How To Slowly Kill The Middle East’s Silicon Valley

This piece of news caught my attention today:

In 2012, around 30 ICT firms, including gaming and content development companies, closed their offices and left the Kingdom…The government’s intention to increase IT companies’ income tax from 14 per cent to 25 per cent, as well as its recent decision to increase taxes on smartphones and mobile subscriptions, which will eventually lead to an increase in prices of mobile Internet, are all factors that are harming the digital gaming and content development industry… [source]

This past July, the government increased the tax on mobile phones from 8% to 16% while taxing subscriptions 24% from the previous 12%. If death and taxes are the two things that are certain in life, then Jordan’s ICT sector seems to have met its death at the hands of taxes. The exit of 30 companies from the industry is no small loss; it’s quite staggering.

This reflects a certain irony when it comes to doing business in Jordan. While the Kingdom’s biggest selling point as a nation is its security and stability, it’s investment market seems anything but secure or stable. New taxes, new laws, new policies, new plans are always being introduced and I cannot help but wonder how a foreign investor sees the country from their objective lens. Businesses require an environment where the rug isn’t pulled out from under them at a moment’s notice due to a new government intervention that seeks to primarily suck the well dry. The ICT sector has been one example of this, but so has tourism (new 16% hotel tax + 11% income tax), manufacturing (customs taxes), and even media (16% sales tax).

The state really needs to start seeing these various sectors and their companies with regards to their ability to employ Jordanians and the value they add to the GDP, rather than pots of money to draw from. Surely the government realizes that there is nothing that obligates companies to invest or stay in Jordan, and plenty of factors already working against the country to start with. This is to say nothing of major competitors in the region that include Dubai, Saudi Arabia, Turkey and even Cyprus. Surely the government realizes that increasing taxes substantially and suddenly in such a manner only serves to discourage people from staying here, and that in the long run, fewer companies means fewer people being employed, means less revenue being generated, means less contributions to the state, means less optimism about the economy, means a whole domino effect that just doesn’t end well.

And this is to say nothing of the massive potential the ICT sector in particular has when it comes to Jordan. Aside from contributing 14% to the GDP, it has quickly become the primary avenue for entrepreneurship amongst a Jordanian youth bulge that is fending off unemployment. The way things are going, I see the best case scenario being a generation of 20-something years olds starting businesses in the ICT field here in Jordan, and then moving out once they can operate in larger markets. I see the worse case scenario of them graduating and boarding the first flight to somewhere else to establish their startups there. And with that, the dream of being the region’s Silicon Valley flies right out the window. I cannot even begin to fathom the work this undermines.

Reversing this downturn means having a government that looks at its industries in a whole other way; a paradigm shift in the mindset of policy makers that yields a situation where policy reflects pragmatic and innovative thinking. It means have a government that wants to build a vision of the future rather than chip away at the status quo. Behind all the “buy local” campaigns, the top-to-bottom words of support, and all the other various pledges the state has established over the years – behind all that is a reality that suggests there are too many businesses, and too many sectors suffering. There are too many opportunities being missed and too much potential being squandered. This isn’t just a brain drain – this is an industry drain, otherwise known as an economic black hole. While one can understand the economic predicament the state is in (much of which, if we’re being honest, has been a result of its own doing) but taxing companies to death to generate short lived revenue for the state’s coffers is going to inevitably create a greater dire economic situation in the long run.

As for the ICT sector, the way I see it, if you want to build the Silicon Valley of the Middle East, it’s best not to do it on shifting sands.

Your Two Piasters: