Palestinian Capacity Building Needs in Investment Promotion

Enterprise Development and Enterprise Support Institutions

20/10/2008

Salman M Salman

Professor of Physics, Alquds University, Jerusalem, Palestine

UNCTAD/UN-ESCWA Palestinian Capacity Building Needs Assessment

April 2008

Executive Summary

Within the context of the Palestinian Authority’s Palestinian Reform and Development Plan (PRDP) for 2008-10 [previously called Medium Term Development Plan (MTDP)] a needs assessment is prepared, focusing on the public and private sector needs in investment promotion, enterprise development and enterprise support institutions.

In assessing previous capacity development efforts, a detailed review of the activities requires some comprehensive study not available at this point. Previous related studies done by UNCTAD, UNDP, World Bank, and other groups are cited. Some ideas from these previous studies were taken as starting points for this study. A list of institutions, their development and capacity building effort was partially reviewed through their reports and the interviewees’ opinions. Many conclusions were reached from these reviews.

A select group of relevant support institutions, SMEs, governmental institutions, and international institutions was interviewed for certain data and opinion survey questions. The findings of these interviews require a follow-up with a wider group survey. But certain conclusions also were reached.

The main problems facing the economic development efforts are strongly influenced by the occupation role. A real development cannot be reached without the end of occupation. But there is room for improvements through governmental reforms on the legal, planning, and implementations levels.

The reform of the governmental sector roles, regulations, and its workforce, are of profound importance for the success of any economic development plan.

Suggestions for reform are proposed through this study. A comprehensive solution for the oversized public sector workforce is certainly urgent and options were investigated. A reduction of the force is essential for any recovery of the role of government. The plan for early retirement requires offering options and large amounts of cash for the compensations. Some new ideas to solve this question were proposed that can utilise the role of the private sector through energizing the SMEs programs development.

The help for the private sector and the SMEs role in this development is a central component for the over all success of the development efforts. A comprehensive work plan to activate this line requires coordinated efforts on the part of governmental agencies, support institutions, international organizations, and the investors’ community.

The coordination efforts must come with new approaches to fuel the new economy by appreciable funds for the establishment of new SMEs covering various economical sectors.

The new funding should consider possible partnerships between Palestinians inside and outside Palestine (a special FDI program). Partnerships can be done through joint investments or through division of labour: Mainly the provision of new markets for the Palestinian services or products.

The international aid to support the success of these programmes requires direct investments through loans, partnerships or guarantees. A fully involved support for the success of these enterprises is very important to the achievement of these objectives. The local funding institutions role should be overhauled and banks role must be re-valuated.

The technical and management training needs were reviewed. A missing on – site training through partnerships or field training by experts is highly recommended by most of the survey respondents. It is generally believed that the technical expertise is available but not utilised. Training through university programmes is highly recommended. It is not considered useful or efficient to carry training courses through direct visits to outside institutions except for certain technical training of highly specialised products.

The coordination of the efforts is very instrumental. The political problems resulting from the occupation require a very skilled and highly coordinated plans and efforts to avoid the negative factors and utilise the useful opportunities to their best.

The study requires further research and comprehensive review of the available aid and development programs as part of the feasibility studies for the general work plan of the economic development of the Palestinian lands.

Introduction (Terms of Reference)

Within the context of the Palestinian Authority’s Palestinian Reform and Development Plan (PRDP) for 2008-10 [previously called Medium Term Development Plan (MTDP)] a needs assessment is prepared, focusing on the public and private sector capacity development needs in investment promotion, enterprise development and enterprise support institutions. Reference [1] provides a comprehensive review of the updated plan.

This focus is justified by the critical role that investment and enterprise development can play in steering the Palestinian economy out of its on-going regression. Despite its relative importance in GDP, investment in the oPt is relatively low due to the lack of stability and high dependency on aid. Annual private and public investments amounted to almost US $1 billion on average during the past three years.

This amount is relatively small and is not enough to compensate for the decimated Palestinian productive capacity, to meet the requirements for reconstruction and rehabilitation for the war-torn economy and to support any economic recovery and sustained economic growth. Almost three quarters of investment come from the domestic investors and one forth from the Government.

Small and medium enterprises, which comprise 90 percent of private sector enterprises in the oPt. Promoting entrepreneurship and enterprise development is critical for job creation and income generation. It would also reduce reliance on the Government as a major employer and reduce dependency on aid.

Capacity development is depicted in the Plan as entailing investments in existing and new institutions and the development of proper regulation, policies and infrastructures, with little reference to the policy objectives that such investments are meant to help achieve. This approach renders any investment as worth undertaking, thereby running the risk of spreading efforts too thin, and thereby with little tangible impact.

Moreover, the Plan does not elaborate a development strategy for guiding capacity building efforts, other than a generic statement of development objectives. Missing are the policies and approaches for achieving the stated objectives.

At the same time, while emphasizing the necessity of linking relief and rehabilitation to development, the Plan does not specify the needs that require immediate intervention and those that could be addressed in the long-term. Rather, all proposed interventions are advanced as priority needs, and are often defined in generic terms.

Previous capacity development efforts have also proceeded within the absence of a development-oriented policy framework. The PA Ministry of Planning’s compendium of donor-funded (private sector and public sector) capacity development projects suggests a wide range of activities and development ideas. This has resulted in a piece meal approach, whereby capacity development is sought as an end in itself, rather than as a means for achieving specific objectives.

Study objectives

• Assessment of previous capacity building efforts relevant to investment promotion, technical and administrative skills and the role of the support institutions.
• Comparison between the efforts, the development objectives, and the approved PRDP.
• Presentation of the role of the government, the financial & support, and the private sector institutions.
• Recommendations for the best possible methods for the development of the private sector and the investment promotion connected to the effective government.
• The differentiation between the main handicaps connected to the occupation role and the self-inflicted handicaps.

Methodology & Evaluation Metric

• Brief general review of the support and capacity building efforts.
• Survey of a selected group representing various sectors of relevance.
• Make conclusions from previous efforts, studies, and the survey results.
• Evaluation standards are based on success in:
• Public sector reforms.
• Private sector development and job creation efforts.
• Social security and welfare support for vulnerable groups.
• Alleviation of the occupation negative role.

The Study & PRDP plan

A summary of the plan highlights is outlined in annex V. A review is outlined in annex II. Here we make general remarks relevant to our assessment needs.

General Remarks

• The overall plan is encouraging but there is too much dependence on international support.
• The reduction of the public sector size is a good sign but there is too much spending on security. Most savings from other government sectors will be offset by the security spending
• Reliance on the private sector for the general economic development is a good in principle. However, it is not clear what is meant by private sector. Even though SMEs are mentioned by name, still there is not enough work to curtail the monopolies.
• There is major budget for economic development through the private sector. Maybe the assumption is based on security and infrastructure developments are good enough incentives to trigger economic growth. This is not enough for Palestine for many reasons.
• The public sector reduction and reform through retirement plans is not clear and funding such plans is not accounted for.
• The return to political normalcy and the reactivation of the legislative council is a very essential for economic reforms success simply because they need these institutions for legal approval.
• It is not clear how to cover social security and welfare.
• There is no reliance on the diaspora contributions.
• The general fiscal policy and forecasts are reasonable. However, considering the huge debt and dependence on international support plans become strongly entangled to others will. This is highly risky.
• It is understandable considering the prevailing circumstances to depend on the international support. However, hen one needs to put other plans to guarantee minimum continuity of the social and political order despite the international positions.

Chapter I

Previous Capacity Development Efforts: An Assessment

A detailed review of the activities requires some comprehensive study not available at this point. Previous related studies done by the PA, UNCTAD, UNDP and World Bank are cited [1-7]. Some ideas from these previous studies were taken as starting points for this study.

A list of institutions, and their development and capacity building effort was partially reviewed through their reports and the interviewees’ opinions. Many conclusions were reached from these reviews [annex IV].

A- Assessment of the Capacity Building Efforts Concerning Economic Development [annex 4].

The main projects can be categorised into three groups

1- Financial and investment promotion projects

These include lending and the creation of pioneering projects and the main active groups include some of the NGOs, local banks, and some International Organisations. The projects funding is diverse but generally not coordinated either on the implementation or review stages [12].

The planning or evaluation processes are not standardized and the funds go either to large loans for a small group of beneficiaries or very small amounts distributed among a large number of receptors. Both approaches do not generally influence the main direction of the development. In fact they don’t help define a direction taking into account that there is no clear defined plan in existence.

Banks do provide loans and financial services, but these services are limited in terms of the amounts or real funds for development projects or capacity for growth. Most bank loans go to consumer loans that do not impact future direction. Even though banks hold more than 1.5 times the total GDP, the amount of funding available to all types of loans or projects does not exceed 35% of the funds available. Very small fraction of these funds actually goes to development projects. [13]

The role of the banks is generally reviewed as a negative factor to development mainly because it holds the cash flow from going into development and because a large portion of the cash is funnelled outside through re- financing. The net result is that there is not much cash or real funds available for the development of competing projects. This can negatively influence the real growth.

The other problems related to banking loans are the terms and conditions of funding. Most loans require very stringent collateral terms. In most cases enterprises cannot meet the terms and the result is a shortage of funds, and a weak inclination toward the establishment of medium size companies willing or able to cross family lines or local geographic boundaries [14].

The other lending institutions besides banks (UNDP, American aid and related organisations, and European individual countries beside the Palestine Development Funds and other comparable Arabic funds (Welfare, and the Arab Fund for Economic and Social Development) try to change the terms and make the lending easier. The problem however is the size of these loans is very small compared to the needs for appreciable development (total funding from these projects for private sector enterprises does not exceed $50 million per year [13].

The funding for infrastructure development projects is done mainly through the PA or donors governments or funds executed either directly or through PECDAR. The impact of PECDAR on the infrastructure development is appreciable. The continuation of the role of PECDAR is recommended. Some groups recommend an increase of this role.

The role of PECDAR in infrastructure development however does not influence the outcome for private or public investment environment. That is mainly because most of the PECDAR projects are directed toward schools and health institution beside some municipalities or villages infrastructures services. The role of the PECDAR investments is certainly needed but it is not sufficient to trigger growth in the private sector, public’s service or productive development [7, 15].

What is generally missing is a working coordinated effort to encourage and protect the early stages of the creation of medium size companies capable of crossing the locality of their operations or the ownership of their shareholdings [annex 3].

The creation of large public companies (none governmental) does not help in this regard (investment promotion), mainly because most of these companies main interest is to create financial mutual funds and the fast investment through financial markets (Palestinian Securities Exchange- PSE, or outside Palestine). Even though the Palestinian financial market is considered necessary for the encouragement of investment, the facts prove that most of the funds generated from these operations and deals did not help the growth of the productive sector or any other sector operations. [16]

The main result of PSE services is the concentration of most of the available cash of the public hands into the hands of few companies, which can control most of the cash flow if added to the banks.

In fact many of these (PSE) operations are controlled by the banks and very few other companies [like PADICO group and the Palestinian communications industry – PALTEL group] that work as monopolies and do not provide a cash cycle into the national economy.

These companies collect the price of their services from the public. Profits exceed $300 million annually for the telephone and communication industry. This compares to over $1 billion cash collection from the market [16].

The return investment is very limited toward the number of employees and the services provided. Most capital investment goes toward the technical and administrative development of these companies. The technical part is mainly done through imports of most of the equipment. The rest of the profits usually go to outside investments similar to the banks.

The second part of the collection cycle of these companies goes through the financial markets (PSE and other outside markets). The prices of these shares were well inflated during the past decade, and the result of most of the operations over the past years was real draining of the cash from the public [17]. The net impact of the role of these companies is the curtailment of the prospects for a drive toward the growth or even the survival of the medium size companies’ movement [18].

The trends in the Palestinian lands are not isolated from the general evolution worldwide. The globalization impact is clear and the increase of the role of the financial markets and the share of financial cycles on the world economy is well developed [8]. The result is clear to see and the scope is certainly affecting the development of medium size businesses worldwide [6].

The impact in Palestine is doubled because of the limited resources and the role of the international funding in defining the direction of these activities. A coordinated effort from international groups is very instrumental for the success of the endeavours toward a growth of the SMEs [2-3].

2- Technical and administrative capacity building efforts

These efforts overlap with the funding efforts but their concentration is generally done as technical training through seminars, workshops and training schools.

The active groups include the UNDP, the World Bank. Other groups include the international organisations: European, American and other international or Arab groups. Capacity building efforts go either directly or through government projects. Few activities are practised through different training programs [annex 4].

The general impact of the training programs is positive and the reception of these efforts is favourable. The main problem however is that there is a weak output to translate these training experiences into a practical implementation because most of the trainees cannot translate there experiences beyond small companies and through limited orientations [23].

The problem of funding the SMEs certainly limits the use of these training programs as a driving force for development [2-3]. Many skilled people can manage good projects but their training is generally wasted because they do not get the chance to practice these roles. Training is generally good, but some times it misses the needed coordination.

Government sponsored training projects are generally concentrated toward training of the public employees. But with the high inefficiency of the work force in government the training is generally treated as a mean for personal benefits to increase allowances or other terms but with very small impact of the training on implementation. [24]

Training efforts on the technical level including university, vocational schools, and other sponsored programs, are generally of acceptable quality (but not good enough for many specialized operations and projects) [25]

The missing training is the one which includes implementation of projects (building companies from scratch and following with the owners their experience and seeing when they face problems and how they face them. On – site training of projects is generally absent [19, 26].

The reason for this absence is mainly because it is harder to implement on the part of the training organisation and it takes more responsibility. Theoretical training through seminars is generally easier and more controlled which gives the trainer a feeling of success more than really is.

3- Infrastructure and organizational capacity building efforts

These cover the building of industrialized estate and free zones, the agreements between Palestine and other local or international governments (Israel, very important) or organisations, the implementation of legal frameworks, and the provision of help through the legal system of registration and licensing.

The main actor is the government through PECDAR and other branches of the government, but the activity includes many projects funded and administrated by the EU. (The European Arab Fund for development is a new group active in these projects through a group of banks) and some European states and American or Japanese agencies [8, annex 4].

Other infrastructure efforts are practiced by the unions and umbrella organisations like PAL TRADE, Chambers of Commerce, and Industrial Unions, and some NGOs like the Health Relief and Agricultural Relief Services. These are very important capacity building efforts, and they are treated as such by most world organisations including the UN, EU and US groups [annex 4].

The high premium given to these efforts does not mean they are actually successful. The main draw back is the high role the Israeli can impact.

 

Industrialized zones ideas started from the first days of the Palestinian Authority role. But the amount of labour or number of projects benefiting from such large endeavours is disappointingly small [20]

Some reason of the limitation of the role of industrialized zones is certainly influenced by Israel restrictions. But other reasons are built in the system. If there are limited companies able or willing to participate in the zones then any effort to expand them will fail. The main factor then is to enable the creation of more companies and projects which are capable of benefiting from these zones.

The missing of private share – based companies and not family projects and the low impact of small projects (many small projects can coordinate or incorporate to make medium size companies which can benefit from the zones).

But since such efforts are small, only large companies which are rare and generally not geography oriented will result in small turn out of companies willing to participate. [20]

The general legal system and the licensing procedures are considered easy but the effectiveness of the legal system to solve conflicts is reviewed as very limited. The general framework is okay but the implementation is generally the problem [27].

Still, the legal system needs improvements on the conceptual level of laws and orders. Some aspects are missing. The incentive for start-up projects is missing. Tax breaks are generally provided for large companies and missing on the small and medium where. If we want to improve the prospect for the growth of such groups one needs to encourage them. [28]

The other problem is related to the system of export and import of materials and marketing in general. Even though this problem will be treated by another paper, the main point here is that many of the import or export activities are controlled by the Israeli authorities. Only if you have the right connections most of your work will be done promptly and with minimum losses. Otherwise you will suffer and may lose big. [29]

There is no protection provided by the government and you are on you own. The ones who can do well are the old connected groups through the Israeli system of customs and relations or the new large companies that are dealing with Israeli role with some influence. The main target groups (the SMEs) miss this opportunity.

The Palestinian Authority role should give these activities some limit of protection: The provision of regulations which allow the authority agencies to get in to help or to provide compensation aid for the losses resulting from and related to the Israeli controls. This cannot be assured until the government role is actually felt down to the on- site level.

B- Evaluation According to the General Development Objectives.

[See annex II for specific review evaluation of the PRDP Plan].

The general development objectives are:

1. Higher employment and income levels: through enhancing the private sector’s employment generation capacity.
2. Reduced poverty rates: through higher levels of social protection, unemployment compensation, and support of marginalized groups.
3. Preparations for statehood, through the design, development, and/or reform of public institutions.
4. The alleviation of the impact of obstructing occupation policies.

The evaluation of the projects in terms of meeting their stated objectives does necessarily coincide completely with the PRDP’s plan. That is expected because most of these projects were implemented during the past period were the plan was different. The comparison here is just to show the rate of overlap between the PRDP’s plan and the existing program. For example the relief support was an emergency effort not envisioned priori either in size or scope. The emergency help is important but it does not support the plan as proposed. Still we will do the evaluation.

The first objective of solving higher employment and income levels through enhancing the private sector’s employment generation capacity.

Most of the reviewed projects did not have a large portion of these funds directed to support the private sector any way. This was stated in the past chapter. The reliance on the private sector to generate employment was not actually supported by the programs. We know the private sector suffered badly during the past period. In many sectors it lost employment.

The new plan emphasis on the private sector capacity to generate employment is well put but the government and the support organisations should admit and recognise that there is no effort of appreciable size done or planned to help the private sector. Only if we consider the private sector as the big business then we may find some efforts. We don’t consider here the big business as the sample representation of the private sector. We have approached this point in the review and these ventures did not help the well being of the SMEs let alone generate employment.

The terms defined in the first section shed some light on the factors curtailing these efforts. Many of them are actually allowed and some times are protected by the government itself.

Terms of success and failure must be defined. The investment must be driven by new vehicles and the government should limit the impact and control the role of the negative factors as outlined in the previous sections [annex 3].

Another side related to the employment question is the size and cost of the government:

The total man power available in Palestine exceeds one million. The employed are about 60% of that number.

The government work force makes about 32% of the employed workforce. The number of employed per capita is about 1 per 35. This is a very huge number indeed. However, taking into account that 50% of the total government work force is security related, one can see the waste. The security workforce does not actually produce much in its own sphere. There is no need for such large structures. [30]

In fact many government groups admit that these large structures were grown up because it was the only means to absorb part of the unemployment problem [annex 3]. This is the worst solution for the problem. The impact of the increase of this sector reduced the value or quality to its lowest possible levels. It puts a very heavy burden on the government future funding [19].

The average cost per government employee working 30 years and living another 20 years after retirement is more than $500k [23]. If we take into account that over 50,000 people are over limit and not needed, the real loss of funds goes beyond $25 billion over the same period. This is a very real burden.

With the existing workforce the accumulative social security for the government employees increases by about $50-80 millions annually( now the total pay is about $180m to reach the total of over $1 billion a year 15 years from now [34]. The total debt is growing and the problem will explode sooner than later.

The government recognises this problem and is trying to decrease the fall out. The international groups & governments, the World Bank and UN organisations have tackled this problem and there is general acceptance that this problem must be faced soon [1].

The new early retirement plan after 15 years with a smaller percentage of the salary for the pension is one approach but it is facing challenges [35]. The effect of the large working force goes beyond consuming a large portion of the government and public funds but it is undermining prospects for development of the productive sector work force [31].

The general perception is that the government employee does not need to work like the private one, and the long term benefits are much better for the government employee.

The result is every body is fighting to have a place in this big government. The drain of the influential and capable from the private sector, the productive or service sectors, generally limits the future investment prospects; the damage is doubled [annex 3, 35].

The solution to this problem must take into account the creation of a real incentive and drive for public employees to ask for early retirement. If planned well one can find some solutions. In the later sections a solution of this problem is suggested.

Reduced poverty rates: through higher levels of social protection, unemployment compensation, and support of marginalized groups.

All programs executed during the last 10 years including the UNRWA and the government emergency aid consumed a large part of the money provided to the Palestinian people. The ministries of labour and social welfare services payments are documented [21-22]. A large part of the government funds went to these channels too. The total emergency relief aid averaged during the last 10 years to about $150 million annually. This is equal to 10% of the government budget. But if we add the aid provided to the army of government employees in excess to real use or need (about 40,000 to 50,000 employees costing a bout $400 million a year) the “relief” aid comes to about 40% of the total budget. This is a disaster approach.

1- For the temporary relief aid many of the receptors of the aid are not qualified. In addition, the execution of these relief projects did not help the people in the end and the funds were mostly wasted through superficial projects [annex3, 36].

2- Similar conclusions can be reached regarding the inflated government employment. Most government salaries paid to those absorbed to help themselves are again useless. But here it was worse because the hiring of government employees is not temporary. The damage done by this welfare employment is detrimental to the well being of the government and the people as we shall discuss in the next point.

The net effect is the creation of “the begging society”. Every body knows this phenomena and the attachment of the public to the whims of the aid. In fact in our opinion, this point should be addressed differently. If this emergency aid went to the creation of productive services and projects a lot of employment and goods can come out of it. We recognise the need to continue the relief programs but the PRDP plan should work on transforming them into useful productive aid.

3- The new plan by the Salam government to connect government services to the payment of the electricity bills owed to the municipalities seems in the first look as the most normal and reasonable approach to collect millions of un-paid dues. In fact many aspects of the idea are certainly reasonable.

But problems remain. In many scattered discussions with employees and the most affected of the social groups (the lowest poor) it turned out that a reasonable fraction of the outstanding bill is owed by the very poor and unfortunate. Applying this term will just make their life more miserable. In addition a attaching the payment to the basic right of the people and the services of the government does not seem right and it may create serious responses and resistance form the public. Indicators of the general public un-ease can be seen.

But then how to solve this problem. You just cannot allow part of the society to live for free when at the same time another part is fully complying. Fairness does not accept this. But then we have to remember that a large fraction of the affluent became so because they were offered employment for free from the government. We know how many people don’t deserve there positions. These people are getting many free lunches too.

You cannot enforce the pay at the poor and leave these people unaffected. In fact and in many cases these same affluent are not paying their bills too. The problem is too complicated and any solution that doesn’t take into account these fine differentials between the groups affected will just jump to trouble and ends up not fair at the same time.

The third PRDP plan objective is to address the needs associated with the preparations for statehood, through the design, development, and/or reform of public institutions.

This is a very long term effort, but one must start now to establish its terms. The negative impact of the first two factors is very detrimental to the success of the future of the Palestinians State.

The reliance of the Palestinian State on the international aid including the government employees’ stipends and the operational budget is not the right direction to follow [annex 3, 1-7].

The increase of reliance on the international funding and the dependence on the Israeli whims is not a helpful approach toward real independence. Independence can be achieved through the creation of independent funding cycles for the Palestinian development [annex 3, 37].

International aid is essential in the early stages, but any good approach must put a phasing out plan and more reliance on private Palestinian funding. This will take us to hard Palestinian political questions.

The right of return and the role of the Palestinians in the diaspora are some important questions. Taking into account that the possible available funding from the Palestinians worldwide may exceed $80 billion [38], suggests that if planned correctly Palestinians can actually fund every thing they need from there own. But that requires a real will of the Palestinian rich and governmental affluent.

A thorough evaluation of this question must be addressed. The positive impact of attracting Palestinian investments from out side to participate in the development is clear and should be expected. It was proposed from the early days of the authority creation. It was practiced during the early days of the Palestinian existence: to help the PLO and to support the Palestinians inside Palestine [39].

It is not new for Palestinians to help each other. But this trend is actually dwindling and decaying after the rise of ideas about the possibility of the resettlement of diaspora Palestinians outside Palestine. In addition, the negative image of the Palestinian authority role in the political spheres [40].

A plan with enough assurances for Palestinians from outside to invest in Palestine through sharing of responsibility and the protection of outside investors can draw billions, if planned correctly. This mechanism can be achieved through some reliance on private initiatives provided it affects a large benefiting base. This can be achieved through the limiting of monopolies and the encouragement of small investments through collaborations. Our proposal for the general plan for investment takes these factors into account [chapter 3].

The alleviation of the impact of obstructing occupation policies.

This was the least to control but the most to execute in the past 7 years. Many of the projects were forced to abandon their original plans in order to help emergency cases. The UNDP effort and the UNRWA historical roles are prominent cases. The Al Aqsa fund and the Intifada funds originated by the Arab league are other major emergency efforts. Many other smaller programs were concurrently executed.

Some of the emergency programs were needed but some were not executed correctly or not correct in the first place. The temporary employment discussed in the past point is a case. The compensation aid to alleviate the occupation policies was a drop compared to the damage. But it was a needed drop.

Other efforts concerning protection or finding alternatives were not applied to alleviate the obstruction. For example marketing was deprived from basic goods movmment. An alternative is to create outside alternatives, and to fight the Israeli role in courts. Efforts were very little and shy. The community of support were not in place to face up to the occupation. This is a sad fact every body recognises.

C- Palestinian Stakeholders’ Evaluation of the Programs and Policies.

The interviewees sample does not cover all points of view as one hopes. The sample is small (60 interviewees only about 30 have actually responded). A summary of the interviews sampling and results is provided in annex III.

The short comings of the small sample are however, compensated by the selection of this sample. Most government agencies and ministries are part of this group, and many of the influential unions and NGOs are also interviewed.

A small sample of the enterprises (medium and large) was also approached with less success with the large companies. It seems they are not interested to participate. Why they are not interested was not explained. They just dragged the issue and did not answer.

Government response too was very slow. We expected to see a prompt support of these interviews by government agencies. It turned out many were hesitant to answer, others were not interested and some were just slow to collect their answers. The interviews however gave us a good insight.

During the workshop gathering with the stakeholders the debate certainly helped give more lights, but the general conclusions did not vary appreciably from the sample conclusions [41].

.

The general opinion of the stakeholders during the meeting was incorporated within the context of the first chapter and the study in general.

The main conclusions from these interviews and the workshop are provided here for completeness and flow of the issues. A summary of these opinions can be categorised in the following:

1- The stakeholders differ on many issues, but most agreed about the weak role of banks. The banks role is looked upon very negatively and the main opinion is that it is actually draining the economy of funds which could be available if banks are not there. This is in fact true to some degree as mentioned earlier.

2- The government role evaluation is mixed: some consider it helpful but others think it is an obstacle. A strong opinion thinks the government seems to serve certain groups more than others. A review of the role of the government to provide equal opportunity is needed.

3- Presently the role of small and medium size companies is not influential on the general trends of the economy even though they actually compose more than 60 % of the work force or the production output. This is not unusual because these groups are not organised and the role of the Israeli in skewing the power proportions. This is evident not just on the economic level but on all aspects of political life in Palestine [2-3, 42].

4- The role of the legal system to protect investments is not reviewed highly, and the reason is the failure of the legal system to protect even itself during the last few years. The attempts to activate the legal system by the Salam Government are perceived positively and people hope it will produce results.

5- The occupation negative impact is a fact of life and one must work assuming this negative factor cannot be removed. People think there is some room for improvements even under the occupation restrictions.

6- The weak role of the banks in investment requires more government protection and encouragement. Some new form of coordination of these investment efforts is needed and should be created to supervise the plan for investment promotion or capacity development efforts on the part of investment or training.

7- The general belief in the possibility of success of the Palestinian State under the terms of development available internally or occupation restrictions is not very encouraging. A real effort on the part of the government to reduce internal political differences must be addressed with urgency. Without internal peace among Palestinians, development efforts will fail.

8- Monopolies are reviewed with suspicion and generally in a negative tone. Only a small group of large banks did not see a problem with monopolies. Government agencies were generally with the view that monopolies (even governmental ones) are not doing a good job. This is a sign of government susceptibility for efforts to produce a competitive economy. How much these opinions reflect real decision making; however is not clear [43].

9- There is a general disbelief in the possibility of doing development under occupation. At the same time, the same people who say that do believe they have to do development for survival. This is just one example of the built-in torn – apart attitude shared by many concerned people.

Chapter 2

Short and Long Term Capacity Development Needs

In this chapter we will try to outline but not get into details of the basic needs for the capacity development. The review of the first chapter touched upon many of these needs. In this chapter, we will try to highlight the basic ones. In the next chapter we will propose solutions that address the needs and the shortcomings raised in the review.

2-1 Public sector

Needs associated with the achievement of PRDP objectives. The plan points were addressed in chapter I and annexes II, and V. Here we shall build on the previous analysis to summarise the main needs.

From the overview of the stockholders and the assessment of the projects relevant to the capacity development and taking into account the PRDP objectives the capacity development needs associated to the achievement of the PRDP plan can be summarized in the following:

Needs associated with the enhancement of the private sector employment generating capacity:

These needs will be discussed in more details in the private sector capacity building efforts. What is emphasized here is the need to develop the legal framework to allow for the creation of the private sector as described in detail in the chapters 3 and 4. The selection of the sector and the size of the companies and the support provided to these companies will make a major impact on the general success of the PRDP plan. The priorities and scheduling are given in the general approach in chapter 3. The private sector marketing needs are important for the sector own survival.

Needs associated with higher levels of social protection, unemployment compensation, and support of marginalized groups

This question is hard to answer without a serious review of the public sector role and size as a percentage of the GDP. How much one can improve the effectiveness and the productivity of this sector.

The social protection and compensation and support of the marginalized groups cannot be covered by the public sector own initiative. The size of the under- poverty line groups is formidable to solve through standardized social protection nets. On needs to look into deeper sources of support.

By creating projects for these groups in coordination with the role of the private sector one hopes to get some practical steps toward the resolution of this challenge. The detailed plan in chapter 3 answers to these points.

Needs associated with the preparations for statehood, through the design, development, and/or reform of public institutions.

These needs include good governance, a powerful legal system, a working relationship between authorities, and a political horizon for the future.

Certainly many of the aspects of the last point are not under the control of the state. But the first three are within the grip of the government. And the capacity to do good government must include:

1- Very hard work to improve the economic agreements and breaks with Israel or outside governments or groups. A clear plan to help and support the creation of markets in the Arab world or Europe are of profound importance for the survival of the Palestinian economy and some times the very existence of the people.

2- Special training programs in public administration and government studies. Programs specialized into these efforts should be addressed in the University Curricula. The existing programs are standard and old fashioned and one needs new and up to date programs for the post graduate level to address these specific needs.

3- Improvement and efficiency of the government work force: You cannot operate with efficiency if the work force needed is x and you are employing 2x. The negative impact on productivity is restrictive. The total output does not actually improve.

The result of over crowding of government agencies of unemployed or unproductive people is very damaging to the system growth and it undermines the proportionality relationship between quality and achievement. The selection of the right size which provides efficiency is a goods example of good governance.

The excess working force must be mobilised to other resources with a phasing out program. Under all circumstances the solution can’t be done by just dumping the excess out of the labour force. The negative impact of such approach is very profound. [44]

4-1 A plan to reduce the governmental workforce can include early retirement with reasonable compensations. The cost of such early retirement however is not easy to handle by the government limited sources and funds.

Additional approaches should be addressed: one of them as the minister of planning suggested could be done through payment of the pensions through governmental trust funds.

Another practical approach may come out in solving this problem by optionally investing retirement funds through private investments.

The government can provide part of the funds through development programs or enterprises owned by the private sector. The government contribution can be considered as payments for the retirees through ownership of parts of private companies.

This will allow the retirees own part of these ventures from the first days of retirement. It will enable them to actually participate in the administration and management of these companies. This is a very encouraging approach for people transferred to early retirement.

The participation of the government by providing these funds through the private sector will enhance very strongly the output of these sectors. At the same time it will remove a large handle of the public debt.

4-2 The total retirement funds needed to cover the pensions of the existing workforce of 180 000 over the next 30 years will cost the government treasury over $25 billion. No one is even thinking how to raise such amounts.

5-1 Good governance requires transparency and good legal system.

5-2 The government enhancement of the financial system.

5-3 The application of good governance procedures.

Needs associated with the alleviation of the impact of obstructing occupation policies.

This is the least one can do generally because many of the occupation policies are driven by complicated long term plans of the occupation authorities. But other problems are usually related to temporary factors.

The role of the authority to alleviate such problems should be commended and encouraged but little out should be expected. A deep-rooted structure of organisations should be active within the public to seek a degree of harmony between government policies and public priorities and acceptance.

The international role also is very instrumental. With the consolidation of the international community support one would expect fewer obstructions.

Specific Issues

The following questions and needs are connected and need not be separate on the planning or implementation levels. They are addressed through out the paper and many are promoted as outlined in chapter 3.

Investment Promotion Agency: The role and the responsibilities of the existing (PIPA) are documented in its program. The proposed institution objectives (as outlined in chapter 3) are different from those outlined in the mission of PIPA. If PIPA can do the job here it is very good.

The following issues are covered either through out he paper or discussed as part of the suggested approach outlined in chapter 3 and the rest of the study.

A main suggestion in this study is the creation of business advisory services.

The suggested approach includes incentives and guarantees, banking sector and financing instruments, investment agreements, business networks, promoting FDI, capital and labour movement, and access to land and infrastructure.

The following are addressed in the reviews and through out the paper, but will be promoted according to the final approach of the general plan: legal framework, administrative procedures, training and skills upgrading and Information dissemination.

2-2 Private sector

Capacities that can be built by government:

The role of the government is mainly to allow new companies and enterprises to develop with minimum negative influences. The role of large monopolies is very detrimental to the success of the medium and small groups. A clear policy on the part of the government must provide antitrust laws to protect the rights of all enterprises without any discrimination.

If the government can provide the protection of rights, the progress can follow with some degree of ease. The government can still funnel part of its projects to the progress of this sector through well coordinated procedures to distribute wealth fairly as much as possible.

The government should work hard on opening new markets and the creation of partnerships with Palestinians outside or other international FDI.

The government should lead the way to the creation of an investment promotion agency. A detailed plan for such an agency is outlined in the following sections.

Through successful private sector initiatives on would expect a real impact on the employment and will provide success stories for new enterprises. This will pave the way for building for the future state and will minimise the negative role of the occupations.

Capacities that can be developed by enterprises:

Actually most of the capacities can be developed by the companies themselves. If the government can provide the protection of the legal system and the protection against monopolies and helps in opening new markets with minimum support and protection, through the encouragement and creation of new structures and companies, most of the rest of the programs will work smoothly.

Capacities serving the enterprise sector that can be developed by market support institutions (at the planning and implementation level):

This is where the whole matter should start. The support institutions should act as the catalyst to the creation of the new enterprises. The support is not expected to be wasted through the waste of expertise and funds to deprived weak superficial organisations but though real initiatives to impact the whole economy.

The nature of the new companies and their purpose, focus and internal structures should be the main factors for the success or failure of these initiatives. A high premium should be given to the micro management of these companies and not just reliance on the general plans.

Without a response from the public to create new companies with wide coverage of sectors to include most of the government objectives, the whole plan will fail. The first and foremost reactor to all of these objectives can be achieved through the creation of companies that should be supported in the infancy state [2-5].

Through incubator support institutions and with enough protection from government one can provide on-site training of most of the working force of these companies including technical and administrative skills.

With a sharing of responsibilities and not just watching from the outside and with real investment at stake and not just the attitude of the lending bank, the process will trigger dynamics to create enough companies or improve on the existing ones to completely reshape the map of the economy for the whole people. Proposals to address these issues are presented in chapter 3 and 4.

Chapter 3

Proposed Investment Promotion Technical Assistance Modalities

1- Coordination of capacity building efforts through a leading organisation.

What we propose is a general capacity plan to accommodate most of the questions raised and succeed through institutionalised procedures.

A coordinated effort should start between government, international and local support institutions, and the enterprises themselves. A coordinator institution can serve all of these purposes.

This institution need not be a single structure. It could be a multi specialized sub-institutions. The details of the structure of this coordinator can be reviewed in detail if the concepts are acceptable and prove practical with some flexibility.

(It could include PIPA or PIF but these agencies have somewhat different agendas and programs. Most of their aim is to promote investment for the government and not for the general public. We proposed here a new name (technical and development agency) just to emphasise its role. If such role can be incorporated by some agencies that will do) [45].

The institution responsible of coordination between government, international donors, support institutions, and the target enterprises can be structured to have overall coordination, or specialized domain oriented approach.

The simplest structure of such institution should provide the representation of the concerned parties. (International donors, government, support institutions and the enterprises)

Provide solid legal statues to this institution: it should have very solid legal status within Palestine and should have some recognised status outside Palestine. It should include the characteristics of semi international organisation specialised for Palestine alone. Legal frameworks to sponsor the role of this organisation shall be established within Palestine laws to protect its role.

The coordination institution (technical and development agency -TDA) should put a generalised development work plan based on the government plan and the output of the capacity development recommendations. This work plan should include feasibility studies and priority for projects.

This plan should be supported by the relevant institutions (government, donors and support institutions, and targeted sectors of the economy)

The new TDA institutions shall modulate all sectors and provide the needed feasibility studies for most of the projects to be sponsored.

The TDA announces detailed development plan to the public defining the most preferred projects, and the support available to such projects (the full coordinated work plan), the priorities, and procedures for applications.

The main plan could be based on the following criteria: For every outside dollar invested for development one should expect to get 1-2 dollars of investment from local investors.

The outside investment is a revolving fund which will be provided as loans to the receptors. The receptors of the funds can be the investors themselves but also they can be share holders with other investors with certain limits on the size of the companies, the number of holders and the maximum of ownership of single shareholder or a group.

Example: assume the productive agro sector needs an economic development plan of $300 millions for the coming 3 years the infrastructure projects are not counted but could be covered partially. This fund will be provided by the donors or the government. The TDA puts an approved plan for all projects expected to deserve support by nature and feasibility. The preferred size of the receptors is the medium size companies ($500k to $5m). The TDA coordinated fund should provide about 30% of the capital of these companies. This means the $300m will actually be distributed to companies with a total capital of $ 1 billion. Taking the average size of these companies to about $1-2m, the plan will support the creation or activation of about 500-1000 companies to serve the whole sector overall plan.

Such a high powered approach will affect the whole economy in strong terms with minimum interference from government and with a small portion of the actual investment.

This approach will create investment promotion and will help the government regulate the investment priorities. The international donors will find work plans to put their funds into, and local support institutions will follow the plan and participate with interest in serving these plans. And finally the enterprises and local investors (actually they could include outside private investors) will be encouraged to put their money on the line.

It is highly recommended that these medium size companies are private companies with maximum share holders of 50, and with an average number of 30. The fund should go to the existing companies or new ones, which are raising 50-70% of the capital, and the TDA should provide the other 50-30%.

The TDA coordinated loans can be protected by many procedures: one of them is to mortgage the equivalent value of the shares or through direct ownership. The TDA will have its representatives on the boards of these companies. The representative need not to be an employee of the TDA, but could be and is encouraged to be one of the beneficiaries.

The shares will stay under the holding of the TDA until the fund is paid back. The new share owners will practice their role on the boards from the first days. Initially in the capacity as representatives of the TDA interests, and eventually through their own representations.

The payment back of the loans can have real time evaluation. If the feasibility studies predict a certain profit and the real records show the same profit, a payback is straight forward. If problems occur, the TDA can evaluate the problems in real time basis through its role in the decision making process and can evaluate the reasons if they deserve a grace or not. The judgment will be fair and based on direct experience.

The TDA need not to worry bout the delegation of representatives. Most of them are mainly the future holders but with key personalities delegated directly from experts to represent evaluation of the companies on regular basis.

With $300m funds available from outside one should be able to raise $500 – 700 m. This is feasible and was tested before. A return of 3-1 is possible [46].

The role of the TDA can be improved from the experience, but certainly its main role is to provide the catalyst, the promoter, and investor, but for a limited time.

The TDA will be the helper or the creator of the ventures and the coordinator of the funnelling of the funds. The funds will go as loans and will be returned as part of a revolving fund.

With $1 billion for investment it is envisioned by the plan one would raise another $1-2 billion from private sector. Widely distributed with an average per capita investment of $30 k.

Companies of the good size of $500k-$1m will have a real impact especially when they are created through an expert institution and through a coordinated effort.

The administrative power and management will be trained on site through direct practice of management.

The government role in the technical assistance through this approach will be fully utilised and its commitment will be insured without its heavy hand if it actually owns the enterprises.

2- The government investment for early and ordinary retirement plans

Discussions with many government employees and officials and public interested activists were held and many opinions were suggested [32]. The relevant points covered in the annex III represent a sample, but the issues became hard to follow when suggestions were made to address the retirement plans

Three approaches were discussed concerning the retirement plan in order to reduce the work force and to improve quality

1. To follow the old retirement plan of [28 years service or 60 years old] and use the formula of [number of years in service * salary/40]. This is net of 70%. This plan was addressed in the previous sections. The government will not be able to meet the requirement of this plan in the long run. But most government employees think it is the most fair and should be kept. The retirees of the past are paid according to this plan and the military receive in fact 100% even when they retire at early age or smaller number of years. The disaster is actually in the making. 2008 pensions pay is more than $180 million [1]
2. The modified plan introduced by the Salam government is to apply the retirement early [after 15 years of service or 60 years old] and apply the same scale to get in practice the 38% of the salary. This plan will save a good fraction of the budget, but the numbers are still large and the government will not be able to meet them in the near future. The other problem associated with this plan is the strong rejection from the public employees. They will not accept it easily.
3. The third approach is to create incentives for the government employees to retire early and voluntary and to be able to cover their retirement plans. That seems to be facing the impossible. But in reality one may find some means to address this with a success rate better than the other options.

The plan can work but we should not expect it to cover the whole force needed for retirement simply because the government cannot pay for that at once. A good 5000 retirees annually can be handled through this plan and it will grow by the success of its implementation. The plan is based on certain requirements and the will of the government. It is based on the following criteria:

The government can announce a three prong retirement approach: The first and the second are as presented in the first two points.

But then provide a third option: for any early retiree a lump sum total corresponding to the pension coverage of up to the age of 75 will be calculated.

The net value incurred will be recorded for the retiree account. The actual percentage will follow from the rate applied for other plans. The new option here is to provide the early retiree the ability to use up to 50% of the total projected sum for investment in projects of their choice. These projects however must be medium size companies with share holders of at least 5 people. Or alternatively they could be a single project….

Revolving funds for loans can be approached to fund these projects and the government will be responsible for the payback of these loans over long periods and with small interest. In principle these loans could be managed by the government it self or through the mixed institutions proposed in the first section. The revolving loans funds can be utilised. In addition other government development funds can be utilised to cover part of these loans.

The average cost per retiree is about $60k. The total for 5000 retirees plan is $300 million as a net commitment per year but in fact to be paid by the government over 10-15 years.

But then their salaries of about $50 million annually will be saved. A total 3 year plan will be able to early retire 15,000 people and cost about $750m and paid by the government over 10-15 years. The number of projects created by this plan will equal to 2000 – $1 m companies (according to investment to private fund raising ratio of 2:1). In the worst case it will be about 800. This will make a strong impact.

In addition the government will actually save another $750m because it is paying 50% of the total money of the retiree if paid to him according to the original plan.

More so the number of employed by these companies will equal on the average about 50-60k person years. It cannot be better of a deal to the government.

Yes many problems will be raised. Maybe some of these companies will fail. That is normal and it is part of doing business. Maybe some people will object because these many companies will not be possible to create and utilise their capacities or market it. The answer to this is then related to the principal idea if one wants to develop the economy through SMEs or not. If so this is a very sound approach. The big business may resist this approach. It can dilute their share of the market. Or it may not. If this approach is adopted a comprehensive detailed plan can be prepared.

3- Special programs for investment promotion for Palestinians from outside (Diaspora development investment (DDI and FDI) :

This is a very challenging and promising approach. But the requirement for success is good politics and strong national commitments to the diaspora people.

The plan can be easy and it can easily succeed provided the government gives guarantees for outside investments inside Palestine. Sharing with the outside funds does not actually require all funds to operate inside. Businesses can have part of their operations from outside investments. Government guarantees should cover only the outside investments used locally.

For DDI it is easy to make many investments. One needs only to associate with the general political mood of the diaspora and to accommodate their special demands.

General FDI could be harder and it may take longer time to produce results. Only through government incentives and protection one may expect some investments. This is already pursued in the PIPA program.

The general useful approach helping this part and other parts of the investment plans and cycles is to work hard on closing deals and agreements with other countries to market the products of the new planned expansions. Arab countries can be approached to make agreements. Utilising the political will of the people to support Palestine will be helpful in this regard.

4 Training and technology transfer:

We did not elaborate in detail about training but the general belief among the interviewees and from the data; there are many experts in Palestine inside and outside. And there are many willing to provide their expertise.

Yet, the interview reveals that people still think more training is needed. They don’t mean the classical existing programs but they are looking for an increase to the on site training. That explains why both points were supported by a large percentage of interviewees. The experts are there but hey are not utilised in place. So yes there is a need for training and yes there are many experts.

In addition university training is generally widespread. In side Palestine alone there are more than 100,000 university students enrolled. And about 20,000 people graduate every year. Many of these people are not trained to serve in an appreciable manner in the development but still many are.

We know that most of this workforce is not utilised. The new approaches suggested in this chapter help to absorb this expertise naturally. Through absorbing them as share holders or employees of their own ventures, they will work hard and utilise every bit of their expertise to succeed.

The new approach will give a continuous feed back to the training institutions to modify, or the development agencies to create new approaches to fit the needs. The university system in Palestine needs a lot of refinements and help. We will not discuss the problems of the educational system here because it is not our main issue. But we know that improvements on the educational curricula will help the general development and training efforts. The material and expertise seeds are there.

The higher education system is also a good investment sector. A reform of the education laws is a must to open new ways toward direct investment in private universities and schools. And special reforms are needed to be applied to the existing public schools. They are public only by name. Other wise they are generally run by certain groups and managed as monopolies. The overall development plan will never succeed without a new approach toward the refinement and reform of the whole higher educational system.

Many private enterprises suggested utilising the emergency employment funds to be executed through covering salaries for the temporary employed to work in these enterprises. This will end up as an aid to the enterprises, a training place for the new graduates or employed, and it will produce interaction. The current programmes are executed for general public services with very low output.

Chapter 4

Challenges to capacity development efforts

4-1 Funds availability – Donors and Government

This is generally recognised. The donors’ commitments for the coming 3 years were announced in Paris but we are not sure how much out of what was announced will be materialised.

Then how much out of this funding will be directed to development is not also clear. The plan proposes some 10%. out of 30% proposed overall development, but a good fraction of that will go toward infrastructure and we are not sure how much of that will be of direct impact on the main drive of the development as approached in this paper.

A minimum of $1 billion for direct incensement in the private sector is required in order to fuel the economy. With $1 billion committed from the public money one can easily expect to get another 2 from the private sector. Three billion dollars will make a strong impact.

We should remember the billion of public money is not invested and wasted. It is revolving and can continue to be reinvested to generate more and more private investments. A very serious governmental commitment to direct investment of part of the public funds into the private sector is very instrumental toward the success of this plan.

4-2 Government and the Occupation

The relation BETWEEN THE GOVRNMENT AND THE OCCUPATION IS NOT stable or predictable one. It can become soar very easily and can reach the point of siege as happened in the last 7 years. We certainly cannot assume the relation with the occupation will be stable. The Palestinian plans should always assume the worst of this part. In doing so the development plan should not rely on the good will of the occupation. We know we cannot avoid all of its controls but we should minimise that. In the following we will discuss some of the main points.

Economic agreements [d15]

As we know Palestine is allowed to sign restricted agreements with outside countries. This is generally legally done under the name of the PLO but it is easy to do it directly by the Palestinian Authority for many cases. In both cases the agreements can be made by the same body decision hopefully. We know this is a very complicated circuit. And we know the importance of the internal political cohesion to its success.

Here we will not review or assess the Paris economic agreement [47]. But many people complain about its restrictive role and suggestions are made to modify the terms concerning many issues related to trade and currency. We will not dwell here but we are with the opinion to change this agreement fundamentally.

The following recommendations can be applied

Maximise agreements with Arab countries. It is not difficult to negotiate ones. It may seem many times useless to sign agreements with the Arab countries, but having them will certainly open doors for investors from the Arabic countries and especially from the Palestinian diaspora.

A fully devoted effort must concentrate on signing all possible agreement with outside government and organisations. It may seem trivial but many of the interviewees complained that they have asked the government to work out some marketing agreements with certain Arab states to discover that no effort was made to start any contacts or to find out the possibilities even though they are possible and also useful [48]

The economic agreements with Israel are very complicated and crippling. One should really consider renegotiating these agreements especially the ones related to trade, currency and customs.

It is not right to rely on the existing agreements. They are biased against Palestine. The approach is to devote certain teams to work on reforming these agreements. Then work plans to enforce the reforms.

They may not succeed but at least it will be documented systematically what is wrong and what is possible. This will help clarify the missing parts. Again it may seem trivial but many of the people who participated in the formulation of the existing agreement complained about the randomness of the Palestinian side approach.

Movement of goods and the people

This is part of the agreement with the Israeli but we discussed it here to emphasize it importance. We know every body recognises the importance of the movement of goods and people. What more one can say? We just keep it in mind.

The currency entailment

This is another big issue and we are not sure if Israel can actually completely control the Palestinian economical sphere without our leniency and not doing our part as we should.

The use of the shekel costs the Palestinian economy dearly. Taking into account that more than 90% of the Palestinian income comes in foreign currencies or dinar and admitting that the only income from Israel is the one for the relatively small labour in Israel or the could be little Israeli imports, we know how costly to remain using the Israeli shekel. The dinar is already used in real estate & land and many service institutions (banks and universities…) but government and most forms of trade are fully using the shekel.

The money exchange costs the government a loss of about $7 m a month just because of exchange fluctuations (the Israelis do play these manipulations). If we add the cost on the public and trade, the total loss because of using the shekel could range between $150 -300m annually, depending on the speed of exchange fluctuations [49].

Why not use the dollar or Euro directly. I am not sure I know. A plan to use the dinar or dollar can stabilise many sectors of the economy and the need for the shekel will be restricted to imports from Israel. That will relieve Palestine from the exchange game.

The marketing in Israel or the outside

Marketing outside was discussed with some elaboration. We are not sure the government can come out with agreements to open new markets but we know they have not tried enough. Many experts can help in this regard and a through systematic approach should be utilised before we can make a judgment about the limit of this lane.

The compensation of destroyed projects.

This may seem strange but it is true. Many projects were actually physically destroyed by Israel. The natural response, we should compensate the people who lose. But there is widespread belief that many people who deserve compensation did not get it and many who did not deserve any got plenty. A well defined and clear plan to recognise, organise, and accelerate the compensation procedures should be put in place. This will encourage businesses.

4-3 Government and the private sector

This is the core of this study. The philosophy is clear. But the challenges are plenty. It maybe easy to agree on the concept of helping the private sector to grow and flourish. But to select to help the small and medium sector and not the monopolies may not be that easy. Monopolies don’t like competition.

The plans will succeed if the private sector is treated to represent all businesses and not reduce it to the big ones only. The new little and small will succeed in driving the economy if they are organized. They should be grouped not to make monopolies of new forms but just to give strength to the effort.

Every body talks about free market and competition. These are considered the norm. And we agree this should be done fairly. Help small businesses grow through the incentives: tax breaks, protection and marketing. In addition help them to start by direct funding through partnerships or equity. One should remember this support for SMEs will be done temporally and as a starting point until the economy can catch on its own. To succeed is a big challenge.

The second challenge concerns the reform of the government role and operations. Our government is too big for the size of Palestine. It should be smaller and more efficient. The cost of government should be less.

The big question is how to convince the government employees to retire. The first thing to do is to clear it from corruption. Remove all employed who are not reporting, then remove the excess of no use by opening new paths for them. This a very hard effort because the special interest groups and political entities and organisations will resist to protect their interests and if any group succeeds in having an exception the whole process will fail.

To avoid this face off and instead of accumulating the debt of the government we proposed to remove it by investing in the private sector and by encouraging the government employees to move with that. This is a very delicate process and needs a strong commitment on the part of the government and the donors. The plan will fail if the government does not fund it and if one allows or accepts the special interest groups dictates.

4-5 Government and the internal political impasse

We know the sensitivity of this contagious issue. But we have to address it if we want to be objective. The political impasse and divisions between GAZA and The West Bank are destroying all aspects of possible facing of the occupation or the ability to do minimum coordination between the two parts of the Palestinian lands. The continuation of the current status is equal to a de facto division of the Palestinians more than they are already divided and scattered. The existing attitudes and excuses to defer the start up of a practical solution to the Palestinian inter division will end up all in the very losing end. It does not matter who thinks he is right or not.

4-4 Concluding remarks: areas requiring further research.

This study needs a more through follow up. A comprehensive review of the issues touched is needed to make detailed judgments. But with the exciting data we can make the basic choices. We don’t need more information to make the decision if we want to rely on small and medium enterprise to drive the economy or keep it for the big ones.

In the last 10 years we relied on the big business and the big government and we ended up with very little of any [50]. Big business is moving the cash out of the economy and the country, and the big government is making the “nation of beggars”.

If the choice is made to rely on the dynamics of the SMEs the proposal to coordinate development through an umbrella body should be pursued in the nearest time. In that case feasibility studies should be planned within few months. And implementation should follow. So all further research will be dictated by the choice. And we are in support.

Notes

[A – list] background and previous cited research.

[1] The World Bank, “Investing in Palestinian Economic Reform and Development”, Report for the Pledging Conference Paris, December 17, 2007

[2] PALESTINIAN SMALL AND MEDIUM-SIZED ENTERPRISES: DYNAMICS AND CONTRIBUTION TO DEVELOPMENT, UNCTAD/GDS/APP/2004/1.

[3] For a review of the role of SMEs in economic growth in developing countries see: Kristin Hallberg A Market-Oriented Strategy for Small and Medium Enterprises, IFC, Discussion Paper no. 40, The World Bank, Washington DC. and Paths Out of Poverty – The Role of Private Enterprise in Developing Countries, IFC, Washington DC, 2000.

[4] Incubators in Developing Countries: Status and Development Perspectives Elena Scaramuzzi infoDev Program. The World Bank, Washington DC May 2002.

[5] INFORMATION NOTE ON THE ECONOMY OF THE OCCUPIED PALESTINIAN TERRITORY (WEST BANK AND GAZA), Prepared by the Palestinian National Authority, Ministry of Economy and Trade. UNLDC III, Brussels, 14-20 May 2001. A/CONF.191/BP/9 – , 14/05/01

[6] COMMISSION OF THE EUROPEAN COMMUNITIES, COMMISSION STAFF WORKING PAPER, European Neighborhood Policy, Country Report , “Palestinian Authority of the West Bank and Gaza Strip”, {COM(2004)373 final} Brussels, 12.5.2004.

[7]

UNDP, “Making Globalization Work for All”, UNDP annual report 2007.

[8] PECDAR activity report of 2007, published by PECDAR Web site.

Additional references

[9] UNCTAD, “Transit and maritime transport facilitation for the rehabilitation and development of the Palestinian economy”, UNCTAD/GDS/APP/2003/1, New York and Geneva, 2004.

[10] UNCTAD, “Integrated Simulation Framework for Palestinian Macroeconomic, Trade and Labour Policy”. UNCTAD/GDS/APP/2006/2 New York and Geneva, 2006.

[11] UNDP – Center For Macro Projects and Diplomacy, Macro Center Working Papers, Roger Williams University Year 2004 ,”Development Potentials For Palestine”, Timothy Rothermel

“Micro-enterprise Development”, Prepared for the Australian Agency for International Development, 1997.

[b- list] Relevant data as outlined in the annex IV.

[12]The reviewed projects outlined in annex 4 are not implemented as part of a coordinated national plan. The UNDP and World Bank have their own policies and priorities. The PA, PECDAR program is planned according to the national plan but the final implementation depends on the donors’ priorities. The European Union projects are generally executed through the PA but still influenced by the EU priorities. It seems there is no official body in place to coordinate these projects with one measure.

[13] The totals as outlined in the annex averaged about $4.5 billion annually during the past 10 years. Less than $50m annually went to economic development. Most went to infrastructure. The total loans from the banks are less than $1.8 billion but most of that are consumer loans or credits for big companies.

[14] The details of the beneficiaries of the loans offered by banks or some of the lending institutions reveal that most of the credit offered to SMEs went to family based enterprises. In addition the UNCTAD study shows that many of SMEs are family controlled [2].

[15] The PECDAR program as outlined in their website shows the funding channels. They are concentrated on infrastructure projects including roads, health, schools, electricity, and water projects. These projects are needed for the well being of the general public, but a direct impact of these projects on the growth of private enterprises is not apparent.

[16] The publications of the PALTEL and PADICO and their associates show net profits per year exceeding a $400 million. This is more than 15% of the GDP. The total sales by these companies and other comparable big companies (the largest 20 service and production companies, not including banks) exceeded the $1 billion mark over the last 5 years. From the PSE records and the participant companies profiles, taking into account these PSE don’t include all large companies.

[17] PALTEL shares prices oscillated since 1998 from JD1 to JD16. PADICO prices from varied too- see the PSE exchange records.

[18] The total cash flow utilised from the PSE exchange operations averages about $2.5 billion per year. The net profit from these operations to the companies and the benefits for the middle brokers assuming only 15% profit margin exceeds $300 million annually. This money goes from the general public hands to the small number of participant companies and mainly to PADICO and PALTEL.

[19] As shown in their training projects most of the parties listed in annex 4 don’t participate in on-site training. The World Bank budget of about $5 million per year is reviewed by the institutions benefiting as not very useful. The general university and vocational training is not practiced locally too.

[20] The PIEFZA records don’t show the total number of participating companies in Gaza. In the West Bank the estates are either under construction or in the planning stage. Until now one cannot depend on these zones to make a difference to the economy. http://www.piefza.org/a_program_zones.htm

Even if they start they will face problems. The problems have to do with the available number of companies willing to participate. Most of family businesses do not see an advantage in participation. The zones were built by international support but operated in coordination with certain big companies. If one wants to benefit from these services they should be run by completely independent body.

But still even if these operations are sound and perfect the number of medium size companies that can benefit is still small. Only private limited sharing companies can have the will to use it.

Originally these zones were planned to operate at the border crossings with Israel to allow Israeli companies to start operations and utilise the Palestinian labour with minimum security risk that was executed partially during the past 3 years in Gaza.

The purpose is to serve Israeli security in return of employing Palestinian workers. Or to encourage joint ventures with Israeli partners. This is the purpose and it is the reason why they are failing. They may succeed if they are intended to serve Palestinian industries within the heart lands. The Nablus is a good case. But then one should take the other points into account.

[21] About $20-30 m annually are paid for unemployment compensations. The programs are sponsored by UNDP and some Arab countries. Most of these funds go to unproductive work like street cleaning or similar jobs. See ministry of labour site http://www.mol.gov.ps/third/box.html

[22] The ministry of social affairs provides about $60m annually to cover very severe social cases. http://www.mosa.gov.ps/index.php?option=com_content&task=view&id=7&Itemid=32

[c – list] Annex III sections: interviewees’ opinions results as cited by the main article.

[23] annex3, I-8, II-11.

[24] annex3, I-8, I -9, II-11.

[25] annex3, I-11.

[26] annex3, I- 9, II-11.

[27] annex3, I-6.

[28] annex3, II-2, II-8, II-12.

[29] annex3, I-10, 2-4.

[30] annex3, I-10, 2-4.

[31] annex3, I-7.

[32] annex 3, various meetings held with government employees in Ramallah Nablus, Jenin, Qalqilia, during the period October –December 2007.

[d – list] Citations and private communication with some related personalities.

[33] The average government employee salary is $900 for 30 years of service and a nominal 15 years after retirement the $500k cost per employee comes. If we consider that there are more than 50 k employed with no benefit. The total waste exceeds about $25 billion.

[34] the average retirement rate for 30 years program should be about 5000 employees. This means an increase of about $50 million per year. If we take into account the hiring distribution of the past 10 years the total pension pay per year 10 years from now will pass the $650 m. The bill now is $180m.

[35] The government employees who were able to get their jobs through influences and strings will not give up their benefits easily. These same people try to influence the retirement plans to their benefits. This attitude and the strength of the groups make the government a safe heaven for the affluent and the inefficient. Such an environment can certainly influence the private sector ability to utilise the workers effectively. These opinions were expressed by many of the interviewees.

[36 The programs offered by the labour ministry combined with the social welfare system and the emergency relief aid show a pattern of spending for non continuing benefit to the receivers. Aid is too scattered, unstable and random, to allow planning on the part of the beneficiaries. See the labour, social welfare and other emergency aid programs offered by the UNRWA and UNDP.

[37] The Paris economic protocol still followed prevents the creation of independent Palestinian economy. Independence requires the change of the Paris protocol, the removal of the Shekel as the main currency, the opening of passage points with Jordan and Egypt and the creation of free economic contacts with the Arab countries.

[38] The estimated number of $80 billion in cash available is reasonable. The assets can be calculated using the assets of the Palestinians in Jordan, the Americas, and the gulf including the rich people and the ordinary of course. For comparable estimates see “Investments, not donations, needed more to rebuild economy of territories” – James Sterngold, San Francisco Chronicle Writer September 4, 2005.

http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2005/09/04/MNGTHEI7BV1.DTL

[39] Historically the PLO tax was collected since the early seventies. The aid to the Palestinians inside used to come from their relatives in the Gulf States and the West. The Gulf aid decreased in the last 15 years as a result of the removal of Palestinians in Kuwait and the increase of the cost of living in the Gulf in a way most of middle and low income sector cannot make reasonable savings. The rich Palestinians are not inclined to invest mainly because of three reasons. The control of the outside investment by certain investment groups weakened other smaller or less influential investors to join. The second reason resulted from the political instability, and the third is related to the failure of the Palestinian Authority to attract these investments for various legal and protection factors.

[40] The PLO has lost a lot of zenith during the past 20 years because of the political difference with the PLO policies. The diaspora Palestinians interest is strongly related to the final solution terms, especially the right of return end result. The committee for the right of return headed by Dr. Salman Abu Sittah is documenting the general trend. The Hamas support among the diaspora makes the investment more dependent on who is in power. The internal political struggle is undermining the potential severely.

[41] The interviews were conducted during the past 3 months. The sample has a reasonable variety. Other people were interviewed without documenting their input to keep the sample original ratios. It turned out adding the additional interviews did not change the results and the overall evaluation supports the findings summarized in the annex 3.

[42] The role of Israel in skewing the economic and political proportionality in Palestine. This is an established practice. If the Israelis target some group or political entity they make their life very hard. They can control the movement, threaten the lives, and certainly they can control the money flow for business. As a result many power bases were lost for others. This is expected, but the alarming attitude is that some Palestinians are beginning to accept these interferences.

[43] On the governmental opinion if it really reflects policy. Some of the government officials interviewed gave similar opinions to international support institutions and in good agreement with the opinions of the enterprises owners. When they were asked if these positions represent their agencies they were not sure of that.

[44] Dumping the excess work force and the electric bill. The problems are serious. The military and the influential usually coordinate their efforts to prevent weakening their benefits. As far as the changes target the spoiled and inefficient the people will accept them but when the procedures cannot distinguish between the unfortunate and the above groups the people will object. The Salam Government “Baraato Ethemma” is a case.

[45] The PIPA program to promote investment does not require active involvement. The role is more of a regulatory than a participant.

[46] During the early 1990s conditions were less encouraging but people were ready to invest 2/3 of the capital if they can receive a partnership of 30%. During my management of the TDC we have received applications worth more than $40m of investment offers if we participate with one third of the total capital. During that time the TDC fund was only $8 m.

[47] Paris agreement terms are not good for free economic activities. It is not helpful for the creation of a currency but it does not prevent using other currencies as the main currency instead of the shekel for details of the agreement http://arabic.cnn.com/Middle_east/interactive/key.documents/paris.html

[48] Agreements with Arab countries are not will established or followed. It is generally dismissed as “Arab states don’t help much”. But from many discussions with trade people they think other wise. They cited many occasions where it was possible to arrange good terms for exports or imports from Arab countries but the relevant agencies did not follow up.

[49] Israeli manipulation of currency exchanges. The shekel is exchange is at least 10% overpriced. One can find this out from the price history of the last 2 years.The Shekel performance seemed stronger than the Euro or the Yen and certainly the Dollar. From where all this strength comes is not clear. The Shekel higher exchange is not supported. But then we should remember that Palestine is the only place where people actually purchase Shekel. This is why the Israelis can set the price arbitrarily. The daily fluctuations are the name of the game in the Israeli exchange market. The timing and swinging of the rates indicates a certain effect against the Dollar to the loss of the Palestinians.

[50] The big government. A budget of more than 45% of the GDP. A workforce greater than 20% of the total workforce and about 30% of the employed. In addition to a para-employed by the political parties who cover another 10-15% of the GDP or the workforce.

Annex I: Interviews and Survey Sample

Table 1 Survey Sample Distribution

Interviewees type	Sent	%	Responded	%
Government	15	19	12	24
Support and finance	20	25	15	30
Large Companies	10	13	3	6
SME	25	31	15	30
International & experts	10	12	5	10
Total	80	100	50	100
Partial interview survey
Partial survey public sector	40		40
Partial survey private sector	40		40

Table 1: List of Interviewees

Type	Institution
experts	Prof. M Jaafary
experts	MAS
experts	Dr. Osama Al Jaser
experts and support	Prof. S. M. Salman Founder of TDC–a co-founder of the Palestinian banking corporation) SME owner, chairman of the board of a number of trading and productive companies.
government	Orphans Investment Fund
government	Palestinian Monetary Authority
government	Ministry of Education & higher Education
government	Ministry of Labour
government	Bureau of Standards
government	Interior Ministry
government	Ministry of Justice
government	Ministry of Finance
government government	Jenin Governate Qalqilia Governate
government	Ministry of Trade
Government	Qiddees
government & support	PIEFZA: INDUSTRIAL ESTATES AND FREE ZONES
government & support	PIPA
international support	Economic and Social Development Centre
support & finance	CARE
large companies	PALTEL
large companies	Gaza insurance company
large companies	Al Mashreq
M to large companies	Net-Tours
SME	Jalal Farms
SME	Agricultural Company
SME	Irsheid Company
SME	Othman Construction Company
SME	Bdair Aluminium
SME	Omar Al-Jaser
SME	Mahameed
SME	Barghothi
support	Palestinian Network for Small Loans
support	Society of Business Men
support	Union of Agricultural Work Committees
support	Federation of Palestinian Chambers of Commerce
support	Palestinian Federation of Industries
support	Palestine information Technology Association
support	PICTI
support	General union of Palestinian workers
support	Pal Trade
support	Alquds University
support	Housing Bank
support	Palestinian Investment and Banking Society
large companies	Palestinian Islamic Bank
support and finance	Bank of Palestine
support and finance	Housing Council
support and finance	Development Council
support and finance	Palestine Mortgage and Housing company
support and finance	Palestine Banking Corporation

 

Annex II-1: PRDP 2008-2010 Priority Programme Areas

[See the overall plan in annex V]

Table1. PRDP programme areas for infrastructure development in relation to infrastructure and enterprise development

Enterprise development	Establishment of new industrial zones
	Rehabilitation of existing industrial zones and municipal industrial zones
	Establishment of industrial laboratories

Table 2. PRDP programme areas for enterprise development

Programme areas	Priority needs
Cross-cutting areas
The business environment	Developing a business friendly legal framework
	Developing the judiciary capacity to uphold and protect laws, regulations and property rights.
Support to small and medium enterprises	Loan guarantees
	Trade services and export promotion
	Technology based education and capacity building to foster innovation, and facilitate access to new technologies
	Linkages with regional and global markets
	Trade agreements support
	Insurance schemes
	Debt rescheduling
	Damages payments
	Financing schemes
	Sector credit funding
	Management training
Agro-industries	Exploring agricultural surplus for possible manufacturing
	Options and needs for new manufacturing industries
	Establishment of industries around the surplus (e.g. diary products, vegetable freezing and canning, olive oil products and accessories).

Annex II-2

Evaluation of the Terms of the PRDP.

The end results of the projects do not necessarily coincide with the PRDP’s plan. That is expected because most of these projects were implemented during the past period were the plan was different.

Governance

Justice, Fiscal reform. Administrative and civil service reform, Local government reform. Accountability and transparency

Previous activities collide head on with the new approach of the PRDP. Whereas the plan calls for the reduction of the government, the previous overall programmes worked for the increase of the government size and inefficiency.

The total man power available in Palestine exceeds one million. The employed are about 60% of that number.

The government work force makes about 32% of the employed workforce. The number of employed per capita is about one per 35. This is a very huge number indeed.

In fact, many government groups admit that these large structures were grown up because it was the only means to absorb part of the unemployment problem [annex 3]. This is really the worst solution of the problem. The impact of the increase of this sector reduced the value or quality to its lowest possible levels. It puts a very heavy burden on the government future funding [19].

The average cost per government employee working 30 years and spending another 20 years after retirement is more than $500k [33]. If we take into account that over 50,000 people are over limit and not needed, the real loss of funds goes beyond $25 billion over the same period. This is a very real burden.

With the existing workforce the accumulative social security for the government employees increases by about $50-80 millions annually( now the total pay is about $180m to reach the total of over $1 billion a year 15 years from now [34]. The total debt is growing exponentially and the problem will explode sooner than later.

The government recognises this problem and is trying to decrease the fall out or speed of its destruction. The international groups & governments, the World Bank and UN organisations have tackled this problem and there is general acceptance that this problem must be faced soon [1].

The new early retirement plan after 15 years with a smaller percentage of the salary for the pension is one approach but it is facing challenges [35]. The effect of the large working force goes beyond consuming a large portion of the government and public funds but it is undermining prospects for development of the productive sector work force [31].

The general perception is that the government employee does not need to work like the private one, and the long-term benefits are much better for the government employee.

The result is every body is fighting to have a place in this big government. The drain of the influential and capable from the private sector, the productive or service sectors, generally limits the future investment prospects, the damage is doubled, and some time tripled [annex 3, 35].

The solution to this problem must take into account the creation of a real incentive and a drive for public employees to ask for early retirement. If planned well one can find some solutions. In the later sections, a solution of this problem is suggested.

The Political Horizon: Security and Rule of Law

The new plan calls for the implementation of the road map and the application of security and rule of low as means to achieve the political and economic development.

The plan relies somewhat strongly on the international aid. In this regard, the government is falling to the old habits of increasing dependence on aid.

The reliance of the Palestinian State on the international aid including the government employees’ stipends and the operational budget is not the right direction to follow [annex 3, 1-7].

The increase of reliance on the international funding and the dependence on the Israeli whims is not a helpful approach toward real independence. Independence can be achieved through the creation of independent funding cycles for the Palestinian development [annex 3, 37].

International aid is essential in the early stages, but any good approach must put a phasing out plan and more reliance on private Palestinian funding. This will take us to hard Palestinian political questions.

The right of return and the role of the Palestinians in the diaspora are some important questions. Taking into account that the possible available funding from the Palestinians worldwide may exceed $80 billion [d6], suggests that if planned correctly Palestinians can actually fund every thing they need from there own. However, that requires the will of the Palestinian rich and governmental affluent.

Social Development

Social protection. Education, Health, Empowerment

The PRDP new plan departs appreciably from the previous policies and programs. This is emphasized on education, health and social security.

The new Plan seems to give more weight to independence within the society even though it does not move very much away from the old dependence on the international aid.

Emergency aid

This was the least to control but the most to execute in the past 7 years. Many of the projects were forced to abandon their original plans in order to help emergency cases. The UNDP effort and the UNRWA historical roles are prominent cases. The Al Aqsa fund and the Intifada funds originated by the Arab league are other major emergency efforts. Many other smaller programs were concurrently executed.

Some of the emergency programs were needed but some were not executed correctly or not correct in the first place. The temporary employment discussed in the past point is a case. The compensation aid to alleviate the occupation policies was a drop compared to the damage. However, it was a needed drop.

Other efforts concerning protection or finding alternatives were not applied to alleviate the obstruction. For example marketing was deprived from basic goods movmment. An alternative is to create outside alternatives, and to fight the Israeli role in courts. Efforts were very little and shy. The community of support were not in place to face up to the occupation. This is a sad fact every body recognises.

Programs executed during the last 10 years including the UNRWA and the government emergency aid consumed a large part of the money provided to the Palestinian people. The ministries of labour and social welfare services payments are documented [21-22]. A large part of the government funds went to these channels too. The total emergency relief aid averaged during the last 10 years to about $150 million annually. This is equal to 10% of the government budget. However, if we add the aid provided to the army of government employees in excess to real use or need (about 40,000 to 50,000 employees costing a bout $400 million a year) the “relief” aid comes to about 40% of the total budget. This is a disaster approach.

1- For the temporary relief aid many of the receptors of the aid are not qualified. In addition, the execution of these relief projects did not help the people in the end and the funds were mostly wasted through superficial projects [annex3, d4].

2- Similar conclusions can be reached regarding the inflated government employment. Most government salaries paid to those absorbed to help themselves are again useless. However, here it was worse because the hiring of government employees is not temporary. The damage done by this welfare employment is detrimental to the well being of the government and the people as we shall discuss in the next point.

The net impact is the creation of “the begging society”. Every body knows this phenomena and the attachment of the public to the whims of the aid. In fact in our opinion, this point should be addressed differently. If this emergency aid went to the creation of productive services and projects a lot of employment and goods can come out of it. We recognise the need to continue the relief programs but the PRDP plan should work on transforming them into real useful productive aid.

Economic and Private Sector Development

Trade and Investment Promotion and Enterprise Development, Agriculture, Industry and Services, Tourism, Housing

The plan seems to put a strong emphasis on this sector with no clear indication of what new. The new plan tries to invest more in this regard but how much it seems is not clear.

It is not clear however, what the target is. The previous 10 years most of the economic development was delegated to the big business. The new plan emphasis on the SMEs and call for their help as a driver. This is a good sign. However, it is not clear how is this translated. In addition, how much of the general development money will go to these titles. The plan assumes the private sector will take care of it.

Most of the reviewed projects did not have a large portion of these funds directed to support the private sector any way. The reliance on the private sector to generate employment was not actually supported by the programs. We know the private sector suffered badly during the past period. In many sectors, it lost employment.

The new plan emphasis on the private sector capacity to generate employment is well put but the government and the support organisations should admit and recognise that there is no effort of appreciable size done or planned to help the private sector. Only if we consider the private sector as the big business then we may find some efforts. We do not consider here the big business as the sample representation of the private sector. We have approached this point in the review and these ventures did not help the well being of the SMEs let alone generate employment.

The terms defined in the first section shed some light on the factors curtailing these efforts. Many of them are actually allowed and some times are protected by the government itself.

Terms of success and failure must be defined. The investment must be driven by new vehicles and the government should limit the impact and control the role of the negative factors as outlined in the previous sections [annex 3].

Public Infrastructure Development

Transport, Electricity, Water and wastewater, Solid waste, Public recreation and cultural facilities

The general plan is not very different from previous efforts. The electricity new approach differs appreciably: it tries to centralize the collection and distribution. The infrastructure development to serve the private sector is not clear or defined. i.e. the new cities.

The funding for infrastructure development projects is done mainly by the PA or donors governments or funds executed either directly. The activity includes many projects funded and administrated by the EU. (The European Arab Fund for development is a new group active in these projects through a group of banks) and some European states and American or Japanese agencies [8, annex 4].

Most projects are executed through PECDAR. The impact of PECDAR on the infrastructure development is appreciable. The continuation of the role of PECDAR is recommended. Some groups recommend an increase of this role.

The role of PECDAR in infrastructure development however does not influence the outcome for private or public investment environment. That is mainly because most of the PECDAR projects are directed toward schools and health institution beside some municipalities or villages infrastructures services. The role of the PECDAR investments is certainly needed but it is not sufficient to trigger growth in the private sector, public’s service or productive development [7, 15].

Other infrastructure efforts are practiced by the unions and umbrella organisations like PAL TRADE, Chambers of Commerce, and Industrial Unions, and some NGOs like the Health Relief and Agricultural Relief Services. These are very important capacity building efforts, and they are treated as such by most world organisations including the UN, EU and US groups [annex 4].

The high premium given to these efforts does not mean they are actually successful. The main draw back is the high role the Israeli can affect.

The new plan by the Salam government to connect government services to the payment of the electricity bills owed to the municipalities seems in the first look as the most normal and reasonable approach to collect millions of un-paid dues. In fact, many aspects of the idea are certainly reasonable.

However, problems remain. In many scattered discussions with employees and the most affected of the social groups (the lowest poor) it turned out that a reasonable fraction of the outstanding bill is owed by the very poor and unfortunate. Applying this term will just make their life more miserable. In addition, a attaching the payment to the basic right of the people and the services of the government does not seem right and it may create serious responses and resistance form the public. Indicators of the general public un-ease can be seen.

But then how to solve this problem. You just cannot allow part of the society to live free when at the same time another part is fully complying. Fairness does not accept this. Then we have to remember that a large fraction of the affluent became so because they were offered employment free from the government. We know how many people don’t deserve there positions. These people are getting many free lunches too.

You cannot enforce the pay at the poor and leave these people unaffected. In fact and in many cases these same affluent are not paying their bills too. The problem is too complicated and any solution that doesn’t take into account these fine differentials between the groups affected will just jump to trouble and ends up not fair at the same time.

Annex III: Summary of Interviewees Responses

Answers are generally type dependent. The most neutral and maybe objective opinions can be expected from support institutions. All percentage points were approximated to the nearest 5. The general statistical error varies from 10-20% of the percentage provided.

I Influence of forces on the SMEs evolution and development.

I-1 Enterprises area of strengths and problems.

Strong points

Easier to start compared to large companies.	40%
Easier to adapt to changes in the political or economical conditions.	50%
Harder for the occupation to manipulate.	50%
It helps to create competitive markets and stops the damage done through monopolies.	25%
It is the safest method for general development.	40%
The owners are strongly committed to their enterprise.	45%

Weak points: weak points happen if there is not coordination between the SMEs.

The high cost of row materials.	30%
Many project failures result from price instability.	40%
Inadequate protection for industrial produce.	40%
Harder to survive in the face of monopolies.	35%
Problems in marketing and management and investment attraction.	60%
Harder to control quality and to acquire technological development.	40%
Hard to have long term planning.	30%
Without coordination these enterprises cannot lead general development.	50%

I-2 The government role.

Strong points:

The main driving force through the legal and institutional structuring which affects the eventual breaks and help for investment and projects.	60%
Government can encourage investment without direct intervention through laws of investment promotion. The improvement of the incorporation, and through the creation of investment climate.	30%
Government can help open new markets for the whole economy.	60%

Negative points:

Not enough coordination with the private sector or the potential investors.	20%
No clear policies.	50%
Laws are outdated and taxes are high.	50%
The general government role is negative and does not encourage investment.	25%
The government does not protect the investors from Israeli negative actions.	80%

I-3 The effects of the business culture.

The support and financial institutions put stringent terms for their support. This results in harder investment to loan returns.	70%
The general culture assumes receiving aid from outside. This generally makes lazy initiatives and very inefficient administrations.	35%
The large number of family owned enterprises is good and bad. It is good to rely on family support to keep the economy going, but that also cuts the possible inter region or family relations. A long term planning for growth is weakened.	40%
The general culture is a consumer society. This is generally translated to low opinion about the national products. The same wrong attitude applies to the producers too. In other words the culture of low quality production and dismissal of the national production undermines success.	45%
It seems, the public sector and private sectors are competing and not coordinating. The big business is not considered private in this definition, because it is controlling a lot of the economy and policies of the government. What is meant here is that the SMEs private sector is competing with the big monopolies and government.	35%

I-4 The role of monopolies. Two opinions were expressed:

Monopolies role is not powerful. And the existing monopolies can help the economy even after admitting the monopolies can weaken innovation and prevent real quality or price for the consumer advantage. In addition some projects must be monopolies and in those cases this is a good point. The monopolies should be allowed to flourish but by the private sector and the government should not try to compete with these initiatives.

20%

The second dominant opinion however is that products should not be monopolies. If they are, they should be controlled by the public sector. The monopolies never help the public and they only serve the companies or groups doing control. Most of the money goes outside and never returns to the economic cycle.

75%

I-5 The political inter Palestinian conflicts.

 

It could impact indirectly the local businesses. But its main damage is to the outside and FDI investments.	40%
It cripples public services and they generally destroy the possible success of the projects.	60%
It has negative influence on the external and internal investments.	40%
These conflicts create political and security instability. That makes long terms damage to the potential development and it puts a real burden over the public.	35%
It cannot make good.	30%

I-6 Legal issues.

Dispute settlement and courts. Does it help in solving problems.

It is not effective	90%
It is not effective but improving	20%
It can improve	20%
It is failing and it cannot improve because the laws are inadequate and the courts are over loaded. And the management of the courts is disorganised. The legal system must be completely reformed and take into account to create one legal entity in Palestine.	50%

I-7 The impact of the large government work force.

It is oversized and it is a hidden unemployment	90%.
The oversized sector must be reduced through early retirement and the reduction of the hiring for the public sector, the re-channeling of the people to start their own enterprise or help them create ones.	60%
It is wrong to rely on the government to hire the unemployed just to solve the unemployment. This is very damaging in the log term and it can cost the national interest dearly.	70%.
The international pressure to reduce the public sector size is reasonable and should be supported. One cannot ask for international help to pay salaries for the unemployed under the name of helping the people.	50%

I-8 The existing technical and training support environment.

It is not suitable	50%
It is adequate	20%
One needs more	20%
It is useful but not designed to serve real time needs	20%
It is a waste of time and resources especially if it depends on outside training which costs millions. Why not utilise the local training fields and do real time training	35%

I-9 Value of technical and administrative training for the success of SMEs.

Very important.	85%
It is important but it must be well defined and applicable to the real time needs of the companies and their activities	40%
In the short run we don’t need it but in the long term yes we will need highly skilled technical and administrative management	30%

I-10 The occupation role.

Direct negative impact on the daily activity of the projects, which retards investment. In case the enterprise has loans they have to consider the possible break of their plans and they must prepare alternative options.

An increase of collateral and the overhead costs.

The agreements between Israel and the Palestinian authority are curtailing seriously any possible development.

The occupation security excuses are used to break any possible growth or development and there is no way to avoid it except may be by relying on the government to get some protection against these interventions.

The full control over customs and external trade or imports prevents any possible planning from materialising and it keeps the future of any plan in the hands of the Israelites.

The control over financial transfers creates real over head on the cost of export or import.

Direct control of the movement of goods and people allows Israel to actually decide who can or cannot succeed.

II- General Recommendations.

II-1 Market support institutions role.

The cost is high for financial support the terms are stringent and hard to meet.	60%
The general role of the support institutions is essential for development, but some have negative role.	50%
These support institutions are so many, and their work is not coordinated. There must be a national plan to define the role of these institutions.	50%
The support institutions coordination among themselves is weak let alone their coordination with the government. They generally don’t take the opinion or the need of the enterprises into account. Most of these support institutions are high level structures and they don’t have any real influence on the ground. They must be part of the development and not stay as observers and evaluators.	40%
The banking system role is viewed negatively.	90%
But bankers actually don’t agree on this. They consider their role positive. The reason the banks are not giving their maximum potential is because of the monetary limits the banks role to commercial banking. The banks role should go beyond and specialised banking must start. This puts the onus on the government.	20%

 

II-2 Government role.

More coordination is needed between inter governmental agencies, the investment establishment and the potential donors or support institutions.	65%
The private sector must work hard to get the government into real action.	50%
The government must strengthen its regulatory role. They must revaluate laws and regulations. They should work with more division of work and they must work with transparency. They should stop any wrong doings and corruption in the government or from the general public.	50%
The government should work harder to get markets and to improve the terms with the Israelis.	70%

II- 5 The solution to the unemployment problem.

 

The early retirement plan should be encouraged and executed to open the way for the new generations to join the government force.	50%
The creation of productive projects that can absorb the unemployed.	60%
The creation of advanced industrial estates to absorb the unemployed.	30%
Opening the Arabic working markets.	45%
Rely on the private sector productivity to absorb the unemployed.	60%

II-3 How to deal with occupation influences.

The occupation must go for development to succeed.	50%
The government must increase its role to protect the public economic and social interests from the Israeli role.	70%
Through education, training and real experiments on development even under these restrictive conditions.	50%
One may reduce the occupation influence by just doing our part as good as possible. They should treat successful enterprises as liberators and helpers of the national independence.	40%

II-4 How to deal with corruption in institutions and protect rights.

Publication of financial reports.	60%
Regular external audition.	50%
A unified private sector watch.	50%
Transparency and fighting of ganging or family or special interest groups accommodations and by applying the law over all.	40%

II-5 How to handle monopolies.

The public role can stop the negative role of monopolies. This is done through antitrust laws and regulations.	60%
One should recognise the world realities. Monopolies are part of the global system, and we just cannot ignore that. May be we should benefit from monopolies for certain periods but with constant watch.	25%
We should fight monopolies even if some products are controlled by certain special interest groups. We should stop that by creating competitive alternatives. The public should pressure these monopolies by boycotting them even with some sacrifice.	45%

II-6 Orientation and organizational Preference of SMEs by sectors of economy (production services, agro, and housing).

Housing is the most important sector. It helps the economy, creates employment, and it serves national objectives of steadfastness.	50%
All sectors are important and planning must give each sector its weight.	60%
Sectors are location dependent. The planning must consider the variations among various districts.	35%
Industrial sector is important.	40%
Trade and services.	35%
Tourism is very important, especially religious and treatment tourism.	25%

II- 7 The most labour intensive Enterprises.

Agro industrial	50%
Housing	35%
Productive and industrial	60%
Small enterprises	25%
Services	30%
Infrastructure	40%
Trade	30%

II-8 The new incorporation.

There must be some simplifications of incorporation procedures	60%
The existing legal structure needs real modifications	40%
At this point there is review of the legal system concerning the incorporation. We hope some new modern low will come out	40%
We should use international standards	30%

II-9 Training and technical expertise.

There is a real need to improve and increase the training	65%
One needs only coordination. Experts are there with no jobs	30%
It should be modified and integrated to the university curricula	35%

II-10 Certain ideas about technical and training support.

More of training through university projects and regulate teaching methods.	40%
Special programs must be established to serve the needs through coordination between private, educational and governmental institutions.	50%
We need experts to study the local market thoroughly and come with suggestions form the local environment needs. We cannot rely on international experiments which some times are irrelevant to the specific conditions under occupation.	35%
All training is useless without finding real markets for the products.	50%
We should consider other international experiments as case studies.	40%

II-11 Technical and training support from SMEs prospective.

I have the expertise to do business. The problem is that I could not use this expertise because my business is not related to my training.

I have taken many training courses but the problems we face are different.

We are benefiting and learning to do good administration.

The problem for us is not training. We have serious funding problems.

Governmental training programs are useless generally. The people selected for these training courses are not related to the activities covered. They take the chance to go to these training courses especially the outside ones as a vacation and it helps their allowance increase.

Training must go to the people who need it. Most of the training programs don’t reach the people who are doing the implementations of the projects.

Training must be done on site and not through theoretical classes. External training classes can be useful for technical use of machines or special equipment, but most of management training is useless if not done locally and on site. It saves more money to bring the experts to train people on site than training courses for few days or weeks, and then come back without useful experience.

II-12 Suggestions of Experts.

Environment friendly investment culture is very essential for the success of development.

SMEs support is a must to succeed in driving the economy development.

Marketing programs are very essential for the success of SME. Thus can be done through government and marketing unions.

A national plan is necessary to produce results for any program related to development.

The public sector and government must help the SMEs more than any other business ventures.

Small business is very important to keep society stability.

Family business is good but it cannot drive the economy.

III Finance

III-1 Normal sources of funds for SMEs.

Self	30%
International loans and aid	30%
Local loans	20%
Sharing between public and private	40%

III-2 Preferred forms of SMEs in terms of funding source and capital size.

Sharing	70%
Self	30%
Loans	20%

III-3 Best structure of SMEs

Activity

The produce quality, the feasibility and continuity, the feasibility must support and be part of a general national plan of priorities.

It must be labour intensive.

The project must be development driven and environment friendly, and easy to market its products.

Size and Type of ownership

Self or family	30%
Local public and non profit	30%
Sharing of private	50%
Medium sharing and local	30%
Small or medium local	20%
Sharing between local and foreign	30%

Cooperatives or incorporations as organizational umbrella to the SMEs.

It is important to organise SMEs in some form	80%
Cooperatives	30%
It should not be organised	20%

III-4 Credit and loans – commercial banks’ role.

Not working as it should	75%
Very small and weak	30%
It is negative	60%
Positive. If there is a draw back it is because the roles don not encourage banks	20%

III-5 New forms of organising the financial and support institutions.

Yes	75%
Must reorganise this sector	30%
Must reactivate the role of the lending institutions, and establish investment banks for all sectors of the economy	40%

III-6 Certain forms of organising the financial and support institutions.

Development and partner institutions.	50%
Create SMEs financial support networks then organise them through large financial institution which can provide the technical service and the financial support in a coordinated way	40%
Public saving funds	15%
Saving and loan societies	15%
Governmental credit guarantees and support of housing project	30%
Governmental lending agencies	35%
Investment banks	30%

Annex IV: Partial List of Major Donors and Support Institutions

Table 1 Donors and Their Projects

Organization	Programs & Projects reviewed ( excerpts)
UNTCAD	UNCTAD was able to initiate a new research. Technical assistance in new areas: food security and commodity trade; trade logistics and facilitation; trade promotion; trade policy and preferential market access; and investment promotion.
The Welfare Association Summary from the welfare website and through contacts with their representative in Jerusalem.	Assists Palestinian development efforts through Human Resource Development Capacity-building. Emergency Programs. Externally-funded, semi-autonomous programs Information Technology for Youth Project. PNGO Project. Beneficiary Organizations More than 600 non-governmental civil society organizations Information Technology IT4Youth in Rural Areas; IT4Youth is a $4-million, Vocational Training in IT Information Technology Provision and Training The Intel Clubhouse Ref. from the welfare website over all aid Training and capacity building ,welfare relief, development
UNDP From website	MATTERS OF FACT Headquartered in Jerusalem, with major offices in Gaza and Ramallah, as well as satellite offices in Nablus, Hebron, and Bethlehem Mobilized over US $600 million and currently has US$ 45 million in ongoing projects Sources of Funding Since 1994, the donor community has chosen UNDP/PAPP as one of its most reliable implementation partners for development activities throughout the West Bank & Gaza Strip. Programme of Assistance to the Palestinian People Empowerment of women in remote communities in Gaza Democratic Governance Poverty Reduction Employment Generation Crisis Prevention and Recovery Energy and Environmental Policies Information and Communications Technology. Grants for capital and technical assistance
World Bank	The Bank has been operating in WB&G without interruption since 1993. The World Bank finances its engagement through its Trust Fund for Gaza and West Bank (TFGWB) which has since 1994 provided $532 million for 37 projects. Since 1993, we have mobilized around $920 million in donor co-financing for many of our operations (including budget support). The Bank’s current portfolio consists of 11 projects worth $118 million SUPPORT FOR PALESTINE CENTRAL BUREAU OF STATISTICS MASTER PLAN. Emergency Municipal Services (Rehab. II) Palestinian NGO Project III GZ-Integrated Community Development Supplemental Emergency Services Support Program Multi-Donor Trust Fund WBG: Tertiary Education Project GZ-LAND ADMINISTRATION GZ-Social Safety Net Reform Project Emergency Water Project Integrated Community Development Project Palestinian Economic Assistance and Cooperation Expansion Facility
The European Union and States	Average of $200 million per year. The funding mostly goes to direct governmental projects. The separate States contributions usually go to similarly some deliver more to NGOs and direct investments in loans or infrastructure. Budget Heading 2000 2001 2002 2003 MEDA 119.60 0.00 104.50 92.75 Peace Agreement 20.40 43.05 87.75 47.00 to the UNRWA 40.24 57.25 55.00 57.75 Humanitarian 18.20 26.26 35.00 38.00 Food aid/security 16.06 17.10 35.00 20.28 Total 214.5 143.66 317.25 255.78 Support stands at €570 million for 2002-2003.
Arab Fund for Economic & Social Development	Association established 1968 by the League of Arab States to finance economic and social developments in Arab states. Its members include the 22 Arab states that make up the League plus the Palestine Liberation Organization. Its headquarters are in Kuwait.
Islamic development bank	About $1 billion was spent since 2002. Including the special Aqsa and Intifada funds managed by the bank. About $500m were spent as direct support to government operational budgets. And the rest was executed a development programs including infrastructure and other governmental sponsored programs. No support was done to SMEs.
USAID	USAID IN WEST BANK/GAZA Through USAID-supported drip irrigation farming project, Palestinian families in the West Bank and Gaza are able to grow vegetables for home consumption and additional income. The United States is the leading provider of bilateral economic and development assistance to the Palestinians, having programmed an estimated $1.7 billion through USAID since 1994. Funding has supported programs in Programs Economic Growth Infrastructure Humanitarian Assistance Investing In People Peace and Security Governing Justly and Democratically
ANERA	ECONOMIC DEVELOPMENT Agriculture Light Industry and Services Information Technology Professional Training & Job Placement. Business Incubators EDUCATION Primary and Secondary Education Supplementary Education Scholarship Funds Higher Education and Training Operational Support Grants Technical Training ANERA Loan Funds HEALTH AND RELIEF Primary Health Care Facilities Training Public Health Infrastructure Upgrades Managerial Training Health Education Emergency Relief Medical Supplies & Food Supplements Operational Support No data published about the total numbers spent.

Annex IV Table 2 Support Institutions

Organization	Programs & Projects reviewed
PIPA	The Palestinian economic strategy being developed is export-oriented and outward looking. The Palestinian economy has already begun the process of integrating with regional and international economies through a network of free trade agreements and trade associations. No data is available bout the size of investments promoted or in planning
PIF	The overall investment is for the Palestinian people but it is run as a private company overall holdings are about $1.5 billion but no numbers are published.
PECDAR	Web site and annual reports. Average of $600 million per year. Projects go mainly to infrastructures, educational and health institutions.
Palestinian Universities	Over all of 14 universities and about 20 colleges and vocational centres. A total of 120,000 enrolled in universities and about 10 in colleges. Specializations cover most of the education areas. Total cost of tuition fees per year is about $120 million for university education average number of graduates is 25,000 students per year. There are only 2 private universities and 10 public universities and two government universities. All public nongovernmental universities are actually funded through public funds but are run as private universities. A large part of the faculty members are western universities graduates. Recently more Arabic universities and local MS degree holders are joining the faculties.
PCBS	The Palestinian Central Bureau of Statistics aims to develop and enhance the Palestinian official statistical system based on legal grounds that organize the process of data collection and utilization for statistical purposes.
Financial Market Palestinian security exchange	Website information. Total of 35 participating compnies. An average of about $10m operations daily. The number of participating companies and the calculation of the Alquds are only 12 80 of the operations are for PADICO an PALTEL http://www.p-s-e.com/PSEWEBSite/Default.aspx
Commercial Banks	Housing bank, Arab bank, Palestine bank, Cairo Amman bank, Jordan bank
PICTI	Incubator promoter through funded programs
PITA	Organizes the interests of the IT institutions
PALESTINIAN BANKING CORPORATION	$30 million current loans, $120 million totals since 1990, total beneficiaries 1700 a revolving fund to productive service and tourism sectors.   Medium to Large Scale Financing Fixed Assets Financing Working Capital Financing Loan Syndication Leasing Small Scale Financing Islamic Financing Program Banking Lending Program Special Lending Programs Investment and Equity Financing Trade Finance Arab Trade Finance Program Italian Commodity Aid Program Consultancy Services
PALTRADE	PalTrade’s purpose is to lead the development of Palestinian trade as a driving force for sustainable national economic growth. As the National Trade Development Organization (NTDO) and a membership of more than 220 Palestinian leading businesses, PalTrade advocates a competitive, enabling business environment and is dedicated to improving trade competitiveness through trade promotion and capacity building.
PIEFZA INDUSTRIAL ESTATES AND FREE ZONES	PIEFZA is developing a major program of Industrial Estates and Free Zones in Palestine. The objective of this program is to promote industry and trade and create additional employment. Nearly all Industrial Estates and Free Zones lie on the border between Palestine and neighboring countries (Israel, Egypt and Jordan) No data is provided concerning the sizes and the number of enterprises participating in these zones.
ESDC Economic & Social Development Centre	Technical Assistance and Transfer of Knowledge Institutional Networking Project Promotion of Rural Women Enterprises Specific Sectoral Projects In cooperation with the Agricultural Cooperative Union (ACU) in Palestine, The ESDC is currently working with various livestock owners’ cooperatives in the West Bank on a project that aims to develop the livestock resource in these areas and improve its productivity and profitability through extensive provision of extension services on relevant issues such as nutrition, breeding, health care, organization of farms, etc.
The Agricultural Cooperative Union	The Palestinian Agricultural Cooperative Union (ACU) was established in 1987 as an umbrella organization for agricultural cooperatives in the West Bank. Its mandate and main responsibilities are, to:Present Membership:At present, the ACU is a federation of Eight Regional Cooperatives, and twenty-four primary agricultural cooperatives working all over the West Bank. The total individual membership reaches nearly ten thousand farmer members. Operations: The ACU’s organization structure reflects its commitment to accomplish its objectives. The programs and services of the ACU are developed and managed by several main units; each has its own manager. The General Director reports to the elected Board of Directors, who guides the union and sets its policies. Input Supply Unit Member Education and Training Unit New Farm Agricultural Marketing and Processing Corporation
Housing Council	Established in 1989 and mainly funded by a grants from the EU and IDB to provide house loans for various groups. The total initial fund is about $80 m.
Palestine Federation of Chambers of Commerce Interviewed	The Federation of Palestinian Chambers of Commerce, Industry and Agriculture are a national organization founded in Jerusalem in 1989 to represent the West Bank and Gaza Strip’s chambers of commerce and industry. The Federation’s membership base includes 14 chambers and nearly half the operating businesses in the territories. With new election a changing political situation in early 1990s, the chambers become effective and influential organizations, increasing their total membership from 5900 at the end of 1991 to 32,000 at the end of 1999. The peace process, new political changes and the expected up turn in the economy in the West Bank and Gaza Strip has compelled the chambers of commerce and industry to resume their intended role in the business community more rigorously. The Federation’s main task is to strengthen and enhance the capacity of chambers to cope with the requirements of the global business environment. This challenge requires vision, planning, reorganization and restructuring. The Federation plays a leading role in this process at both local and national levels. Its vision and strategy is to ensure that the private sector is operating freely and is an integral to policy formulation at the national level. Equally, the Federation strives to create strong regional and international links to the world’s larger, global markets
Coop History in Palestine From the ESDC reporting	Palestinian Coops On this page we’ll provide some history about the Palestinian cooperative movement. The roots of the cooperative movement in Palestine go back to the year 1933, when the first Palestinian Cooperative Law (No. 50) was published. Tobacco growers and Citrus producers established the first cooperatives. Facts & Numbers: Up until mid 1999, the number of registered cooperatives exceeded 1,150 cooperatives. The statistics point out that the members distribution according to various sectors is as follows: The Housing Sector has 16,345 members constituting 29.46% The Agricultural Sector has 21,813 members making 39.31% The Industrial & Production Sector has 76 members with 0.14% The Consumer Sector has 8,608 members with 15.51% The Handicraft Sector has 800 members with 1.44% The Services Sector has 7,563 members with 13.63% Finally, others sectors has 282 with 0.51% In total there is in the Palestinian cooperative movement 55,487 members. Geographical distribution: 29% of the cooperatives are in the north of the West Bank. (Nablus, Tulkarem, Qalqilia, Salfit, Jenin). 28% of the cooperatives are in the middle of the West Bank. (Jerusalem, Ramallah, Jericho). 31% of the cooperatives are in the south of the West Bank. (Bethlehem, Hebron). 12% of the cooperatives are in the Gaza Strip. Sectoral Distribution: The sectoral distribution of Palestinian cooperatives is as follows: Housing has 429 coops. Agriculture has 309 coops. Produce & industry has 13 coops. Retail has 36 coops. Handicraft has 18 coops. Services have 256 coops. Others have 95 coops. Total = 1156 Coops Membership Classifications (age & sex): The new statistics in 1999 obtained from 222 cooperatives in Palestine indicated that the age classification of the cooperative members is as follows: Less than 30 years: 20%Between 30-60 years: 71% More than 60 years: 9% Except for women cooperatives, the ratio of males to females in Palestinian cooperatives is 90% to 10%.

Annex V: PRDP Highlights

Acknowledgements

Whilst the stalled peace process and the tightening grip of the occupation have played a powerful role in shaping events, we acknowledge we have given insufficient attention to shortcomings in governance, law and order, and basic service delivery. We are now absolutely determined to rebuild the trust of our citizens and our international partners in the Palestinian National Authority by embarking on a challenging reform and development agenda for stabilization and recovery.

Commitments

1- Progress must be made to upgrade all Palestinian institutions of government. We intend to create a secure and stable internal environment in which social and economic development can take place, and in which the institutional infrastructure of a Palestinian state can develop and thrive.

2-. Committed to bringing safety and security to the West Bank and Gaza. Our immediate goal is to return to the status quo ante before the escalation of conflict in September 2000 by resuming full security control in Area A. Our ultimate goal is to assume full authority and responsibility for security within and at the borders of the future Palestinian state.

3- Committed to a clear vision: creating a viable, peaceful, and prosperous Palestinian state.

4- Reform and development in Gaza is an integral part of our plan for bringing stability and prosperity for all Palestinians in the occupied territory.

This must go hand in hand with sustained and serious political dialogue, and concrete steps and commitments by all parties towards a lasting peace

Others should acknowledge

1- The unstable political environment has undermined our capacity to develop and sustain effective government institutions and policies.

2- The embargo on international assistance in 2006 and early 2007 contributed to the reversal of progress that had been made in reforming the PNA. The ensuing fiscal crisis shattered our citizens and public servants’ confidence in the PNA.

Priorities for improving governance in this challenging context.

 

1- We will reform the security sector and re-establish the rule of law, improve access to justice, move toward a more fiscally sustainable position, improve our management of public finances, strengthen the capacity of the public sector, and improve local governance.

2- The Economy and the private sector

The Palestinian private sector must be the engine of sustainable economic growth. It needs to generate productive employment, produce high value-added goods and services, and to enhance national prosperity. We are committed to creating an enabling environment for private sector growth. However, whilst the private sector has shown resilience in the face of harsh political and economic conditions, its full potential can only be realized by the lifting of restrictions on the movement of Palestinian goods and people, and, more generally, meaningful progress towards peace. Such progress, coupled with substantial donor investment in institutional reforms and rehabilitation of infrastructure, can put the private sector, and the Palestinian economy as a whole, on a path to sustainable growth. We hope that the ‘Quick Impact Projects’ jointly announced with the Quartet Representative and Israel represent an opportunity to demonstrate the preparedness of Israel and the international community to act in parallel with us to improve the situation on the ground and to take immediate, tangible steps towards ending the occupation. Each of these projects provides for joint action and cooperation amongst the parties and, as such, represents an opportunity to manage the risks of faltering commitment to the success of our reform and development plan.

3- The social and welfare component

We will safeguard the welfare of vulnerable groups while pursuing a private sector-led approach to economic growth. We intend to invest in social development and to continue to build effective mechanisms for social assistance and protection. For example, one third of the resources pledged in the form of budget support will finance teachers’ salaries and associated running costs. One fifth of donors’ pledges for public investment will be dedicated to education. With the support of the international community, we believe we can modernize the education system – including the curriculum – and better prepare our young people for a better future.

PNA’s fiscal policy Goal

We are aware that this has been problematic in the past and we must act fast to avert a fiscal crisis. We have embarked on a series of fiscal reforms to put ourselves on a path to financial stability – a path that will create space for increasing capital investment and development expenditure. We anticipate that these reforms will help us reduce the current budget deficit by 11.3% of GDP over the next three years, returning it to the 2005 level.

PNA’s fiscal policy assumptions and forecasts

1- Our macroeconomic and fiscal forecasts assume modest improvements in the political and security environment, yielding a gradual reduction in movement and access restrictions, and a gradual increase in trade and private sector confidence. This is our baseline scenario.

2- If a combination of political progress and an improved security environment accelerates the lifting of the occupation regime beyond current expectations, the level of public investment and private sector activity could increase more significantly.

3- However, if the occupation regime remains unchanged, the economic outlook is extremely poor. It would make it very difficult to increase public investment and to finance a substantive reconstruction effort. Any reluctance on the donor side to finance the budget deficit would lead to a deepening fiscal crisis that would almost certainly take the PNA to the point of financial and institutional collapse. It would also lead to rising unemployment, increasing poverty, declining health and education indicators, and further, perhaps irreversible, degradation of the private sector.

4- Our forecasts are based on the assumption that donors will provide substantial levels of predictable aid over the next three years to support the recurrent budget and public investment program.

Needs

1- In 2008 we need $1,361 million to finance our recurrent costs and $427 million to finance development investment. These amounts are large but they are, we believe, the minimum we need to implement our reform and development plan and begin serious preparations for statehood.

2- We appeal to donors to provide this assistance as direct, un-earmarked budget support through the single treasury account. This will give us control over the targeting and timing of disbursements and enable us to execute our reform and development plan more effectively.

3- If this is not possible, we favour the use of an un-earmarked, multi-donor trust fund mechanism.

4- If this too is not possible, in recognition of the constraints under which our international partners operate, we would accept alternative funding mechanisms that meet reasonable standards of efficiency, effectiveness and transparency.

5- Where technical assistance is required we favour the use of sector or sub-sector multi-donor pooled funds.

Perquisites

1- We need the international community to help us make this vision a reality by providing the necessary financial assistance.

2- Also, we can only attain this vision if there is tangible progress towards peace and statehood. Most immediately and most importantly, we need Israel to demonstrate commitment to ending the occupation and to the implementation of the two-state solution.

3- This must include tangible and immediate action on the ground in the spirit of the joint understanding reached at Annapolis – including halting the expansion of settlements, cessation of construction of the Separation Wall, lifting physical and administrative restrictions on movement and access, releasing prisoners and ending military incursions.

4- Without this our plan cannot be implemented in full and the support of the international community will not be as fruitful as we hope. If, however, these steps are taken we can start to turn our vision into a reality.

Table 1: Summary Macroeconomic Framework

		2005	2006	2007	2008	2009	2010
		Act.	Est.	Proj.	Proj.	Proj.	Proj.
Public Finance	(in % of GDP)
Revenue		27.5	26.1	24.6	24.9	25.3	25.8
Expenditure and net lending		44.5	52.6	53.0	48.7	45.8	42.8
Wage expenditure		22.4	27.1	26.9	24.8	23.4	21.8
Non-wage expenditure (incl. minor capex)		14.5	17.0	15.5	14.9	14.1	13.2
Net lending		7.7	8.6	10.6	9.0	8.3	7.8
Recurrent balance – before external support		-17.0	-26.4	-28.4	-23.8	-20.5	-17.1
Externally financed development expenditure		6.4	3.9	6.3	9.3	9.8	10.9
Overall Balance – before external support		-23.4	-30.4	-34.7	-32.1	-30.3	-28.0
External support for recurrent budget		7.8	16.8	18.5	26.3	23.7	20.4
Investment	(in % of GDP)
Public capital formation (gross)		7.4	4.2	6.5	9.0	11.1	12.6
Private capital formation (gross)		16.7	15.1	16.0	16.4	17.0	17.6
Output and Prices	(Annual % change)
Real GDP		6.0	-8.0	0.0	3.5	5.0	6.0
CPI inflation rate (end of period)		2.3	3.3	3.9	2.9	2.4	2.6

Table 2: Medium Term Fiscal Framework

	2006	2007	2007	2008	2009	2010
(millions of U.S. Dollars)	Act.	Bud.	Proj.	Proj.	Proj.	Proj.
Revenue	1,149	991	1,186	1,289	1,418	1,578
Gross domestic	378	294	336	363	399	447
Gross clearance revenue	771	697	850	926	1,018	1,130
Expenditure and net lending	2,310	2,566	2,553	2,521	2,567	2,624
Wage expenditure	1,189	1,368	1,295	1,285	1,311	1,337
Non-wage expenditure	745	698	747	770	789	810
Net lending	376	500	512	466	467	477
Balance (commitment basis)	-1,161	-1,575	-1,367	-1,232	-1,149	-1,046
Add: Expenditure arrears	884	239	30	-125	-175	-200
Ded: Net clearance revenue withheld	427	-336	-430	–	–	–
Balance (cash basis)	-704	-1,000	-907	-1,357	-1,324	-1,246
Add: external budget support	738	1,000	892	1,361	1,328	1,250
Balance after budget support	34	–	-14	4	4	4
Ded: Externally financed capital exp.	173	175	306	427	550	667
Overall balance	-139	-175	-291	-427	-550	-667
Financing	139	175	291	423	546	663
Advances & other payments by PIF	146	70	70	–	–	–
Net domestic bank financing	-171	-70	-13	–	–	–
External financing for capital exp.	173	175	306	427	550	667
Net external debt	–	–	–	-4	-4	-4
Residual	-8	–	-43	–	–	–

Table 3: External financing

	2006	2007	2007	2008	2009	2010
(millions of U.S. Dollars)	Act.	Bud.	Proj.	Proj.	Proj.	Proj.
Budget support	738	1,000	892	1,361	1,328	1,250
Public investment	173	175	306	427	550	667
Total external financing	911	1,175	1,198	1,788	1,878	1,917
Note: Budget support in 2006 does not include informal assistance not channeled through the banking system

Graph 1: Sector distribution of total recurrent and development budget resources

In laying out this agenda, we acknowledge

:

• Our responsibility, within the limits placed on the Palestinian security forces by Israel’s occupation, for bringing the rule of law to the occupied territory and combating violence;
• Our responsibility to manage internal administrative affairs in a fiscally responsible way, in order to deliver better services to our citizens; and,
• Our responsibility to implement institutional reforms that will, along with parallel actions by the international community and Israel to end the occupation, set the Palestinian economy and society on a long-term path towards growth and development.

We assert that

• Gaza, and the 1.5 million people who live there, are an integral part of the future Palestinian state;
• Reform and development in Gaza is an integral part of our plan for bringing stability and prosperity to all Palestinians in the occupied territory;
• we are committed to restoring the rule of law, good governance and respect for human rights in Gaza, from the crossing points all the way through to the very heart of Gaza City;
• We are committed to doing everything in our power to end the closure and isolation of Gaza and reversing its suffocating effect; and,
• Until the current closure and isolation is brought to an end, by working closely with UNRWA, other UN agencies and other non-governmental agencies, we are committed to the continued mobilization of humanitarian assistance to Gaza’s population and the provision of basic services to which all our citizens, whether in Gaza or the West Bank, are entitled.

This will require an explicit, measurable tripartite action plan, tied to a credible political process, with appropriate arrangements for independent monitoring of each party’s performance.

• The PNA must impose law and order, implement key reforms to enable a sustainable economy, and build effective institutions to govern an independent state.
• Israel must remove the obstacles that hinder the proper functioning of government and the economy and hence the creation of a truly viable Palestinian state.
• The international community must continue its support to the Palestinian people and provide consistent and flexible aid to the PNA, as well as a consistent and coordinated approach that builds momentum towards a lasting peace.

Plan does not include:

• The financing needs of UNRWA, which is responsible for delivery of basic services for a significant proportion of the Palestinian population in the occupied territory; and,
• the financing needs of Palestinian NGOs who continue to provide valuable support to the Palestinian people.

Reform and Development Agenda

Governance

Security and rule of law

Justice

Fiscal reform

Accountability and transparency

Administrative and civil service reform

Local government reform

Social Development

Social protection

Education

Health

Empowerment

Economic and Private Sector Development

Trade and Investment Promotion and Enterprise Development

Agriculture

Industry and Services

Tourism

Housing

Public Infrastructure Development

Transport

Electricity

Water and wastewater

Solid waste

Public recreation and cultural facilities

 

SSRT Program

Objective

The PNA has the security capability and capacity to establish law and order throughout the future Palestinian state, ensuring a safe and secure environment that facilitates flourishing of all domestic, governmental, civic and economic activities.

Assumptions

• The PNA will pay salaries of all security services employees from its recurrent budget.
• The PNA will pay all operations and other sustainment costs from its recurrent budget.
• Additional funds will be available to finance up-scaled activities in the areas described below.

Description of Activities

Program Areas	Description
Ministry of Interior	Enhance the capability of the Ministry of Interior to fulfill its functions under a clear legislative framework and establish national-level security oversight/policy organizations
Civil Police	Training support, infrastructure, building and equipping Police Training Center, procurement of vehicles and equipment, uniforms, patrol equipment, weapons and other equipment, and funding for establishing a complete prison system (including a central prison facility)
National Security (NSF) & Presidential Guard (PG)	Upgrade NSF and other training facilities. Establish the new Palestinian-International Training Center (PITC). Build 5 permanent camps for the five WB NSF 700 battalions. Complete the PG training center to support training of PG and to support joint training. Bring training centers to FOC. Establish a multipurpose range to support the full range of weapons training. Provide barracks and unit compounds in each major city and governorate. Build an academy to train cadets for service as officers. Build an academy to train NCOs for service.
Preventive Security	Develop, train and equip the Preventive Security Organization
Civil Defense	Develop, train and equip the Civil Defense Service
Facilities Protection	Develop, train and equip the Facilities Protection Service
Diplomatic Protection	Develop, train and equip the Diplomatic Protection Service
Border Crossings & Maritime Service	Develop, train and equip the Border, Crossing and Maritime Service
Communications	Communications upgrades to maintain analog system until replaced. Establish a new communications architecture and system to replace the outmoded and outdated analog system with a new digital communications system, including a service-wide IT system.
Pension needs	To address excess security personnel and ease their entry into civilian life.

Reform and Development Program

Program Title	Primary linkages to PNPA	2008 ($m)	2009 ($m)	2010 ($m)	Total ($m)
Grand Total		427	550	667	1,644
Governance Sector		108	137	147	392
Security Sector Reform & Transformation (SSRT)	Goals: Safety & security, good governance Objectives: Increase professionalism of the security services, strengthen criminal justice system, fiscal stability	55	76	97	228
Justice Now (JN)	Goals: Safety & security, good governance Objectives: Strengthen criminal justice system	12	10	4	26
Open and Accountable Government (OAG)	Goals: Good governance Objectives: Strengthen public institutions, enhance efficiency & effectiveness of government	17	20	5	42
Efficient and Effective Government (EEG)	Goals: Good governance Objectives: Enhance efficiency & effectiveness of government, slimmer PNA, fiscal stability	13	18	28	59
Accountable Local Government (ALG)	Goals: Good governance Objectives: Strengthen local government, enhance efficiency & effectiveness of government, move towards fiscal stability	11	13	13	37
Social Sector		141	164	201	506
Social Protection Reform and Integration	Goals: Enhanced quality of life Objectives: Provide social protection (SPRI) Note:Includes development component only. Social assistance element is included in budget support	4	4	2	10
Access To Education (ATE)	Goals: Increased national prosperity, enhanced quality of life Objectives: Develop social capital, develop human capital, restore economic growth	30	40	65	135
Quality Education For All (QEFA)	Goals: Increased national prosperity, enhanced quality of life Objectives: Develop social capital, develop human capital, restore economic growth	40	45	45	130
Education Performance & Efficiency (EPE)	Goals: Increased national prosperity, enhanced quality of life Objectives: Develop human capital, restore economic growth, fiscal stability	2	2	1	5
Vocational Training Initiative (VTI)	Goals: Increased national prosperity, enhanced quality of life Objectives: Develop human capital, restore economic growth	5	7	13	25
Health Quality Improvement (HQI)	Goals: Enhanced quality of life Objectives: Develop human capital, develop social capital, provide social protection	25	30	45	100
Health Care Affordability (HCA)	Goals: Increased national prosperity, enhanced quality of life Objectives: Develop human capital, fiscal stability	7	9	4	20
Women’s Empowerment (WE)	Goals: Increased national prosperity, enhanced quality of life Objectives: Develop human capital, restore economic growth, develop social capital, reinforce social coherence	7	6	7	20
Youth Empowerment (YE)	Goals: Increased national prosperity, enhanced quality of life Objectives: Develop human capital, restore economic growth, develop social capital, reinforce social coherence	4	4	3	11
Employment Generation Initiative (EGI)	Goals: Increased national prosperity, enhanced quality of life Objectives: Develop human capital, restore economic growth, develop social capital, reinforce social coherence	17	17	16	50
Economy Sector		93	109	141	343
Institutional Reform for Enterprise (IRE)	Goals: Increased national prosperity, good governance Objectives: Restore economic growth, enable private sector development	9	9	9	27
Trade Infrastructure & Facilitation (TIF)	Goals: Increased national prosperity Objectives: Restore economic growth, develop physical capital, enable private sector development	9	9	9	27
Enterprise Investment and Development (EID)	Goals: Increased national prosperity Objectives: Restore economic growth, develop physical capital, enable private sector development, develop human capital	15	15	13	43
Agribusiness Development (AD)	Goals: Increased national prosperity, enhanced quality of life Objectives: Restore economic growth, develop physical capital, enable private sector development	16	19	19	54
Industrial Capacity Development (ICD)	Goals: Increased national prosperity Objectives: Restore economic growth, develop physical capital, enable private sector development	12	17	31	60
Tourism Industry Development (TID)	Goals: Increased national prosperity Objectives: Restore economic growth, develop physical capital, enable private sector development	12	10	10	32
Affordable Housing (AH)	Goals: Increased national prosperity, enhanced quality of life Objectives: Restore economic growth, develop physical capital, develop social capital	20	30	50	100
Infrastructure Sector		85	140	178	403
Road Improvement (RI)	Goals: Increased national prosperity, enhanced quality of life Objectives: Restore economic growth, enable private sector development, develop physical capital	28	35	52	115
Road Safety (RS)	Goals: Increased national prosperity, enhanced quality of life, good governance Objectives: Restore economic growth, develop social capital	4	6	10	20
Air & Sea (AS)	Goals: Increased national prosperity, enhanced quality of life Objectives: Restore economic growth, enable private sector development, develop physical capital	3	11	16	30
Electricity Sector Investment (ESI)	Goals: Increased national prosperity, enhanced quality of life Objectives: Restore economic growth, develop physical capital, enable private sector development, fiscal stability	16	21	22	59
Water & Wastewater Management (WWM)	Goals: Increased national prosperity, enhanced quality of life Objectives: Restore economic growth, develop physical capital, enable private sector development	27	48	47	122
Solid Waste Management (SWM)	Goals: Enhanced quality of life Objectives: Restore economic growth, develop physical capital, enable private sector development, develop social capital	4	12	16	32
Public Recreation and Culture (PRC)	Goals: Enhanced quality of life Objectives: Develop physical capital, develop social capital, reinforce social coherence, preserve heritage and culture	3	7	15	25