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Palestine Investment Fund: Economic Development Despite the Challenges
The Washington Diplomat / February 2012

By Larry Luxner

As Palestinian politicians step up efforts this year to achieve statehood and rally international support for their cause, Mohammad Mustafa has a different mission: to attract badly needed foreign investment to his fledgling country.

Mustafa, chairman of the Ramallah-based Palestine Investment Fund (PIF), says the fund’s objective is to pour money into strategic sectors of the Palestinian economy, such as real estate, energy and telecommunications.

“Palestine’s economic development has been undermined and constrained by the existing political arrangement. It’s been very limited in terms of creating job opportunities and employment,” he said. “As a result, what we have today is two-fold: a government with a high budget deficit, and a very high unemployment rate.”

At the end of 2011, the country’s overall jobless rate stood at 26.8 percent, according to the Palestinian Central Bureau of Statistics. In the more prosperous West Bank, the rate is 19.7 percent, with the highest concentrations of jobless people in Tulkarem — the town where Mustafa grew up (28.5 percent) — and Qalqilya (26.0 percent). In the impoverished Gaza Strip, unemployment is now running at 28.0 percent, with the highest rate in Rafah (34.1 percent).

The average daily wage for workers in the West Bank was 84.3 Israeli shekels, compared with 59.3 shekels in Gaza, reported PCBS, though for Palestinians employed in Israel and its settlements, the average daily wage is around 164.5 shekels. At present, around 87,000 West Bank Palestinians currently work in Israel, of which 50.6 percent work in the construction sector. That’s down from 200,000 several years ago — but it’s still way too high, said Mustafa.

“Obviously, our people don’t go to the settlements because they enjoy it, but because they’re so desperate they’ll look for any job. That’s a measure of their desperation,” he told The Washington Diplomat. “If the Palestinian economy were allowed to develop, there would be no need to work in Israel or their settlements.”

As chairman of PIF, Mustafa wants to boost job opportunities in Palestine itself while contributing to an improvement in the standard of living.

“Regardless of what your actual intentions are, if you’re investing in Palestine, the most natural thing to do is to hire local people,” said Mustafa, recently interviewed in Washington. “It makes sense, not only from a political but also from a commercial perspective. By doing that, you will obviously create jobs and help the country develop.”

Mustafa, who spent 23 years in the United States — 16 of them at the World Bank — said the PIF is a publicly owned fund with about $870 million in assets under management.

According to its mission statement, PIF “prudently invests through an investment strategy focused on long-term value creation with an aim to generate high and stable returns through diversified strategic investments in partnership with international, regional and local partners.”

In plain English, said Mustafa, “the difference between PIF and other funds is that we’re willing to take a longer-term view of things. Infrastructure projects typically take seven to eight years before they give you a return. Not many people want to wait that long, especially in uncertain conditions like the ones we have. We don’t claim to have a perfect investment environment; on the contrary, we believe it’s very challenging. But it could be worse.”

Among other things, PIF took the lead in helping to establish a second mobile operator, Wataniya Palestine, back in November 2009. Qatar-based Qtel is the majority shareholder in Wataniya Telecom, which in turn owns 57 percent of Wataniya Palestine. In less than two years, Wataniya has grown to 415,000 subscribers in the West Bank; it’s preparing to expand to Gaza later this year.

PIF is also involved in a partnership to develop the Ersal Centre in downtown Al-Bireh, just outside Ramallah. The 220,000-square-meter, mixed-use project, to be completed in early 2015, involves total investment of $400 million and will include commercial and office buildings, residential units and a five-star luxury hotel. Among other things, Ersal Center’s four towers will house the headquarters of several leading Palestinian institutions including the Bank of Palestine, Al-Quds Bank, Amaar Group and Consolidated Contractors Company.

PIF has also established the Dead Sea and Al-Aghwar Al-Falasiniyah Development Co. to promote agriculture and tourism projects in the Jordan Valley and Dead Sea region, which is sparsely populated yet comprises 30 percent of the West Bank’s total land area.

The U.S. Overseas Private Investment Corp. provides half the funding, or about $241 million, for the PIF’s Affordable Mortgage and Loan Program (AMAL). Likewise, the Washington-based Middle East Investment Initiative (MEII), a nonprofit organization, owns 15 percent of AMAL. Both OPIC and AMAL support the PIF’s Loan Guarantee Program, as does the U.S. Agency for International Development, which provided $2 million for technical assistance.

In addition, AMAL’s program for affordable mortgages, launched in 2008, has overseen the partnering of 10 local and international organizations from both the private and public sectors to provide total funding of more than $500 million.

Other entities that provide financing are Bank of Palestine, Cairo-Amman Bank and the International Finance Corp. — the private-sector arm of the World Bank.

Asked if Palestinians have overextended themselves, possibly heating up the economy too fast for its own good, Mustafa said it all depends on how you look at it.

“As long as banks are willing to lend, that’s a good sign. Banks have always been conservative, but they’re sitting on billions of dollars of peoples’ money. We’re trying to encourage them to extend more credit,” he explained.

“It’s true that banks are lending more money to consumers to buy cars and electronic devices, but most of these people are government employees and their income is dependent on government’s ability to pay salaries. I think the banks are feeling comfortable enough to do it. For one thing, the returns are good, and secondly, there aren’t many opportunities for banks to lend money, given the limited investments that have been made in the country. Government employees are their best clients. And even if salaries are delayed for one or two months, they know from experience that the salaries will eventually be paid. So this is a calculated risk, if you will.”

Mustafa said the World Bank specifically praised PIF in its recent report governance in the West Bank and Gaza.

“First of all, the PIF is an independent organization. Its board of directors was appointed seven years ago — not today, not yesterday,” he said. “All of them are well-known, highly respected professionals. In fact, the World Bank, in its report on governance in the West Bank and Gaza, had very nice things to say about us.”

Moustafa proudly adds: “We’ve had auditors for the last 10 years, from Day One, and we continue to do so. Our annual reports are posted on our website for all to see, and they’re all inspected by our accountants. Our auditors are Deloitte + Touche; before that, it was PriceWaterhouse. We take every step possible to ensure full compliance with the law. This says a lot about our adherence to the highest standards of good governance.”

In late December, members of Congress voted to free up just over 20 percent of the $187 million in U.S. assistance to the Palestinians that had been frozen over Palestine’s bid last year for United Nations membership.

Some $40 million in economic and humanitarian aid has now been released, and the Obama administration is pressing Congress to unfreeze the remaining $147 million which comes from the last budget cycle.

“I think that was a wise thing to do, and I hope that in the future, there will be more explanation for members of Congress on the benefits of these programs and their importance to peace and stability in the region. Politics could change, and Congress could again tell the government not to do any projects with the Palestinian Authority. But we don’t see that happening in the near future,” said Mustafa.

“Our perception is that the U.S. still wants to maintain a good relationship with the Palestinians. I don’t think it’s the administration’s intention to take any measures against the Palestinians. Despite our difference of opinions, we all see the benefits of continued U.S. financial assistance. This money goes to development projects that improve our quality of life. Most of the money goes to American contractors and consultants anyway. Security is necessary for everybody including Israel and America, and we believe the [Obama] administration understands this.”

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