PALESTINIANS FAVOR TURKISH INDUSTRIAL ZONE

C O N F I D E N T I A L SECTION 01 OF 02 JERUSALEM 000717 SIPDIS SIPDIS NEA FOR FRONT OFFICE; NEA/IPA FOR WILLIAMS/SHAMPAINE/BELGRADE; NSC FOR ABRAMS/DORAN/WATERS; TREASURY FOR SZUBIN/LOEFFLER/NUGENT/HIRSON; BRUSSELS FOR LERNER; PLEASE PASS TO USAID FOR KUNDER/MCCLOUD/BORODIN E.O. 12958: DECL: 04/13/2017 TAGS: ECON ETRD EINV EIND PREL KWBG IS TU SUBJECT: PALESTINIANS FAVOR TURKISH INDUSTRIAL ZONE INITIATIVE BUT WANT MORE DETAILS REF: A. 06 JERUSALEM 5056 ¶B. 06 JERUSALEM 495 ¶C. JERUSALEM 512 AND PREVIOUS Classified By: Consul General Jake Walles, Reasons 1.4 (b) and (d). ¶1. (C) Summary: Palestinian business leaders support the Turkish initiative to rebuild the Palestine Industrial Free Zone (PIFZ) in northern Gaza, but they want more details on how the Palestinian economy will benefit. Palestinian companies expect to be partners in industrial zone joint-ventures, not simply providers of cheap labor. They also want an Israeli commitment on the access and movement of goods, and see Turkish involvement as helping to secure such an agreement. Many Palestinian companies would welcome an alternative to the existing Gaza Industrial Estate (GIE). The PIFZ remains under the authority of the PA's Ministry of National Economy, further complicating efforts to move the project forward. End Summary. Top Priority: Reliable Trade Corridor -------------- ¶2. (C) Palestinian business leaders based in Gaza welcome the Turkish "Ankara Forum" initiative to revitalize the PIFZ (reftel A) because they see Turkish involvement as potential leverage against Israeli closures and other restrictive measures. Palestinian Federation of Industries (PFI) Executive Director Amr Hamdan told Econoff April 10 that the involvement of Turkish companies in the PIFZ may result in greater Israeli cooperation in facilitating trade. ¶3. (C) Former GIE marketing manager Bashir Rayyes told Econoff April 10 that the businessmen he surveyed had stressed that a secure trade corridor through the Erez crossing would be essential for the initiative to succeed. Sami Aburosa, a senior staffer to the PA Presidency's Economic Advisor, told Econoff April 10 that the Palestine Investment Fund (PIF) would not consider investing in the project without a firm commitment from the GOI on the flow of goods, particularly in light of PIF losses of almost USD 30 million in 2006 on the Gaza greenhouses project due to Karni/al-Mintar crossing closures. Economic Impact -------------- ¶4. (C) Aburosa also noted that another PIF reservation is the lack of clarity on what economic benefits would accrue to the Palestinians. Given massive unemployment in Gaza, job creation is obviously a top priority for the PIF. However, Aburosa continued, the potential for thousands of low-skilled jobs at a revived PIFZ alone would not necessarily justify the concessions necessary to attract investors. Since half the companies in the old PIFZ were Palestinian-owned, he believes that Palestinian businessmen will insist on being business partners and not merely a source of cheap labor. He asserted that proponents of the initiative need to explain how the Palestinian economy will benefit. Dueling Zones -------------- ¶5. (C) The Palestine Industrial Estates Development and Management Company (PIEDCO),the private firm managing the GIE, is seeking to boost GIE output to pre-2000 levels. GIE Manager Nedal Ismail told Econoffs March 30 that enhanced movement through the Karni/Al-Mintar crossing is not only essential to the revival of the GIE but is also considered by PIEDCO to be the linchpin for any future investment by the company in the West Bank and Gaza. (Note: The largest company in the West Bank and Gaza, the Palestine Development and Investment Company (PADICO) has a 83 percent stake in PIEDCO. End note.) ¶6. (C) PFI's Hamdan, however, told Econoff that the PIFZ has greater potential for heavy industry than the GIE. He said the general impression among Palestinian businessmen is that rental costs will be cheaper there, too. Rayyes asserted separately that GIE costs are too high, averaging USD 50,000 a year per company. Rayyes also raised another problem with the GIE that Hamdan had only hinted at: Palestinians are tired of the "big sharks," i.e., PADICO, swallowing up JERUSALEM 00000717 002 OF 002 business opportunities, and thus would welcome an alternative to the GIE. PA Ties That Bind -------------- ¶7. (C) Aburosa stated that the PIFZ still falls under the Palestinian Industrial Estates and Free Zones Authority (PIEFZA),whose board is chaired by the Minister of National Economy (Hamas). PIEFZA remains the licensing authority for industrial zones and retains responsibility for determining any concession agreement with potential investors. Aburosa said that this arrangement presents a problem for the Turks given their own contact policy with the PA. If appropriately delegated to do so, the PIF could conceivably assume PIEFZA's role, but no action has been taken in this regard, according to Aburosa. WALLES