West Bank Businesses Seek Growth Amid Uncertainty

May 22, 2013
Originally published on May 26, 2013 8:27 am

U.S. Secretary of State John Kerry heads back to Israel and the West Bank on Thursday for more talks on restarting peace negotiations between Israelis and Palestinians. When he was there last month, he walked away with at least one agreement — to improve the West Bank economy. Here's how he put it as he left Israel:

"We agreed among us — President Abbas, Prime Minister Netanyahu and ourselves — that we are going to engage in new efforts, very specific efforts, to promote economic development and to remove some of the bottlenecks and barriers that exist with respect to commerce in the West Bank, to move very rapidly toward increased business expansion and private sector investment in the West Bank."

This wasn't designed to replace the political track, Kerry emphasized, but to complement it.

No more details have been publicized. But if Kerry really can succeed in removing "bottlenecks and barriers," some businesspeople in the West Bank say that might go further than cash.

Take stonecutting. So-called Jerusalem stone is famous around the world. Both Israeli and Palestinian companies extract and export it. But West Bank quarries are in an area where Israel, as agreed to in the Oslo Accords, controls permits for any activity on the land.

Ahmed Thwabta, who owns a stone factory in Beit Fajjar, by Bethlehem, says sometimes Israeli soldiers confiscate his workers' tools. Sometimes they deny access to the mine.

"We work according to the Israeli mood," he says. "If the political situation is good, then we are OK. If the political situation is bad, then they come and pick on us and fine us."

That unpredictability hampers all kinds of businesses. Farmers wanting to sell their produce in Jerusalem can't always be sure a crossing will be open in time to keep strawberries, for example, from spoiling. Shoemakers can't guarantee shipments. Even the small-but-growing IT sector faces obstacles.

"For example, Palestine cannot have 3G or 4G because the Israeli authorities are preventing them from accessing these frequencies," says Saed Nashef, a Palestinian-American venture capitalist running a fund with nearly $30 million to invest in Palestinian tech companies.

He also says Israel could make it much easier for people from abroad to come work here.

"It's difficult to bring an expert or senior-level manager to hire in a startup," he says.

Israel says any obstacles it puts in place are for security.

"I know that the crossing points are an obstacle," says Col. Grisha Yakubovich, the head of the Civil Coordination Department of COGAT, the Coordination of Government Activities in the Territories.

COGAT oversees a lot — including mining permits, commercial crossings and travel permits for Palestinian workers seeking employment in Israel or in Israeli settlements in the West Bank.

Yakubovich repeats two points frequently: First, that Israel puts security first. He mentions a 2004 attack on an Israeli port after two suicide bombers hid in a commercial container to leave the West Bank. Second, that COGAT is working to support the Palestinian Authority. Yakubovich says Israel can't find takers to fill all of the permits allowed for Palestinians to work in Israel.

Given logistical obstacles, high unemployment and no clear light at the end of the political tunnel, the International Monetary Fund is predicting that growth in Palestinian areas will drop by half over the next three years. The head of the IMF office here, Udo Kock, says another major problem is that the Palestinian Authority depends on international donors for a quarter of its budget. Recently, those contributions have been inconsistent, which means the Palestinian Authority can't pay its bills.

"There are three main elements that are needed to get the private sector going," Kock says. "One is a relaxation of restrictions — broad-based, all sectors. This is very important. Second is for donors to continue to provide assistance, and to do it in a predictable way. And there is a responsibility on the Palestinian side, of course. The PA has to start working on reforms."

Businessman Rami El-Zogheir says all he needs are assurances that the political situation will at least stay the same, if not improve. His company makes high-end shoes by hand, and business has been booming; during the past three years of relative calm here, Golf & Horse Footwear has tripled the number of pairs it makes.

"I would like to invest more money," Zogheir says. "And I have a good chance to expand into other Arab markets. But I can't guarantee the situation here."

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Secretary of State John Kerry is back in the Middle East. Tomorrow, he meets separately with Israeli and Palestinian leaders, hoping to reignite long-stalled peace negotiations. When he was in the region last month, Kerry said he's working on plans to attract major investments to the Israeli-occupied West Bank. He hopes that will help political discussions move along. But as NPR's Emily Harris has learned, the West Bank economy is all tied up in politics.


EMILY HARRIS, BYLINE: Under open sheds on the outskirts of a Palestinian village in the West Bank, dozens of men chisel stone slabs by hand. Extracting the white rock known around the world as Jerusalem stone is an important business here. This family company employs 60 people and brings in revenue of around $2 million dollars a year, says owner Ahmed Thwabta. But because his quarry is in a West Bank area where Israel controls industrial permits, business is unpredictable.

AHMED THWABTA: (Through translator) We work according to the Israeli mood. If the political situation is good, then we are OK. If the political situation is bad, then they come and pick on us and fine us.

HARRIS: The more modern end of the Palestinian economic spectrum also depends on Israel. Saed Nashef runs a venture capital firm with almost $30 million to invest in information technology in Palestinian areas. He says IT companies in the West Bank have more flexibility than traditional businesses. They don't need mining permits, for example. But, he said, there are obstacles.

SAED NASHEF: For example, Palestine cannot have 3G and cannot have 4G, because the Israeli authorities are preventing them from accessing these frequencies.

HARRIS: Some big multinationals have money in the IT sector here. Cisco's Israel office, for example, outsources work to 40 Palestinian engineers. But for face-to-face meetings, permits to leave the West Bank can take a week or longer. Palestinian goods manufactured in the West Bank have to be transferred to Israeli trucks to leave the occupied area.

COL. GRISHA YAKUBOVICH: I know that the crossing points are an obstacle.

HARRIS: Colonel Grisha Yakubovich heads the Israeli office that oversees all non-military activities in the West Bank. He says these obstacles help security. He recalls an attack in Israel nine years ago after two suicide bombers left the West Bank hidden in a commercial container.

YAKUBOVICH: Terrorists that killed 11 people at Ashdod Port using those civilian platform of economy, of trucks, of open gates. So there are those security measures that we were forced, we were forced to build.

HARRIS: Economic challenges in the West Bank aren't only due to Israeli rules. Twenty-five percent of the operating budget of the government - the Palestinian Authority - is covered by other countries, international donors. Udo Kock heads the International Monetary Fund office here. He says in the past couple of years, donations have become unpredictable. That means the Palestinian Authority has had trouble paying salaries, and bills.

UDO KOCK: And it's come to a point where now the private sector, some of them, are reluctant to provide services to the PA, because they're not getting paid. Then this private sector, of course, is reluctant to pay taxes that are due to the Palestinian Authority, and you get into a circle that's very harmful for the economy.

HARRIS: Right now, the IMF predicts growth will drop by half here in the next three years. But Rami El-Zogheir says he could grow his business: high-quality, hand-made shoes.

His factory in Hebron has tripled output over the past three years, and he's ready to expand into other Arab markets. The problem, Zogheir says, isn't money. It's politics.

RAMI EL-ZOHEIR: I would like to invest more money. But I can't guarantee the situation here. I'm afraid for tomorrow.

HARRIS: Afraid violence might flare up again, and afraid any promised new outside investment - if it materializes - could not overcome existing obstacles. Emily Harris, NPR News.

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