Jordan has long been recognized as a key host country for refugees, particularly in the wake of the Syrian crisis. The Jordan Compact (JC), introduced in 2016, represents a groundbreaking approach to support both refugees and host communities, blending humanitarian aid with development initiatives. In our paper “The Economic Impacts of the Syrian Refugee Migration on Jordan: a Trade Perspective”, we evaluate two hypotheses related to The Jordan Compact. The first is whether the 2016 Jordan Compact with the EU, designed to relax specific rules governing EU trade with Jordan, led to increased exports to the EU. The second is whether the integration of Syrian workers in manufacturing boosted Jordan’s manufactured exports overall relative to industries not targeted for Syrian refugee assimilation. The analysis found no evidence for the first hypothesis but supported the second, suggesting that while the Jordan Compact had limited effect on EU-specific trade, Syrian workers were effectively integrated into Jordan's manufacturing sector, despite challenges with skill mismatches in targeted industries.
The Jordan Compact: A Strategic Response
Traditional refugee assistance often focuses on immediate humanitarian needs—food, shelter, and basic services. The Jordan Compact, however, sought to go beyond short-term relief by integrating refugees into the economy and providing them with sustainable livelihoods. The Compact's key innovation was to link international aid and development financing with policy reforms in Jordan, including the expansion of work permits for refugees. Although over 90,000 work permits were issued, challenges persist, especially in sectors where informal employment dominates, and employers are reluctant to formalize work arrangements. It was designed to promote economic development in Jordan by simplifying access to European markets through relaxed Rules of Origin (ROO) for Jordanian exports. Rules of Origin determine how much domestic content must be produced in Jordan to qualify for preferential treatment. This agreement particularly focused on industries such as agriculture, construction, and manufacturing within Special Economic Zones (SEZs), where the integration of Syrian refugees could stimulate growth. The JC outlined specific conditions, including a minimum employment of 15% Syrian refugees in participating companies and the issuance of 200,000 work permits for Syrians working in SEZs.
Challenges and Outcomes
At the heart of the Jordan Compact is the goal of improving economic opportunities for refugees while bolstering Jordan's economy. By issuing work permits to Syrian refugees, the Compact aimed to transition them from dependency on aid to active participants in the labor market. This policy shift has had significant implications not only for refugees but also for Jordan's broader economic development.
Despite the JC's ambitious goals, the implementation faced several hurdles. The informal nature of targeted sectors made it difficult for refugees to obtain the necessary work permits, limiting their integration into the formal economy. By 2017, only two manufacturing companies in SEZs were exporting to the EU, and only 60,000 work permits had been issued. By 2019, however, the number of exporting companies had increased to eleven, showing a positive, albeit slow, trajectory.
The impact of the JC on Jordan's exports to the EU has been modest. While there has been an overall increase in manufacturing exports since 2016, the growth in exports to the EU was not significantly higher than that to other regions, indicating that the EU-focused aspects of JC's influence were limited. This suggests that the full potential of the JC has yet to be realized, primarily due to the challenges in effectively integrating Syrian refugees into the labor-intensive export sector.
Relative Syrian Prevalence, by sector and gender (2017–2019)
Source: Authors’ calculations with data from Jordan LFS and UNCOMTRADE
Looking Ahead
As the international community continues to grapple with refugee crises around the world, the Jordan Compact offers a hopeful vision of what can be achieved through innovative partnerships and a focus on long-term solutions. By empowering refugees to contribute to their host country's economy, the Compact not only improves their lives but also strengthens the resilience of Jordan as a whole.
The JC represents a crucial step in addressing the economic challenges posed by the Syrian refugee crisis. It highlights the importance of international cooperation in turning crises into opportunities for economic development. The limited success of the JC, however, underscores the need for more effective integration strategies, particularly in addressing the skill mismatches that hinder Syrian refugees from contributing to Jordan's export sector.
Moving forward, the Jordanian government, in collaboration with international partners, could focus on enhancing vocational training and education programs tailored to the needs of the SEZs and addressing other implementation challenges. There had been some improvements in the labor market, formalization efforts, and strides in simplifying business regulations and investment facilitation to advance the benefits of the JC and ensure sustainable economic growth for Jordan in the face of ongoing regional challenges.
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