Palestine no longer a safe environment for investments

Economic indicators show an increase in Palestinian investment outside Palestine, stirring fears about the Palestinian economy.

al-monitor Palestinian entrepreneurs work in Gaza City, Gaza, June 13, 2019. Photo by REUTERS/Mohammed Salem.

Oct 8, 2019

The Palestinian Central Bureau of Statistics and the Palestinian Monetary Authority announced in a joint report published Sept. 29 an increase in Palestinian investment abroad while foreign investment in Palestine remained stable.

The report said that the net difference between external assets and foreign liabilities for Palestine at the end of the second quarter was $1.9 billion, an increase of 11% over the previous quarter, showing "that the Palestinian economy’s investments outside Palestine outweigh investments in Palestine from abroad." The external assets for the Palestinian economy were $7.26 billion at the end of the second quarter, while foreign investment in Palestine totaled $5.33 billion.

This has stirred questions about why there has been an apparent drain of Palestinian investment capital outside the Palestinian territories. Does this mean that the Palestinian environment has become anathema for these investments? What are the countries where Palestinians are investing? Are they investing in real estate, commerce or finance? What are the countries investing in Palestine, and what are the West Bank and Gaza’s shares of these investments?

A Palestinian official at the Ministry of Economy, who spoke on condition of anonymity, told Al-Monitor that the increase in Palestinian investment abroad is normal amid the instability of the Palestinian political and security situation. “This is despite the incentives offered to investors such as tax exemption and administrative facilities. The political circumstances remain beyond our control. The Palestinian investor fears losing his money in the event of major security developments. This drives him to invest in a safer environment. This is sad but true. Palestinians ought to invest in their homeland and not abroad.”

It could be said that the increase in Palestinian investment abroad shows the shattered Palestinian economic reality.

Political and security developments in Palestine have helped create a poor environment for domestic investment and a serious obstacle for an increase in foreign investment in the Palestinian territories.

A number of factors push the Palestinian investor to transfer his investment capital abroad. These mainly include the Palestinian territories’ complicated situation, staggering tax bills, custom duties and fees, a lack of support for the private sector and a lack of protection and support by the PA for local investment.

Nasr Abdel Karim, an economics and finance professor at the Arab American University in the West Bank, told Al-Monitor, “These worrisome indicators should motivate the PA to attract foreign Palestinian investment by issuing legislation favoring and facilitating investments, accelerating company registration procedures and mitigating investment risks. Investors seek climates that can increase their capital, not the contrary. We cannot ask investors to stay inside Palestine and inject their capital into investment projects while the country is not experiencing normal circumstances.”

Investors' search for diversification of their sources of investment outside their countries is a well-known global phenomenon. But in the Palestinian case, this flight of investment capital is a clear materialization of the negative volatile and unstable political and security conditions affecting all Palestinians, including investors.

Capital holders seek profits while the Palestinian economy is in recession. Add to this the absence of an investment marketing environment between the Gaza Strip and the West Bank.

Meanwhile, Israel is essentially curtailing Palestinian investment projects by banning the entry of raw materials into the Palestinian territories, allowing the entry of only certain manufacturing tools and impeding exports and imports between and to Gaza and the West Bank.

Atef Adwan, a Hamas leader and head of the Economic Committee in the Palestinian Legislative Council, told Al-Monitor that Palestinian investors in Palestine are ailing as the Palestinian political environment goes from bad to worse day by day, whether due to Israel’s measures or the Palestinian internal division.

He blamed the flight of investment capital outside Palestine on “the poor political, security and economic performance by the PA. … Investors in Palestine are often subject to direct and indirect royalties. They face encumbering and onerous routine bureaucratic procedures imposed by the ministries. What’s more, some Palestinian security services intervene in the work of some of these investors, making them vulnerable to extortion amid the lack of any legal protection.”

While the PA seeks to encourage foreign investors to inject their capital into the Palestinian territories, it has failed to strengthen the resilience of Palestinian investors. The PA needs to adopt policies to protect these foreign investors.

Palestinian domestic investment is concentrated in the commercial and real estate sectors. It is rather limited in the productive and industrial sectors due to the lack of internal protection, Israeli obstacles, the absence of Palestinian control over the crossings and ports and the difficulty of transferring funds between Palestinian banks, as they are subject to Palestinian-Israeli supervision.

Mohammad Abu Jiab, editor-in-chief of Al-Eqtesadia newspaper in Gaza, told Al-Monitor, “Rampant corruption in the PA is one of the main reasons for the failure of domestic investments, in addition to the political and security complications in the Palestinian territories. Palestinian domestic investments are migrating to Jordan, Egypt, Turkey and Latin American and are mainly concentrated in the industrial, commercial and real estate sectors.”

He added, “Meanwhile, Arab investments in Palestine, particularly in the West Bank, come from Saudi Arabia, the United Arab Emirates and Jordan, in addition to some foreign investments in the financial and service sectors. Investments are almost nonexistent in Gaza because of Hamas' control,” he added.

The recent figures on the flight of investment capital show the need for a comprehensive review of the Paris Economic Agreement between the PA and Israel. This agreement restricts investments and prevents the establishment of a suitable environment to attract investments to the Palestinian economy, especially in sectors with major manpower and production cycles.

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