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The 2016 Supporting Syria and the Region Conference in London heralded a decisive paradigm shift in European development cooperation in the midst of the Syrian refugee crisis. In the process, not only were new sources of finance mobilised, but development policy focus was also shifted to long-term strengthening of initial host country resilience. In light of the EU-Jordan Compact, this article shows the extent to which the promising approach of a Compact has proven itself in practice.

A cradle left behind by refugees on a sandy plain.© Murad Sezer, Reuters

Jordan at the Centre of Refugee Flows

Roughly 65 million people around the world have fled their homes. Syrians currently represent the largest single refugee population: A total of twelve million Syrians have fled, more than half of the country’s population. More than 50 per cent of these are internally displaced, while the majority of those who are abroad fled to neighbouring countries: Turkey took in 2.8 million Syrians, Lebanon 1.1 million, and Jordan 0.7 million.

Its relative stability has repeatedly made the Jordanian kingdom the first port of call for refugees in the conflict-ridden region. In addition to more than 630,000 Palestinian refugees, people reaching Jordan included 130,000 Iraqis, 30,000 Yemenites, and over 20,000 Libyans in various waves (see fig. 1).

About 660,000 Syrian refugees currently registered with the United Nations Refugee Agency (UNHCR) account for almost seven per cent of the total Jordanian population. Official Jordanian figures cite 1.3 to 1.4 million Syrian refugees in the country, but probably include the approximately 600,000 Syrians already living in Jordan since before 2012.

About 90 per cent of Syrian refugees in Jordan entered the kingdom within the first 18 months of the Syrian conflict. The high inflow posed an immense challenge for the Jordanian authorities and, ultimately, for international organisations. The prices for housing and food exploded throughout the country within a few months. To ease its overburdened infrastructure, the Jordanian government enacted revised entry regulations in May 2013, tightening up regulations on refugee immigration. In practice, the borders have been closed since.

About 20 per cent of the refugees live in one of the two official refugee camps, Zaatari and Azraq, where basic necessities are provided free of charge. The remaining 80 per cent of refugees live outside these camps, mostly in the capital of Amman and in cities in the country’s north. Many refugees outside the camps are in acute danger of poverty. This was particularly evident in 2015, a year of crisis during which massive financial bottlenecks in the UN World Food Programme led to a startling increase in the number of households with insufficient food supplies (from 48 per cent in 2014 to 86 per cent in 2015). Although there are no official figures, it is assumed that during this period, about one third of the approximately 226,000 Syrian refugee children, mainly in urban areas of Jordan, worked illegally and for that reason failed to attend school lessons. There has been little change in the years since. The Human Rights Watch estimates that 60 per cent of Syrian refugee families depend on their children’s income.

Fig. 1: Jordanian Population by Country of Origin

Source: Ghazal 2016, n. 4. Compilation: Manuel Schubert / Imke Haase.
Source: Ghazal 2016, n. 4. Compilation: Manuel Schubert / Imke Haase.

The social handling of the Syrian refugee crisis in Jordan is shaped by the country’s history, especially by the experiences of multiple waves of refugees. Fears, that Syrian refugees might remain permanently in the country initially fuelled resentment among the Jordanian population. Narratives about cut-throat competition in local labour markets were (and remain) widespread among the Jordanian population. In fact, it is not easy for many Jordanians to find employment, especially the young. According to World Bank estimates, Jordan’s youth unemployment rate (34 per cent) is one of the highest in the region. However, most Syrian refugees work in the informal low-wage sector, which is not very attractive for many Jordanians, who tend to have better formal education. For this reason, competition for jobs is more likely to come from migrant workers, most of whom come from Egypt and Southeast Asia.

Refugee Crisis in Europe from 2015 Onwards

From a European point of view, flight and migration have long been perceived as primarily regional problems that mainly should involve regional actors – that is, the neighbouring countries. In the course of the “refugee crisis” in Europe, a rethink took place in this respect. As early as the summer of 2014, there were already initial signs that more and more refugees were undertaking the risky journey to Europe. In the spring of 2015, the actual wave of refugees began; in May of that year alone, nearly 40,000 refugees reached Germany. In August, the German government raised its refugee forecast to 800,000 arrivals, four times as many as the previous year. “We can do it,” said Chancellor Angela Merkel at the summer press conference in Berlin on 31 August 2015. With the arrival of 890,000 refugees and migrants in 2015 and a further 280,000 by the end of September 2016, Germany received more asylum seekers than any other EU country. Most of them came from Syria, Afghanistan, Iraq, and Eritrea.

If the refugees themselves are asked about the reasons for their flight to Germany, a majority of the interviewees say that they fear war and violence (70 per cent), or persecution (44 per cent). Before fleeing to Germany, about 40 per cent of the refugees spent at least three months in a transit country or initial host country. Around 40 per cent say that they left their initial host country involuntarily, and continued their journey because of the precarious living conditions, discrimination or persistent persecution there. This coheres with UN reports, according to which many Syrians from initial host countries set out for Europe in 2015 to escape poverty, lack of employment or, in some cases, sharpening of national residence regulations. Nor at the time was there much hope of an early end to the war in Syria, and thus a speedy return home. In this respect, the conditions in the various initial host countries seem to be central push factors for secondary waves of migration to Europe.

Supporting Syria and the Region Conferences in London and Brussels

The Supporting Syria and the Region conference on 4 January 2016 in London, to which the heads of government from Great Britain, Germany, Kuwait, and Norway and the UN Secretary-General had issued invitations, marked a visible paradigm shift in development policy: The aim of the conference was to obtain long-term commitments for additional technical and financial support from the governments of the initial host countries and from international donors. In return, access to jobs and education for Syrian refugees and poorer sections of the population in initial host countries were to be improved. The international community agreed to provide some twelve billion US dollars in loans by 2020 and a further 40 billion US dollars in guaranteed loans – record sums.

The central decisions of the London Conference culminated in two agreements, known as Compacts, one between the EU and Jordan and one between the EU and Lebanon. A separate agreement was reached with Turkey in March 2016. The Compacts marked an important step in the region’s development policy, away from a short-term and chronically underfunded policy of emergency and initial aid for refugees toward a tighter interlinking of economic and development policy instruments with the aim of enhancing economic resilience and absorption capacity in the host countries. This step was to facilitate the transition from humanitarian aid to sustainable development cooperation. However, no specific commitments have been made to protect refugees, including a legal right of residence.

International Financial Assistance

At the London Donors’ Conference, six billion US dollars were pledged to support needy Syrians in Syria itself and in the host countries of Jordan, Lebanon, and Turkey in 2016, and another 6.1 billion US dollars for the period from 2017 to 2020. In the event, nearly eight billion US dollars was provided in 2016. Of the promised 6.1 billion US dollars for the period from 2017 to 2020, about 2.8 billion US dollars, or 46 per cent, had been made available by February 2017. Of the guaranteed loans of 40 billion US dollars for the period from 2016 to 2020, 31 per cent, or 12.6 billion US dollars, have been provided to date. Jordan received a total of 2.3 billion US dollars in support in 2016, 1.4 billion US dollars in grants and 923 million US dollars in loans.

At the follow-up conference in Brussels, an additional six billion US dollars were pledged for 2017 and 3.7 billion US dollars for the following three years. By mid-2017, 4.4 billion US dollars had been provided, 74 per cent of the promised amount for 2017, and 1.4 billion US dollars for the next three years. The Brussels conference also saw pledges of further loans of 30 billion US dollars for the period of 2017 to 2020, of which 2.5 billion US dollars have so far been made available. Of the aid, Jordan has so far received 626 million US dollars (July 2017) and 374 million US dollars in the form of loans.

In the following months, the EU concluded other such country-specific Compacts with other key countries, including Niger, Nigeria, Mali, Senegal, and Ethiopia, within the framework of a Migration Partnership Framework, or MPF. In addition to incentives for voluntary return, these include new legal channels for migration and long-term investment in the host countries to combat the causes of flight. In total, the MPF has earmarked a total of almost eight billion euros for the next five years.

The Compact principle is also in vogue internationally. On 19 September 2016, for example, the first UN summit on migration movements was held. The result was the ratification of the “New York Declaration”, which provides for the formulation of two new global agreements. One Compact deals with refugees, the other with migrants. For the Refugee Compact, the aim is to define mechanisms that come into effect in the event of acute refugee crises. In contrast, the Migration Compact does not concern practical questions, but basic issues, since there is no binding definition of the term migrant, and also because international law is vague and scarcely developed. Results of the discussions and intergovernmental negotiations are expected in September 2018. A look at the European Compacts that emerged after the London Conference in 2016 is therefore also worthwhile in the context of the global Compacts currently being discussed.

Central Components of the Jordan Compact

The Jordan Compact specifically aims to create medium-term residence prospects for refugees in Jordan, and to increase employment opportunities for Syrians and Jordanians alike. The focus is on an additional trade agreement with the EU that complements the existing EU-Jordan Association Agreement.

In principle, this is a classical measure to promote employment and the economy: It facilitates the export of Jordanian products to the EU, increasing the turnover of Jordanian companies and therefore generating more local employment; this is the economic logic. A key position is taken by the part of the association agreement that defines the rules of origin – that is, determines on the basis of the value chain which products are classified as “made in Jordan.” According to the association agreements, this refers to products in which no more than 30 to 50 per cent of the final product (depending on goods category) could previously be produced outside Jordan. The Jordan Compact adapted this hurdle to favour of Jordanian producers: With the establishment of the Compact, export goods could consist of up to 70 per cent non-Jordanian materials and primary products – a decisive competitive advantage for Jordanian companies interested in European markets.

However, the simplification of the rules of origin does not have comprehensive application. First of all, only 52 product groups are covered by the agreement. They include minerals such as salts, acids and oils, plastics and skins, furs and wood, stone, slate, ceramics, glass and bottles, metals, tools, electronic machines, video equipment, motors, and furniture and toys. However, cotton, yarns, carpets, fabrics, clothing, and shoes are not covered. Secondly, the saleable products must be manufactured in one of 18 selected industrial and development zones. Thirdly – and this is where economic policy meshes with development policy – the companies based in the zones must employ Syrian refugees. The quota for Syrian employees is currently 15 per cent. Starting in 2019, it will be 25 per cent. The plan is to use this mechanism to initially bring 200,000 Syrian refugees into legal employment in selected occupations that are close to production. As soon as this threshold is reached, the plan states that the simplified rules of origin will also apply to companies outside the industrial zones.

The Jordan Compact aims to create medium-term residence prospects for refugees in Jordan.

The Jordanian government is complementing the Jordan Compact with far-reaching tax concessions and exemptions for companies settling in one of the industrial zones. More than 100 million US dollars was also invested in the infrastructure of the industrial zones. Some of these zones are located in the immediate vicinity of Zaatari, Jordan’s largest refugee camp – a potential location advantage.

EU-Jordan Association Agreement

The EU’s relations with Jordan are based on the Euro-Mediterranean Association Agreement, which came into force on 1 May 2002. Association Agreements are close economic cooperation agreements between third countries and the EU. The aim is to make trade as free as possible by abolishing restrictions on the movement of goods. Recent association agreements often include provisions covering political dialogue and close cooperation in the fields of culture, science, and education.

The Association Agreement with Jordan incrementally established a free trade area between the EU and Jordan in accordance with WTO rules, complemented in 2007 by an agreement to further liberalise trade in agricultural products. Since May 2012, the EU has also been conducting a “special dialogue” with Jordan on a deeper and more comprehensive Free Trade Agreement (DCFTA).

Inventory: What Has the EU-Jordan Compact Achieved?

Two years after the donors’ conference in London, the Jordan Compact’s progress is sobering. So far, only two Jordanian companies have managed to export to the EU under the Jordan Compact. They delivered goods worth about 500,000 euros to Spain and Cyprus. Seven other companies currently meet the formal export criteria, but have not yet been able to generate sales. Why is it that the Jordan Compact has so far been unable to promote exports or employment?

1. Competitiveness of Jordanian Products

A central reason for the Jordan Compact’s modest achievements is the Jordanian economy, which as a whole is not geared to international sales. In the view of Youssef Shammali, Secretary General of the Jordanian Ministry of Industry, Trade and Supply, it is important to advance Jordanian-European business networks and to promote Jordanian products more aggressively in Europe.

Salah Isayyied, founder of a consulting firm for Jordanian companies in Germany, believes that the expectations of the Jordanian business are not realistic at the moment. On the Jordanian side, he thinks there is a lack of knowledge of how to market products on the EU market – and cites the lack of significant success stories so far as one reason for this belief. He says that the market conditions and gaps in Europe need to be examined more closely.

In mentioning market gaps, Isayyied addresses an important point. The central question in the Jordan Compact is which Jordanian products can prevail on the EU market in the open product categories. The economy in the resource-poor country is exposed to high logistics costs compared to the rest of the region, and this systematically undermines the competitiveness of Jordanian products. The EU’s competitive and, in some areas, heavily subsidised markets mean that Jordanian products have poor sales prospects even under the simplified rules of origin.

In addition, the restriction to 52 product groups could pose a serious barrier to market entry. Many companies that are already successfully exporting to the EU are active in the chemical industry, mechanical engineering, or the clothing and textile sector. And it is just these sectors that have been only partially covered by the Jordan Compact so far.

2. Location Stipulations

Another conceptual weakness of the Jordan Compact is the limitation of the simplified rules of origin to goods produced in one of the 18 selected industrial zones. The primary effect of this restriction is to provide incentives for start-ups to establish themselves at the subsidised locations. For existing companies, especially those which are already successfully exporting to the EU, the Jordan Compact is therefore far less attractive. For them, the savings secured by the move would have to overcompensate the costs of completely relocating the company. The industrial zones are therefore quite likely to be of interest primarily for company expansion. However, it is not clear that such “mixed operations” can then still benefit from all the advantages of the Jordan Compact.

In addition, the infrastructure in the industrial zones is underdeveloped. During the last months, a couple of companies complained about insufficient energy provision in their zones. According to them, production has regularly been shut down due to power breakdowns, which gradually threatens the existence of the new businesses.

External Trade Between Jordan and the EU

The EU is Jordan’s largest trading partner, accounting for 16.9 per cent of Jordan’s total trade in 2015. Jordan is the EU’s 58th-largest trading partner, representing 0.1 per cent of total EU trade with the world.

The EU currently imports goods worth 0.4 billion euros from Jordan. The most important import goods are chemicals (47 per cent of all imports) followed by machinery and transport equipment (14 per cent of all imports).

The EU currently exports goods worth 4.1 billion euros to Jordan (as of 2016), especially machinery and transport equipment (35 per cent) followed by agricultural products (19 per cent) and chemicals (16 per cent).

The two-way trade in services amounted to 1.5 billion euros in 2014, of which 0.6 billion euros were EU imports and 0.9 billion euros EU exports.

3. Favourisation of Natives

Jordanian economic law provides for a 50 per cent resident quota for all companies based in the Kingdom. While this increases the chances for Jordanians to find employment, it also creates a systemic wage gap between Jordanian and non-Jordanian employees. Given otherwise equal employee quality, Jordanians will always be able to impose higher salaries than their foreign competitors from Syria, Egypt, or Asia. From an operational point of view, this regulation reduces profits, and at the sector level, it creates a decisive competitive disadvantage for labour-intensive production in Jordan – for just those enterprises that are the focus of the Jordan Compact.

4. Costs of Legalisation

The Jordan Compact also aims to legalise existing employment. One problem, however, is the lengthy and complicated application process. Dozens of steps must be taken by both the future employer and the refugee to obtain a one-year work permit. Maha Kattaa, response coordinator for the Syrian refugee crisis at the International Labour Organization (ILO), says, “The difficulty (…) is not only the process itself, but also the fact that it is not the refugee who applies for a work permit, but the refugee’s employer. (But) refugees are usually engaged in seasonal work – they receive daily wages and move from one employer to the next. In these industries, there is no employer interested in applying for a one-year work permit for someone who works only three months for (one employer).”For that reason, the Jordanian government recently simplified the process for work permits for the agricultural sector: Syrian refugees can now get a work permit through agricultural cooperatives which allows them to switch between different employers within the association.

The costs incurred in the legalisation of existing employment are another important factor. Developments over time show that the number of work permits applied for or issued grew by leaps and bounds when the application fees were waived. A significant increase in the number of applications for work permits was also observed when the employer’s obligation to prove that a new employee is registered with the social security system was temporarily suspended.

So far, there have been scarcely any incentives to employ Syrian refugees legally in Jordan.

As a rule, it is illegal to employ Syrian refugees who have no work permit or are not registered for social insurance. In practice, however, such “formalities” play a minor role, as they do for thousands of Egyptian and Asian guest workers. The likelihood of detection is low, and penalties for non-compliance are comparatively moderate. In this respect, there are hardly any incentives to employ Syrian refugees legally in Jordan if additional non-wage labour costs are incurred as a result.

5. Incentives for Refugees

Charles Simpson, a scientist at the Boston Consortium for Arab Region Studies, describes how the regulations of the Jordan Compact fail to provide sufficient incentives for Syrian workers: “One obstacle is (…) the fact that so many Syrian refugees were already active in the informal economy at the time of the work permit initiative.” The net wages in the informal economy are comparatively high, so that alternative legal employment is often not worthwhile for individual reasons. In addition, many Syrians in the non-manufacturing industry work more flexible hours under less physically difficult working conditions. On top, wages in the textile industry, in which the majority of the newly founded companies is operating, are relatively low. Especially this sector is also confronted with a shortage of skilled labour force: The Syrian textile industry was originally located in and around Aleppo, whose refugees primarily fled to Turkey rather than to Jordan.

The restriction to 18 industrial zones also makes legal work within the Jordan Compact unattractive for many refugees. The vast majority of Syrian refugees live outside the two official refugee camps. Most of the 18 industrial zones are usually located far away from the major metropolitan areas. Transport costs and times would therefore have to be borne by the refugees themselves. According to a survey conducted by UNHCR, the majority of women in the Zaatari refugee camp are not willing to commute to the industrial zones due to safety reasons and concerns about being absent from their families for too long.

The provisions of Jordanian labour law, which allow Syrian refugees to be employed only in certain occupations, exacerbate the problem. Refugees still do not receive a work permit for closed occupational groups such as teachers, engineers, and the medical professions. In other sectors, such as construction or services, there are the national quotas already mentioned.

6. Start-Ups and Formalisation of Illegal Businesses

Small businesses account for 80 per cent of all new jobs in Jordan. For the majority of Syrian refugees, especially women, who often work from home, this (partially) self-employed activity is the primary source of income. Starting in the summer of 2016, Syrian refugees were to be given the opportunity to formalise these micro-enterprises and establish new businesses within the framework of the Jordan Compact. The corresponding legal framework conditions for small and medium-sized enterprises was originally imposed in the 1950s and, regardless of craftsman origin, has been sketchily implemented in the past. Although important standards and regulations have been revised in the course of Jordan Compact, there appear to be serious problems with the uniform application of the new rules. Nor were all important laws subject to revision. For example, foreigners, including Syrian refugees, must register as investors if they want to set up a company. To do this, a Syrian founder must not only find a Jordanian business partner, but also document a minimum balance of 50,000 Jordanian dinars (about 59,500 euros) with a national bank – an incredibly high market entry hurdle for most Syrian refugees.

The lack of traditional labour market exchanges in Jordan makes it difficult to place Syrian refugees.

7. Lack of Labour Market Structures

Another problem with the recruitment of Syrian refugees – one that remains unaddressed in the Jordan Compact – is the general lack of traditional labour market exchanges. For example, there are no public or private institutions providing employment services or exchanging job offers and job searches. A study by the ILO showed that a large proportion of the Jordanian companies were prepared to hire refugees, but there was no centralised placement agency. Syrians also expressed willingness to work in the industrial companies, but here too, many emphasised the lack of a placement agency. Thus, both refugees and Jordanians remain equally dependent on non-transparent and inefficient methods of identifying job opportunities, such as personal or family contacts.

8. European Investment

Officials have repeatedly argued that the Jordan Compact would attract foreign investment. So far, however, no European company seems to have expressed any interest in setting up or investing in the industrial zones. Salah Isayyied explains this by citing the continuing unattractiveness of the Jordanian market and the country’s questionable position as a production location: “The agreement alone is not attractive for a company (…) Tax rebates, investment laws, (etc.) alone provide no motivation for a company to invest in Jordan (…) Germany receives such offers from every country in the world.” He continues, “One wonders: How strongly developed is Jordanian industry, and what are its preconditions? What infrastructure is available? Transport routes to the EU, security in the country, etc. – lots of questions are open. And a company needs concrete answers to make a decision to invest in a foreign country.” It is therefore not particularly surprising, he says, that most foreign investments in Jordan come from the Gulf States and are therefore not aimed at the European sales markets. Particularly investments from Europe, however, would be a key success factor for the Jordan Compact. Up to date, no single new job has been created as part of the Compact, existing jobs were only formalised or substituted, respectively.

9. Fiscal, Economic, and Socio-Political Effects

In general, there are different opinions about the extent to which free trade agreements are at all suitable as development policy instruments for stabilising absorption capacities. The Jordanian textile industry, for example, grew into a significant part of the Jordanian production sector as a result of similarly structured agreements between Jordan and the US. However, it is precisely these agreements that are also criticised for not making any contribution to Jordanian general tax revenue, as companies are largely exempt from taxes and levies under the umbrella of the agreements. Moreover, critics also claim that hardly any Jordanians are employed, since exemptions mean that 70 to 80 per cent of all employees are guest workers from Southeast Asia. Most of the profits and salaries are therefore be transferred abroad, they say, and generate no further demand effects on the domestic market.

Handlungsempfehlungen

1. Every Syrian refugee should have unrestricted access to the Jordanian labour market, meaning that

a. Work permits should be independent of employers, and refugees should be able to apply for them; or, ideally, they should be abolished entirely,

b. Work permits should not be issued for certain occupations only, but cover all activities,

c. Refugees should be able to set up businesses without national partners and without guarantees or security deposits.

2. The 18-industrial-zone restriction should be lifted. A (power-)infrastructure, which meets minimum requirements of the private sector, should be provided.

3. The 52-product-group restriction should be lifted.

4. The favourisation of natives in the form of the minimum quota for Jordanian workers should be abolished.

5. Penalties for illegal employment / undeclared work should be increased.

6. Controls on illegal employment / undeclared work should be enhanced.

7. Public and / or private labour market agencies should be established to provide a market platform for supply and demand.

8. A public (local) transport system should be established to minimise the individual transport costs to the industrial zones in Jordan.

9. Government investment in infrastructure, especially with regard to favourable transport routes to the EU (and the region) should be made.

10. Employers and employees should pay into the taxation and social protection systems in the long term.

Conclusion

The EU’s agreements with important initial host countries for Syrian refugees signalled a remarkable development policy turnaround. The aim was not only to provide financial aid, but also to enhance the resilience and absorption capacities of initial host countries in the long term. In this context, the Jordan Compact has gradually become a role model. It has generated awareness for sharing responsibility on the international level and has served as blue print for similar agreements with African countries.

This paradigm shift must be viewed as a positive one. But a little more than two years after the first donor conference, the Jordan Compact case study reveals conceptual weaknesses. Above all, a real improvement in the living conditions of refugees and Jordanians alike requires a more courageous opening of the markets and the creation of an infrastructure that promotes employment (see recommendations for action).

While the EU would have to give up its hesitancy to open its markets, Jordan would have to take a critical look at domestic hot-button issues, such as national favourisation and essential investments into infrastructure, and set up employment agencies.

Despite all the existing difficulties, integrating Syrian refugees promises considerable opportunities for the Jordanian economy. There are no language barriers, and Syrian refugees tend to have skills that are highly relevant for employment in Jordan. As well, salaries and wages paid to Syrians are likely to stimulate domestic demand, and thus have a higher multiplier effect.

Finally, the case study of the EU-Jordan Compact shows that the accuracy of fit and effect of the agreements must in reality be continuously reviewed and, as necessary, supplemented by concrete economic and labour market measures. Otherwise, the ambitious Compacts risk failing to meet their own requirements.

– translated from German –


Dr. Manuel Schubert is Head of the Konrad-Adenauer-Stiftung’s Regional Programme Gulf States. Until July 2017, he was Head of the Jordan office.

Imke Haase is Research Assistant at the Konrad-Adenauer-Stiftung’s Jordan office.

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