Emerging Markets, May 2008

Palestinian prime minister Salam Fayyad has called on the US business community for support in helping to build economic momentum in the Palestinian Territories.

Speaking at the conclusion of a landmark three-day investment summit in Bethlehem,  Mr Fayyad told Emerging Markets the event “sends a clear signal of support and confidence which I believe should encourage the business community in the United States to show greater interest in the prospects of the Palestinian economy to investing here.” Mr Fayyad declined to be drawn on the likely impact for Palestine of the forthcoming US election, but said: “We have a situation now in terms of the political process that is underway with the sponsorship of the United States, and we expect them to continue for sure.” He did, though, “point to the need for Israel to comply with the requirements” of that process. “We are concerned with that, it’s not the elections per se or the change of administration.”

Mr Fayyad’s remarks followed the announcement of $1.4 billion of private sector investment in Palestine over the course of the event, with meetings involving 25 foreign companies hoped to result in further commitments. The most significant came with the news that Wataniya Mobile was awarded the frequencies to become the state’s second operator, following an assurance from Middle East Quartet envoy Tony Blair that the frequencies would be released by the Israeli government. The investment is expected to total $650 million and create 2500 jobs; Wataniya Mobile is owned 57% by Wataniya Internatonal (itself majority owned by Qatar Telecommunications Company, or Q-Tel) and 43% by the Palestine Investment Fund.

The prime minister said other investments included $530 million related to housing and construction, and smaller totals related to insurance, food processing, ITC and industry. He defended a claim that housing investments to not help to revitalize the economy, saying: “It’s not just the immediate construction needs, but all that has to come with it in terms of building materials. And we do need houses.”

“This is private sector, not funded by the PNA [Palestinian National Authority] or donors,” Mr Fayyad said. “It’s based on the concept of investment.”

The conference also featured the announcement of a $100 million private sector investment fund in East Jerusalem property and infrastructure, the first of its kind, aiming to raise much of its funds from Gulf states.

Much rides on the success of these investments, since an effective Palestinian economy is seen as a key to ensuring peace in the region and, in time, an independent Palestinian state. The commitment of $7.1 billion of donor funding to the Palestinian government earlier this year, due to be disbursed over the next three years, is an indication of international enthusiasm for Palestine’s economy to be revived, but the fact that analysts say Palestine’s economy has declined by as much as 40% in recent years illustrates the scale of the challenge.

Also, while there is some optimism in progress on the West Bank, the situation in Gaza is vastly different. The Fatah government of the West Bank does not effectively rule the Gaza Strip; Hamas, shunned by the world community, does and Gaza today is, as Mr Fayyad put it, “in a state of complete siege. Nothing enters Gaza and nothing exits. That cannot be the basis for any economy or developmental work.”

Although investments in Gaza were announced during the event, commentators doubt any meaningful progress there, and certainly no easing by Israel, with Gaza’s current political leadership. Gaza represents half of Palestine’s population and its only opportunity for a port for exports and imports.

 Additionally, the considerable restrictions on freedom of movement, both of people and goods, in the Palestinian Territories generally has a significant impact on economic growth; Minister of the National Economy Kamal Hassouneh told Emerging Markets that a change in policy on such restrictions could increase business by 30%.

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