US embassy cable - 04AMMAN2553

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 
 
 
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SUMMARY 
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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. 
 
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AQABA: A MODEL FOR JORDANIAN GOVERNANCE 
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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. 
 
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DOING BUSINESS IN A DIFFERENT WAY 
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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. 
 
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POSITIONING AQABA TO SERVE THE IRAQ MARKET 
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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. 
 
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LACK OF CLARITY, COMMUNICATION RILES LOCALS 
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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. 
 
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INCREASED RED TAPE FRUSTRATES BUSINESS COMMUNITY 
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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. 
 
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COMMENT 
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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