Doing Business In Palestine: Bribes, Corruption, Red Tape Are Fading Away, Claim Palestinian Businessmen Who Are Investing In A Region Still Seeking Peace

 @MayaErgas on March 22 2013 9:43 PM
Palestinian economy
A Palestinian man sits under an electronic board displaying currency-exchange rates at the Housing Bank for Trade and Finance in the West Bank city of Ramallah on Jan. 22. A central bank in the making, the Palestine Monetary Authority, or PMA, is a rare bright spot as the economy of the Palestinian territories struggles with Israeli sanctions. Enforcing on Palestinian banks a regimen of conservative lending that has kept bad loans minimal and guaranteed liquidity, the PMA's technocratic prowess is the pinnacle of a Palestinian drive to build institutions fit for a future state. Reuters/Mohamad Torokman

“I haven’t bribed anyone in the last 15 years,” said Zahi Khouri, a Palestinian-American businessman best known for founding the Palestinian National Beverage Co. in 1995 and bringing Coca-Cola to the Palestinian territories.

And with that simple phrase, he dismissed one of the main concerns Western investors have about working in the Arab world: that it’s a corrupt place, where the cost of doing business includes payoffs to local officials and stifling amounts of red tape that only a well-placed sum of money can make disappear.

“Corruption is a nonissue” in the Palestinian territories, said Khouri, 75, who also helped establish the Palestinian Development and Investment Co. (Padico), the territories' largest investment company, on whose board he currently sits.

Palestine may very well be a friendlier place to work than its reputation would suggest. Not so long ago, there were very few people chomping at the bit to invest there.

“There was a period, this was the old years of the Palestinian Authority, the years of chaotic situations,” said Bashar Masri, 52, another Palestinian-American who is the CEO of Masser International, a Palestinian investment and real-estate company. “But since 2006 or ’07, with the president and prime minister focusing big-time on internal security, corruption has gotten limited to normal levels.”

Masri added: “I’m dealing with largest project ever in history of Palestine [the $1 billion planned city of Rawabi], and I haven’t had anyone ask for any ‘benefits.’ Maybe some people try to delay things, but I did not offer, and they did not ask.”

“For the most part, you deal with local restrictions that are [the] old-fashioned bureaucracy of an Arab-style government that’s not mature yet,” said Sam Bahour, 48, a Palestinian-American who chose to move to the West Bank with his family in the 1990s. Bahour is one of the founders of the Palestinian Telecommunication Group (PalTel), the largest private-sector company in the territories. But, he said, “We can work through that, and it’s improving.”

According to Khouri, the West Bank is even more efficient than some actual countries (the Gaza Strip, with its overcrowding and crumbling, war-torn infrastucture, is a different story). “I’ve worked on four continents, and, in terms of bureaucracy, getting permits, tax incentives, I would rate Palestine Number One,” he said. “They have the basic philosophy of a free economy and encouragement of the private sector.”

“You could set up company and be operational within 48 hours,” Masri said. “I’ve worked in a number of countries, and this is one of the easiest. And it’s to make up for high risk due to the political situation.”

Despite this purported ease of doing business, if tomorrow everybody around the globe were to wake up and see a country on the map called Palestine, they would be looking at a country with one of the worst economies in the world.

This long-sought “sovereign Palestinian state with East Jerusalem as its capital, living side by side in peace with Israel,” as Palestinian Authority President Mahmoud Abbas described his vision for Palestine before the United Nations General Assembly last Nov. 29, would have a gross domestic product ranked 155th in the world, an unemployment rate of 23 percent, and a government heavily dependent on foreign aid and unable to afford its employees’ salaries.

A major obstacle to achieving a faster growth rate are the disruptions to labor and trade flows due to Israel controlling the West Bank’s borders, according to the CIA World Factbook. Several prominent businessmen in the West Bank cite potential Israeli obstacles as one of the major reasons foreign investors have historically shied away from the West Bank.

“[For Israel] to give a foreigner a work permit, it would be like trying to get an elephant through a needle’s hole,” said Khouri.

He added: “We don’t get a lot of investors because of the political situation. It doesn’t matter how much good will [there is]. As long as we have [the Israeli] occupation, it’s going to be difficult to grow.”

“I don’t know of any new people, but there have been some,” Masri said. “In the last two years, there’ve been at least one to three American investors and one to three from the [Persian] Gulf. People are not lined up. The perception is that bullets are flying around. We look like a troubled place.”

Nadim Khoury, 52, a co-founder of the Taybeh Brewing Co. in Ramallah, also cited the political situation as a major investment hurdle. “It’s been risky for the past 18 years since I came back,” Khoury said. He, his brother David, and his father Canaan founded the company in 1994 following the signing of the Oslo Peace Accords with Israel. Their beer-brewing facility, the first of its kind in the territories, currently employs 15 people, all Palestinian.

Businessmen such as Masri, Khouri, and the Khourys (no relation) aren’t content to sit on their hands waiting for a political solution to the Israeli-Palestinian conflict. Khoury, who was educated in the U.S. at the University of California at Davis, said that the economy has gotten better “for sure”  since he returned to the West Bank in 1994, due mostly to efforts in the private sector.

All the businessmen interviewed spoke of a desire to invigorate the Palestinian economy, and thereby jump-start the Palestinian state. “It’s our way of contributing to ending the occupation by keeping Palestinians occupied in jobs,” Bahour said. “Everyone here is convinced that occupation is going to come to an end. Like any private-sector person with American values, we’re trying to be ahead of the curve, we’re trying to create an economic foundation, not now under occupation, but to be prepared for when political change happens.”

Nadim Khoury said he was extremely proud of Taybeh when they launched it: “This is how I believe the state can be built, to bring people back to invest in their own company. This will guarantee permanent aid for Palestine.”

Areas of potential for the Palestinian economy are tourism, agriculture and information technology, the businessmen said. But all of those, they said, require an end to Israel’s presence in the West Bank. “You go to Bethlehem, you go to Jerusalem, you can spend an hour at checkpoints,” Khouri said. These inconveniences keep the potential for religious tourists away. “There is enormous investment opportunity,” he noted, “but it depends on accessibility.”

“Sixty-two percent of the West Bank is classified as Area C, which is in full Israeli control” under the Oslo accords, Bahour said, thus making farming extremely difficult. Also difficult for Bahour and PalTel are the restrictions on 3G cell service. “In telecommunications, any frequencies that we need to operate here are occupied, just like the land is occupied,” he said, “and it’s the Israelis that have the unilateral decision if they want to give us any spectrum.”

Bahour noted, “We’d like to introduce 3G services [to Palestinians] like the rest of the world, and Israel is refusing to release the 3G frequency.”

Is there, perhaps, a concern on the part of the Israelis that terrorists in the West Bank might start using the 3G for nefarious purposes?

“They’re releasing it to the Israeli operators in the settlements,” Bahour said. “If I want a 3G signal, I can pick it up from an Israeli operator, so there’s no real security.”

Bahour echoed the sentiments of many Palestinians when he said the future was in the hands of the U.S. “I feel the U.S. has to make the next move,” he said. “There’s no other country that can influence Israel to do the right thing. There’s a lot of hope that [President Barack] Obama, if he can encourage them to release economic resources, then he will do it. Otherwise, there will be further diminishing of hope.”

“It is true today that the Palestinian economy is struggling,” said Masri. “But, for the private sector, it remains pretty good. There’s slow growth, but there has been growth. Companies have done fairly well despite the political situation. That’s because of the resilience of the private sector and people’s willingness to take risks.”

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