x Abu Dhabi, UAEThursday 27 July 2017

Palestinian economic recovery plan takes shape

A team of international experts has been working behind the scenes on a plan to kick-start the stagnant Palestinian economy, and it is set to be launched if peace talks with the Israelis resume.

WASHINGTON // A team of international experts has for months been working behind the scenes on a plan to kick-start the stagnant Palestinian economy, and it is set to be launched if peace talks with the Israelis resume.

US secretary of state, John Kerry, unveiled the outline of the scheme to attract about US$4 billion (Dh14.7bn) in private-sector investment over the next three years at a World Economic Forum in Jordan in late May.

But decades of frustrations and disappointments mean the details are being kept under wraps until there is an agreement to resume the talks, stalled since September 2010.

The hope is that, hand in hand with political movement, the scheme could bring economic benefits on the ground to alleviate dire unemployment and poverty among the Palestinians.

Mr Kerry said business experts had been working to make the project "real, tangible and shovel-ready", adding an initial analysis had predicted "stunning" results.

These included boosting the Palestinian GDP by as much as 50 per cent over three years and cutting unemployment from 21 per cent to eight per cent.

But similarly ambitious US-led plans by past administrations have faltered, and a blanket of secrecy has been thrown over the plans as The Quartet special envoy Tony Blair and his team hammer out the details with the aid of international experts.

Critics said the vague details might suggest a lack of substance. But others believe the need for secrecy is, in part, due to concerns on the Palestinian side that any so-called "economic peace" would sideline efforts to seal a two-state peace deal with Israel.

"The Palestinian leadership will not offer political concessions in exchange for economic benefits," said Mohammad Mustafa, the president of the Palestine Investment Fund, a day after Mr Kerry's announcement in May.

Part of the aim, though, is to wean the Palestinian economy off its dependence on donor handouts.

After several years of what the World Bank called "robust growth", the Palestinian economy has slowed since last year, hit by a fall in aid amid international frustration and fatigue at the moribund peace process.

The basis for Palestinian economic growth "is largely donor support which, in the long term, is not sustainable", said Mariam Sherman, World Bank country director for the West Bank and Gaza.

"And it is really job creation that is needed. We would like to see greater private-sector investment," she said.

The IMF said last week that Palestinian growth was expected to slow to about 4.25 per cent this year down from about 11 per cent in 2010 and 2011.

Unemployment in the West Bank is set to reach 24 per cent this year, while in Gaza joblessness stands at 31 per cent, with half of all women in the Gaza Strip out of work.

Cuts in donor aid had in the past two years "brought the Palestinian Authority (PA) close to insolvency", wrote the Moshe Dayan Centre at Tel Aviv University last month. "The PA was unable to pay the salaries of public-sector employees fully and on time."

The Quartet is understood to have targeted eight sectors for growth - construction/housing, building materials, tourism, light manufacturing, agriculture, energy, water and information technology.

The aim is not to present an investment plan dividing money between each sector, but rather to map out a potential path forward.

Much needs to be done on both sides to foster a better environment to lure private investors.

"If that $4 billion flows in and meets all the security-driven restrictions, you will not get the proper result," Kari Tapiola, a special adviser to the International Labour Organisation, cautioned about the Quartet-Kerry plan.

"You have different areas of potential productive investment, but under the current conditions they are very limited," agreed Ms Sherman.

Last week's IMF report sharply criticised "persistent Israeli controls and obstacles on internal movement, exports, and imports in the West Bank, as well as the virtual closure of Gaza."

Such restrictions "thwart the private sector", the report states.

Prohibitions and red-tape have contributed to a fall in Palestinian exports, while the industrial and agricultural sectors have also weakened.

With no functioning airport, much of what the Palestinians produce has to be driven out through the West Bank and sent to Jordan via the Allenby Bridge.

Marble from quarries, dates and herbs from farms, as well as some processed foods are among the most successful exports from small Palestinian businesses.

But such built-in inefficiencies add to the overall cost, while a strict Israeli ban on importing dual-use items such as fertiliser mean West Bank manufacturers can struggle to get materials.

It remains unknown when the Quartet plan will be unveiled - if ever.