Examination of Witness (Questions 40-48)
MR DAVID
FREUD
30 APRIL 2008
Q40 Hugh Bayley: My question follows
Robert's very much. This obviously cannot be a commercial insurance.
You look at Gaza where 90% of the economy has disappeared and
you cannot insure in those conditions. Suppose you found a rich
benefactor who was prepared to put up a billion dollar fund, would
this be a cost effective way to use external finance or, if you
wanted to generate economic activity, would you do better to put
it into your housing scheme or organise a cash-for-work scheme?
Mr Freud: One takes this in order.
The housing scheme is something one can do reasonably without
huge political transformations. The risk insurance is a question
of finding a fund and we are looking at a scheme that looks at
a $50 million fund effectively behind it which starts to build
up and that is on the trade side not on the investment side. That
is a scheme we look at and we need a deep pocket, i.e. a gift
from somebody who can operate that fund. Again, it is a way of
channeling support.
Q41 Hugh Bayley: Is it the most efficient
way? If you find somebody with $50 million to invest, how many
jobs do you create with that $50 million as opposed to a micro-credit
scheme or some other economic vehicle?
Mr Freud: We would create a lot
of jobs through getting a reasonably priced insurance product
in. One of the things stopping people investing in any scale is
the fear that the investment is totally wasted if you cannot get
your goods out, or there is strong risk you cannot, and you have
no protection against that.
Q42 Hugh Bayley: But the investment
will be totally wasted if there is a claim on the fund because
the investment in the fund will be totally wasted. If I set up
a business and I invest $1 million in it and it fails because
of the circumstances in the West Bank or Gaza and I claim on the
fund, then $1 million of investment in that fund, 2%, is wasted.
Is that a good way to spend the money?
Mr Freud: The international community
is planning to give about $7.5 billion to the PA,[6]
or into the area, in the next three years. That is what the pledges
were. Much of that money will go to effectively humanitarian aid
or to salaries. Is it more sensible to try and encourage businesses
to start and expand because they feel confident that if something
terrible happens to their goods they will actually not lose that
money? That is the question. We have heard a lot of, particularly
international, entrepreneurs saying "Yes, we would go into
an industrial park if we had some kind of guarantee that if something
goes very badly wrong for us we can get insurance for it."
We think actually that fund would be a very powerful way of getting
the economy going. Housing can take you so far but you have got
to get the trade going. The trade imbalance now we are talking
about roughly $2.5 billion of imports against $330-odd million
of exports and clearly that is an unsustainable economy. It is
an economy with a GDP of $4 billion now and we are looking at
more than 50% of it being aid from the international community.
Q43 Richard Burden: You have been very
clear that your primary focus is on economic development but I
think, as the last conversation showed, that exists in a political
context and the two constantly interrelate. I would like to ask
you one or two things about that and how you navigate your way
through that relationship. The UN has been reporting that the
number of movement restrictions in the West Bank has gone up not
down since 2005 and it is difficult to see how you can develop
economic activity with those movement restrictions in place. The
barrier is not entirely complete but pretty near complete, 12%
of the West Bank on the western side of the barrier. The International
Court of Justice has declared the building of the barrier to be
unlawful and that third parties are under an obligation not to
render aid or assistance in maintaining that illegal situation.
My question to you is if you are trying to develop economic activity
in the context where it has been restricted by movement restrictions
and by a barrier, at least where it goes into Palestinian Territory,
which is unlawful, and essentially you go around that and find
ways through it, how do you assess whether or not you are actually
developing the economy or making it easier to maintain the occupation
perhaps with a more human face?
Mr Freud: We are actually a pretty
unusual foundation in that we have our feet very firmly in both
communities. We have an office run by an extremely senior person
in Tel Aviv and an office run by a very senior person in Ramallah.
In that sense everything we do has to be balanced in terms of
the two communities. For obvious reasons we are very careful about
talking politics, and we have to be because there is a general
level of comfort from both communities in what we are doing. We
do not have a special agenda. We are just trying to get economic
development. Our objective is a very simple one. We did a study
on what were the useful lessons coming out of Northern Ireland
for this situation. You cannot just pick it up and copy it but
one of the lessons is that it is very important to foster and
nurture the forces of moderation otherwise you have no context
in which to do a political deal. One of the most important sets
of groups of moderates are people in the private sector and one
should try and strengthen them. To that extent it is a political
thing but we think that is an objective. We can quite see that
governments and organisations have much more political worries
and they have to deal with the issues of accepting various barriers
or whatever but our objective is just to operate to get these
processes going and to support them as they do get going.
Q44 Richard Burden: I am not really
asking about whether it is a good idea to try to bolster forces
of moderation or build economic co-operation. You have been very
clear about that and I have a good deal of sympathy with what
you say there. It is where those activities objectively come up
against things that do not necessarily raise questions about which
side of the political fence you are on but potentially raise questions
of law. In most countries you would say people have different
views about whether this particular economic activity is a good
or bad idea but most people would say you should not do anything
which is illegal. That is the issue of the question of the barrier,
the wall, where you do have legal opinion from the International
Court of Justice saying that the building of the barrier on Palestinian
land is unlawful. There is a great deal of concern from some areas
that you could be moving to a situation where it is very difficult
in practical terms. The ambition of any kind of territorial contiguity
between the Palestinian areas is lost but everybody says what
is the problem because you have transport contiguity. You have
tunnels and you can move around things. You can boost the economy
of Bethlehem because you can have a separate entrance for tourists
from the people who live there. At the end of that you might have
a form of economic activity but how far you have actually dealt
with the Palestinian economy in a real sense is questionable.
There would be an argument that you have actually facilitated
the very thing that is restricting the economy. That is a balance
but the question I have for you is do you recognise that there
is a balance or is it not your problem. If there is a balance
to be struck, how do you negotiate that? What are the mechanisms
you use and are there any mechanisms in the bodies you operate
with, whether it be the Quartet or the donor community, to assess
if you have that balance is it having an unforeseen consequence
of maintaining an illegal act rather than facilitating economic
development?
Mr Freud: Clearly we do everything
we can and we do operate in an entirely legal context. What we
do, and this may be the difference between a private foundation
and a government controlled entity, is we operate from the bottom
up. We will look at a particular project and say how does that
work and we will assess it for what its impact is going to be,
clearly its legality, who can we go in with and do it because
we like to go in with partner. We have this clearance process
so we build up a kind of portfolio of things. Clearly you choose
to do things which you think are going to be effective in the
present political context. Our objective is not to change that
political context but to try to move the economic projects forward
within a context that we have to accept as it stands.
Q45 Richard Burden: Are there similar
mechanisms amongst the institutions, for instance, like the Quartet?
Do they make those same assessments?
Mr Freud: I am sure they do. I
do not have firsthand knowledge of their processes but from everything
I hear the Quartet and us—although it sounds ludicrous to
put us in the same breath—are operating in a context where
you are talking to the Israeli community and the Palestinian community
and their bodies. It is very difficult to get anything done unless
you have developed a consensus.
Q46 Hugh Bayley: In Gaza the economy
has all but disappeared but what would your prescription be to
create economic activity in Gaza?
Mr Freud: The one thing we have
been looking at very closely, which we think others should look
at, is to start to build up effectively a Gaza business recovery
programme. What has happened is everything has shut down but actually
a lot of the operations have gone abroad. People who were making
furniture now make it Jordan or Egypt or wherever. We have seen
a collapse but how quickly can one get it back. If it is going
to dribble up in 2 or 3% per annum from the base it has got to,
we are looking at a very long situation but if you can get it
to leap 20% per annum over a few years one could get it back reasonably
quickly. Our view would be that if the international community
can really start to develop a rapid Gaza business recovery programme
for a change in the political circumstances, quite apart from
working on changing them, I think we would all be grateful in
the long run.
Q47 Hugh Bayley: Would the demand
for those goods and services come from within Gaza or would it
depend upon opening the crossing points and trade routes?
Mr Freud: Absolutely. You would
have to have an ability to trade. It presumes that the political
context improves from the present position.
Q48 Ann McKechin: On this question
of access, the World Bank assessment is that unless there is actual
positive progress on movement and access economic recovery is
not possible. What do you think our government should be doing
to help in this regard in the current climate about trying to
improve the access both in Gaza and also the West Bank?
Mr Freud: I am slightly beyond
my league in that question. Clearly that is something the Quartet
is working on very hard. In the present political context, as
you say, trade is very hard which is why we have gone into housing
as an immediate remedial effect. What we are looking at, and I
know what the Quartet is doing, is worrying about getting the
security situation to a level and provide a context for those
road blocks being reduced.
Chairman: I am sorry we got slightly
compressed. In a difficult situation we wish you success. You
certainly will need a lot of insurer's underwriting risk in the
current climate. Let us hope that risk can be reduced.
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