investor is the Sultan of Brunei. He lamented that JPMC's
contract with the Government of Jordan (GOJ) gives the JPMC the
upper-hand, and said he will need to hold tough negotiations lasting
at least two to three months in order to gain agreement on moving
the berths. Another bone of contention for Fakhoury is that the GOJ
set fixed tariffs for the JPMC for ten years, after which time
tariffs can only be raised by the rate of inflation.

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Are Aqabites Benefiting?
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8. (SBU) During a meeting with the Ambassador, MP Mohammed Al Badri
addressed concerns of long-term residents of Aqaba. Al Badri
complained that development and investment in Aqaba, before and
during the ASEZA regime, was not benefiting Aqabites. ASEZA hired
few locals, and complained that they lack the skills needed in the
job force. Aqaba was becoming divided, he said, and he urged the
Embassy to encourage greater community development efforts by AZESA
in the future. Specifically he mentioned inadequate schools, lack
of a single university in the area, and the need for a full service
hospital (the Islamic Center Society is building a new Islamic
hospital next to the old public hospital - underscoring what Al
Badri considered insufficient social spending in Aqaba).

Economic and Social Development
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9. (SBU) The Ambassador raised Badri's concerns with the Acting
Commissioner for ASEZA, Dr. Bilal Bashir. The Commissioner
responded that there are two tracks of development in Aqaba -
economic and social. While economic development might be the
driving force, Bashir reassured the Ambassador that ASEZA is not
ignoring social needs such as upgrading schools and ensuring housing
for people who are expected to be relocated from the poor community
of Shalala by the end of the year.


10. (U) Instead of seeing real estate as a get-rich-quick prospect,
investors are showing increasing interest in corporate social
responsibility (CSR) programs that develop the workforce and benefit
their businesses, Bashir said. Fakhoury also highlighted community
development as a priority, noting that ADC has its own CSR
department that works with the Jordan River Foundation. ADC is
implementing programs in health care, women's empowerment, and
education, including $1.5 million in scholarships for 60 students
from the poorer old city. He expressed interest in starting up an
American University in Aqaba, and the Ambassador suggested looking
at some U.S. universities that might be interested in starting
branches in Jordan.


11. (SBU) Bashir believes that there are job opportunities for the
unemployed in Aqaba, but people remain resistant. ASEZA established
an employee center to help match employers with job-seeking
candidates. USAID is also providing assistance through vocational
training for entry-level jobs, such as for cooks and waiters, and
through university-level courses on the tourism and hospitality
sector.


12. (U) The Ambassador met with approximately 20 students and
graduates of the USAID-funded NAJAH program that connects
out-of-school young people to their community and the economy. The
participants reflected on how the program gave them confidence,
taught them basic job interviewing skills, and changed their
perception of their role in society. Some noted that they did not
know of the job opportunities available in Aqaba before the program,
and appreciated the chance to meet prospective employers. Others
who previously thought some of the jobs were not good enough for
them are now enjoying new-found employment in hotels and
restaurants.


14. (SBU) Bashir thanked the Ambassador for all the support that the
USG has provided the zone over the years through USAID. He
reiterated the fact that ASEZ is at a critical juncture and that
there should be no break in USG assistance provided by USAID
programs.

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Other Challenges to Development
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Infrastructure - Electricity and Water
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15. (SBU) The capacity of the infrastructure, particularly the
electrical grid, to support further development in Aqaba remains a
challenge. In addition to a USAID study on water, electricity and
housing that is near completion, Spain is providing a grant to do a
master plan on electricity requirements. Fakhoury mentioned the
need to think strategically about outsourcing municipal services.


16. (U) The Ambassador discussed with Bashir the pressure that
economic growth in Aqaba has placed on water resources. In
particular, the conversation focused on the need to use water from
the nearby Disi aquifer efficiently. Disi is a fossil aquifer that
serves as Aqaba's main source, currently supplying 17 million cubic
meters (MCM) annually. Bashir indicated that Aqaba has just
received permission to increase its withdrawal from Disi to 35 MCM
annually.


17. (U) The Ambassador inaugurated a USAID-funded urban landscaping
project that reuses treated wastewater. Efforts to demonstrate
treated wastewater applications in urban, industrial, and
agricultural landscapes have dramatically influenced public
acceptance of the technology that allows for greater efficiency of
Jordan's scarce water resources. Purple irrigation pipe, signifying
treated wastewater, can now be seen all over Aqaba. The Jordan
Phosphate Company in Aqaba is currently using large quantities of
treated wastewater in their applications. Today, Jordan uses
approximately 83 million cubic meters of treated wastewater in
urban, agricultural, and industrial applications.

Environmental Issues
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18. (U) During a visit to Aqaba's Marine Science Station (MSS),
where USAID has provided grants through the Middle East Regional
Cooperation (MERC) program to do research on the health of the
marine environment, MSS Director Marouf Khalaf indicated that the
bio-diversity of Aqaba's coral reef rivals that of the Great Barrier
Reef. Although Bashir commented that Aqaba is cleaner than it used
to be, most interlocutors in Aqaba expressed concern about the
negative impact of development on marine life.


19. (U) While pointing out the rich coral reef through a
glass-bottom boat, Fadi Sharaiha, Executive Director of the Royal
Marine Conservation Society, noted that a team of 75 divers recently
collected two tons of trash within 30 minutes, and voiced concern
about the port relocation damaging the virgin reef in the south.
Fakhoury acknowledged that moving the port south will do some damage
to the coral reefs, and said he plans to hold a town hall meeting in
mid-May to reassure environmental activists and the public of his
commitment to maintaining international environmental standards.
According to Fakhoury, ADC has funded studies on coral, and intends
to create an environmental fund to transplant coral. The Ambassador
also suggested that a public awareness campaign might help address
some of the environmental issues created by an expanding tourism
industry.

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Shipping Industry Ready to Take on More
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20. (U) The Board of the Shipping Agents Association met with the
Ambassador to discuss current challenges in the shipping industry.
Chairman Rudain Kawar noted that the Association enjoys good
relations with the ADC, with whom it has worked as a strategic
partner in privatizing the Marine Services Company and developing
the new Logistics Village. Kawar painted a positive picture of
Aqaba as the "Gateway to Jordan" and potential logistical hub for
the Levant. He noted that Aqaba has traditionally been an in-bound
port, which ultimately makes imports more expensive given that the
containers leave Jordan empty.


21. (SBU) Kawar acknowledged that three years ago, the container
port was in bad shape and poorly managed. At one point, ships were
forced to wait for nine days at port, causing significant congestion
and ship surcharges. Since APM Terminals took over, he said, the
port has dramatically improved, experiencing minimum shut-downs and
delays.


22. (SBU) Kawar asked that the USG encourage the use of Aqaba with
U.S. buyers as a shipping option for products coming out of the
Qualifying Industrial Zones (QIZs). He said that the shipping time
from Aqaba to the United States has now been cut to 20-21 days,
making it more competitive with the 18-day direct line from Haifa to
New York. In fact, Kawar indicated that Aqaba ended up shipping
about 250 containers per week when Haifa service was interrupted
during the 2006 conflict in Lebanon. The upgraded container port,
cheaper services, and improved customs operations, he argued, are
selling points for Aqaba. NOTE: In subsequent discussions with
Econoff, several investors in the Al-Hassan QIZ indicated that they
have only recently become aware of the improved shipping times, and
while they agree that Aqaba would be the more economical and
desirable option, they said that shipping agents need to do a better
job of selling their services and rebuilding trust. END NOTE.

Drop in Transit Trade from Iraq
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23. (U) Kawar indicated that in the past three months, there has
been a drop in cargo of about 12% that has only recently begun to
pick up. He opined that this is due to a general market slowdown
and lack of liquidity for traders importing goods, as well as rising
inflation of 6.4%.


24. (SBU) In general, Kawar believes the container port is
underused, particularly in serving Iraq. Kawar commented that the
transit trade with Iraq has dropped significantly. While this is in
part due to security, he noted that conditions in Iraq's western
province of Al-Anbar have improved over the last six months. In a
separate meeting, Fakhoury also confirmed that it is difficult for
Iraqis to drive into Aqaba, as the Army officers at check-points are
strict and have difficulty distinguishing between legitimate
business and security threats. Many Iraqis, Kawar added, are now
leaving Jordan because the GOJ is not renewing their residency
permits. Some of the shipping agents commented that this was a
mistake, given the positive contributions that many Iraqis have made
to Jordan's economy. The Ambassador assured the group that USG is
working with the Jordanian Government to balance security, business
and humanitarian priorities.

Competition from Syria
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25. (SBU) Kawar also argued that Aqaba is losing bulk cargo business
to Syria. In particular, he commented that Suez Canal rates - i.e.,
$4.75 per ton or $100,000 per cruise vessel - make the Aqaba route
uneconomical to some businesses, mainly for cargo coming from the
Black Sea and cruise vessels. As an alternative, Kawar said
companies are choosing to truck cargo by land through Syria, because
Jordan has an axle weight maximum of 20 tons per truck, whereas
Syria can ship as much as 60 tons per truck. He asked whether the
USG could assist in persuading the Egyptian government to lower Suez
fees for cargo destined for Jordan.

Slow Industrial Growth
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26. (U) Fakhoury noted that industrial growth in Aqaba has been
slow. The one textile factory shut down after its owner died.
There is a bid out for a sugar refinery, but the feasibility of the
sugar industry in Aqaba is questionable. Fakhoury also mentioned
that the Arab Free Trade Agreement does not apply to the Aqaba
Special Economic Zone, so investors tend to establish factories
outside Aqaba.

Comment
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27. (SBU) ASEZA and ADC have made significant progress in moving
forward development plans to turn this once sleepy port town into a
bustling tourist and commercial center. The local authorities seem
more in-tune with community needs today than in years past, although
they admit that more needs to done to bring social development in
line with economic growth and ensure that Aqabites benefit from
investment. Continued USAID assistance will be crucial in this
regard.

HALE