EBRD: Firms Need Greater Government Help

Jordanian firms need more government support to overcome challenges holding back greater competitiveness and innovation, including lack of access to finance, corruption, skill shortages, and over-burdensome taxes, according to a major new report from the European Bank for Reconstruction and Development (EBRD).

Hanan Morsy, the lead economist for the Southern and Eastern Mediterranean region at the EBRD, urged decision makers to work harder to support Jordan’s private sector. “The more [the government] can help with these constraints, the better the enabling environment that can be created to help firms innovate,” Morsy said ahead of last month’s launch of the EBRD’s 2014 Transition Report, which rates how well developing countries like Jordan are evolving into open, free market economies.

Morsy warned that government borrowing from local banks was still leaving little financing available for the private sector. But she did commend recent measures to carry out fiscal consolidation, which should make it easier for firms to access finance. Jordan’s “privileged position” to borrow abroad and issue bonds in Western markets will also prove beneficial. To encourage local banks to address the financing gap and assess clients differently, EBRD has approved $150 million of SME credit lines, with the first $40 million signed with both Bank Etihad and Cairo Amman last month.

But despite these hurdles to business growth, Jordan still fared well in other areas of the report, Morsy said. In terms of the percentage of firms that have new products, Jordan came out with 8 percent, which is slightly lower than the EBRD’s average of 11 percent. But in terms of firms that have new products and that take them to the global markets, Jordan actually did well relative to other countries, with 1.2 percent, three times the EBRD’s average.

Heike Harmgart, who leads EBRD’s Jordan office, said some of the sectors that are doing well in terms of innovation, includes the ICT and pharmaceutical sectors, which are creating jobs and finding foreign markets for their products. She also advised the government to consider easing the tax burden on successful sectors. “Sometimes Jordan has unfortunately said: ‘Let’s tax the companies that are doing well.’ I think it has shown that a lower but consistent tax rate across industries is a much more effective measure than taxing very highly a few industries.”