Examination of Witness (Questions 29-39)
MR DAVID
FREUD
30 APRIL 2008
Q29 Chairman: Thank you very much for,
first of all, sitting through that session and for coming in to
give us evidence on behalf of the Portland Trust. I wonder if
you could introduce yourself for the record?
Mr Freud: My name is David Freud;
I am the Chief Executive of the Portland Trust.
Q30 Chairman: Thank you very much.
Obviously you have an interest in trying to promote economic development
and private sector development in the Palestinian territories.
The Committee, when it visited the West Bank found a pretty grim
situation in terms of the ability of people to engage in private
sector economic activity. The indications are that the situation,
if anything, has got worse. Given your still resolute commitment,
I wonder whether you can give us some indication of how and why
you feel it still could be possible to stimulate successful private
sector activity in the occupied Palestinian territories—obviously
Gaza is an exceptional case, but in either Gaza or the West Bank—which
you feel you would be able to achieve.
Mr Freud: Currently we do not
operate in Gaza, although we are looking very closely at the situation
to see how we could help it at the appropriate time. I should
make clear, as you did, that we are involved in economic development
as opposed to the humanitarian side, so we are trying to look
at structures which will help the economy operate, and to do that
one needs to look at bits of the financial and other types of
infrastructure to make them work more efficiently and try to unblock
the areas where they are blocked, and it is a fairly one-by-one,
piece-meal process. We conducted an analysis, nearly two years
ago now, 18 months ago, to look at where you could possibly inject
an economic multiplier effect into the economy in the present
political circumstances, the present circumstances being that
trade is very difficult because of road blocks and border controls
and people's efforts to do industrial parks, which is something
that the outside world has looked at on a regular basis over many
years, would seem to be still very difficult. Our conclusion was
that the most obvious way, almost the only way, to do something
in scale would be large-scale affordable housing. Clearly, there
are benefits to people having houses, although in the West Bank
we are not looking at hugely horrific housing conditions, but
we are looking at shortages. The real point of doing that particular
exercise is that it produces a real boost to the economy, and
we estimate that it would put GDP up about 8% over a five-year
programme, plus kick-starting all of the other industries that
are linked to it; and it happens to be an area where the Palestinian
workforce is really experienced because in the past, of course,
they were heavily involved in the Israeli construction boom. When
you ask the question, there are a lot of specific things to be
done and we think that the key one, right at the top of the list
to actually get the economy going, is housing.
Q31 Chairman: That is clearly an
identifiable activity, and you say the skills exist. My understanding
is that you are looking at 15,000 housing units by 2013 with a
total investment of a billion dollars and that you are seeking
$150 million of donor support and private investment. What success
are you having with that at the moment? What is the current offer
that you have received?
Mr Freud: The Palestinian Reform
and Development Plan, which was presented to the donor community
in Paris in December, included $600 million for private sector
development, so to speak, so it is in the formal context of the
Palestinian donor relationship; and that is not exclusively to
go to the housing effort but, clearly, an element of that can
go to the housing effort. It is the intention of the Palestinian
Government to direct money to that, clearly, donor money, with
donor approval, through the Palestinian budget to support the
infrastructure required for these developments.
Q32 Chairman: Forgive me for asking,
but just for clarification, what is the actual activity of the
Portland Trust in that process? Do you manage developments? Do
you procure?
Mr Freud: No, we are only a reasonably
modestly sized foundation, and our added value, I think, is that
we can initiate and help projects get going. In this case, in
the housing case, what we actually did is we gathered all of the
different communities: the Government, the developers, we signed
a Memoranda of Understanding with six developers to get this going,
and the banking community to get the mortgages available and we
then worked with the developers to produce a plan of what one
of these communities would be. So, we act as an initiator and
we do provide money at key points to get it going, but we do not
expect to be the source of the, literally, hundreds of millions
of pounds that end up being needed for these major projects.
Chairman: That is helpful just to understand
how you are engaged.
Q33 Jim Sheridan: The investment
by the private sector and tourists to go to the Territories and
the surrounding area are crucially important. It is the political
risk question I am asking. People will not invest nor visit the
area if they feel that their lives will be at risk or their investment
will be at risk. Indeed, I think when the committee visited Bethlehem
the hotel we stayed in had something like a 2% occupancy rate.
Mr Freud: Yes.
Q34 Jim Sheridan: If you were to
encourage people to invest in or to visit Bethlehem, how would
you do it?
Mr Freud: One of the things we
have been looking at very closely is trying to get a political
risk insurance product into the area, and we are working with—I
think it is mentioned in our paper—the Centre for American
Progress there and OPIC[4]
are looking at it with them, AIG, the insurance company, are looking
at it and, clearly, MIGA[5]
are looking at it. We have also been talking to the export credit
guarantee department in the UK. I think of all the things that
you might think about, getting risk insurance for investment may
be very high on the agenda as a kick-starting process because
people invest if they feel that if something happens to their
investment they can get compensated. I think it could be a very
important element in getting investment and skills from abroad
in particular and, indeed, domestically, back into the Palestinian
territories.
Q35 Jim Sheridan: The granting of a mandate
for the Export Credit Guarantee. How would that enhance or encourage
people to go there?
Mr Freud: We have just started
to talk to the Export Credit Guarantee people. There are two types
of insurance you could look at: one is insurance for the assets
one invests in. So if one puts a factory in and it is destroyed
by someone, you would get that insured. That is one aspect. The
second aspect is for trade. If you were putting perishables through
the border and they got stuck for three days and rotted, there
would be an insurance protection. You might protect furniture
that missed a particular deadline for getting out and that kind
of thing. Those are the insurances we are working on.
Q36 Chairman: There is a certain
irony in that particular hotel. The Committee were there just
before Christmas and we recalled the fact that the first Christmas
there was no room in the inn but this time there was an inn full
of rooms and nobody in them. They said access to Bethlehem was
not totally off limits but tour operators simple were not prepared
to take the hassle. Do you think, if you take Jim Sheridan's point,
if there was that kind of risk insurance the insurers themselves
would have some interest in actually engaging with tour operators,
and obviously the Israeli authorities, to lift restrictions but
also to enable people to realise they could get in if they were
prepared to make the effort?
Mr Freud: The issue of bringing
tourism back clearly will depend on the entire environment and
what we read in our newspapers every day. In the end, tour operators
do not go because people are uneasy about going there and when
one reads the press every day one can understand that. There may
be things the British government could do to encourage it. One
off-the-wall idea perhaps would be to forgive the airport tax
on people who are going to stay in the Palestinian Territories
which might be a financial incentive to get people to look at
this and think about it.
Q37 Sir Robert Smith: On the risk
insurance market, how has it progressed? Is it getting slightly
easier to get private risk insurance into this sector or is it
getting more difficult?
Mr Freud: There is effectively
no existing risk insurance at any price that people would want
to take at the moment. Any insurance will have to be backed somehow
by a big pocket.
Q38 Sir Robert Smith: In reality
then is it not that the risk has to be reduced to get this economy
going again?
Mr Freud: Yes.
Q39 Sir Robert Smith: Private insurers
are there to make a profit.
Mr Freud: There will have to be
someone who takes it on a grant basis at the end. That fund will
have to be an aid donor. It is very similar to the Loan Guarantee
Scheme which we worked very hard on for many years to encourage.
There are two now: a European one and an American one. That is
a classic example of where the system is clogged. The banks in
the Palestinian Territories are effectively deposit-raising institutions
and lend out extraordinarily little of what they raise domestically.
The figure is now down to 35% of their deposits which they are
lending out, so effectively the money is typically going to Jordan
to be lent out there where it is regarded to be safer. The Loan
Guarantee Schemes are designed to offer banks some protection
if they lend out domestically. They get protection of 60 or 70%
of what they lend. Both of those schemes are now really starting
to operate literally in the last couple of months.
4 Overseas Private Investment Corporation. Back
5
Multilateral Investment Guarantee Agency Back
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