Mel Frykberg reports from the occupied territories

Hope on the horizon: Mel Frykberg reports from the occupied territories

Mel Frykberg

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CERTAIN PALESTINIAN BUSINESS sectors IN THE WEST BANK HAVE STARTED TO SLOWLY recover. “I believe the country is on the right track and I feel very optimistic for the future,” Bassim Khoury, chairman of the Palestinian Federation of Industries in Ramallah, and general manager of Pharmacare PLC, the third largest Palestinian pharmaceutical company, told The Middle East.

Khoury’s company Pharmacare, together with its German business partner, Grunenthal, based in Aachen, have managed to break into the highly regulated and lucrative German pharmaceutical market, which could be a precursor for moving into the European Union markets.

“Selling to the unregulated markets of Kazakhstan or to Yemen is one thing. But breaking into the regulated European markets with their high standards, high production and labour costs, is something we have been working towards for the last three years by upgrading human resources, our machinery, equipment and factories amongst other things,” said Khoury.

The international pharmaceutical market is estimated to have a turnover of $600bn annually. The regulated markets of Europe, the US, Canada, Japan and Australia, together constitute more than 85% of the pharmaceutical market while their populations are only about 25% of the world’s population, said Khoury as he explained how significant the breakthrough is.

The pharmaceutical industry in the West Bank, which produces a wide variety of products ranging from antibiotics to painkillers, has the largest share of the domestic market at 55%.

Ironically, Khoury attributes the success of the pharmaceutical industry both domestically and internationally to the Israeli occupation.

“Indirectly we have Israel to thank for this. While they were controlling this sector during the years of full control and occupation of the West Bank they made it deliberately tough for Palestinian goods to compete with Israeli goods,” said Khoury.

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“The Israelis unintentionally accomplished this by implementing a tough quality inspection system during the first Intifada, before they would allow goods to be sold in the local West Bank and Gaza markets. Simultaneously, they allowed Israeli products into the Territories with no controls or equivalent standards, thus forcing Palestinian companies to invest in quality.” Currently Pharmacare’s export markets are the former countries of the Soviet Union and a number of Middle Eastern countries.

Fayyad’s economic reform has also included the implementation of generous tax cuts to businesses from 20% down to 15%, making it easier for them to compete internationally. This meant a tax refund of $56,000 for Pharmacare. The tax reform initiative was originally drawn up in the last days of the government of former Palestinian Prime Minister Ahmed Qurei (Abu Ala) but was never implemented due to the inexperience of the governments that came after.

According to Khoury, the strongest industry in Palestine is the stone and marble industry which constitutes 60% of all industry for both exports and domestic consumption. There has also been a strong revival in the garments industry in the last six months in addition to niche products for the Israeli and international markets seeing a rise in sales. Total industrial output from the Palestinian Territories is about $1.7bn dollars with exports amounting to approximately $600m annually, 80% of which is destined for Israeli markets or international markets through Israeli middlemen.

While the economic upturn for certain West Bank industries appears to offer some light at the end of the tunnel this is dependent to a large degree on Israel easing its draconian policy of movement and access restrictions. Meanwhile, the economic situation in Gaza continues to be cataclysmic.

The World Bank in its December report stated bluntly that unless the Israelis eased their draconian policy of restrictions on movement and access in both the West Bank and Gaza “even with full funding but no relaxation in the closure regime on Palestinians, growth would be slightly negative and the already high and growing poverty levels would rise dramatically.

“The best-case scenario would be at best the downward cycle of crisis and dependence,” added the report. Oxfam International, too, voiced its concerns by saying aid to the Palestinians would not help unless Israel eased the travel restrictions that have stalled hundreds of millions of dollars in support.

Khoury said the situation in Gaza was of concern to Abu Mazen’s government and that the PNA would allocate 40-45% of the development projects in the proposed $7.4bn aid package on the Gaza Strip, as well as ensuring that the 78,000 government employees, out of a total of 140,000, would continue to receive their salaries.

“This is practically the only source of income for Gaza’s residents. There has been a complete meltdown of Gaza’s economy. No raw materials are getting through. Normal commercial crossings have been closed. Only some basic foods and medicines are getting in. A car breaking down is a major problem as parts are not available.

“Ninety-five percent of factories have closed down, while those still operating are only working at 50% capacity. About 100,000 private sector workers have lost their jobs in the manufacturing, construction, contracting and other private sector activities,” said Khoury.

Khoury echoed the opinions of the World Bank and said it was imperative that Gaza’s border crossings be opened in order to allow for the export of produce and the import of raw materials.

As for strengthening the current economic situation and what steps need to be implemented in order to encourage future investment, he said political progress was essential and this involved ending the occupation and to that end the international community was obliged to pressure Israel to fulfill its obligations.

“There has to be a lifting of the closure and restrictions on movement. Goods have to be able to flow between Gaza and the West Bank. The closures have actually less to do with Israel’s security than protecting the illegal settlements in the West Bank. The sustainability of any improvement in the Palestinian economy is dependent on these factors,” explained Khoury to The Middle East.

“We also need to cut business costs and ensure our business practices are more efficient. The cost of industrial land and electricity here is far more expensive than in neighbouring countries and one way to keep those costs in check is to encourage and support international efforts and projects for new industrial zones being planned,” said Khoury.

“For example the Germans and Turks are working on industrial projects in the Hebron and Jenin areas which will provide employment opportunities for many Palestinians and ensure land is available at lower costs. At present, one thousand square metres of industrial land with the suitable infrastructure costs up to half a million dollars in Ramallah but with the Germans and Turks building the infrastructure in the industrial zones these costs will be lowered,” he added.

“Palestinians also need access to the lucrative higher end markets. Our production costs are high and we cannot compete with the Indians and the Chinese. But we can compete with the Europeans who have much higher production costs. Access to advanced technology is important too,” said Khoury.

He added that political stability in the Palestinian Territories was essential and explained that the Palestinian Authority (PA) had been taking important steps to restore law and order. They have successfully overcome many of the gangs and thugs who were disrupting life in Nablus, forcing businesses to close and businessmen to emigrate. Fayyad stated emphatically that securing Nablus politically and militarily, as a first step, was more important than the peace talks at Annapolis in regard to Palestine’s future.

In regard to accusations of corruption against the PNA, Khoury believes there was more talk about it than actual corruption going on. “The Investment Climate Assessment (ICA) of the World Bank said there was far less corruption going on here than Syria, Jordan, Lebanon or Egypt. We also fared better than Turkey which is aspiring for EU membership,” added Khoury.

He did, however, concede that nepotism was rife in Palestinian business practices. But Khoury was also quick to point out the democratic elections which had taken place under Abu Mazen. Furthermore, Abu Mazen’s pragmatism, which involved telling Palestinians some unpalatable home truths and not caving into demands for positions of influence from some of the disaffected, would ensure more stability and a freer and fairer society.

COPYRIGHT 2008 IC Publications Ltd.

COPYRIGHT 2008 Gale, Cengage Learning