Herzliya Conference – 3 February 2009

Down to Business:  Boosting the Palestinian

Private SectorSir Ronald Cohen

• Catholics suffered from unemployment rates more than double that of Protestants and violence was high;

• Today unemployment and violence are both low.

1.60

1.70

1.80

1.90

2.00

2.10

2.20

2.30

2.40

1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Ratio of Catholic to Protestant unemployment

Percentage of total Troubles-related deaths caused by Republicans

Source: Honaker, Unemployment and Violence in Northern Ireland: A Missing Data Model for Ecological Inference (2004)

Economics in Peacemaking: Northern Ireland

Not a parallel but we can learn important lessons

Economics in Peacemaking: Northern Ireland Not a parallel but we can learn important lessons

• Senator George Mitchell appointed as Clinton’s special envoy in 1993.

• Economic discussions became a platform for political settlement.• Private sector voice and institutions pushed for moderation. • Substantial inward investment, from the US in particular, improved

economic conditions.

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

$M

4%

5%

6%

7%

8%

9%

10%

11%

12%

US FDI (US$M) cummulative

Unemployment Rate

Economics in Peacemaking: Northern Ireland Not a parallel but we can learn important lessons

During difficult periods of the conflict, public sector financial support and

employment underpinned the economy

Economics in Peacemaking: Bosnia and Herzegovina

Not a parallel but we can learn important lessons

Because inward investment was difficult to attract, the economy remains

weak with high unemployment.

Economics in Peacemaking: Bosnia and Herzegovina

Not a parallel but we can learn important lessons

• 1995 Dayton Peace Accords ended the war by creating two

ethnic entities. • Despite $6 billion + of international assistance (1996 – 2003)

real level of GDP is 20% lower than 1989.

Challenges to the Palestinian Economy in 2009

• High population growth and a shrinking economy means real GDP per capita is a third less than 1999.

• The economy is becoming increasingly aid dependent, investment is low and unemployment is high.

Creating the right economic environment

• Palestinian Authority has made significant progress in its reform effort: – Reduced budget deficit from 27% of GDP in 2007 to 23% in 2008– Reduced government employment by 22% from 180,000 in 2007 to

141,000 in 2008.

• The donor community has provided approx $2.5 billion of support to the Palestinians in 2008 of which 70% is in budget support

• An investment agenda has been pursued:- International investment conference held in Bethlehem, Nablus and

London- Over $1 billion of investment announced including a 5,000 unit new town

outside Ramallah and the launch of the second mobile phone operator Wataniya.

• There has been a significant increase in tourism in the West Bank, with 1.2 million visitors to Bethlehem and Jericho in 2008, double 2007 for Bethlehem a 40% increase for Jericho.

Palestinian Economy: A Coiled Spring

• The Palestinian economy is like a coiled spring, ready to spring back.

• It could grow to three times its current size and quickly.

• The foundations for telecommunications, pharmaceuticals and finance are established.

• Donor money can attract capital into the private sector by improving the risk/return profile and underpinning the debt and equity capital needed.

Private Sector Development

The Portland Trust has been supporting Palestinian efforts to develop

the private sector in these areas:

• Loan Guarantee Scheme: capacity of $300 million of loans to the private sector to fund SME expansion

• Microfinance: support for the Microfinance Network

• Private Sector Pensions: draft legislation for a modern scheme to provide long term capital

• Affordable Housing – $1bn programme to build 15,000 affordable homes in six new West Bank communities:– Increases GDP by 1.5% p.a. for each of 5 years– Thousands of new jobs– Improves the lives of over 200,000 Palestinians

The Private Sector Challenge in Gaza

• 95-97% of firms have closed and more than 65,000 jobs have been lost.

• Finance for private sector recovery needed from the outset.

• Soft loans rather than grants are best way to inject funds for a business driven recovery.

• A package for the Gazan private sector should include, at the right time:

- Compensation packages for businesses and factories - Capital provision into the banking sector - Microfinance - An investment fund

Openness to trade and investment• 2008 GDP growth is estimated at 0.8% and expected to be negative in 2009• No future for economy without an openness to trade and investment• Israel remains the main trading partner of the Palestinians.

Imports

0

500

1000

1500

2000

2500

3000

2000 2001 2002 2003 2004 2005 2006

Total Palestinian I mports

Total Palestinian I mports From I srael

Exports

0

500

1000

1500

2000

2500

3000

2000 2001 2002 2003 2004 2005 2006

US$m

Total Palestinian Exports

Total Palestinian Exports to I srael

• Palestinian economy has a number of Free Trade Agreements (FTAs) with Arab states, the EU, US, Canada, Turkey – effectively 75% of the world’s economy.

• However, there are two constraints on Palestinian trade: – Access to market through low volume checkpoints. – Capacity of Palestinian exporters.

• Portland Trust with others has recently established Israeli-Palestinian Chamber of Commerce to promote business and facilitate trade.

Openness to trade and investment (cont.)

The Portland Trust

42 Portland PlaceLondon W1B 1NB

Azrieli 3132 Menachem Begin Road

Tel Aviv 67023

P.O. Box Al Bireh 4102Ramallah Al Masyoun

Website: www.portlandtrust.org