ALIGNING INCENTIVES TO INVEST, INNOVATE, AND GENERATE EMPLOYMENT
to providing a predictable policy environment, which is essential to guaranteeing a return on investment in industries with long gestation periods, such as those that use research and development (R&D) more intensively. For instance, an expansion led by foreign direct investment (FDI) in Jordan’s pharmaceutical industry was triggered by an international trade agreement, which increased investors’ confidence in the business environment (see box 7.3).
Expanding access to finance so that firms can grow and invest Whenever entrepreneurs face a very uneven price of capital because of the discretionary allocation of credit, fi nancial resources are not allocated to their most productive uses in the economy. Policies focused on strengthening fi nancial infrastructure, increasing bank competition, and developing nonbank financial institutions can not only improve access to finance in the MENA region and revitalize the private sector but also lay the foundation for more
BOX 7.3
213
sustainable economic growth (World Bank 2011). Improving access to finance for small and medium enterprises should be a priority; these businesses currently have very limited access to credit, in spite of a high willingness to pay, attesting to severe credit market failures. Strengthen financial infrastructure Effective credit reporting systems are a precondition for fi nancial development. In fi nancial systems dominated by the private sector (see below), a critical challenge is to ensure that private credit bureaus extend coverage to include small and medium enterprises. Without sufficient credit information, smaller entities cannot obtain the credit needed to expand their businesses. In economies where bureaus are state led, public credit registries should be upgraded to operate as best-practice private bureaus. It is also important that information-collecting policies mandate that all credit-reporting institutions collect in-depth credit information, as well as information from microfinance institutions, utilities, and retailers (see table 7.1).
Jordan’s pharmaceutical sector and trade reforms
Trade reforms were crucial in creating an environment for developing the manufacturing sectors that support the pharmaceuticals industry in Jordan. Taking advantage of its accession to the World Trade Organization (WTO) in 2000, Jordan signed a free-trade agreement with the United States in which it pledged to harmonize its national legislation with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights. According to the Pharmaceutical Manufacturers Association of America, the U.S.-Jordan Free-Trade Agreement has made Jordan’s market more appealing for pharmaceutical research and development, as well as for sales and licensing agreements. The benefits include expanded data protection, elimination of exclusions from patentability for biotechnology inventions, and limitations on compulsory licensing. These reforms allowed many European firms to benefit from a
first-mover advantage by starting production of soonto-expire protected drugs in Jordan. Many renowned global pharmaceutical players—including AstraZeneca, Sanofi -Aventis, Bristol-Myers Squibb, Eli Lilly, GlaxoSmithKline, Janssen-Cilag, Merck Sharp & Dohme, Novartis, Organon, Roche, Pfi zer, and Schering-Plough—have established production sites or expanded their commercial activities in Jordan.a Jordan’s pharmaceutical sector has attracted new investments, gained new export markets, and engaged in innovative research. According to the International Intellectual Property Institute, Pfi zer doubled the number of its local employees, Sanofi Aventis and Novartis tripled their local labor forces, and Merck increased its employment in Jordan by 500 percent between 2000 and 2004. Source: World Bank 2012.