RETHINKING RISK

5 REASONS TO INVEST IN PALESTINE

Although there are some undeniable obstacles to economic development in Palestine, the chronic underinvestment in the economy has also left entry points and business opportunities for the private sector across the West Bank, East Jerusalem, and Gaza. A new and targeted focus on reliable infrastructure – critical for meaningful growth – will provide even more compelling investment options Palestine’s consumer-driven economy.

A productive and highly educated, yet affordable labor force

Low wages, high productivity

  • In Palestine, average wages are 77% lower than Israel, as well as being lower than regional neighbors Turkey and Jordan1; in 2015, the average daily wage in the West Bank was 94.1 NIS and in Gaza it was 61.9 NIS, compared with 198.9 NIS in Israel.2
  • Productivity is high by regional standards:

“What is impressive under the circumstances is that labor productivity of Palestinian firms is on par with comparator countries, while unit labor costs seem to be competitive within the region. At about USD 10,000 value added per worker annually, the labor productivity of Palestinian firms appears to be on par or nearly so with countries at a similar GDP rate. Indeed, labor productivity is higher than in Yemen, Egypt, and Tunisia in recent years.3

 

Highly educated workforce

  • With a 96.7% literacy rate – higher than Lebanon, Jordan, and Turkey, as well as China and India – the Palestinian population is among the most educated in the world.4
  • Home to 14 universities and more than 50 higher education institutions, Palestine outpaces many of its neighbors on tertiary education. Universities like Birzeit University and Al-Quds University are recognized as leading educational institutions in the Arab world.
  • More than 25% of young people (18-24 years of age) are enrolled in higher education programs, which is remarkable by international standards, and particularly impressive compared to the rest of the developing world.5
    • Moreover, the education programs are translating into practical skills. For example, Palestine produces over 2,500 new ICT graduates per year who have strong technical and English language skills.6 This helps provide solid business opportunities for software development companies; global companies like CISCO, Siemens, and Intel are already in the market, partnering with existing firms or opening local branches.

Available and highly motivated population

  • Across the West Bank and Gaza, unemployment remains high – 27.0% overall, and as high as 43.9% in Gaza.7
    • The highest unemployment rates are found in the growing youth population: one third of the 18-24 year olds) in the West Bank and two third of Gazan youth are unemployed.
    • Female unemployment is estimated at 38.5%.
  • Under-employment is also an issue: In the West Bank, 20.4% of wage employees in the private sector receive less than minimum monthly wage (1,450 NIS) – this figure is 70.7% in Gaza.8
  • Despite the lack of opportunity, people display striking motivation to contribute to the community. One in five Palestinian youth engages in volunteer work9, while many others continuously look for any available short-term opportunities.10

1.Radio Raya, 2016
2.Palestinian Central Bureau of Statistics, 2015
3.The World Bank, 2015
4. Palestinian Central Bureau of Statistics, 2015
5.European Commission, “Higher Education in the Occupied Palestinian Territory,” 2015 
6.Office of the Quartet, “Invest in Palestine,” 2016
7.ILO, 2015
8.Palestinian Central Bureau of Statistics, 2015
9.Walla.co, “Palestinian Youth: 40% Unemployed, Seven Out of Ten are Single,” August 15, 2016
10.Al-Monitor, “Thousands apply for short-term job program in Gaza,” July 26, 2016

A growing light industrial manufacturing platform

“Few countries…. have escaped poverty without putting a lot of workers through factory gates. Rick Rowden, a skeptical development pundit, says, “Apart from a few tax havens, there is no country that has attained a high standard of living on the basis of services alone.1

 

With a large, competitively priced labor force and the expanded development of core infrastructure, there is growing momentum to stimulate manufacturing as the core platform in Palestine for generating jobs at scale and reducing imports. Following the Asian development model pioneered by China, Singapore, and Malaysia, alongside the “Made in Africa” movement launched in Ethiopia and Rwanda, leading economists today believe that strengthening and emphasizing this industrial policy is a critical step to building strong economic foundations for Palestine.

 

Existing Industrial Parks
Under Law No. 10/1998, the Palestinian Authority has worked to incentivize investment in manufacturing by building industrial parks across the West Bank and Gaza that are up to international standards. These parks provide hard infrastructure needs for companies, including land plots for development, ready-made sheds for rental, and an uninterrupted power supply – critical enablers for Palestinian industry.

Three industrial parks are currently operational, with oversight from the Palestinian Industrial Estate and Free Zone Authority (PIEFZA):

The industrial zones also conveniently facilitate processes for newly established businesses, providing services such as:

  • One-stop-shops for administrative support
  • On-site customs offices to provide export support
  • Industrial sheds for long-term rentals or open lots for construction

Improving connective infrastructure
Strategically and centrally located, Palestine benefits from access to connective infrastructure that links it to the region and around the world, including:

  • Two major international airports: Ben Gurion Airport in Tel Aviv, Israel and the Queen Alia International Airport in Amman, Jordan
  • Three commercial ports: Haifa, Ashdod, and Aqaba
  • The Allenby (King Hussein) Bridge – including a freshly signed agreement regarding the transport of Palestinian products in containers directly across the bridge2 allowing for seamless exports to Jordan and the Gulf states3

Electricity and communications infrastructure is rapidly improving across the West Bank. With the recent agreement signed between the Palestinian Authority and the Government of Israel, 3G deployment in the West Bank is on track4, while much of Gaza benefits from a strong fiber optic cable providing fast internet.

 

High potential priority sectors: Agro-processing, Textile & Garments, and Agriculture

 Agro-Processing – Food and Beverage
The food and beverage industry is the largest and one of the fastest growing sectors of the economy. There is an established history of strong international partnerships in the sector, including with The Coca Cola Company. Currently, 89% of exported products go directly to Israel, which provides substantial growth and diversification potential for markets in the Middle East and Europe.

 

Textile and Garments
Palestine’s textile industry is the second largest industrial employer today, with almost 600 factories in the West Bank and over 700 factories in Gaza. Currently 80% of products go exclusively to Israel, leaving clear opportunities to diversify the export market.

 

Agriculture
Palestine’s year-round temperate climate, diverse terrain, and rich soil – similar to Israel – shows strong growth potential, particularly around high value crops; 81% of the land in the West Bank is currently devoted to low-value, low-yield crops. Much of this land can be reoriented towards green house technology with high value crops.

Improving business regulations and operational environment

Palestine also enjoys an established financial system, low corruption levels, strong law enforcement and governance when it comes to business regulation, and a clear framework in place to support foreign direct investment. In addition, Palestine benefits from the fact that Israel and Palestine are treated as a single market (custom zone); according to The Paris Protocol, the exchange of goods between the two parties occurs with no tariffs.

Palestine’s often overlooked, business-friendly environment includes:

  • Reliable movement for international visitors
    • Between Palestine and Israel: A single visa is issued upon arrival at Ben Gurion International Airport in Tel Aviv; Ramallah is a one-hour drive from the airport, with entrance/exit points open 24/
    • Between Palestine and Jordan: An Israeli visa is issued at the Jordan/Israel border with VIP services available at the border crossing; Ramallah is a two-hour drive from Queen Alia International Airport
  • One of the most robust banking sectors in the region (nearly 50 commercial banks, insurance corporations, and other credit institutions) and a capital market to provide access at a competitive cost
  • A stronger regulatory environment than many neighbors in the MENA region, including Egypt1
  • One central institution dedicated exclusively to Foreign Direct Investment – Palestinian Investment Promotion Agency (PIPA)
  • A strong legal framework to encourage investment, including the Law on the Encouragement of Investment in Palestine, which facilitates the growth of newly established businesses and includes key tax advantage elements, such as 100% income tax exemption for new companies for 5 years and varying income tax exemptions on investments from USD $100,000 to more than USD $5m.
  • Key initiatives for risk mitigation, led by U.S.-based Overseas Private Investment Corporation (OPIC)
  • More favorable ratings on the “control of corruption” scale than many regional economies, including Egypt, Lebanon, Tunisia, and Algeria, according to the index of global corruption-focused organization Transparency International

“[In Palestine], the low experience of corruption is a significant departure from other comparator countries in the region where informal payments are cited much more frequently. The evidence points to remarkably low levels of informal payments related to business dealings in the Palestinian territories, with only 7 percent of firms reporting having experienced a request from an official for a bribe.”2

 

  • While the World Bank presents mixed progress in its 2016 Doing Business report, since 2008 Palestine has improved in some critical soft infrastructure areas, including an overall improvement by 18 points between 2013 and 2015.

1.The World Bank, 2015
2.The World Bank, “West Bank and Gaza Investment Climate Assessment,” 2014

Untapped markets – both domestically and for export

A sophisticated domestic customer base

  • Palestinian consumers are cosmopolitan and sophisticated, with urban lifestyles and matching tastes for sophisticated consumer goods, including electronics and high-quality processed foods and beverages (frozen meals, organic products, “super-foods”, etc.…)
  • This market is vastly under-served domestically – even basic processed food products (dairy products, snacks, soft drinks) are imported from the region, particularly from Israel – despite higher costs of production outside of Palestine.

Opportunity to further develop exports to Israel

  • Israel is the #1 trade partner of Palestine, with exports to Israel representing 82% of Palestinian exports.
  • Under the unified customs envelope, Palestinian exports to Israel have continued to rise in recent years.1 With increased export diversification, company efficiencies and improved business practices, there could be even greater opportunities to increase this volume.2

Solid regional markets around a “Made in Palestine” brand

“Israel remains the destination for 82 percent of Palestinian goods exports (…). Although export diversification has been limited in value, the emergence and continued growth of some high-value sectors, such as pharmaceuticals, furniture, agribusiness products, information technology (IT) services, and call centers, points to the future potential in services and some high value added industry.”3

  • The Palestinian Authority has free trade agreements or other pro-trade arrangements with large regional markets (see here for a complete list), totaling more than 210 million people across Egypt, Turkey Saudi Arabia, and Jordan.
  • With low production costs and the strong regional value around a “Made in Palestine” brand, Palestinian companies can prevail in both standard and niche markets. Sweets, high quality/organic produce, date and date products, sesame and sesame products, soaps, and luxury beauty products are all examples of under-exploited markets.

Promising future opportunities for long distance exports (EU, North America, Russia)

Palestine also enjoys free trade agreements with the United States, Canada, the European Union (EU), the European Free Trade Association (EFTA), as well as ‘Most Favored Nation’ status with Russia, making future diversification opportunities possible. (See here for a full list of current international agreements.)

 

1.Al-Monitor, “Palestinian exports to Israel on the rise,” June 24, 2014.
2.The Portland Trust, Palestinian Exports: Best Practices
3.The World Bank

A highly livable environment for the international business community

Palestine provides a high standard of living for the visiting and expatriate international business community. Expatriates can commute between Palestine and Israel, making Palestine an ideal low-cost production site that can still allow international staff a high quality of life.

These include:

 

  • World class options for leisure activities; proximity to Tel Aviv and Jerusalem, some of the world’s most vibrant and culturally exciting cities; and 11 UNESCO World Heritage Sites within a 3-hour drive
  • Palestine’s higher ranking than most of its Mediterranean neighbors – including Israel, Egypt, Lebanon, and Turkey1; – in the New Economic Foundation’s Happy Planet Index
  • Reliable movement for foreigners between Israel and the West Bank through a variety of entry/exit points open 24/7; many expatriates commute daily between the two
  • Diversity of high quality international school options in both the West Bank and Israel
  • Relatively low crime rates – on par with neighboring large cities, including Tel Aviv2
  • World class medical services in Israel (including medical staff trained in USA and Europe)

1. Happy Planet Index
2. OSAC, Jerusalem, West Bank, and the Gaza Strip Crime and Safety Report, 2016