Putting Palestine's economy first

Made in Palestine’ products face obstacles in reaching Israeli markets

By Ikram al-Yacoub, Al Arabiya with agencies

Palestinian farmers from the West Bank recently showcased their vegetables, herbs and olive oil in their own national section at the Agro Mashov agriculture fair in Tel Aviv in an attempt to penetrate the Israeli market.

However, achieving this goal, they admit, will not be easy, as Israelis are still reluctant to buy “Made in Palestine” products.

Israeli agriculture officials have acknowledged the challenge facing Palestinian products, and have attempted to expose Israelis to more Palestinian products.

“We currently sell our products in 16 different countries around the world, but we still do not sell in Israel,” Nasser Abu Farha, director of Canaan Fair Trade, told The Media Line. “We have talked to Israeli buyers in the past and there is some kind of reluctance or worry or concern about a Palestinian brand with a Palestinian cultural identity of the producers making it in Israel.”

Israelis do eventually buy products from Palestine but repackage them and sell them later under Israeli labels. About $300 million worth of products were sold last year by Israelis in this manner, according to the Media Line report.

Mohammad Amro, the financial manager of Thimar Nature’s Produce, located in a farm near Jericho in the Palestinian Authority, said that his company’s vegetables and herbs are packaged by an Israeli company and clearly marked a product of Palestine. But they are exported in Europe and not sold in Israel.

“In the beginning, there was a challenge, but now we have good relations with Israeli companies which support us and provide us with support to market our products outside,” Amro told The Media Line. “We are participating in this exhibition to look for opportunities to have markets inside Israel,” he added. “A lot of Israeli people came to our booth and were very happy and asked us ‘From where we can buy this?’”

While it’s easy to find Israeli products in Palestinian retailers in the West Bank, they’d have trouble locating Palestinian brands in stores in Israel. But one major Israeli retailer, Rami Levi, founder and chief executive of an eponymous chain of supermarkets, said he would be glad to place Palestinian products on his shelves.

“I’m willing to put any product in my supermarkets that meets our standards and has a kosher license and is good value. It doesn’t matter if it’s Palestinian, Israeli or from Greece or wherever,” Levy told Media line.

Levy said he planned to meet with Palestinian farmers and food merchants in the near future to discuss deals.

“Yes, there are difficulties, difficulties for Israelis,” said Haim Alush, the chief executive officer of Agro Mashov. He said one of the exhibition’s goals is to encourage Israelis to buy more Palestinian products. “But it is a result of years of hate and years of problems, which I don’t want to elaborate on here … We want that supermarkets in Israel to display and sell the tehina and tomatoes from Nablus and Jenin and even from the Gaza Strip.”

Palestinian exports to Israel also face regulatory hurdles, and Palestinian farmers seek to obtain free entry to Israeli markets within a framework of free trade agreements.

Many Palestinian products are blocked because they don’t meet Israeli health standards or lack a certificate testifying that the food is kosher. Samir Moaddi, chief Israeli agriculture adviser to the Palestinian Authority, said official sales were about 500 million to 600 million shekels ($130 million to $158 million), but unofficial ones are more than a billion shekels a year.

Moaddi added that there are major differences between Israeli and Palestinian products and much co-operation was needed to optimize exports.

An Israeli view

The fragility of the Palestinian economic situation
David Brodet, bitter lemons

The mood in the Palestinian Authority recently changed radically in the space of a few weeks. In September 2011, the attention of Palestinians and the world was directed toward the United Nations, where the Palestine Liberation Organization submitted its request to be accepted as a state by the UN and Palestinian spirits were at an all-time high.

The Palestinians announced to the world that they were ready to become a functioning, independent country. They highlighted the efforts invested by them in building professional security forces and economic and administrative institutions and in generating an economic strategy for development and growth. As proof of their capabilities, they presented positive assessments from the International Monetary Fund and the World Bank, to the effect that they were economically and institutionally prepared to take on full authority and responsibility for maintaining the economy of an independent state.

Just weeks later, the mood changed from euphoria to a hard landing in a cruel reality. The ebullient mood dropped not only because of the Security Council’s rebuff of the PLO request, but also in view of a bitter daily reality that demonstrated just how fluid and fragile the Palestinian economic situation really is. The extent of the Palestinian Authority’s dependence on external actors became clear to all.

Without getting into the issue of the political independence of a Palestinian state, in the economic sphere the Palestinians are very far from achieving the capacity for independent management. The heavy efforts invested in the past three or four years, mainly by Prime Minister Salam Fayyad with the support of President Mahmoud Abbas, have not yet laid the groundwork for a functioning independent country. There are both long- and short-term reasons for this.

This is the result of years of neglect and avoidance of basic economic needs on the part of the Palestinian leadership. Even after they received broad economic authority from the Paris agreement signed in accordance with the Oslo framework, the Palestinians under Yasser Arafat’s leadership exploited their authority in ways that served the immediate needs of Arafat and his entourage. The large sums of aid from donor countries and tax transfers by Israel that flowed during those years were not used for building an economy.

Salam Fayyad, first as minister of finance and then as prime minister, has invested heavily in creating the infrastructure for a functioning economic authority and has registered many achievements. Yet the basic current budgetary structure of the PA, which stands at three billion dollars per annum, is dependent on donor nation transfers of around one billion dollars per annum (about a third) and on Israeli transfers of taxes collected for the Palestinians totaling around $1.3 billion (more than a third). This means heavy dependence–for more than two-thirds of the budget–on Israel and the donors.

The taxes collected by Israel on goods imported by the Palestinians are Palestinian monies that must be transferred to the PA under contractual obligation. Yet in reality, the Palestinians are dependent on an Israeli bureaucracy that on occasion invokes political considerations. For its part, the PA has failed to invest sufficient effort in building its own independent collection system, for example regarding water and electricity fees that to a large extent are never paid by consumers, thereby adding yet another financial burden.

There are undoubtedly many objective circumstances that help explain the PA’s financial situation. It has no air and sea ports for direct international trade; since 2007 the Gaza-West Bank split weighs heavily on the budget; and the economic agreements signed in 1994 that were meant to last five years are still in effect today.

The PA’s critical dependency on donor funds and Israeli tax transfers has become all the more salient since fiscal steps were taken to improve the Palestinian economic system. Transfer delays by Israel, for even a short period of weeks, reveal the PA’s fragile economic situation. It has neither reserves nor much room for maneuver. It has no alternative source for raising funds.

Constructing a financial system is a long, drawn-out process. The PA needs to continue building itself economically, yet under current political conditions it can do little in the short term without fiscal and financial arrangements with Israel and the donors. The main damages caused by delays in transfer of funds are great uncertainty in the Palestinian economy, disruptions in the functioning of security and civilian authorities, and anger among the broad Palestinian public (mainly unemployed youth and intellectuals) that could turn violent over economic issues along the lines of the “Arab spring” demonstrations.

Israel and the donor nations share a fundamental interest in maintaining reasonable economic conditions among a population situated so close to Israel. Regardless of the question of a political solution for the conflict, Israel needs to enable Palestinians to build their economic system and it must encourage moderate and constructive sectors of the Palestinian population.

David Brodet is chairman of Bank Leumi and former director general of the Ministry of Finance. He headed the Israeli delegation to the economic negotiations with the Palestinians in Paris in 1993-4.

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