Special feature: JORDAN

Interview with Mr. Sheldon Fink CEO of PBI Aqaba, Jordan

May, 2017

QHis Majesty King Abdullah II has proposed new plans to fight poverty and unemployment, but also to boost the economy. As the head of a game-changing company, what is your perception of the macroeconomic context today in Jordan?

S.F.: Jordan was not, historically, a country that did very much manufacturing. There are some chemical and mineral deposits here which can be used to produce fertilisers, and, that is a major export in Jordan; but, beyond that, there was not very much. In the nineties, the USA created a qualified industrial zone program, and then Jordan attracted a great deal of activity in garment manufacturing. But that was also not precise factory because the Jordanian value addition was very low. Even as recently as in 2000, Jordan had very limited industrial capacity.

There was a lack of belief, to a certain extent, not in the King but in the top leadership or the government and the Jordanian elite. They still don’t really see industry. That changed in the past 2 or 3 years, and I think it´s changing rapidly and in the right direction. But, historically, the elite made money as agents of importers. So this model was that the people worked for the government and the elite made money by importing. And then, there was tourism. Then, there was the government´s industry, which was at a big boom, but the boom didn’t add that much to Jordan. It added a lot to the volume of exports but not in the value added. All the raw materials were imported and much of the labor was imported as well.

That started to change around the time that we showed up. There are some very good industrial companies, developed in the last 15 years. Pharmaceuticals, metals engineering, and in the IT business, Jordan succeeded in becoming the center of Arabic-language software.

QWhat did you see in Jordan that made you pick it?

S.F.: I worked before here. I’m not scared by the region. One of my partners is Turkish and the other one is a project manager who does stuff all around the world for the past 20 years. We were a bunch of people who were not put off by the Middle East. So in this project it was good fortune. USAID was giving a grant to the Jordan government for making industries stay in Aqaba. And they conditioned this grant to privatization because, up to that point, most industrial state development had been by a government company. And, though there were a few privates, they were very specific garment industries. There was no privately run project.

We knew USAID, I worked at USAID at the beginning of my career. So I put this group together and we participated, and we won the tender because we were the only serious company participating. We saw the potential. We saw the potential of modernizing the economy here.

We put very little money in the beginning. We are not a real estate company and we are not interested in that. We do real estate because its easier in the middle east for people to pay you at a real estate deal, not for what you want to do for them, which is being a service provider. You’re trying to market Jordan in the right way, but people don’t really want to pay for that. We don’t want to own land here, we don’t want to own buildings, we are business creators.

We started this up with about a million dollars of our own capital, and the USAID grant, it was a grant for the whole development of the north of Aqaba. I think it was about 25 million, but actually here it was about 12 or 13 million, so we put up 10% of the money, and USAID put 90%, and the government put up nothing but the land. And the land was a piece of desert.

It took us about 2 years to get the legal planning, the environmental stuff, and we started the market in the end of 2005, when we still had 2 buildings and the offices. We said we were not going to bring garment industries. We said we would bring metal engineering, plastic, etc. And we were doing it with our own money. In the beginning we were banging our heads, but that has changed in the past 3 years. I think the King now sees that the relation between investments and jobs created in what we do is the most favorable, so it was hard to click with the King, with some of the brighter people of the government. Dr. Hani Al-Mulki is a big supporter, but he is an industrial engineer, so he actually understands.

We have had now some top government officials who appreciate the fact that the industrial sector can succeed. One of the things is that we have succeeded, also Petra, the pharmaceuticals, so it’s proof that the theory that Jordan can’t make anything is wrong, and the wave is just beginning.

QPeople are saying there has never been a better time in Jordan for business opportunities; Why is it now the best moment?

S.F.: First of all, in our sectors, because Jordan’s elite itself recognizes that there is a place for what we are doing. There is a clear difference now, compared to what happened 5 years ago. Now, there are people in charge of saying “Yes, let’s make it in Jordan”. The LED light deal we just made is a deal where we make them in Jordan, and the government made a small commitment, at least, to buy some of the stuff made in Jordan, and, once we get it going, I’m sure they will take more. I’m optimistic because the ruling class sees that industry works here, and good products coming out, and there will be employment. That’s number one.

Number two is the fact that Jordan is relatively the safest place, that’s clear. So really being able to sell Jordan as a safe haven, that’s good, because, look around. Jordan is safe because the society is cohesive, the society basically accepts the constitution.

QYou said that at the end of the next decade you would like to reach 100 millions in investments, and over a million square meters of land. You just signed a MOU to expand.

S.F.: Actually the new papers say 1 billion. We respond to the markets. One of our big problems when we just came was that the Jordanian bureaucracy said “how do you build an industrial base, build a lot of buildings and people will come to them”. We refused to build except on an ongoing basis, for customers to sign agreements. We will only respond to what is going on, we keep a very small inventory of existing buildings.

Its not a big deal for us to say that we are going to raise it to a billion because we see that the customers are coming, and we are not going to commit capital in crazy ideas.

QNow, addressing to the UK investors, what would you say are the best investment opportunities for them?

S.F.: Let’s say this: Iraq is going to get into a situation in which there is no longer huge evil private armies running around, the roads are going to be open in a couple of months again, there is going to be a huge rebuilding, and Aqaba is a great place for that. Umm Qasr, the Iraqi ports are shallow draft, and they can handle cargo, some stuff is going to come from Turkey, Syria is going to be in a confusing situation for years. Aqaba can get a piece of the action.

Now, if a British company can say “I’m going to produce the stuff in England and I’m going to send it through Kuwait, Dubai…” and I can show them that it’s cheaper, that they can still produce 60% in England, produce components, send them here and make a final product here. And the logistics from here are great.

QHow do you envision the future? What is Aqaba shaping itself into?

S.F.: For me, our model here is closer to Shenzhen. I saw Shenzhen in 1979, it was a fishing village, it had 30.000 people. Today it has 15 million people and the highest GDP per capita in China. And it’s done it through industrial development. It has all been done with Chinese labor, and it’s now being done with Chinese technology. We have seen products coming out of China that are Chinese products. And that was actually the first special economic zone in the world.

The legal system prevented development in China, the legal system in Jordan prevents development in Jordan. Jordan still has Turkish land laws from 1879 and British company laws from 1924. It’s operating on archaic legal bases. When the World Bank does studies of countries, Jordan does very well on low taxes, education, but its place is down 50 or 60 because of the legal system.

One of the things that the Chinese showed was that, in order to get a special economic zone to work, you had get the bureaucracy to work better, but you also had to get some serious law reforms. One of the things we keep recommending is that Jordan should get involved in serious legal reforms. Slowly, it’s happening.

Having said that, we have a 17% rate of return on investor’s capital in a low risk business, so it’s hard for me to say it’s a bad place to work. We do very well here, and other investors also. The country wants to get ahead, they are educated, ambitious. There are hundreds of thousands of Jordanians working in the gulf who could come home if there are well paid jobs here. There is a popular prejudice that says that Jordanian people don’t want to work, they want to work for the government. That’s because the private sector was paying low. The cost of labor in Jordan is not higher than Shenzhen. There are people who will say that industry is difficult here because of the cost of energy. The two leading industrial countries of the region are Turkey and Israel, and in both cases the cost of energy is higher.

QWhat is the very last impression that you would like them to have of Jordan?

S.F.: In most countries of the world, the promotion looks better than the reality; in Jordan, the reality is much better than the promotion. So they have to come here, take a look, and come with an open mind, and they will see the potential for their businesses.