PALESTINIAN-JORDANIAN BUSINESSMEN PONDER ROLE IN

UNCLAS SECTION 01 OF 03 AMMAN 004086

SIPDIS

SENSITIVE

DEPARTMENT PASS USAID FOR MSCOVILL

E.O. 12958: N/A
TAGS: KPAL EINV EAID PREL ISRAEL'>IS JO
SUBJECT: PALESTINIAN-JORDANIAN BUSINESSMEN PONDER ROLE IN
PALESTINE'S ECONOMIC FUTURE


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Summary
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1. (SBU) A group of Palestinian-Jordanian businesspeople
met with econoffs July 11, to discuss what they believe might
be the leading investment opportunities and economic
prospects following the establishment of a Palestinian state,
as well as the role of Palestinian-Jordanians in promoting
development in Palestine. The businesspeople outlined which
sectors were of interest to them, what conditions would be
needed to facilitate business, and what obstacles would need
to be overcome. The meeting demonstrates that despite the
ongoing conflict in ISRAEL and the Palestinian territories,
Palestinian-Jordanian businesspeople are still convinced that
a future settlement is attainable and would provide
substantial economic opportunities

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Opportunities
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2. (SBU) Palestinian-Jordanian businesspeople representing
a variety of sectors (pharmaceuticals, paints, poultry, olive
oil, QIZ textiles, real estate development, etc.) highlighted
several investment opportunities they were looking into
within Palestine, prospectively based on cooperation between
Palestine and Jordan following the establishment of an
independent Palestinian state and reduction of violence in
ISRAEL and the West Bank. Following months of one-on-one
commentary on the matter from contacts within the
Jordanian-Palestinian business community, Econoffs arranged
for a roundtable discussion among key contacts to spark a
broader dialogue on long-term business prospects in the West
Bank and a frank discussion of internal impediments to
investment. The assembled businessmen included owners of
both commercial and industrial concerns, landholding and
shareholding companies, and a number of licensees and
distributors of U.S. products/companies, with individual
business assets ranging between USD 1 million and USD 10
million both within Jordan and in the West Bank.


3. (SBU) Several of the businesspeople pointed to
opportunities they had identified in food processing,
chemicals and paints, housing, and private education which
were hampered by the ongoing conflict, infrastructure
limitations, and transportation difficulties, but which would
again become attractive following establishment of a
Palestinian state. Moreover, they saw opportunities for
cooperation between Jordan and Palestine in the tourism
sector and through export-oriented mergers in the agriculture
sector. The businesspeople claimed that high wage
expectations (a result of years of enjoying the benefit of
ISRAELi minimum wage laws) might hinder international
competitiveness until investments in education and productive
capital bring the economy up to speed with wage expectations.

--Real Estate/Construction: The businesspeople were
enthusiastic about the real estate sector, stating that even
now the demand and resources are there for the sector to take
off. One attendee claimed that land could be acquired for
development in exchange for a stake in anticipated returns
following construction. They claimed that with the onset of
peace and the adoption of legal instruments conducive to long
term financing and mortgages, real estate will be an
instantaneously profitable sector.

--Agriculture/Food Processing: When discussing food related
industries, the businesspeople emphasized processing over
production, given the small scale of agriculture. One
businessman with experience in poultry suggested that with
minimal electrical infrastructure to support refrigeration,
meat processing would gain a more secure foothold in the
Palestinian market. Moreover, many saw potential for "cottage
industries" in high-end, specialty food products such as
tahini or quality olive oil and its byproducts, including
soap.

--Private Education: Several businesspeople stated that
private education would be a major target of investment. As a
business, they said it would be supported by the Palestinian
cultural emphasis on education, families from abroad wanting
to send children back to the homeland, and a lack of serious
competition from the severely embattled established
institutions. They also mentioned partnerships with U.S.
private universities as a potentially profitable avenue for
development.

--Tourism: Many businesspeople felt that both the West Bank
and Jordanian tourism sectors would benefit immensely from
coordinating traditional religious tours of West Bank holy
sites with tours of Jordanian destinations. Increased traffic
to Jordan,s own famous holy sites at Mount Nebo and the
newly revitalized baptism site would have knock-on benefits
for other Jordanian tourism draws like Petra and Jerash.

--Pharmaceuticals: In one of their more improbable schemes,
they talked about the opportunity posed by the lag between
the establishment of the Palestinian state and accession to
international intellectual property agreements. Given this
window to profiteer from the production of patented
medications, one businesswoman suggested that the
infrastructure for a legitimate pharmaceuticals industry
could be financed though the profits of illicit production
(sic!).


4. (SBU) Beyond identifying opportunities sector by sector,
the businesspeople suggested that the Palestinian-Jordanian
community would serve as an eager source of venture capital
for the fledgling state economy. They claimed that financial
flows from Palestinian Jordanians would mirror those of
Palestinians worldwide waiting to take money out of bank
accounts in the Caymans and Switzerland and put it into
Palestinian development. They pointed to the flood of funds
from abroad in the early days of the Oslo Agreement,
suggesting that this extreme enthusiasm for investing that
followed a temporary peace agreement would be far outstripped
by the outpouring of financial support for a newly
established state. Several businessmen even expressed an
interest in relocating current Jordanian operations to the
West Bank, moving entire businesses, not just dinars, into
the new state.


5. (SBU) Looking at a broader trading picture, the
businesspeople expressed their desire to keep IFTA benefits
and to extend existing US tax incentives for investment in
ISRAEL to a new Palestinian state. They also expressed hope
that the Palestinian territories could be brought under the
US-Jordan FTA umbrella. The businessmen see an opportunity to
use the incentives for investment and special trade
relationships provided under the free trade framework to
consolidate businesses currently competing within Jordan and
the West Bank (stone, olive oil, glassware, vegetables, etc.)
into export industries targeted at the US and ISRAELi
markets. Additionally, they look forward to the development
of the Gaza port as an alternative to Haifa, movement into
upper-end textile production (through use of Palestinian
skilled/semi-skilled labor developed largely through past
employment in ISRAEL),and displacing ISRAELi goods both
within the West Bank and in US export markets.

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Obstacles
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6. (SBU) Having set aside fundamental issues of achieving a
peaceful settlement to the Palestinian-ISRAELi conflict and
the subsequent establishment of a Palestinian state for
purposes of this discussion, the businesspeople focused
primarily on their visions for private investment and
relations between the private sector and the new state.
However, even after theoretically removing the primary
obstacles to Palestinian statehood, several additional
obstacles to economic development were identified.


7. (SBU) The businesspeople made clear that the development
of a business friendly environment in the new state would be
critical to its success in attracting private investment.
Anecdotes of the costs of PNA and municipal intrusions into
privately identified business opportunities (in dairy,
cement, and poultry) helped to drive home the central theme
of the night, the need for a strictly limited public sector.


8. (SBU) The businesspeople were highly cynical about
government involvement in the economy beyond the development
of "minimal" infrastructure (water, electricity, roads, Gaza
port etc.),going so far as to envision a new state with no
currency, a constitutional upper limit on taxation (taking
advantage of its status as a new and debtless nation),and a
transparency-inducing monitory board representing/composed of
businesspeople, NGO members, and international agencies. More
modest goals included active business associations,
government focus on fiscal soundness, and the adoption of
accounting standards to allow some degree of transparency, at
least in business.


9. (SBU) In terms of cooperation between Jordan and
Palestine, Jordanian hostility to the acquisition of
prominent Jordanian industries by Palestinian investors and
insistence on a partial (through a currency basket) adoption
of the Jordanian dinar pose a threat to the environment of
cooperation between the two nations which will be essential
to future bilateral flows of investment, according to the
businesspeople.

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The Aid Conundrum
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10. (SBU) The businesspeople argue that within Palestine
the need to develop infrastructure and the demand for basic
social services are immense, and the corresponding pressure
to raise state revenues will threaten the ability of private
businesses to keep the public sector at bay. The
businesspeople recommended that aid to the new state should
be targeted at addressing these initial hurdles rather than
at servicing future debts, so as to reduce pressures for
early growth of the public sector. These requests for public
sector aid seemed at odds with earlier statements imploring
econoffs that all future aid to the new state target the
private sector. The inconsistency suggests a disconnect
between their understanding of a fundamental demand upon the
new state to help business by supplying infrastructure and
their gut-aversion to putting any funds into the public
sector, whether through aid or taxes.


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Comment
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11. (SBU) This meeting was seen as the first in a series
to identify opportunities, mobilize investors, and address
barriers to development in a future Palestinian state. This
discussion was an encouraging sign that
Palestinian-Jordanians are ready to look beyond the barriers
to a peaceful settlement in the short term, and have
identified ways to invest their own capital and their own
businesses in the economic future of an independent
Palestinian state.
Gnehm