Palestinians invest more abroad than foreigners invest in territories

Political uncertainty and restrictions on movement behind the phenomenon, experts say.

Palestinians buy food during the holy month of Ramadan, at a market in the West Bank city of Hebron, May 22, 2019. (photo credit: WISAM HASHLAMOUN/FLASH90)
Palestinians buy food during the holy month of Ramadan, at a market in the West Bank city of Hebron, May 22, 2019.
(photo credit: WISAM HASHLAMOUN/FLASH90)
Foreign investments held by Palestinian residents of the West Bank and Gaza exceeded those of foreigners in the Palestinian territories by $1.732 billion as of the end of 2019, according to a joint survey by the Palestinian Central Bureau of Statistics and the Palestine Monetary Authority that was published mid-November.
The PMA’s Spokesperson’s Office told The Media Line the fundamental reasons behind the findings were the limited and uncertain political and economic horizon.
“In addition to that, the Palestinian economy suffers from a set of obstacles, mainly stemming from the Israeli occupation, and in particular the issue of the areas classified as C according to the Oslo agreement, which constitute more than 60% of the area of the West Bank, as Palestinian natural resources are concentrated there and they are a vital area for Palestinian investment, but they are subject to Israeli control in all respects, where Palestinians are not allowed to invest there,” the Spokesperson’s Office said.
The Oslo II Accord, signed by the Palestine Liberation Organization and Israel in September 1995, divided the West Bank into three zones: Area A was to be administered by the Palestinian Authority. Area B was to be administered by both the PA and Israel, with the former overseeing civil affairs, and the latter security. Area C was to be administered by Israel.
The PMA highlighted that in the Palestinian situation, specifically with the absence of a national currency, the money circulating in the market is considered foreign currency, and as a consequence, currency deposits constitute the largest segment of investments held abroad by residents of the Palestinian territories.
“In 2019, they accounted for about 67% of the investments of Palestinian residents abroad via banks, in addition to 20% of portfolio investments abroad under the heading of debt and ownership bonds, where the largest part related to banks, while the direct investment of Palestinian residents abroad did not exceed 4% of the asset balance,” the Spokesperson’s Office added.
The PMA pointed out that the situation could be changed by reaching a political solution that allows the Palestinian economy to open up and enjoy unfettered access to foreign markets, control its resources and direct them to meet its needs, “thus creating an investment climate that removes uncertainty and all obstacles to freedom of movement and independently dealing with the exterior.”
Investment abroad of resident Palestinians totaled $7.102 billion, of which 63.9% consisted of foreign currency in enterprises and deposits in foreign banks, the joint survey reported.
Meanwhile, the total foreign investment in the West Bank and Gaza Strip amounted to $3.189 million, of which 54.3% was foreign direct investment, i.e., investment in the form of a controlling ownership in a business.
Osama Amr, the head of the Palestinian Businessmen Association, told The Media Line the findings were to be expected, given the unique situation of the Palestinian economy. “Large investors must invest abroad when there’s no room for internal investment,” he said.
Amr explained that there were difficulties in terms of the ability to export and import, in addition to the weakness of Palestinians’ purchasing power for a variety of reasons, “chief among them the Israeli occupation, which controls all of the natural resources in the West Bank.
“We lose about $3 billion annually because we cannot use the resources in Area C,” he said.
The fundamentals of the investment environment are weak and consumption is low due to the unstable and difficult economic conditions, Amr said. And “let’s not forget that in 2019, all of the American aid money stopped, as well as aid money from [some] Arab countries,” he added.
“The ability of citizens to buy is very low. Therefore, investment becomes difficult,” he said.
Amr pointed out that Palestinians are spread around the world, working as professionals and as investors in trade, service, real estate and consulting. “Large companies in the world are owned by Palestinians, such as the Consolidated Contractors Company [the largest construction company in the Middle East, now headquartered in Athens], CHI [the Houston-based Cationic Hydration Interlink hair-care company], as well as the [Beirut-based] engineering consultant firm of Khatib and Alami.”
Ghassan Halum, a Palestinian investor based in Ramallah who has a real-estate business in the US, explained to The Media Line that there was a huge difference between the economic system abroad and that in the Palestinian lands in terms of laws and financial transactions.
“When people go abroad and invest, they usually intend to earn some capital and then return home, but they get used to a certain system and laws, in addition to facilities and privileges. When they return home, the corruption and complications needed to get things done shock them,” Halum said.
Once they have invested abroad, it is extremely difficult for them to adapt to the Palestinians’ local system, he added. Therefore, they continue to invest and do business abroad, “especially since the investment laws [in the Palestinian territories] aren’t as they should be, and they can easily be changed and manipulated. Unfortunately, the economic system in Palestine doesn’t encourage investment,” he said.
In addition, Halum also pointed out that the political situation and the occupation have created obstacles in terms of access, imports and exports.
Bassem Khoury Nasr is chairman of the Board of Directors at Dar Al-Shifa Pharmaceuticals, also known as Pharmacare, and has a pharmaceuticals business in Malta. He told The Media Line the main reason Palestinians invest abroad is the occupation, which creates restrictions on the movement of capital.
“For instance, as a pharmaceutical factory, we can’t export our medications to any country unless the latter sends a delegation from its ministry of health to visit Palestine, and many countries don’t want to visit Palestine for a variety of reasons, one of them being that they consider it unsafe and a war zone,” Nasr said.
He added that Dar Al-Shifa faced many obstacles to bringing German inspectors to the West Bank to check the factory, because of the security and political situation. “After that experience, we made a decision to invest abroad, to minimize our [financial] risk.”
Nasr added that investors who live in Palestine are especially reluctant to put everything they have in one basket. “Therefore, they think to invest abroad, to secure themselves so in case anything happens here, they have somewhere else to go.”
He also emphasized that the security and political situation, along with the occupation, created obstacles for companies that aspire to go global. “Any company that aims to expand internationally has to establish something outside of Palestine,” Nasr said.
Azmy Abd al-Rahman, an economist and a former spokesperson of the Palestinian National Economy Ministry, explained to The Media Line that the political and security situation discourages investment, despite the huge opportunities in the service and manufacturing sectors.
“We know in economics that capital fears such situations, so it runs away to invest abroad,” he said.
Throughout the years, since the beginning of the Palestinian-Israeli conflict, Palestinian capital has been invested abroad, “and any monies invested abroad are lost to the Palestinian market when they could have provided job opportunities,” Abd al-Rahman said.
When billions are invested abroad instead of domestically, it causes a decline in citizens’ income and in economic activity, he said. “Add to that the fact that 80% of Palestinian resources are in Area C, controlled by Israel,” Abd al-Rahman said.
Ahmad Haj Hassan, general manager of The National Bank (TNB), told The Media Line there are countries that encourage investment by granting investors citizenship and other privileges. “At the same time, the unstable situation here makes investors want to distribute their investment between here and abroad,” he said.
Any money leaving the country is a negative, but every country has citizens investing abroad, Haj Hassan said.