US embassy cable - 03AMMAN244

UNCLAS SECTION 01 OF 03 AMMAN 000244 
 
SIPDIS 
 
SENSITIVE 
 
USTR FOR NED SAUMS 
COMMERCE FOR 4520/ITA/MAC/ONE/PTHANOS 
TREASURY FOR PIPATANAGUL 
DEPT FOR NEA AND PRM 
 
E.O. 12958: N/A 
TAGS: EINV, ETRD, PREF, KPAL, JO 
SUBJECT: MIXED SIGNALS OUT OF AQABA 
 
REF: A) 02 AMMAN 7255 B) 02 AMMAN 5331 C) TEL AVIV 183 
 
SENSITIVE BUT UNCLASSIFIED; PLEASE HANDLE ACCORDINGLY 
 
1.  (SBU) SUMMARY: Over the past year, impressive progress in 
a number of areas in the Aqaba Special Economic Zone (ASEZ), 
much of it due to US Government support, is evident. 
However, in areas in which USAID assistance has not been 
deployed, significant obstacles remain, such as an 
inefficient bureaucracy, a lack of transparency in Zone 
transactions, and a vision that, while progressive, is at 
times clouded by insufficient foresight and coordination. 
The indications are that, while much headway has been made to 
develop Aqaba as a model of transparency, deregulation, and 
economic and social development, more work needs to be done 
to make the ASEZ the model of progress that King Abdullah 
envisioned when he inaugurated the Zone in May 2001.  END 
SUMMARY 
 
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PROGRESS ON PAPER . . . 
----------------------- 
 
2.  (SBU) The Zone was inaugurated in May 2001, charged to 
become Jordan's "gateway to global commerce and a premiere 
tourist destination" with streamlined labor, investment, and 
immigration procedures.  The ASEZ is a tariff and import duty 
free zone, includes a Qualified Industrial Zone (QIZ), and 
reduced business income taxes and zero land and property 
taxes for registered enterprises.  Capitalizing on its 
location on the northern tip of the Red Sea, the Zone's 
"master plan" includes a coastal zone with tourism amenities 
and attractions, retail and entertainment complexes, and 
modern, expanded port facilities.  The Aqaba Special Economic 
Zone Authority (ASEZA), which administers the Zone, is made 
up of six minister-level commissioners and is relatively 
autonomous from the national government in Amman.  The US 
Government, through USAID, supports aspects of development in 
the ASEZ through the Aqaba Technical Assistance Support 
Program (ATASP), a capacity building effort. 
 
3.  (SBU) The Zone has made much headway since its 
inauguration.  In July, 2002 Bechtel was selected by the 
ASEZA to market, manage, and promote the "master plan".  The 
ASEZA has implemented the concept of a one-stop shop for 
investors, who formerly had to work through a number of 
ministries to get business permits and license approved. 
Since May 2001, 355 new enterprises, with total capital of 
approximately $1 billion, have registered in the Zone, and 
tax revenues have grown 620% since 2001.  Cargo can now clear 
local customs in thirty minutes, and cargo transit rose 29%, 
to 720,000 tons, for the first three quarters of 2002.  The 
Aqaba Port Corporation (APC) expects to post record revenues 
of $70 million for 2002, generating approximately $26 million 
for the Treasury. 
 
----------------------- 
 . . . AND IN THE FIELD 
----------------------- 
 
4.   (SBU) After a five-month delay, progress is readily 
visible at Tala Bay, a 2.7 million square meter tourist 
resort project now under construction just south of Aqaba. 
The five year, $440 million project will include a new 
marina, a golf course, hotels, and condominiums, and 
construction has moved ahead quickly since ground was broken 
this summer.  Shells of buildings and the outline of the 
marina have sprung up since early fall, a strong contrast to 
the plot of land that had lain idle for some time.  ASEZA 
officials told us that some of the beach-front condos have 
already been snapped up, and the condo offering should be 
fully subscribed in time for opening in 2004. 
 
5.  (SBU) The Aqaba International Industrial Estate (AIIE) is 
coming in on time and on budget.  With technical and 
financial support from USAID, the engineering and 
construction company ABB Susa has been working on the 530,000 
square meter site since September 2001.  The park is owned by 
the parastatal Jordan Industrial Development Corporation and 
has QIZ status for duty-free exporting to the U.S.  We saw 
the site October 2001 when it was nothing more than a 
collection of working huts.  Now the administration buildings 
are finished, as is the water tower, utilities' 
infrastructure, and new roads connecting the site to the Dead 
Sea Highway as well as directly to Aqaba International 
Airport.  More importantly, light and medium industrial 
buildings are ready for occupancy, and Parsons-Brinkerhoff 
International, site managers for the AIIE, have signed 
agreements with two companies to lease the buildings and some 
adjacent parcels of land.  In addition, through a 
USAID-funded program in cooperation with the Aqaba Chamber of 
Commerce, a sewing training center close to the AIIE is 
nearing completion, and the first 100 trainees, all from 
Aqaba, have been chosen. 
 
6.  (SBU) The remodeling and upgrading of Aqaba International 
Airport is nearly complete.  The airport, which has handled 
everything from the Concorde to C-130s, now has four check-in 
counters, an expanded lounge area, new souvenir and gift 
shops, and a new restaurant.  Airport Director Omar al-Minha 
calls the airport "the Peace Airport", as foreseen by the 
1994 Jordan-Israeli Peace Treaty, and is still hoping for a 
time when his airport may receive planes previously bound for 
Eilat, Israel, despite the obstacles currently in the way 
(REFTELS). 
 
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BUT OBSTACLES REMAIN 
-------------------- 
 
7.  (SBU) Outgoing Bechtel Project Director Bob Burnett 
briefed the DCM on obstacles he saw to the fulfillment of the 
ASEZA vision during a short visit to Aqaba in December. 
Following up on previously-expressed concerns that there may 
have been some "cherry picking" of choice parcels of Aqaba 
land slated for development, Burnett said that Aqaba was a 
difficult environment for Bechtel to operate in, given the 
perceived inability of the commissioners to fully delegate 
authority effectively.  Consequently, he said, decisions can 
be delayed, and that the concept of a one-stop shop is not 
yet implemented.  He added that, while the commissioners 
themselves are competent, the next level and below of ASEZA 
officials can be ineffective.  Nonetheless, Burnett, who is 
leaving Bechtel after 30 years with the company, said he 
expected Bechtel to stay the course in Aqaba and to see the 
project through.  (Note: It is important to report that 
Burnett's somewhat negative take is not shared by all, (or 
indeed most) associated with the Zone and its development. 
End note.) 
 
-------------------------------------- 
PLANNNING DOES NOT ALWAYS MATCH VISION 
-------------------------------------- 
 
8.  (SBU) We also met Irving Yeaworth, a contractor for 
Communications Strategies.  Yeaworth's firm is building the 
Hydraulic Motion Theatre, part of the Aqaba Gateway 
Entertainment Center Project.  In addition to the theatre, 
which will feature a multimedia audio and visual journey 
across Jordan, the complex purportedly will include retail 
and souvenir shops, restaurants, and cafes. But while taking 
us on a tour of the theatre, an impressive and elaborate 
venue slated for a Spring 2003 opening, Yeaworth said that, 
to the best of his knowledge, no other tenants had been 
signed for the complex.  He said it appeared that the 
Center's ownership, a consortium of Jordanian banks and 
individual investors, was not proactively managing and 
marketing the project.  For example, Yeaworth told us there 
were some "vague plans" for an Italian restaurant, and that 
he, someone with no restaurant experience, had been asked by 
one of the owners if he'd be interested in running it, an 
offer he said he declined.  He said he found it strange that, 
for such an important and prominent project, more had not 
been done in terms of a coordinated strategy for the center, 
a shortcoming he attributed to the dispersed nature of the 
Center's ownership.  (Note: The severe downturn in tourism in 
Aqaba and the region suggests the current supply of tourists 
would not come close to supporting the Entertainment Center. 
Also, Jordanians would be the first to admit they lack 
expertise and operational abilities in expensive business 
ventures such as this.  Hence the need for a Bechtel to pull 
this all together.  End note.) 
 
--------------------------------------------- ----- 
OF SLUMS AND SQUATTERS: DISLOCATION OR RELOCATION? 
--------------------------------------------- ----- 
 
9.  (SBU) Shalala, the poorest neighborhood in Aqaba, 
occupies prime real estate overlooking the city and the Red 
Sea.  Accordingly, ASEZA plans to move its inhabitants, many 
of whom are squatters living in creaky, rusty shanties, to 
land outside of the AIIE.  The move would ostensibly open up 
the hilltop for development and bring the Shalalans closer to 
much-needed jobs that may materialize as the industrial park 
grows.  At present, however, neither ASEZA nor the Government 
of Jordan have earmarked resources to make the move happen. 
 
 
10.  (SBU) During a tour of the area, Communities Habitat 
Finance (CHF) Country Director Rafael Jabba told us that 
people were moving into the neighborhood having heard the 
government would "give them a free house."  (Note: Econoff 
noticed approximately 30 additional shanties that had gone up 
since his last visit in September.  End note.)  Jabba pointed 
out that the project was still in a pre-engineering phase, 
and that much work on infrastructure and planning remained 
before the Shalalans could be moved; in the meantime, he 
said, the shanties would continue to expand.  He estimated 
relocation costs alone would be close to $15 million, not 
including a $4 million flood control project that city 
planners now realized was necessary.  He added that not all 
Shalalans wanted to move; some of CHF's clients in the 
neighborhood were unsure how or if their small businesses 
would survive relocation.  Jabba is troubled by the 
repercussions and social disruptions a forced move of the 
Shalalans may bring, something the ASEZA wrestles with daily. 
 
11.  (SBU) Note: Shalala's population is a mix of Jordanians, 
Iraqis, and Palestinian refugees.  UNWRA estimates that 
16,000 Palestinian refugees live in Aqaba, divided evenly 
between Shalala and the Old City.  UNRWA believes that up to 
8,000 of the Palestinian refugees may be Gazans, who do not 
hold Jordanian citizenship and do not qualify for government 
services such as free health care.  Other than one social 
worker, two women's program centers, and quarterly food 
distribution to 180 registered special hardship families, 
UNRWA does not provide services in Aqaba.  UNRWA staff, who 
have conducted a survey of the Palestinian population in 
Aqaba, reports that Aqaba is among the poorest and most 
troubled Palestinian population centers.  The UNRWA social 
worker told refcoord she routinely encounters cases of drug 
abuse, domestic violence, and sexual abuse of children, 
social problems that, while they likely exist in other 
Palestinian communities, rarely are discussed or are obvious 
to the casual observer.  Neither ASEZA nor UNRWA have 
policies in place to address these issues, and it is unlikely 
that this community's social problems will be solved by mass 
relocation.  End note. 
 
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COMMENT 
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12.  (SBU) With USAID and USG assistance and support, Aqaba 
has clearly generated some momentum as it strives to fulfill 
the lofty, and sometimes burdensome, expectations placed on 
it by the King, investors, and supporters.  Evident and 
impressive progress in Aqaba's physical plant must be 
complemented by a transparent and streamlined bureaucracy, an 
aggressive and well-coordinated marketing strategy, and a 
perception among all Aqabawis that the benefits of the ASEZA 
vision will trickle down.  Otherwise, it may take much longer 
for the vision to be realized than was hoped for in the heady 
days of ASEZA's inauguration. 
 
BERRY