Exclusive: The man tasked with investing in Palestine’s future
Can a management consultant help find a solution to a political problem that has eluded presidents, prime ministers and diplomats over nearly seven decades?
Kito de Boer is no mere consultant. Until last year he was the Dubai-based leader of the European, Middle East and African arms of McKinsey, the firm usually regarded as leader of the global consulting business. He counted as confidants many of the most powerful political and business leaders in the world.
He is not promising an instant solution to the most intractable issue in the region: the bitter hostility between Jews and Arabs in the Israeli-occupied Palestinian Territories.
But, as new head of mission of the Office of the Quartet, the international body that since 2002 has been searching for a political solution to the Palestinian issue, he arrives at a time when a fresh approach appears badly needed.
“At this point in history, the world is searching for new ideas. This is the first time in decades that there are no negotiations for final status of the Palestinian Territories. Even during the depths of the second intifada there was the Road Map,” he says.
“If there is one thing we should all be able to agree on, it is that whatever we have tried over the decades has failed the Palestinians. ‘Doing better’ may be necessary, but ‘doing different’ is essential,” he adds.
For three decades at McKinsey, Mr de Boer applied the classic philosophy of the firm to contemporary world issues – a belief that business and private enterprise could do as much to advance the human condition as any government, political party or ideology.
He advised regional governments on how the private sector could advance the “why, what and how” of economic development.
This philosophy is summed up in another of Mr de Boer’s sayings: “It was Adam Smith, not Ronald Regan, that defeated communism.” Whether the same belief in laissez-faire capitalist methods can bring about Palestinian peace is a difficult question.
It is not the first time the politicians, exasperated by the frustrations of a bogged down political process, have looked for assistance from the world of business and economics.
Two years ago, the US secretary of state John Kerry announced the establishment of a $4 billion investment fund, to be administered by Tony Blair, the former British prime minister then representative of the Quartet, as the first part of a “Marshall Plan” for the Middle East.
Simultaneously, a group of Israeli and Arab businessmen got together in an initiative called “breaking the impasse”, under the auspices of the World Economic Forum, to try to build bridges between the two Palestinian business communities.
Both initiatives foundered as politicians encountered fresh hostilities in Gaza and the West Bank. When negotiations about the “final status” of the occupied West Bank and Gaza collapsed last year, so did the “Initiative for the Palestinian Economy” (IPE), as the Kerry plan was called.
“We no longer refer to IPE, but what has not gone away is the idea of investment as an important mechanism to build a stronger, more independent state, better able to provide sustainable jobs for its people,” says Mr de Boer.
His appointment as Quartet mission head came last year, some months before the announcement of the departure of Mr Blair.
But he plays down the idea he is a “replacement” for the controversial British politician, who was fully involved in the political, diplomatic and investment activities of the Quartet.
The office of the Quartet Representative was renamed last month after Mr Blair resigned as both special envoy and representative.
“It is critical to understand that my mandate covers investment, economic development and those elements of state building that relate to creating a positive investment climate. I am not engaged in the ‘full spectrum’ of peace process negotiations,” he explains.
The job involves almost continuous meetings with the envoys of the powers that comprise the Quartet – the US, Russia, the European Union and the United Nations – and with Israeli and Palestinian officials.
He compares it to building a railway tunnel through a mountain: “We all start at different points and hope we meet in the middle.”
He admits that cutting through the towering problems of the Palestinian economy will not be easy, and that the challenges he faces are rock-hard.
“There is not a shadow of doubt that the Quartet faces an uphill task in helping to catalyse investment. The challenge is to help the Palestinians without falling into the trap of ‘economic peace’ which just serves to institutionalise the Israeli occupation,” he said.
“In the absence of a coherent political process dedicated to rolling back the occupation and empowering the Palestinians, it is hard to have hope, but hope is the fuel of private sector investment.”
Every important indicator of private sector economic performance has been in decline since 2000, he says.
“The impact of this decline is disguised because of international development support, remittances from Palestinians working abroad and the rise in the number of Palestinians working in Israel.
“A visitor to the West Bank is often surprised at the vibrancy of the economy. It is important to realise that much of this dynamism is generated externally and not a reflection of a domestic industrial engine. This is an economy held aloft by external forces,” he adds.
Nonetheless, the Palestinians do have some natural advantages. “Palestinian businesses are actually really good. Wherever Palestinians go in the world, they form a successful diaspora and become wealthy and entrepreneurial members of society,” he says.
“They are inspirational. These guys have to struggle every day of their lives, so they are very good at problem-solving. The labour pool is actually pretty good, and there is capital because we have seen how it is going to Jordan and elsewhere. And Palestinian companies are good. The overall return from the Palestinian exchange is about 5 per cent, which is also good.
“I am one of the few who is still optimistic about the Palestinian economy and business scene. But maybe I just haven’t had time to fail yet,” he says.
So what has gone wrong for the Palestinian economy since 2000, when most economic indicators started to slow and even go into reverse?
“It’s the occupation, stupid,” says Mr de Boer, in a parody of the US president Bill Clinton’s famous aphorism about the US economy as the decisive electoral factor.
“The occupation has been going on for so long, people are beginning to think that is the normal state of affairs. But it is not. There have been plenty of studies that show the Palestinian economy would be twice the size it is now if not for the occupation. Electricity supply is deficient, land prices are high, trade and export are difficult. What has changed since 2000 is that hope has diminished,” he concludes.
A cycle of mutual distrust and hostility further diminishes prospects for economic revival. “Israel has lots of capital, good entrepreneurs and technology. If Palestine opened its doors to all that, it would be mutually beneficial. But many in Palestine resist that, they say they are already too reliant on Israel.
“Official attitudes do not always help. In Dubai, for example, the instinct of the government is to help business. In Palestine, one government or other is usually trying to stop you. Economics and politics are so entwined,” he says. “For example, energy projects on the West Bank need cooperation with Israel, the Palestinian Authority, or Hamas. But if those people work together, they are often seen as traitors, as quislings, for working with the enemy. The Quartet’s job is to fill that gap by working at the heart of the Israel and PA administrations to try to encourage trust,” he says.
He sees the Quartet’s job as the economic empowerment of Palestine, running to two time lines. “Medium term we are seeking ‘motivated capital’ – individual investors who value the importance of strengthening the Palestinian economy. Typically these are regional investors often from the diaspora. This type of investor does not want to lose money, but a return of 10 to12 per cent is satisfactory.
“In addition we are seeking to build relationships with sovereign and multilateral funders interested in making business investments that will empower the economy. The Gulf plays an important role.” He believes there is an appetite for what he calls “sovereign, business-led investment”.
Longer term, Mr de Boer sees his task as preparing the investment foundations for a time when political conditions change.
“Today things in Palestine are difficult but stable. Tomorrow, they could easily become unstable and follow the path of other countries in the region. But tomorrow conditions could also improve. The world – in particular the Arabian Gulf countries – is not indifferent to what is happening to the Palestinians,” he says.
However the scenario plays out, he is preparing for a long-term involvement with the Quartet and with Palestine.
“Businesses do not invest overnight. In the best of circumstances the investment cycle can take many years from awareness, through interest to decision and eventual action. We do not promise that investment will flood Palestine in the coming years. What we do promise is that we will kick-start the investment cycle by helping to identify and create investable opportunities and link them to potential investors,” he email@example.com
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Updated: July 21, 2015 04:00 AM