By Ryan Lasnick
The changing dynamic of refugee situations across the globe necessitates new and creative solutions that reconcile the economic interests of host nations with the considerable needs of all refugees. Two-thirds of the world’s refugees have lived in exile for more than five years, often in overcrowded slums without freedom of movement and no possibility of work. These refugees are kept in a holding pattern, forced to wait for peace so that they can return to their homes. Refugees need financial stability to survive in their host countries, which only integration into the economy can provide.
One path toward integrating refugees as well as fostering economic growth within a country is the creation of special economic zones (SEZs). By understanding refugees not only as a humanitarian challenge but also a development opportunity, countries can create economic opportunities that are mutually beneficial. This post considers the case of the King Hussein Bin Talal Development Area (KHBTDA) in Jordan to analyze the potential impact of opening up labor markets for refugees.
While the creation of SEZs that are specifically open to refugees is a relatively new idea, SEZs in general are not. In fact, over the past decade Jordan has invested in the creation of several SEZs in order to attract foreign investment, increase employment, advance high-value economies, and facilitate the transfer of technology and skills. These zones are set up strategically throughout the country, but remain widely underutilized. The zones have the potential to be successful, already having robust physical infrastructure in place, but they lack the human and private capital needed to create sustainable economic opportunities for Jordan. In this case Jordan’s large educated working class hinders its economic development because most Jordanians are reluctant to take low-wage, labor-intensive manufacturing jobs that are common in SEZs.
One sector that holds long-term developmental potential, and currently suffers from underinvestment within Jordan, is industrial manufacturing. Jordan has suffered from low levels of foreign direct investment (FDI) due to the conflicts in the surrounding region as well as the absence of a large, willing, and low-cost labor force. FDI in Jordan was $1.7 billion in 2015, which represents a 30 percent drop since 2009. Establishing a productive and sustainable industrial base is essential for a country to compete in the global economy. This industrial economy leads to the creation of jobs, the development of high-quality infrastructure, and the expansion of exports, which create an environment conducive to FDI.
The KHBTDA, an economic zone in the northernmost part of Jordan, is exemplary of the underutilization of Jordan’s economic zones. KHBTDA has all of the requisite physical infrastructure in place – a modern highway network connecting Jordan, Syria, Iraq and Saudi Arabia, a state of the art air base, and the beginnings of a modern railway system – to provide economic opportunities, yet the zone is currently at a tenth of its capacity.
In February of this year the international community created the Jordan Compact, a pledge of $2.1 billion to Jordan and $1.9 billion in committed additional financing if the government provides Syrian refugees with access to work permits. Central to the compact is the creation of SEZs, like KHBTDA, in which refugees can work. The government of Jordan has recently agreed to open up its labor-market to Syrian refugees, by creating a 90-day period where refugees can obtain work permits for free. Currently 78,000 refugees have received these permits with thousands more expected to join the workforce in the coming months and years. The SEZ pilot program in Jordan is set to begin this summer, with the hope that five more zones can be opened for refugees in the next year. In return, the EU has agreed to allow Syrian-made goods from Jordan to enter its markets free of tariffs, taxes, and quotas. A recent UNHCR report claims that SEZs and work permits for refugees have the ability to bring economic benefits to Jordan as well as create sustainable livelihoods for Syrian refugees.
The 1.3 million Syrian refugees currently residing in Jordan can help boost the country’s slow economic growth if they are given full access to the labor market. When refugees are given access to and encouraged to participate in the formal economy, they become self-reliant and may no longer require support from international organizations or the host country. Only ten miles from the nearly empty KHBTDA is the Zaatari camp, the largest refugee camp in Jordan. This camp houses more than 80,000 refugees, of which roughly ten percent have legal permits to work. The refugees in Zaatari have skills needed to help KHBTDA function effectively, but they have not been allowed to put those skills to use yet.
While incorporating refugees into KHBTDA is a good first step, it will not solve the larger scale refugee and economic issues that exist in Jordan. Only 20 percent of Syrian refugees in the northern region of Jordan are living in camps. Most avoid or even flee from camps because the limited work opportunities and poor living conditions there. According to a recent World Bank and UN High Commissioner for Refugees (UNHCR) report, nine in ten refugees in Jordan are either poor or at risk of becoming poor. These refugees need access to sustainable work if they are to survive and help Jordan’s economy, which has only grown roughly 2.5 percent in the past year.
The five countries with the most Syrian refugees all have economic growth of less than three percent this year and have seen their GDP growth drop significantly since 2010. Each of these countries has a large and educated Syrian workforce who are not part of the formal economy. There is a common misconception that refugees replace jobs within a country, but in fact, they traditionally enter industries that are not populated by the domestic workforce. Jordan is not the only country attempting to solve this disconnect, but it is the first to use a creative idea such as SEZs to integrate refugees. For solutions like KHBTDA to truly work there needs to be readily available private capital, enabling policy, and a capable government willing to make a difference. The changes in refugee situations have necessitated an alternative to the traditional model employed by most host governments; these refugees can provide benefits to a host country if they are given the chance.