PALESTINIAN EXPORTS NEED UNLOCKING

January 21, 2010

Economic collapse and increasing poverty in the Palestinian Territories may partially abe alleviated by increased export opportunities for local businesses, for instance in the floricultural and IT sectors. For exports to impact the West Bank and Gaza economies, two things are needed, observers agree: a relaxation of the movement and access restrictions imposed by the government of Israel and intensive export coaching and institutional capacity development provided by external cooperation partners, such as the CBI.

Most observers agree that the main export barrier at this time for Palestinian businesses is a political, security-related barrier: the movement and access restriction policy imposed by the government of Israel. This security-led restriction policy severely limits Palestinians in exporting products as well as importing raw materials. Particularly from the Gaza strip, fresh produce is scarcely being exported anymore due to border closures and extensive clearance procedures. An exception has recently been made for Palestinian flowers, which are being sold to the Dutch flower auctions. A similar status is currently being negotiated for strawberries.

Inside the territories, tensions between the Fatah and Hamas movements hamper decision- and policy-making, adding to the region’s economic fragility.

Vibrant business mentality

Political complexities aside, the Palestinian business sector is itself fragile and small in scale, but at ground level it is anchored in a vibrant business mentality and an eagerness to reach out to new markets. ‘Remember, Palestinians are an Arab people with a healthy entrepreneurial spirit’, says CBI expert Mr Jos Brand. ‘Walking around Ramallah, you´ll not see many traces of occupation until you reach the outskirts of the town. In the centre, shops and restaurants are thriving; people obviously have money to spend.’ Observers believe there is significant export potential, particularly in niche markets dealing with small volumes. In order for the export sector to show real growth and to positively impact the West Bank and Gaza economies in the coming time, however, external support remains essential.Though not formally recognised as an independent state, the Palestinian Territories are included among the so-called fragile states featured on the Dutch Ministry of Development Cooperation’s list of target countries for development support. Within this context, the CBI is investigating the West Bank and Gaza to identify possible inroads for export promotion and capacity building activities. The CBI News spoke to several sources inside and outside the territories on the region’s economic outlook (continued on page 22). Poverty levels in the Palestinian Territories are rising and the region’s economy in recent years has become more and more aid-dependent. Per capita GDP levels have been kept from plummeting only by enormous inflows of foreign assistance. Nonetheless, the World Bank reports that per capita GDP continued to fall in 2008 in both the West Bank and Gaza, with Gaza suffering from particularly bleak circumstances due to its near complete economic isolation. Overall real GDP is estimated to have increased by about 2%, with all of the growth coming from the West Bank. ‘The situation in Gaza is clearly quite different from that in the West Bank area’, says Mr Thijs Debeij, Second Secretary of the Representative Office of the Netherlands to the Palestinian Authority in Ramallah. Renewed export of fresh flowers ‘Gaza is caught in a deep economic crisis. Though traditionally more developed than the West Bank, with a lot of value-added export business in fields like textile processing and agriculture, it’s private sector has come to a virtual standstill since Hamas came to power and the Israeli government closed the borders for security reasons. Former strong export products such as strawberries are locked inside Gaza now, with domestic demand unable to match supply or to cope with export prices.’ One small ray of light is the renewed export of fresh flowers from Gaza, thanks in part to Dutch government lobbying. Fragmented infrastructure Conditions on the West Bank are less dire than in Gaza, but far from ideal. With the borders controlled by Israel and the presence of numerous checkpoints within the region, the infrastructure – particularly along the north-south axis – is fragmented and the movement of goods, whether raw material imports or exports, is limited. Outside the urban areas, Palestinians are required to apply for permits from the Israeli government for many of the most basic infrastructural improvements, from installing water and electric facilities to developing new industrial zones. A broad fact-fincing mission The abatement of violence in recent months and Israeli Prime Minister Netanyahu’s introduction of an ‘economic peace regime’ with relaxed restriction policies have given some breathing space, yet overall business conditions remain fragile, to say the least. Comments CBI expert Mr Jos Brand after a recent investigative tour of the area, ‘The problem is that Palestine is not a state, not even a fragile one. It is an occupied territory with a population that has few rights. Being unable to dig a water well, for instance, or to generate electricity without external permission paralyses development.’ Brand has advised the CBI to send a group of delegates to the Palestine Territories on a broad fact-finding mission. Creativity and education levels are high Though conditions are bleak, the general mood within the business communities of the Palestinian Territories appears to be one of resolute optimism. ‘The creativity of Palestinian entrepreneurs is impressive’, says Debeij. ‘They have many contacts in Israel and abroad, both in the Arab world and in Europe and the USA, and are eager to develop them.’ Education levels are also high, says Debeij: every year some 40,000 students graduate from university and their sense of loyalty to their homeland is strong. Access to credit not an obstacle Access to credit is not an obstacle, as most Palestinian banks are in a healthy condition. Also, the corporate sector is traditionally fairly well organised. The Palestine Trade Centre, Paltrade for short, has a membership of over 300 active businesses and CEO Mr Maher Hamdan has expressed interest in discussing possible partnership forms with the CBI. The Palestinian Federation of Industries serves the main industries and the Palestinian Federation of Chambers of Commerce for Industry and Agriculture estimates that the region has some 52,000 small and medium sized enterprises (SMEs). Admittedly, only about half of those are active and many, if not most, are small family businesses with a limited scope. Yet a vibrant entrepreneurial spirit permeates Palestinian society, potentially laying a solid foundation for export development, both Debeij and Brand concur. Says Debeij, ‘Business folk here are hungry for input from outside. Institutes with specific business and export expertise like the CBI could have a major impact in the future.’ Examples of partnerships There are already numerous examples of successful partnerships between Palestinian and Dutch businesses. GreenFields, a Dutch manufacturer of artificial grass for sports facilities, provided the Al Ram football stadium with a climate-proof playing field and Agrexco, Israel’s foremost agricultural exporter, ships Palestinian flowers to Dutch auctions. In the IT sector, many contacts exist with European and USA firms. Comments Debeij, ‘Many Palestinians have plenty of contacts outside the territories with both Israeli’s and Arabs. Under the current border regime, there is a lot of potential in those connections for exporting out of Israel rather than directly out of the Palestinian Territories.’