Jordan Compact

The Jordan Compact: One Year on

The Jordan Compact has no doubt helped the Kingdom better cope with the impact of the Syrian refugee crisis. But for it to truly live up to its promise, some changes will need to be made.

By Shaddin Al Masri

Following the signing of the Jordan Compact agreement in February 2016 at the Supporting Syria Conference in London, the Kingdom pledged to create 200,000 jobs for Syrians in exchange for aid and more favourable export terms to the European Union. While the agreement rightfully shows that refugees can prove to be an asset to a host state, it’s implementation on the ground has exposed some shortcomings.

According to the agreement, 52 Jordanian products are exempted from rules of origin stipulations on the condition that they are made up of at least 15 percent Syrian labour, and are manufactured in one of 18 special economic zones. Within two years, this minimum will increase to 25 percent of the production line.

As a result, government, NGOs and other relevant stakeholders have shifted their focus to employing Syrians within these special economic zones, particularly in factories that manufacture the eligible products.

While this shifted the perception of refugees to more of an opportunity than a liability, it does not properly harness their skillsets.

According to UNHCR data, around a quarter of Syrian refugees used to be employed in agriculture, which is consistent with many of them coming from rural areas in Syria. Another popular sector amongst Syrian refugees is construction, 16 percent of which had previously worked in this field.

While the Compact incentivises employment in the manufacturing sector, Syrian refugees in Jordan are not skilled in this field. Manufacturing and industrial jobs were not popular amongst Syrians, with less than 2 percent having previously worked in this sector.

Despite the Compact’s conditions, conversations with companies located in the industrial zones revealed that in the short run there is little incentive for many of them to hire Syrian refugees. One company reported that hiring Syrians subjects a company to additional levels of scrutiny from international organisations and government entities. Others reported low retention rates, with many of the hired refugees leaving the job within weeks.

Furthermore, the industrial zones are dominated by investments in the food processing (36 percent), engineering (17 percent) and textile (16 percent) sectors. The food processing sector, the highest value sector operating in the industrial zones, is not included in the agreement with the EU. Engineering firms, on the other hand, produce little exports as their work is mostly domestic or in immovable assets. As for the textile sector, only some textiles are included in the agreement. Altogether, this leaves these industries with little incentives to hire Syrian labour.

Finding customers in Europe also appears to be a struggle for companies. This is mainly due to high input costs that push up prices, meaning they are unable to remain price-competitive with markets that have cheaper water and electricity rates. When asked what could be changed in order to improve trade and business, one large-scale company, that had previously exported to Europe, mentioned the ability to install solar panels.

Electricity was mentioned as this company’s biggest cost, as they had electricity bills that averaged JD 50,000 per month. Considering that solar panel installation is an expensive venture that would cost JD 2 million, the company would need to access financing and loans. Since this venture does not have government support, it has been unable to do so.

While working to increase employment and production in manufacturing sectors will be beneficial to Jordan’s economy in the long run, the compact and its conditions are likely not going to be the strongest force in doing so. The condition of employing refugees, high operating costs for companies, and inability to find European customers are all contributing to difficulty in taking advantage of the compact.

In spite of the challenges related to the Jordan Compact, the manufacturing industry is an ideal sector to focus resources in. It is highly beneficial for developing countries to have a strong base of tangible goods production. This is especially the case with Jordan, a country dependent on a service sector that in itself depends on the surrounding political stability.

Moreover, the manufacturing sector creates many job opportunities, which is critical in tackling Jordan’s high unemployment rate, currently at 18 perJordan Compactcent. In this respect, involving Syrian refugees in this field is a strategic choice for Jordan, which the Jordan Compact rightfully pointed out. While it may not be the ultimate solution to Jordan’s economic shortcomings, it had the right idea and provides a framework that may be better altered in the future.