While regional instability has negatively impacted Jordan’s economy, paradoxically the potential defeat of ISIS, also increases Jordan’s short-term political risks.
Earlier this month, Jordan revealed that a gunmen opened fire on a national intelligence agency office, killing five employees, including three intelligence officers. The shooting took place in the Baqa’a Palestinian refugee camp, one of the largest in Jordan. National media later reported that a suspect was arrested in the nearby town of Ain al-Basha, after residents reported that a stranger was acting erratically during prayers at a local Mosque.
Such violence is uncommon in Jordan, which is a close Western ally and considered a bastion of stability in one of the most violent regions of world today. Jordan’s central location and relative tranquility make it attractive for investors seeking a gateway into the Middle East market. But does the al-Baqa’a attack signal that Jordan is succumbing to the same instability that is undermining its neighbors in Egypt, Iraq, and Syria?
Jordan’s economy stuck in a bad neighborhood
On its surface, Jordan is an encouraging target for FDI. It has a relatively stable political system, anchored by a constitutional monarchy that is supported by the West as well as powerful Gulf neighbors. The country’s banking, IT, pharmaceuticals, tourism, and services industries were all subject to reforms in recent years, according to a 2015 business climate report issued by the U.S State Department. Moreover, the Hashemite Kingdom is relatively open to foreign investment, becoming a WTO member in 2009 and maintaining a free trade agreement with the U.S since 2000.
Jordan also scores above the regional average on a number of indices meant to capture the country’s openness to business and investment. The Kingdom placed 113th out of 189 countries on the World Bank’s 2016 “Doing Business” score, above the regional average for the Middle East and North Africa but far below countries like the UAE, Turkey, and Kuwait. Similarly, Jordan also scored above average on the World Economic Forum’s “Global Competitive Index”, which highlighted the country’s healthcare system, primary and higher education, and goods market efficiency as core strengths.
But despite these advantages, Jordan also has the misfortune of being located in one of the most unstable parts of the world. The civil war in Syria is nearing its sixth year, the fight against ISIS is creating political dysfunction in Iraq, and the conflict is spreading to Southern Turkey, as well as to Egypt and Libya.
While Jordan has managed to avoid fighting on its soil, its proximity to neighboring conflicts has negatively affected economic activity. Total trade fell from 146% of Jordan’s GDP in 2007 to 112% in 2014, reflecting the losses of key trading partners and routes in Syria and Iraq. FDI also fell from 15% of GDP in 2007 to just 5% in 2014, a sign that conflicts in the region are driving down investor confidence. Overall GDP grew at an average rate of about 2.7% in the period 2010-2014, far lower than the 6.3% average growth from 2006 to 2010.
The dropoff in economic activity, combined with more than half a million refugees fleeing the war in Syria, is fueling a fiscal crisis. Consequently, Jordan is increasingly turning to foreign aid from the West and wealthy Gulf neighbors to finance its growing public debt.
Part of the problem is Jordan’s reliance on expensive energy imports to offset the decline in natural gas coming from Egypt; the World Bank called it “indispensable” for Jordan to diversify its energy supply in the medium term. In response, the Jordanian government is expected to reach an agreement with Saudi Arabia this year on nuclear power production and uranium extraction, part of the Saudi Public Investment Fund that seeks to diversify the Saudi Arabian economy away from oil production.
Dead or alive, ISIS is a threat to Jordan
The secular, pro-Western Hashemite Kingdom has long been a target of extremist militants associated with ISIS. Abu Musab al-Zarqawi, the late leader of Al-Qaeda in Iraq, was radicalized in Jordan’s prisons and organized a number of deadly plots against his home country. Furthermore, following the murder of a captured Jordanian pilot in 2015, Jordan’s military took a much larger role in the U.S-led coalition’s anti-ISIS campaign.
Despite this, the political risks may actually increase for Jordan following a defeat of ISIS. This is because a relatively large number of ISIS fighters are from Jordan, between 1,500 and 2,000: the third most common source of foreign fighters behind Tunisia and Saudi Arabia. Were they to be kicked out of their home bases in Raqqa and Mosul, these Jordanian fighters may choose to return home and attempt to undermine their own government.
There is evidence that returning fighters would find safe havens among a significant share of the population; a 2015 survey conducted by the Center for Strategic Studies at the University of Jordan estimated that about 10% of Jordanians view ISIS positively.
The reason that an ISIS defeat abroad could fuel instability at home has to do with the fact that the root causes that led to the rise of the Islamic State remain largely unaddressed. Analysts have pointed out that the Jordanian government takes an uncompromising approach to domestic Islamists, which may contribute to their alienation and make extremist groups appealing.
As Oudeh Hamaydeh, a retired Jordanian intelligence officer, noted, “[the] authorities use fighting terrorism as a pretext to avoid reforms but the only way to defeat terrorists is through adopting real reforms and engaging the youth in political life.”
