The Importance of Economics in Peacemaking

The Portland Trust Aim to promote peace and stability between Israelis and Palestinians through economic development. Founded in 2003 by Sir Ronald Cohen and Sir Harry Solomon. We are a private not-for- profit British foundation. Offices in London, Ramallah and Tel Aviv. Key Personnel Chair: Sir Ronald Cohen (co-founder of Apax Partners) Vice Chair: Sir Harry Solomon (founder of Hillsdown Holdings plc) CEO: David Freud (former Vice Chairman of Investment Banking for UBS) Managing Director Ramallah: Samir Hulileh (former Secretary to the PA Cabinet) Managing Director Tel Aviv: Eival Gilady (former Head Strategic Planning, IDF) Partners We are working closely on initiatives with a range of partners including the British Government, Quartet, EU, World Bank, Palestinian Investment Fund (PIF), Palestinian Economic Policy Research Institute, Palestinian Mortgage and Housing Corporation, Clinton Global Initiative, Aspen Institute, OPIC, Chicago 10, RAND, CHF, PlaNet Finance, GTZ, Levant Studies and Consulting Services, Koret Israel Economic Development Funds, Yad Hanadiv, Palestinian Network for Small and Micro Finance.

The Palestinian Economy Monthly Portland Trust bulletin reports on Palestinian economy ActualChange Population (2007 est.) 4 million3.3 % growth Real GDP (2007 est.) $3,901 million -14% (since 1999) Real GDP per capita (2006) $1, % (since 1999) Key characteristics: Geographically split between the West Bank and Gaza Diverse service sector, declining manufacturing and increasing agricultural sector Highly literate, entrepreneurial population Highly aid-dependent with large public sector

Palestinian Employment Political situation has created economic crisis for Palestinians West BankGazaPalestinian territory Workforce692,900323,001,015 million Unemployment rate18.6%32.9%23.2% Underemployment rate10.9%3.7%8.6% Employment rate Of which: - Public sector - Private sector - Israel and settlements 70.5% 15.4% 71.7% 12.9% 63.4% 40.2% 59.8% 0% 68.2% 22.3% 68.4% 9.3% Palestinians in Deep Poverty (<NIS 1,837 annually for family of 6 for food/ clothing/ housing) 13%35%N/A

The Gaza Private Sector is at an all time low 95% of factories closed Leading to 32,000 job losses. – All 600 firms in the local garment and textiles industry have stopped doing business – All furniture manufacturers have ceased production – All metal and engineering workshops, soft drink producers, chemical factories and paper plants have closed down.

The Portland Trust applies a comprehensive approach, supporting Palestinians to develop the private sector Physical infrastructure Affordable housing Regional infrastructure Financial infrastructure Pensions Mortgage finance Trade facilitation Export support Upgrading handicraft industry Political risk insurance Chamber of Commerce Finance and entrepreneurship Loan guarantees Microfinance Business training

Housing is historically a leading sector in the Palestinian economy Substantial decline in construction sector activity Increasing population Severe shortage of affordable housing Increased construction would stimulate and revive the Palestinian economy Population (2007 est.)4 million Population growth (per annum) 3.3 % Existing Housing Units (end 2005) 703,201 Current Shortage Housing Units 30,000 Additional Annual Shortage5,000 Decline in construction activity (1999 – 2007) 60 % PCBS survey results show demand for new housing by % of Palestinians

The Affordable Housing Programme A $1 billion Palestinian private sector initiative 6 new communities in the West Bank, outside the main cities of Ramallah (2 sites), Nablus, Jenin, Hebron, Bethlehem $100 million infrastructure investment by donor community $50 million donor fund for community facilities and green spaces $50 million private sector investment for retail, commercial and industrial areas 15,000 new housing units by 2013, construction starting 2008 –Selling price between $38,000 and $70,000 –Affordable housing for working Palestinians on a monthly income of $800 - $1,700

A Palestinian vision New sustainable communities

The Affordable Housing Programme has the potential to stimulate and revive the Palestinian economy Palestinians in new homes (over 5 years)90,000 Estimated jobs created (annual) Construction Associated Industries Onsite Services and Retail 11,000 7,000 3,000 1,000 Estimated total jobs created (at end of 5 years)17,000 Standard economic multiplier effect (US housing)2 Dependency ratio6 Estimated number of low-income Palestinians supported (at end of 5 years) 204,000 Total Investment (over 5 years)$1 billion Estimated impact on Palestinian GDP8% growth (over 5 years)

Economics in peacemaking: Northern Ireland Not a parallel but can learn important lessons Economic initiatives created incentives to spur political progress… Equality and fairness legislation introduced International mediation around economic issues with Senator Mitchell – Clinton’s special economic envoy on Northern Ireland Trade across conflict borders Private sector voice and institutions pushed for moderation… Northern Irish “Group of 7” led by Sir George Quigley Northern Ireland Business Alliance CBI - Peace Dividend US based firms operate under “MacBride terms” for equal opportunity Improved economic conditions created the context for sustained peace… Inward investment started upon ceasefire – $1.5 billion between 1994 to 2000 from US firms Unemployment down from 17% in 1986 to 4.6% in 2006 Tourism jumped by 20% in the first year following ceasefire (1995)

Northern Ireland An example of economic disparity creating and sustaining violence Catholics suffered from unemployment rates more than double that of Protestants and violence was high; today gap is less than 4 percentage points and violence is low. Source: Honaker, Unemployment and Violence in Northern Ireland: A Missing Data Model for Ecological Inference (2004)

Middle East Peace Process Concerted effort by Israeli and Palestinian private sectors is essential Strong private sector voices are important after violence to prevent derailing of peace process Israel is not threatened economically Launch of Israeli-Palestinian Business Council at the World Economic Forum Portland Trust to support launch of Israeli-Palestinian Chamber of Commerce

Negotiating the Final Status Agreement The private sector will have a key role before, during and after Over the last 5 years the Portland Trust have learnt that there are things that can be done through the private sector. Only with the prospect of ongoing prosperity can a political solution become long-lasting peace Israeli/Palestinian private sector must act as a voice for moderation. Israeli Government and PA must support private sector, encourage investment and economic progress

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