The Palestinian Authority's Business Climate
PADICO, a consortium of Palestinian businessmen, and Samed, a PLO-owned business conglomerate have invested US$ 2 million in the Palestine Securities Exchange (PSE), which opened in Nablus in late-February 1997. The Exchange is a private Palestinian company owned by the Palestinian private sector (70 percent), the PA (20 percent) and public share holding companies (10 percent). Shares are listed in Egyptian pounds, Jordanian dinars, or Israeli shekels.
At the opening, 21 Palestinian public holding companies obtained quotation on the PSE. In June 1997, the number had dropped to 13. As of July 1999, 20 companies were trading on the exchange. An average of six firms trade actively during the PSE's three weekly sessions on Mondays, Tuesdays, and Wednesdays.
To obtain a quotation, a company should be a public share holding company with a capital of at least US$ 750,000, at least 250 shareholders and at least 25 percent of the shares should be owned by the public. Most importantly, the publicly traded companies must disclose its assets and gains or losses. Generally, public share holding companies in the PA are not required by law to be quoted on the stock market and, thus, do not have to disclose their finances. So far, this has prevented many of Palestine's existing public share holding companies, a substantial number of which are believed to fulfill the current requirements, to apply for a quotation. This situation, however, might change as Jordan, who until recently followed the same rule, made it now obligatory for its public share holding companies to be quoted.
From 1994-1998, donors committed $3.821 billion and disbursed $2.639 billion in aid to the Palestinian Authority and Palestinian non-governmental organizations. Of this total, some $1.56 billion went to public investment projects by September 1998. On November 30, 1998, the international donor community pledged another $3.3 billion over five years to support Palestinian development efforts.
Although domestic revenues have risen recently, the economy remains heavily dependent on foreign aid, with donors financing the entire capital budget and pledging $700 million in grants, soft loans and guarantees for 1999. On a recent visit to Jerusalem, Kemal Dervis, World Bank vice-president for the Middle East & North Africa, advised the Palestinians not to become too dependent on foreign aid. Dervis warned that aid would start to decline after the next two-three years. Any real move toward Palestinian self-sufficiency requires a change in the political and security situation that would encourage higher private inflows and allow greater freedom of movement for Palestinian goods.
A report by the United Nations Representative Office in the Palestinian Authority revealed that the total aid provided by donor countries to the Palestinian Authority in 1998 amounted to $399.8 million. This reflected a 27.4% fall compared to 1997, during which donor countries' aid equaled $550.6 million. Through September 1999, the PA had received $174 million out of the $524 million pledged. The perceived high levels of corruption throughout Palestinian institutions may threaten future streams of foreign donor aid.
Build Operate Transfer
New developments in areas such as power generation and telecommunications are planned as build-operate-transfer (BOT) operations. If the interest of foreign investors is to be secured, however, it will require a concerted effort from the sponsors of the peace process to receive guarantees from Israel that contractors will be able to secure permission for their equipment and staff.
Because the Palestinian Authority offers only a relatively small local population, the best franchising potential exists in sectors where specific dietary, language or usage patterns differ from those in neighboring countries. For example, food and computer items and office supplies may be best marketed in the West Bank and Gaza with Arabic markings, rather than using Hebrew as required inside Israel.
The fast food business is booming in Israel, and Palestinians enjoy eating American hamburgers, pizza and other popular food items. Fast-food franchises may want to consider lowering the cost of fast foods as a first step to entering the Palestinian market. Opportunities exist for pizza, ice cream, and competitively priced hamburger and chicken meals.
Western consumer brands ranging from household cleaning items to snack foods have an excellent reputation in the West Bank and Gaza. Palestinians are willing to pay for good quality and internationally recognized names. In addition, good opportunities exist for snack foods, cereals, sauces and other foods which do not need refrigeration during transit.
Sales of office products and supplies offer an excellent opportunity as the Palestinian Authority and Palestinian municipalities expand operations and as local businesses grow. Most Palestinian businesses and official offices currently purchase their supplies through office supply stores in Tel Aviv.
Automotive supplies, hardware parts and service equipment offer good sales opportunities. Extensive construction and a likely increase in Palestinian auto sales over the next five years will spur a need for a wide range of automotive parts and equipment. Of particular interest to the local market are refurbished engines and parts and good quality automotive items such as motor oil.
Franchising and distributorships are becoming increasingly popular, with the best prospects in hardware, computers, electronics and office equipment, fast food, amusement and theme-parks, and small business services such as copying and printing.
While a number of Arab banks have already established offices in the West Bank and Gaza, the financial services market remains relatively undeveloped. Correspondent and other international banking relationships are developing. Some observers believe that areas under Palestinian Authority control for banking services will show strong growth in offshore banking facilities, due to the fact that the Palestinian Authority allows holding foreign currency accounts.
© 2000 Mena Report (www.menareport.com)