PALESTINIAN PRIVATE SECTOR LEADERS URGE "MARSHALL

C O N F I D E N T I A L JERUSALEM 002568 SIPDIS SIPDIS NEA FOR FRONT OFFICE; NEA/IPA FOR GOLDBERGER/SHAMPAINE/BELGRADE; NSC FOR ABRAMS/PASCUAL; TREASURY FOR SZUBIN/GRANT/HARRIS/NUGENT/HIRSON E.O. 12958: DECL: 12/13/17 TAGS: ECON EFIN EINV EAID KWBG IS SUBJECT: PALESTINIAN PRIVATE SECTOR LEADERS URGE "MARSHALL PLAN" FOR WEST BANK/GAZA Classified By: Consul General Jake Walles, Reasons 1.4 (b) and (d). ¶1. (SBU) Summary: Palestinian business leaders told Treasury DepSec Kimmitt that the economic situation in the West Bank and Gaza is getting worse, particularly in Gaza where Israeli restrictions on the flow of goods are most severe. They asserted that the capital necessary to stimulate the economy already exists, but the investment climate remains poor due to access and movement problems and political uncertainties. They urged the USG to lead a "Marshall Plan" to upgrade deteriorating infrastructure, generating jobs for increasingly vulnerable Palestinian youth. Bankers are concerned that the Israeli Postal Bank will not be able to replace fully the two Israeli correspondent banks. End summary. ¶2. (SBU) In a December 7 meeting with Treasury Deputy Secretary Robert Kimmitt, prominent Palestinian bankers and SIPDIS businessmen emphasized that the economic situation in the West Bank and Gaza has deteriorated significantly in recent years and continues to worsen. Because the GOI now limits imports into Gaza to basic food commodities and humanitarian assistance, Gaza's industrial base has ground to a halt, throwing thousands out of work. They asserted that ordinary businesses with no terrorist affiliation are being starved of raw materials and deprived of markets for their products. They also noted that restrictions appear to be tightening at commercial crossings between Israel and the West Bank. The business leaders told DepSec Kimmitt that they have seen no recent evidence that Israel intends to "create space" for the private sector to thrive and foster economic development. -------------- - Capital Available But Investment Climate Bleak -------------- - ¶3. (C) The bankers and businessmen agreed that restrictions on access and movement are the main constraints on the private sector. They noted that banks have a large deposit base, but very little lending is being made due to the poor investment climate. Bashar Masri, Chairman of Massar International with operations in the West Bank, Jordan, Morocco, UAE, Egypt, and Eastern Europe, said his company's investment in an agribusiness in Gaza will result in a substantial loss this year if exports continue to be blocked. Cherry tomatoes and peppers are rotting for lack of market access. Masri said that, at least in some instances, restrictions appear to have more to do with protectionism than security, noting that Israel's partially state-owned Agrexco is the only company to have gotten fresh produce out of Gaza since the Hamas takeover. While they are concerned that the impact on Gaza may be irreversible, the business leaders said that the private sector in the West Bank remains resilient and ready to advance if restrictions on movement and political constraints are lifted. -------------- Banking Sector Steady But Concerned -------------- ¶4. (C) Businessmen and bankers alike spoke highly of the health of the banking sector. All noted that the Palestine Monetary Authority (PMA) is fairly good at regulation and understanding the banks' issues. They expressed concern over the previous announcements by Bank Hapoalim (BH) and Israel Discount Bank (IDB) that they will sever their ties with banks operating in the West Bank and Gaza. While extensions have delayed the complete cutoff, a proposal to have the Israeli state-owned Postal Bank provide correspondent banking services has yet to be finalized. They expect that a deal could be struck in several weeks. Cairo Amman Regional Manager Joseph Nesnas stated that the Postal Bank solution is inadequate because the bank will not offer trade finance services (letters of credit et al.) previously provided by BH and IDB. Nesnas said that, with some difficulty, regional banks such as his can overcome this impediment through their branch offices elsewhere, but Palestinian banks will be adversely affected. -------------- Marshall Plan Urged -------------- ¶5. (C) The business leaders urged the US to lead a "Marshall Plan" for the West Bank and Gaza. They noted that the private sector needs support so that all Palestinians see the results of the donors' conference. They noted that U.S. has provided good support via USAID and, more recently OPIC, some of it specifically designed to raise incomes and help support private sector-led growth. The EU and other donors have also provided assistance in various forms. They emphasized, however, the current need for some large investment projects which will provide jobs and give young, vulnerable people something to do. Infrastructure, in particular, has deteriorated significantly and needs immediate attention. Masri asserted that, in the last ten years, the quality of Jordan's infrastructure has improved dramatically while that of the West Bank has declined. A major public works project in roads or water projects is needed. Talal Nassirudin, CEO of Bizeit Pharmaceuticals, asserted that electricity and water costs in the West Bank are greater than elsewhere in the region, to the detriment of private sector competitiveness. He noted that a textile company adjacent to his plant is moving production to Egypt, where operating cost are significantly lower. -------------- Private Sector Lead -------------- ¶6. (SBU) Bankers, factory owners, and investors told DepSec Kimmitt that governments come and go, and donor assistance ebbs and flows, but the private sector is the only way to create long-term sustainable jobs. In the absence of marked improvement on access and movement issues, they suggested that assistance be directed to sectors less susceptible to trade disruptions. In the service sector, for example, call centers may prove promising because physical obstacles cannot block the provided product. ¶7. (U) DepSec Kimmitt cleared this cable. WALLES