Jordan Looks to Revitalise its Digital Economy as an Engine of Growth

Jordan Looks to Revitalise its Digital Economy as an Engine of Growth

A newly launched roadmap for the development of Jordan’s ICT sector aims to attract capital inflows on the back of recent government moves to reduce the tax burden on companies operating in the industry.

At last year’s MENA ICT Forum in Amman, Majd Shweikeh, Jordan’s ICT minister, unveiled the REACH 2025 initiative, which aims to turn Jordan into a regional ICT center and give it greater relevance in global value chains.

As part of the strategy, the Ministry of Information and Communications Technology and the ICT Association of Jordan (Intaj) will work in conjunction with the private sector to bolster competitiveness, human resource development, access to finance, investor incentives, and IT development.

The ministry expects total sector revenues to increase by 25 to 30 percent through to the end of the program, from around $2 billion in 2014. This growth will be supported by the 5,000 to 7,000 new businesses the initiative hopes to help create by 2025, which is expected to have the knock-on effect of generating between 130,000 and 150,000 jobs.

This is a welcome development given Jordan’s unemployment rate of more than 15 percent.

However, under REACH 2025, which builds on an earlier REACH program that ran from 1999 to 2005, the digital economy isn’t expected to boost GDP until 2019, when the enabling environment is fully in place.

Prospects for the completion of the new program seem to be positive as Jordan’s ICT sector is one of the most developed and robust in the region, driven by 15 years of industry-friendly policy and a young, well-educated and growing population of digital consumers.

According to a December 2015 report by the Asian Century Institute, ICT is a major economic contributor and has seen its contribution to GDP grow from 9.7 percent in 2006 to 12 percent today.

The sector has also experienced a surge in mobile penetration and Internet usage on the back of strong demand for data. In the first quarter of 2016, Jordan posted a mobile penetration rate of 148 percent, according to the Telecommunications Regulatory Commission. It also reported that Internet access in the first three months of the year had reached 84 percent, or 8.1 million users, up from 76 percent in the same quarter in 2015 and 36 percent in 2008.

Although the Kingdom’s ICT sector has been built on a solid foundation, industry stakeholders have voiced their concerns regarding certain shortfalls, such as access to finance, investor incentives, and tax exemptions. Historically, the country’s ICT sector has faced a heavy tax burden, which was exacerbated by the decision to double industry taxes in 2013.

The government has since moved to ease the tax burden by announcing a series of incentives to boost the sector in April last year, including a sales tax and customs duty exemption for all services linked to software development, mobile applications, website portals, outsourcing, digital content and electronic games, IT training and e-learning.

With this change, goods and services taxes for ICT-related services will have a zero sales tax rate, while income tax on the same services will be lowered from the current 20 percent to 14 percent. The government also lifted all minimum capital requirements for foreign investors eyeing the ICT sector, making the country more appealing, according to Zain Asfour, membership and business development manager at Intaj. “This is enabling,” he said. “They are creating the right environment for companies to grow. When you have good legislation and an attractive business environment, companies will want to invest.”

REACH 2025 intersects with the country’s National ICT Strategy (NIS), which runs from 2013 to the end of 2017 and focuses on using ICT as a tool to encourage economic growth and job creation.

The NIS aims to generate $450 million in IT investment, reaching $3.15 billon in revenues for a 30 percent expansion over 2012, pushing IT-specific employment up by 30 percent from 2012 levels to hit 20,000, and bolstering Internet penetration to 85 percent.

Jordan is hoping that with its recently enacted tax incentives, both the NIS and REACH 2025 will further encourage both domestic and foreign investment over 2017, which should in turn attract private sector expertise to the industry and help the country begin to re-establish itself as a regional technology leader.