Jordan transforms Red Sea port into tax haven

Published May 17th, 2001 - 02:00 GMT

The residents of Jordan's port city at the top of the Red Sea that borders Israel, Egypt and Saudi Arabia are bracing for winds of change. But Aqaba's 70,000 inhabitants are now pondering the city's new status since it became a tax haven last February. 

 

"Aqaba is witnessing the most dramatic changes in over two decades," said Nael Al-Kabariti, head of Aqaba's chamber of commerce. The port city's last boom was during the 1980-88 Iraqi-Iran War, when it was Baghdad's major lifeline as Tehran fired on commercial ships in Gulf waters. 

 

On Thursday, May 17, King Abdullah will be hosting a gala for business movers and shakers in a royal marketing pitch for the port to celebrate its official launch as a Special Economic Zone (SEZ). Along with Gulf Arab royalty, the celebrities are top figures from major global corporations like French hotel group Accor and US Microsoft and Bechtel Power Corp.  

 

Palace insiders say the Aqaba project is now taking center stage among King Abdullah's schemes to reinvigorate the Jordanian economy and win his battle over an entrenched bureaucracy resistant to drastic changes. The monarch will accompany his guests on a tour of the city and a sea trip to show off the city's potential charm to investors.  

 

They will watch the foundations being laid for a $500 million resort on the southern beach by a consortium from Egypt's Orascom Hotels and Jordan's hotel holding company Zara along with Saudi investors. 

 

The monarch wants to counter skeptics who see the zone becoming a center for contraband trading, money laundering and a casino for rich Gulf Arabs and Israelis. The monarch sees Aqaba as a test case for the rest of Jordan, the palace insiders add. 

 

The king, who succeeded the late King Hussein in 1998, has sought to liberalize the economy of the tribally structured country, aware that delivering prosperity to his nearly five million citizens was the toughest challenge to a stable kingdom. 

 

The city's new governing body, the ASEZA (Aqaba Special Economic Zone), is vested with sweeping autonomous powers to ensure it bulldozes all obstacles in its way, officials say. It plans to choose a global private developer with a proven track record to join a consortium of Jordanian and Arab investors in managing the SEZ, the leader of the six minister-level commissioners, Mohammad Kalaldeh, told Reuters

 

At least 14 global players have responded to a request for credentials, he said. "We expect multi-billion dollar investments in the coming five years," Kalaldeh said. Five-star hotels that are under construction and planned should drive the demand and build capacity to cater for the expected pickup in business activity, he added. 

 

In less than two months, change is already being felt as thousands of Jordanians now flock every weekend to the town, passing through new customs posts along the zone's border. Local businessmen say more Saudis and Gulf Arabs are shopping as imported duty free goods find their way to shelves. 

 

Some say the SEZ's flat five percent tax regime and virtually duty-free policy will turn the city into a thriving smuggling zone, reversing its role as a gateway for contraband goods coming into Jordan. 

 

The SEZ has already pushed up both commercial and residential real estate prices as merchants from the capital Amman push up demand for rental space and property. Some large retailers have opened shops in the city as they bet on its transformation as a major shopping attraction for thousands of weekenders from Jordan and other Arab countries. 

 

The city's new status is offering industrial and services investors a chance to think about its logistical potential as a huge warehousing hub, investors say. Multinationals are considering the zone as a logistics, distribution and warehousing hub serving the whole region. 

 

Construction has already begun on a Qualifying Industrial Zone (QIZ) park within the SEZ that will attract multinationals to set up plants to export duty-free to the US market, Kalaldeh said. But small-scale smuggling of Somali bananas and cold drinks has already begun with wholesale prices at least 40 percent lower than shops outside the zone. Merchants are displaying newly imported cosmetics as new stocks appear on shelves. More Saudis are coming to buy car parts and tires. 

 

But tourism is attracting the bulk of investors as the city witnesses a rapid expansion in its 2,000 existing hotel room capacity, still negligible compared to Israel's thriving Eilat nearby. Its southern coral beach has already attracted mega-tourism projects by Egyptian and Saudi investors that will transform the port into a first class resort, officials say. They dismiss fears the city will become a huge warehouse for goods smuggled outside the zone. 

 

They insist tough policing of the segregated 380-square kilometer zone, naturally sealed by a ridge of high mountains and the coast of the Red Sea itself, will take care of that. ― (Reuters, Aqaba) 

 

By Suleiman al-Khalidi 

 

© Reuters 2001

© 2001 Mena Report (www.menareport.com)

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