Building the bigger picture

Piecing together the investment behind Aqaba's transformation.
ANALYSIS

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Piecing together the multi-million-dollar investment behind Aqaba's logistical transformation

For most of its over-2000-year history, the sleepy port town of Aqaba has played a key role as a multimodal logistics hub, providing sea and land access from the Red Sea to the Levant. Nowadays, its current importance to the nation of Jordan cannot be understated; it is the country’s sole open sea access point, positioned on a strategically advantageous node between the Suez Canal and the Gulf of Aden. 

Mirrored with the relevance of Aqaba’s position is the attractiveness of Jordan as a destination for foreign direct investment. A stable government, in contrast to some of the country’s neighbours, plus free trade agreements with some of the world’s most important economic blocs, has meant that around 55% of investments into the national stock exchange are from foreign sources, a fact that underlines the transparency of Jordan’s healthy financial system.

Given these two major factors, therefore, it comes as little surprise that investment into the port and its surrounding zones has far exceeded the original expectations.

As a member of the royal commission set up in 1999 by King Abdullah to transform Aqaba into a leading business and logistics destination, Imad Fakhoury has been responsible for the plan that created the Aqaba Special Economic Zone Authority (ASEZA), the government body designed to regulate and operate the burgeoning location.

In 2005, Fakhoury resigned from ASEZA to take on the task of overseeing the Aqaba Development Corporation (ADC), the agency set up by ASEZA to feed development and carry out the 20-year project that would change the port city forever.

“We are now eight years into that plan,” says Fakhoury. “In that time, we’ve succeeded in attracting US$18 billion of investment to feed the infrastructure development, transport, industry, education and services sectors, of which we have already successfully packaged about $13 billion. It’s worth noting that our original masterplan foresaw us winning $6 billion of investment by 2020, so we are up on our 2020 target by 300% already.”

Impressive though this figure is, it isn’t half the story. During that eight-year period, Jordan’s neighbours have been plagued with amongst other issues, the second intifada, the fall-out from 9/11 and the war in Iraq, thus ostensibly making the process of getting that investment much more difficult. “I put this down to the vitality of the Levant region, and the fact that we positioned ourselves well,” continues Fakhoury. “What we are trying to do in Aqaba is build investments based on real attributes with real comparative advantages.”

As a country, Jordan has always been seen as an excellent gateway to the Levant region, but Fakhoury also feels that Aqaba plays a key role as a sub-distribution node for the GCC into that territory.

Beyond the GCC, the location also provides a unique portal for freight emanating from the southern hemisphere.

“Any cargo coming up through the Gulf of Aden can be subject to quicker distribution through Aqaba, and will also not be subject to Suez Canal fees,” he
outlines.

“As a result, we can bring cargo from South-East Asia, southern Africa and even Latin America into the Levant and we believe we certainly have a competitive advantage in terms of Jordan’s stability, its excellent tax and investment
incentives, the skilled HR base, and our adoption of high technology platforms.”

Looking at the map in more detail, it’s also clear that Jordan’s position between the Gulf states and Europe offers strong connectivity between those two locations, especially with the advent of the region’s railway plans, and that the port will have a strong role to play in the reconstruction of Iraq.

“Although Jordan lacks natural resources, we are certainly playing to our strengths,” Fakhoury indicates. “Our biggest assets are leadership and we have used the public-private partnership [PPP] model to attract investment and gain the necessary financing for infrastructure and superstructure.”

By creating PPP through international tenders, ADC has attracted financially qualified and technically capable developers from the private sector to work on a joint venture basis on the various components of the zone. This allows ADC, as a development arm of the government, to share the risk with the private sector by offering concessions, while retaining the land and infrastructure.

These components are substantial. Chief among them is the development of the Aqaba Container Terminal, which is currently part of the main port.

In 2004, a joint venture between APM Terminals and Moller-Maersk won a $1 billion contract to operate the new project, and during December, ADC announced the $280 million first phase of this development, which will see throughput at the terminal rise from 750,000 TEU to 1.2 million TEU over the next five years.

Also during the course of the year, ADC has overseen the tender process for the New Port of Aqaba project, which is based in the Southern Industrial Zone, located a little to the south of the current facility. “Over 15 groups expressed interest in this project and now we are down to the last four,” says Fakhoury.

“Because the coastline here is limited, the terminals are a monopoly, which represents a strong plus for investors.”

The new port project deal is set to be tied up by 30th April, and the winning consortium will take on a 30-year BOT agreement.

“We think that financial closure on this key component should be finished by the end of next year and by the date of signing, we are hoping that early preparation work, including some earthwork movement, plus detailed final engineering design, will be under way,” remarks Fakhoury.

“So by the end of next year, construction will have hopefully begun on the site, with the target date for completion somewhere between 2012-15. It’s at that point that we can move to shut the current main port down, and move all operations south.”

Other components of the project include the revamping of King Hussein International Airport, which has already been subject to quick investment to create an open-skies facility.

Early this year, the airport development will be tendered as a concession on a joint venture basis with ADC to create air cargo facilities, maintenance and MRO programmes and even flight training academies.

The Aqaba Logistics Zone will offer a container freight station, plus a distribution centre and the full gamut of temperature-controlled storage sites.

Aside from the freight and logistics cluster, ADC is also overseeing the development and construction of Aqaba’s northern corniche, including such mega-projects as Ayla, which will add 19km of coastline to the 27km available on the shoreline, and the Al Maabar joint venture, which will transform the main port into a tourism, residential and commercial real estate hub.

With the proximity of Wadi Rum and Petra to the port city, the government has earmarked Aqaba as a key node to take advantage of a predicted rise in tourist numbers – served in part by the upgraded airport and cruiser terminal – that will visit the area in the next 30 years or so.

From an outsider’s perspective, it would seem that there is a major potential blot on Aqaba’s otherwise sunny horizon. The global economic downturn has affected all countries, including the cash-rich GCC, and is therefore an issue that all developers in the region need to plan around.

With regard to the economic environment, Fakhoury is also keen to maintain a positive stance. He stresses that Jordan as a whole has benefited from the policies of a central bank that had in the past been criticised for its conservatism.

Now, it seems, that conservatism is paying off, as the stock market and banking sector appear to have been hit less hard than elsewhere. The ADC CEO also believes that dips experienced by the country have been the least severe of any in the region, and puts this down to government’s transparency over what provisions the banks have taken.

“From that point of view, Jordan now offers itself as an interesting alternative to the investor,” Fakhoury adds.

“It’s safe, attractive, with good real estate prices, and overall it’s a good time to accelerate and attract new investments. And what we’ve seen is a continuation of investment flow, with some clients even getting good bargains because our macroeconomy remains intact.”

Generally speaking, Fakhoury believes that financing will become more difficult and that projects may need to add a little more equity to be successful.

The Jordanian central bank has lowered interest rates in order to support increasing liquidity in the market, and ADC – on the instructions of the government – is offering investors flexibility by relaxing timelines for development and payment schedules, whether in terms of land purchase or leasing to allow them to restructure against the lack of liquidity.

“To be quite honest, the entire region’s economy has been fast-tracked recently – so we can go from fourth gear to third gear, which can be healthy in terms of getting better investments and less cannibalisation among projects,” Fakhoury indicates.

“Within this crisis, there are therefore some positive signs; the global problems may well turn out to be a blessing in disguise both for the developers and the markets.”

So despite the current difficulties in the global markets, the boom in investments over the last eight years should stand ADC in good stead in the near future. And for Fakhoury, the experience of running the Aqaba project has been an adventure.

“This has been a wonderful experience for me personally,” he states. “In essence you have some of the greatest wonders of the world nearby, and we are also on a faultline for world trade. If you create the right opportunities in this kind of environment, it’s not difficult to bring in investments. We are building on the historical role that the city has enjoyed and transforming it into a multimodal logistical value-added gateway that will provide benefits for the entire Levant region.”  

ADC: DEVELOPMENT MILESTONES

March 2006
Aqaba Development Corporation (ADC) announces a joint-venture opportunity for marine services at the Port of Aqaba.

April 2006
ADC and National Aviation Services sign a 15-year agreement to operate the air cargo terminal at King Hussein International Airport.

August 2006
ADC signs a 25-year joint venture agreement with APM Terminals to manage, operate and expand the Aqaba Container Terminal.

September 2006
ADC announces that the consortium of UAE’s Lamnalco Group Marine & Offshore Services (Lamnalco) and Jordan National Shipping Lines (JNSL) has been awarded the international tender to restore, develop, manage and operate the marine services in Aqaba.

August 2007
ADC signs an agreement with the Jordanian Private Jets Services (JPJETS) to establish and develop a private jet terminal at King Hussein International Airport.

October 2007
ADC signs an agreement with Changi Airports International for the airport master plan.

June 2008
ADC invites expressions of interest (EOI) for qualified private sector developers to design, build, finance, operate and transfer the New Port of Aqaba in the Southern Industrial Zone (SIZ) under a 30-year public private partnership arrangement.

July 2008
ADC closes the EOI phase of the public tender process for its New Port of Aqaba project. Fifty EOIs were formally registered prior to the deadline on 10th July 2008.

September 2008
ADC announces the shortlist for the New Port of Aqaba project. Four consortia qualified after nine submitted financial and technical qualifications, with a final selection expected by 30th April 2009.

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