PPP pioneer has all the right moves – now it needs new partners

act.com

• Jordan has a long history of using public-private partnerships
• It has paid for key infrastructure, including Aqaba Container Terminal
• King Abdullah has unveiled plans for a new city, funded by PPPs

Jordan is a pioneer of public-private partnerships in the Mena region – and has been since the early 2000s, when the new Queen Alia airport was constructed under a PPP deal. 

Marquee developments such as Aqaba Container Terminal and a range of water and renewable energy projects have since been financed via PPP, says Hamzeh Al Alayani, a board member at Jordan’s Government Investments Management Company.

The shift from state balance-sheet spending to private investment is gathering pace as economic challenges limit Jordan’s fiscal headroom. 

At the start of 2023, King Abdullah announced plans to build a city from scratch, funded by PPPs. Construction of the as yet unnamed city is due to start in 2025.  

The commitment to private funding is also hardwired into Jordan’s Economic Modernisation Vision 2023-33, which aims to achieve annual economic growth of 5.6 percent and attract total capital investment of JD41.4 billion ($58.3 billion). 

The vision sets the country’s national investment strategy, says Al Alayani. This “includes sector and domain-specific investment plans, as well as the development of a viable PPP pipeline, enhanced investor relationship management systems and new initiatives to enhance Jordan’s international competitiveness”. 

It will also act as a catalyst for new PPPs worth JD10 billion.  

Nesreen Barakat, CEO of the Jordan Strategy Forum, believes a target of JD4.1 billion every year for a decade is realistic, given the mean annual amount of gross fixed capital formation during 2010-2021 was JD5.1 billion.

Yet with only 17 percent of the funds coming from the government, for Jordan to attract the remaining 73 percent from the private sector, “needs a concerted effort to create an environment that is conducive to business and investment,” says Barakat.

Despite Jordan’s experience in having PPPs deliver airports and solar energy parks – obtaining financing while managing the loss of state control that is sometimes involved – it has encountered some blockages. 

A lack of institutional capacity forced a rethink. With the help of the International Finance Corporation, part of the World Bank, it set up the Project Preparation Development Facility, which builds capacity within the government to make more informed decisions about PPPs and develop a strong pipeline of bankable projects.

In 2021, a dedicated Ministry of Investment was established, absorbing the Jordan Investment Commission and the PPP Unit. 

The Investment Environment Law came into effect in January 2023. Al Alayani says the legislation aims to unify all 18 regulations and instructions mentioned in Jordanian law, in order to facilitate investment. 

Other challenges remain. According to Barakat, “the problem lies in the nature of PPP projects themselves and the tools to make them happen.”

“Some of the PPP projects are long term and require huge amounts of funds, and I’m not sure that the private sector will participate given that we do not have an active bonds market in Jordan,” she says.

Special purpose vehicles

The private sector and the banks aren’t able to “freeze” their capital over long periods.

“This is why it is urgent that we develop our capacity to create special purpose vehicles,” says Barakat. “This requires developing the stock and bond markets. For any lending institution, it is not wise to keep a large amount of its assets – such as a loan to finance a PPP project – on its balance sheet.”

To avoid such a financial risk, a special purpose vehicle can isolate the asset and securitise the loan by selling shares and bonds to investors.

“Within this context, Jordan needs to focus on implementation and build on success stories to create momentum,” says Barakat.

“That will not happen without having a clear scope, strong governance and accountability, aligning incentives and managing risks, and most importantly building the capacity and capability of both the public and private sectors.”

Jordan should get plenty of opportunities to build this capacity.

The pipeline includes projects across sectors including desalination, clean energy, green hydrogen, fibre optics and schools, as well as transport improvements such as King Hussein Bridge and highway road tolls.  

The climate crisis presents another avenue where PPPs could work.

“The kingdom could also position itself to jumpstart new engines of growth by capitalising on its high potential for climate-resilient economic growth,” says Al Alayani.

“While Jordan has been a regional leader in climate change policies, capitalising on green growth pathways will require more government innovation to crowd in more private sector innovation to attract low-cost climate finance.”