Memorandum submitted by the Portland Trust
SUMMARY
1. The Portland Trust believes that there
are a number of deliverable initiatives to boost the private sector
in the Palestinian Territory despite the current political and
economic crisis. Our three priorities are to promote a $1 billion
Affordable Housing Scheme in the West Bank, identify approximately
40 private sector projects to be presented at the Palestine Investment
Conference in May 2008 and develop a political risk insurance
product to cover private sector investment in the Palestinian
Territory. The UK Government can play a vital role in these projects
and we ask the Committee to use its report to encourage HMG to
take an active role. We also wish to recommend to the committee
that it calls for a full breakdown and disbursement of donor pledges
made in Paris and supports the new EC funding mechanism PEGASE.
INTRODUCTION TO
THE PORTLAND
TRUST
2. The Portland Trust is a private not-for-profit
British foundation that was founded in 2003 by Sir Ronald Cohen
(Chairman) and Sir Harry Solomon (vice-Chairman). Our CEO is David
Freud, former Vice Chairman of Investment Banking for UBS and
is the third trustee. Sir Martin Gilbert, the historian, is the
fourth trustee. The Portland Trust has offices in London, Ramallah
(headed by Samir Hulileh, former Palestinian Cabinet Secretary)
and Tel Aviv (headed by Brig. Sen. (res.) Eival Gilady).
3. The Portland Trust works with local and
international partners to promote private sector initiatives in
Israel and the Palestinian Territory. Our projects focus on the
following areas: physical and financial infrastructure, entrepreneurship
and trade facilitation. Additionally, we publish a monthly Palestinian
Economic Bulletin. This and other publications are available to
download on our website: www.portlandtrust.org
THE ROLE
OF ECONOMICS
IN THE
PEACE PROCESS
4. The Portland Trust believes that economics
can play an essential role, alongside the political process, in
promoting peace and stability between Palestinians and Israelis.
The private sector is crucial in carrying out this role. We have
developed a framework of initiatives to boost the activities of
the Palestinian private sector. A detailed list of our activities
is found in the annex at the end of this submission.
5. Last year we published a study "Economics
in Peace Making: Lessons from Northern Ireland" which provides
a compelling case for how economics can help to resolve seemingly
intractable political problems.
CONTEXT FOR
ACTIVITIES IN
2008
6. The ongoing political situation has created
an economic crisis for Palestinians. Since 1999 Palestinians have
seen a 40% reduction in income.[180]
Almost 30%[181]
of the Palestinian population are unemployed and over 56%[182]
of the Palestinian population are living in poverty. In Gaza almost
80%[183]
of the population are now living in poverty.
7. Our November 2007 Palestinian Economic
Bulletin reported that the private sector in Gaza is at an all
time low. The closure policy was introduced in June following
the takeover by Hamas and the Israeli and international refusal
to deal with Hamas until it recognised the three Quartet conditions.
Ninety-five per cent of factories are now closed and the production
of garment and textiles, furniture, metal and engineering, soft
drinks and paper has stopped. Our December Bulletin included a
feature on the Gazan private sector based on interviews with various
representatives. It reported bare shelves, inflation of 200% for
some products and a belief that the situation has caused lasting
damage to the private sector. With the closure of the borders
investors have lost confidence, exporters have lost hard-won market
shares and many manufacturers have relocated to Egypt, Jordan
or the West Bank. Employment figures show that the public sector
now accounts for over 40% of employment in Gaza.
8. Statistics suggest that the outlook in
the West Bank is more optimistic. The private sector accounts
for over 70% of all employment.[184]
Our March Bulletin reported that over 53% of all business owners
and managers expect a medium-term improvement in the situation.
Pre-tax profits improved in 2007. While recent events may dampen
this optimism one recent media report highlighted the improving
atmosphere in Ramaliah and details some substantial investments
by successful Palestinian firms.[185]
PROGRESS SINCE
PARIS
9. The Portland Trust was encouraged by
the level of pledges at the Paris donors conference and the prominence
given to investment and the private sector in the Palestinian
Reform and Development Plan (PRDP). Both these factors seem to
have been a contributing factor to the increased business confidence
in the West Bank.
10. We need to make the most of the opportunity
offered from the internationally endorsed PRDP. We feel that the
committee could helpfully use their report to call for the full
breakdown and disbursement of pledges at the AHLC meeting in London
in May.
11. The design of the new EC PEGASE mechanism
allows for monies pledged for investment to be channelled to the
private sector. We ask the committee to use their report to highlight
the potential offered by the new mechanism.
PALESTINE INVESTMENT
CONFERENCE
12. A key part of the follow-up to Paris
donor conference is the Palestine Investment Conference scheduled
for mid-May. The Portland Trust is supporting the work of the
Palestinian Prime Minister and the conference Chief Executive
by preparing a portfolio of investment projects to present at
the conference.
13. It is important to recognise the vulnerability
of these projects to political and security issues and the necessity
of addressing risk factors. With this in mind, and in an attempt
to encourage investment under current conditions, we are working
with others to develop a political risk insurance programme. We
believe that this is critical to secure the level of private sector
investment required.
THE UK GOVERNMENT
14. The Portland Trust is in regular contact
with the UK government (DFID, FCO, Cabinet Office and HMT). The
Prime Minister is a keen advocate of the role of economics in
conflict resolution. The UK Government set out this approach in
their September 2007 report "Economic aspects of peace In
the Middle East".
15. As part of our work for the Palestine
Investment Conference we have had initial discussions with the
Export Credit Guarantee Department (ECGD), DFID and HMT on the
provision of risk insurance for specific projects in the Palestinian
Territory. At present, ECGD does not have a mandate to operate
in the Palestinian Territory. We ask the committee to consider
a potential role for HMG in this area.
18. We have been in discussions with DFID,
FCO and Cabinet Office about a $1 billion Affordable Housing Programme
in the Palestinian Territory. The scheme has been endorsed by
the PA and the international community and can begin to be implemented
in 2008. But there needs to be an immediate injection of donor
funds to provide the infrastructure and public services. We feel
that the UK, as a leading donor to the Palestinian people, has
an important role to play in this area. We ask the committee to
support the Affordable Housing Programme.
Annex A
FRAMEWORK AND RECOMMENDED INTERVENTIONS
A1. Economic interventions have a positive
impact in the Palestinian Territory even in the current circumstances.
We have developed a framework of private sector projects that
cover: a) physical infrastructure b) financial infrastructure
c) entrepreneurship d) trade facilitation.
A2. We are aware that the political and
security situation impacts on the viability and delivery of certain
projects but our experience so far shows that the private sector
can deliver value-added projects despite the political tensions.
The private sector is the only long-term source of employment
and economic development for the Palestinian population.
PHYSICAL INFRASTRUCTURE
A3. Affordable Housing: This is a key area
where immediate action is recommended. The Portland Trust is facilitating
a private-sector led housing boom through the Affordable Housing
Programme. Our approach is guided by the following principles:
— There is an urgent need for new housing;
— There is a severe lack of affordable
housing available in the Palestinian Territory;
— The scheme will generate large-scale
employment in construction and generate real economic growth;
— It will have a positive effect on
the local construction-related sectors, such as manufacturing,
trade and finance;
— It will attract investment from private
investors in both residential property and commercial real estate,
such as retail shops and other small businesses;
— Existing institutions and mechanisms
currently in place to support the sector should be strengthened;
and
— Early commencement of construction
will demonstrate progress on the ground to the Palestinian population.
A4. The Affordable Housing Programme aims
to develop up to 15,000 housing units by 2013 within new communities
spread across the West Bank for a total investment of $1 billion.
Estimates of the cost of construction and analysis of Palestinian
income levels have shown that there is a 15% funding gap to make
the units affordable to our target market of monthly household
income between $850-$1,700.
A5. The Portland Trust is coordinating with
the local housing sector to identify and remove existing impediments
to the development of good quality housing; in sustainable communities;
for affordable prices. We have formalised our collaboration with
the developers in an agreed MOU.
A6. Funding of approximately $150 million
is required for the infrastructure and public services of 15,000
units. This funding plays a critical role in the overall financing
package of the housing programme—not only does it make the
units affordable but it also reduces the overall risk carried
by the banking sector and lays the ground for private sector investment.
There is a window of opportunity to secure the donor funding and
private sector investment for the programme. This would allow
construction on two sites in 2008.
A7. Operation Kickstart: In partnership
with the Palestinian Federation of Industries, we are looking
at ways of ensuring that the economic benefit of the housing scheme
is maximised by mobilising the local manufacturing industries
to supply the necessary materials required in construction. We
hope to present this project at the Palestine Investment Conference
to secure investment.
A8. Regional Infrastructure Trunk Council
(RITC): Given the geography of the Palestinian Territory, infrastructure
must be planned with neighbouring countries. The Portland Trust
has developed a structure for coordinating the development of
regional infrastructure between Israel, Egypt, Jordan and the
Palestinian Territory—the RITC. As soon as the situation
allows, we believe RITC will provide an effective means of planning
the infrastructure required. We know from other conflict zones
that it takes a number of years to plan infrastructure yet donor
funds are sudden and time-limited once a political solution is
reached.
FINANCIAL INFRASTRUCTURE
A9. Pensions: Despite the recent reform
of the public sector pension system there remains limited access
to pension funds for the Palestinian private sector. The establishment
of a private sector pension fund would help secure the financial
future of retirees, inject long-term capital into the market and
stimulate economic growth. We commissioned Levant Consulting to
draw possible outlines for a modern Palestinian private pensions
system. Following the publication of its consultation paper in
August 2007, we worked with public and private stakeholders to
formulate draft legislation to allow for the establishment of
a new private pension system in the Palestinian Territory. The
draft legislation was submitted to the Palestinian Prime Minister
in January 2008. We are now consulting closely with the private
sector, banks, insurance companies and unions to finalise the
details of the legislation. A hard copy of the Pensions consultation
document will be provided to the committee.
A10. Mortgage finance: In close consultation
with the local banking sector and the Palestinian Mortgage and
Housing Council, we developed a proposal for an affordable mortgage
structure in support of the Affordable Housing Programme. Two
commercial structures were designed and presented to the banking
sector in Autumn 2007. The banks are now in direct discussions
with the property developers on the provision of affordable mortgage
finance for new housing.
A11. Political Risk Insurance: We are working
with the Center for American Progress and others to develop a
political risk insurance product. AIG and OPIC are interested
in creating a re-insurance entity. We are in discussions with
the Export Credit Guarantee Agency to see if there are specific
projects they could support at the Palestine Investment Conference.
ENTREPRENEURSHIP
A12. Loan Guarantee Scheme: The Portland
Trust worked closely with The Aspen Institute, Overseas Private
Investment Corporation (OPIC) and the Palestinian Investment Fund
(PIF) to develop a loan guarantee scheme for the Palestinian Territory.
The OPIC/PIF scheme was launched in July 2007 with $160 million
of funds to guarantee loans up to a total of $228 million. Loans
from $10,000 to $500,000 are backed by a 70% guarantee. The scheme
targets a range of businesses and plans to establish a technical
assistance programme to help banks market their financial products
more successfully. The Portland Trust is contributing financially
to its running costs.
A13. The Portland Trust also engaged European
finances for loan guarantees through a combination of lobbying
and analytical work that demonstrated the potential demand. The
European Investment Bank and European Commission jointly provided
an additional €24 million for loan guarantees which was combined
with €5 million of funding from the German Development Bank,
KfW. The €29 million European-Palestinian Credit Guarantee
Fund was launched in 2006. The Portland Trust developed a structure
to ensure coordination between the two schemes.
A14. Training: In partnership with GTZ,
we developed a comprehensive three year training programme for
small and microentrepreneurs. The training programme is based
on international standards but tailored to Palestinian needs.
The Sharek Youth Forum will provide the enterprise training and
business development courses by CEFE certified Palestinian trainers.
A pilot project, with 120 microentrepreneurs, was launched in
February 2008.
A15. Microfinance: We secured a grant from
the EU of €750,000 to develop a three year action plan to
build capacity in the microfinance sector. Together with PlaNet
Finance we are providing an additional €550,000 in support
of the Palestinian Network for Small and Microfinance Institutions.
TRADE FACILITATION
A16. Export Support: We commissioned a competitive
assessment tool to rate Palestinian companies' viability to export.
The tool gives a comprehensive diagnosis of the companies and
areas of intervention needed. We believe this allows donors to
target their support to the most promising companies. Three companies
were assessed during the pilot phase. The tool was launched in
February 2008.
A17. Upgrading handicraft industry:
We conducted a market study to try and identify the handicraft
products that have a competitive edge and international appeal.
This follows on from inquiries from large US retailers about stocking
Palestinian handicrafts. We will conduct a full feasibility study
on the creation of a centre that will act as a middle ground between
local artisans and international buyers. Our aim is to develop
a sustainable business that provides packing and packaging, product
development, branding and other business oriented elements.
A18. Chambers of Commerce: We developed
a framework for an Israeli-Palestinian Chamber of Commerce. Its
constitution has been approved by the bilateral Chambers of Commerce
in Israel in March. We anticipate its establishment in the coming
months.
12 March 2008
180 World Bank estimates real GDP per capita in 2006
is 40% lower than in 1999, December 2007. Back
181
PCBS Labour Force Survey November 2007. Figures are for Q3 2007,
relaxed definition. Back
182
PCBS, Poverty in the oPt in 2006, August 2007 http://www.pcbs.gov.ps/Portals/_PCBS/Downloads/bookl382.pdf
(Page 34 for English version). Figures are for 2006, income basis. Back
183
PCBS, Poverty in the oPt in 2006, August 2007 http://www.pcbs.gov.ps/Portals/_PCBS/Downloads/bookl382.pdf
(Page 34 for English version). Figures are for 2006, income basis. Back
184
Derived from figures in PCBS Labour Force Survey November 2007 Back
185
http://imeu.net/news/article008003.shtml Back
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