Washington Report on Middle East Affairs, April 1998, Pages 80, 124

Trade and Finance

Not All the News From Palestine Is Bad These Days

By Colin MacKinnon

Surprise: despite the breakdown in the “peace process”—if it makes sense to use that term anymore—not all the news out of Palestine is bad, even in the sometimes discouraging realm of economics. Let’s accentuate the positive and take a look at some of the good news.

First-Ever Development Plan

The Palestinian National Authority (PNA) has announced the first-ever Palestinian Development Plan. The Plan covers the years 1998 through 2000 and in working it up the PNA has taken a remarkable first step toward doing its own long-range planning and management. Announcement of the Plan followed extensive consultations and consensus-building among various institutions of the PNA, which is beginning to look more and more like a real government.

The Plan aims at making Gaza and the West Bank more independent of Israel and the Israeli economy. It calls for an investment of $3.5 billion over its three-year term. Most of this will go to continue and expand current projects, though new ones will be launched as well. The plan proposes spending $1.353 billion on infrastructure, $580 million on human resources and social development, $520 million on agriculture, manufacturing and tourism, and $278 million on institution building.

For funding, the Plan relies on donor commitments already made but not yet disbursed and further international aid to be solicited later in 1998. When the Plan was presented to the Consultative Group, a body that represents international donors, in Paris in mid-December, donors supported it strongly and pledged $750 million for Plan projects in 1998.

The Plan faces serious problems, however. As PNA Minister of Planning Nabil Sha’ath told the London daily Financial Times, since Israel controls almost the whole of the West Bank and 30 percent or so of Gaza, any infrastructure projects undertaken by the PNA will need a green light from the Netanyahu government. Look for the development process to get bogged down by Israeli harassment.

Furthermore, the Palestinian private sector, whose participation is crucial to the Plan, may be wary of getting involved in some of the projects: Israeli measures, particularly closures, could conceivably disrupt projects such as border industrial estates.

Closures, by the way, have been enormously expensive. The World Bank estimates that they cost the West Bank-Gaza Strip (WBGS) economy at least $2.8 billion in 1994-1996, almost double the $1.5 billion disbursed by donors during the same period and over three times the total of local productive expenditures in that period.

So, though the Plan is an auspicious start, keep your fingers crossed.

International Donors Come Through

International donors such as the Holst Fund are coming through, as well. The Fund, more fully known as the Johan Jurgen Holst Peace Fund, is named after the late Norwegian foreign minister who brokered the secret Israeli-Palestinian negotiations that led up to the 1993 Oslo agreement.

The Holst Fund supports the day-to-day costs of running the PNA, which Palestinian tax receipts still don’t fully cover. Since the PNA would stop functioning if it couldn’t pay its salaries and its other administrative costs, the Fund has been a lifesaver for Palestinian self-rule. The Fund also has financed emergency employment of thousands of Palestinians thrown out of work during the border closures of recent years.

The Fund, however, has always been short of money, forcing Norway and the World Bank, which administers the Fund, to beat the bushes for contributions.

Nevertheless, as of early January 1998, some 26 countries had pledged $265.6 million to the Fund, enough to keep it and the PNA solvent. Of these pledges, the Bank has actually received $261.6 million. The largest donors are the U.S., Kuwait, Saudi Arabia, the Netherlands, Norway and the UAE. Donors have agreed to keep the Fund operating through June of this year, at which point the PNA should be able to go it alone administratively.

Other Success Stories

 As of December 1997, the World Bank Group had approved 17 development projects. Ten are underway now, with costs totaling at least $310.9 million in World Bank loans and co-financing (that is, financing from sources other than the Bank). Projects range from constructing schools and roads to improving water and wastewater treatment. Altogether they are making a major impact on the WBGS. Thanks to one Bank project, for example, all water supplies in Gaza are now reliably chlorinated.

Another seven projects—an industrial estate in Gaza, sanitation in the southern West Bank, rehabilitation of the power distribution network in the central and southern West Bank, among others—haven’t been costed out yet, but are in the pipeline and will be funded and launched.

 The Technical Assistance Trust Fund (TATF) continues to do good work. TATF finances technical assistance, particularly to develop Palestinian technical and administrative infrastructures. According to the World Bank, TATF, as of Dec. 3, 1997, had contracted a total of 42 studies or technical assistance assignments and 15 design or supervision assignments. Thanks partly to TATF’s work, the responsibility for implementing projects is beginning to shift from PECDAR—short for Palestinian Economic Council for Development and Reconstruction—down to real Palestinian ministries and agencies, whose skills are improving.

PECDAR is something of a success story itself. It was created by PNA decree in October 1993 as a centralized institution for managing development in the WBGS during what was hoped would be a relatively brief transition period. Starting with three staff members in a room in the Seven Arches Hotel, PECDAR now employs 200 engineers and handles construction projects totaling hundreds of millions of dollars.

The International Finance Corporation, a small but innovative corner of the World Bank that promotes private-sector development, is at work as well. The IFC spends far less money than the main organ of the Bank, but has a strategic importance larger than its budget might imply.

In the WBGS the IFC is trying to develop a modern legal framework for business— badly needed are new laws covering capital markets, insurance, securities, mortgages, and taxation. Developing such laws doesn’t cost a lot, but is key to fostering an up-to-date private sector. Other IFC projects include putting in seed money to expand the Pharmacare Ltd. pharmaceutical company in Ramallah, upgrade the Nabahin Industry and Trading Company’s tire plant in Gaza (which makes retreads with the durability and quality of new tires but up to 60 percent more cheaply), and expand the Arab Concrete Products Company’s concrete plant in Nablus.

Free Trade Agreements, Good Fiscal Performance

The PNA has also negotiated free-trade agreements with Egypt and Jordan and a preferential access agreement with the European Union. In 1996 the PNA signed a preferential treatment and duty-free access treaty with the U.S. A free-trade agreement with Canada is in the works.

One other positive point: the PNA’s fiscal performance has been good. The PNA recorded surpluses in the first and third quarters of last year (only the first three quarters have been reported). The PNA’s budget deficit for 1997 should turn out to be around $50 million or less, below the level predicted at the beginning of the year and in spite of the Israeli border closures of last summer. One reason for the low deficit is that tax collection has been strong, about $51 to $54 million per quarter in 1997.

But Negatives Are Still There

Lest we forget, though: Since the Oslo accord was signed Palestinian real per capita income has fallen by one-quarter. Base unemployment has risen from 10 percent to well over 20 percent (50 percent when the borders are sealed). One-quarter of Palestinians in the WBGS live in poverty (in Gaza the figure is one-third).

Also lest we forget: World Bank and other projects are making the impact they do because infrastructure in the WBGS was allowed to deteriorate so woefully. Examples (as reported by the World Bank): the WBGS has 13 kW power generating capacity per hundred people compared with 25 kW in Jordan and 21 kW in Egypt; in the WGBS only 25 percent of households have sanitation, compared to close to 100 percent in Jordan and 50 percent in Egypt; there are 3.1 telephones per 100 persons in the WBGS, compared with 7 in Jordan and 4.3 in Egypt.

For the deterioration in WBGS infrastructure we can thank the Israeli occupation that began in 1967 and seems never-ending. The Israelis, to put it mildly, had their own agenda, which did not include fostering a Palestinian economy. (It still doesn’t.)

Now, though, with international donor help and despite all the obstacles, including the breakdown in the Oslo accords, development in the WBGS manages to proceed.

And that’s good news.