Despite cross-border trade disruptions and taxation worries, Iraqi Business Council President Majid Alsadi believes that Jordan remains an attractive long-term investment bet for his members.
By Dina Al-Wakeel
With investments worth over $14 billion spread across multiple sectors, it’s hard to overstate the importance of the Iraqi business community in Jordan to its overall economy.
As President of the Iraqi Business Council, it’s Majid Alsadi’s job to attract more Iraqi investors to Jordan, strike business partnerships between Jordanians and Iraqis, and help solve some of the issues facing his Iraqi counterparts in the Kingdom.
Here, Alsadi, who is also CEO of Eastern Holding, outlines future plans for his own investments, as well as what needs to change to help the Kingdom capitalize on its reputation as a safe haven to improve its overall investment climate.
What attracts Iraqi investors to Jordan and how big are the Iraqi investments here?
Jordan has been a transit point since the 1940s, having accepted migrants from different backgrounds, cultures, and also investments that came with these migrations. So it has always been the center of attention of many investors due to the presence of large numbers of different communities that need services. When it comes to Iraqis in particular the first migration to Jordan—1.5 million Iraqis—was in 1991 after the invasion of Kuwait. During the many years that followed many Iraqis invested in light and medium industries specifically in food manufacturing aimed at the Iraqi market, which is ongoing to date. In addition to many Iraqi investments in sectors like banking, aviation, and pharmaceuticals, most of the Iraqi investments have been in the real estate sector, including malls and hotels. This was made possible after a law was passed that allowed those who bought real estate here to be given a residency and which we at the council have called for for many years and we thank the government for their consent. This has created a large movement in the real estate market.
I believe that having a number of middle class Iraqis owning money and wanting to live here is not a bad thing, we actually encourage that because they help move the economy, spending in malls, schools, hospitals, and restaurants at a difficult time for Jordanians as Amman is considered one of the most expensive cities in the region and living conditions are hard. So attracting a community that has the money to spend helps move the economy and His Majesty’s guidance has always been towards supporting and facilitating the residency for Iraqis. Keep in mind the decrease in their number from 600,000 to 120,000, 40,000 of whom are refugees, while 22,000 are businessmen and investors. The remainder is the middle class Iraqis from university professors to doctors and retirees, and they are really good in moving the economy.
What helped attract these Iraqis is Jordan’s stability, which is a huge blessing, and its proximity to the Iraqi market and other large markets.
I believe that the size of the Iraqi investments here, totaling $14 billion, is much higher than this number. Many of the Iraqi investors have businesses in Iraq but they live and have offices in Jordan, so the large credits worth billions for their projects in Iraq all go through the Kingdom, benefiting Jordanian banks and the Central Bank from the commissions, and these are not considered as direct investments. These are worth billions.
Jordan is a safe country that has three excellent elements; the banking sector, which has the most expertise when it comes to operating in Iraq—a market that can be complicated for many foreign banks. The health system is also excellent and so is the education system, these are the elements that any businessman with his family would consider when residing somewhere.
You own several investments in the Kingdom. Are there any expansion plans for these companies?
Our company is expanding in the hospitality sector to include more four and five star hotels in our portfolio besides the Millennium Hotel in Amman, which we cannot disclose yet. We are also expanding the Millennium Hotel by adding more rooms, hotel apartments, and conference halls. As for our investment in the airport we are also adding more flight simulators for pilots; all pilots that graduate enroll in our programs to train on Airbus and Boeing aircrafts, and then every six months they have to come back and train to renew their license. So every time new aircrafts are introduced into the market, we buy new simulators, which are quite expensive, costing between $15 to 20 million. We are currently negotiating to buy a simulator for the new 787 Dreamliner that would cost round $25 million.
As for airline catering, Alhpha, we are also planning on constructing a new state-of-the-art, automated building that would cost an additional JD20 million. So we are expanding most of our investments in Jordan.
The government was particularly criticized for privatizing profitable companies in the airport, such as Alpha and Jordan Airline Training and Simulation (JATS). How were these companies doing before they were privatized?
It is not looked at from the right perspective. When these were public entities they did not make profit. Now the government gets high returns, for instance we pay 9 percent of our revenues each year to the government. When we bought an 80 percent share in the catering unit in 2001 we paid $20 million and replaced it with debts worth $35 million in the UK, and we kept a 20 percent [share] for Royal Jordanian. The company’s revenues were $6 million per year with 500,000 to 600,000 in profits, today it sells more than $30 million with healthy profits. The government gets around $2.5 million in fees annually and RJ gets around $3 million in profits, which never happened before. So they are getting at least ten times what they used to make when it was fully owned by the government.
I believe privatization was a wise decision that was taken at a right time as in addition to the development of the product’s quality, there was also an increase in employment which went up from 250 to 850 employees. The same thing with JATS that had two old 25-year-old simulators, now we have six state-of-the-art simulators in new buildings. So privatization was an excellent step for the government and RJ. They focused on the core business, which is the airline, and took part in running the services.
But since most Iraqi businesspeople target the Iraqi market, how has the border closure affected their work? And did that closure which has been ongoing for two years lead to any businesses shutting down?
Of course it has, particularly the investors in the industry sector and we are one of them. We had to close our factory that produces water pumps due to the closure of the border that made us less competitive. We ship to Aqaba, then to Basra and then to Baghdad, making the route very long and sending shipping rates three times higher plus the delays. It now takes 60 days for the goods to reach their destination, as opposed to four days before the closure of the border. Insurance has become very high as well, so the competition is high and Indian and Chinese products are cheaper so we shut down our factory. Now we expect that the border will reopen soon, probably by the end of the year so we will reopen our factory whose employees now work in our other companies.
Some Iraqi investors also sought new markets through Jordan like the Gulf and Northern Africa. Some even started targeting the local Jordanian market for the first time, and some are waiting like us for the route to reopen. We have an advantage operating from here, which is the proximity with 500 KM only—and this was a competitive advantage against the Turks and other countries—in addition to the short shipping period, the cheap workforce, and the banking facilities which everyone envied us for.
Besides being a businessman who owns several companies, you are also the head of the Iraqi Business Council. What is the main role the council plays in Jordan?
The main goal behind establishing the council in 2006 was to take care of Iraqi investors and businessmen. First to facilitate their entry into Jordan with their families and help them sort out their residencies, second to suggest possible investment opportunities. We also help solve their problems mostly with the Tax Department, customs, and interior ministry. We also hold economic conferences with Jordanian businessmen and we help arrange partnerships between Iraqi and Jordanian businessmen who would like to enter the Iraqi market. Actually some of our honorary members are Jordanian businessmen. Our members are more than 500 in addition to 3,700 companies. We have certain criteria that apply to businesspeople before they are considered for membership; first they need to be living in Jordan, and they should own a company. The source of their money should also be well known.
What do you think of the new Investment Law?
No matter how advanced the law is there is always somebody who gets affected, so hence the criticism begins. We discussed the law amongst ourselves and with the MPs and they amended a few things. In its final form it looks good but it is not without any gaps, [particularly with] some of the clauses that have to do with trade mostly and with ownership. In general it is a good law.
What are some of the challenges that most Iraqi businessmen face running businesses in Jordan?
Talking about Eastern Holdings in particular, we offer a diversity of services, some depend on shipping and transportation, and others depend on the political situation in the region like aviation and hospitality sectors. When incidents happen in the region and then certain people consider Jordan as a part of the Middle East they stop coming here so it affects our hotels and the hospitality sector. It’s not only the taxes but the geopolitical situation in general that is the main hurdle for us. As things improve in Iraq and ISIS is defeated by the end of this year, especially in Mosul, we expect things will improve. The oil prices are another factor because Iraq’s budget was based on $45 per barrel, so $50 is good, they will have more liquidity. And with the opening of the road this will help us improve our work.
In the airport we have targeted some non-conventional markets like India and China. We will try to get Chinese pilots to come and train at our simulation center through direct RJ flights. Furthermore, four Indian airlines now train here instead of Dubai, which is our main competitor in this sector. This was possible due to the cooperation with the security apparatus that made it possible for these people to come and stay here.
As for local challenges first of all are the energy prices, which are very expensive. We pay around $1 million annually for the Millennium Hotel’s energy bill, and we pay another million for JATS, while with ALPHA catering we’re talking about $1.5 million. So a big chunk of these entities revenues go to energy bills.
To reduce our energy bill we thought of renewable energy first [inside] QAIA. As for the hotel we have been negotiating for a plot of land for wheeling and now we are looking at the new decision that [prevents the private sector from embarking on large renewable energy projects until 2019 due to the grid’s limited capacity]. The decision is good for the government since we as investors continue to pay high energy prices which hinder any investment, and the prices could increase further in the future. The multiplicity of taxes, and high interest rates on bank loans are also some of the main challenges to investment.
The high fees of construction licensing whether within Amman from GAM or any other [public entity] that each year increase their fees also affects the investor and their 10 or 15-year feasibility study. But we always communicate with the government and the Investment Commission to try and fix problems positively.
In general, Jordan is the only country that has investment opportunities. Even in the Gulf, including Dubai, the security situation is worrisome; their relations with Iran and the war in Yemen have affected the Gulf a lot when it comes to investment. Europe’s situation is bad with Brexit and the pound, and the Arab world is on fire, except for Jordan and Egypt to a certain extent. But in Egypt the pound is not stable and people are scared so that leaves Jordan with advantages that they should concentrate on and should reassure investors that these taxes and fees will not constantly change.
The regional instability has particularly affected the hospitality sector in the Kingdom. How are occupancy rates at your Millennium Hotel?
For the third year in a row we have enjoyed the highest occupancy in the Kingdom. During the Eid period our occupancy has reached 91 to 95 percent by guests from the Gulf countries, where the brand is well loved by Qataris, Bahrainis, and Saudis, in addition to tourist groups from Latin America. The hotel’s location in a commercial and shopping area with several restaurants and coffee shops is very important. We are also close to hospitals where many visitors from the Gulf seek medical treatment and end up staying in the hotel for two to three weeks. So our long-term occupancy is very important to us. There are also the pilots that come to train at JATS.
The government has also been trying hard to attract investors to the Aqaba Special Economic Zone. Are there any plans that you or any Iraqi investor could be interested in venturing there?
Hopefully we will organize a visit after the end of August when the investors are back from their summer holidays to see for ourselves the latest developments there and to invest the liquidity available. Currently bank interests are almost zero and many Iraqis have brought their money back to Jordan from Europe and other countries, so there is liquidity to be invested in projects with good economic sense.
How do you see the future of Iraqi investments in Jordan?
Iraqi investments in Jordan are here for the long-term. They are different than any other investor; they are here with their social network, their families and friends, unlike an investor from the Gulf who could sell their investments over the Internet. So their presence helps move the local economy and their priority is the security of the Kingdom. Those that left Jordan as investors left due to different reasons so they entered new markets like Lebanon or Turkey or Dubai and moved closer to their investments. But, nonetheless, they still maintained their residencies in Jordan.