The Challenge of Business Representation in Public-Private Dialogue in Jordan

In Jordan, where business representation is officially mandated, creating mechanisms for public-private dialogue that encompass the informal economy is challenging.

This week, I am in Amman, Jordan, to conclude the advisory work I have been doing with the GIZ over the last couple of years. This work has supported national-level public-private dialogue to improve reforms that influence private-sector employment. The dialogue focused on achieving agreement between the public and private sectors on advancing informal business formalisation. It sought to agree on ways the government and business community could respond to common concerns and work together.

As in other places, informality in Jordan tells us much about the formal economy. It highlights the relationship between the government and the business sector.

Addressing the problems of informality in Jordan

In preparation for the national dialogue in March 2024 on formalising the informal economy, a series of consultations with the government, the business sector and civil society organisations identified the critical features of informality in Jordan. These include:

• High tax rates and lack of exemptions and incentives.
• Rigid company formation and associated legal and financial compliance requirements.
• Costly and time-consuming registration and licensing requirements.
• High social security coverage costs.
• Lack of an official definition for start-ups.
• Lack of formal representation of the informal sector and informal enterprises.

A 2023 study by the International Labour Organisation in Jordan found that all surveyed informal businesses preferred to remain informal because they feared the tax burden. Some 75 per cent also feared the administrative burden of formalisation, while 25 per cent saw no benefits to formalisation.

Two types of business informality

What is particularly interesting in Jordan is how informality is found in two segments of society and the economy.

The first segment is well known. Informality is high among home-based businesses and poor and disadvantaged communities. Informality is predominantly survivalist (i.e., informal businesses appear in response to a lack of formal employment). A 2019 USAID study on informal workers and enterprises in Jordan found that most informal enterprises are one-person businesses that are self-financed.

The second segment of informality is more unique. Informality is exceptionally high in the business start-up community, particularly in the information, technology, and communication (ICT) sector, where businesses can do very well. While the number of informal start-ups in the ICT sector is unknown, there is evidence that Jordanian entrepreneurs choose not to register locally. Instead, they register in another country, such as the British Virgin Islands or the Cayman Islands. In some cases, informal local branches of multinational businesses are established in Jordan. These businesses are unregistered, employing local workers directly by the foreign enterprise rather than through a locally registered entity.

The primary reason for informality in the ICT start-up community is to avoid taxes. Another reason is the lack of available finance for start-ups in Jordan. Entrepreneurs seeking finance or wishing to entice equity or acquisition find registration in another country more flexible and attractive. 

A GIZ study of Jordan’s start-up community argued for an effective public-private dialogue to address the most promising interventions. This included the introduction of tax exemptions or grace periods for newly registered firms. Other recommendations included tax exemptions for local and imported goods, reducing the time and costs associated with export, improving government services, and establishing a one-stop shop to register and license start-ups.  

Who represents informal enterprises?

The national public-private dialogue process in Jordan highlights an essential challenge for those interested in supporting reforms that seek to improve conditions for informal firms: who to talk to?

Unregistered and unlicensed businesses are unorganised and poorly presented. Most informal businesses shy away from the official gaze, keeping below the government radar for fear of fines or harassment. While there are notable examples of organisations in other countries that seek to represent informal businesses and workers, these are exceptions.

In Jordan, business representation is officially mandated. The formalisation process requires the business to register with either the Jordan Chamber of Commerce or the Jordan Chamber of Industry through their local branches. These are the official or mandated business representative structures. Thus, neither the Jordan Chamber of Commerce nor the Jordan Chamber of Industry has informal business members.

Jordan does have some local organisations representing household businesses and traders, but these are small and poorly organised. There are various associations representing the ICT sector and start-ups. While these benefit from good interactions with the government, they primarily represent formal businesses. 

The public-private dialogue on business informality held in March 2024 relied on formal representatives from the Jordan Chamber of Commerce and the Jordan Chamber of Industry. Previous agreements between the government and the business community (i.e., a 2014 document entitled “Towards a National Framework for the Transition to a Formal Economy in Jordan”) encouraged informal businesses and workers to establish representative unions that collectively negotiate with the government on their behalf.

Representation of informal businesses remains a structural challenge in Jordan. Only through representation and dialogue with the government can this sector be recognised and the issues driving informality addressed.

Public-private dialogue for better business environment reform

The work to support public-private dialogue in Jordan has been delivered through the Economic and Social Council of Jordan. This government agency was established under the Prime Minister’s Office to provide economic and social advice to the government. While not a neutral organisation, its role in organising and facilitating public-private dialogue was considered relevant because of its advisory functions. In a country like Jordan, government oversight of a mechanism for public-private dialogue is necessary because it gives authority and official sanction to this process.

The Council hosts a National PPD Hub that brings together public and private sector representatives to examine the barriers or constraints to employment and productivity and facilitate agreements between these parties. 

By trialling public-private dialogue on a few topics, selected through consultation with government and business representatives, the Council has gained experience in supporting bottom-up reform ideas. This differs from the top-down, research-oriented approach that typifies many government-advisory organisations.

Through this bottom-up approach, public-private dialogue builds mutual trust and understanding between the government and the business community. The challenge is to include informal businesses, which are often excluded from the dialogue. To begin to include informal businesses in this process, the formal business representative organisations must actively find a way to involve informal businesses or their associations in their formal structures.