Posts Tagged ‘Palestine’

My stay in Ramallah is almost over and I cannot refrain from writing something about it, let us say about economy, because in a wider sense it fits into this blog on leadership, management and consulting. When I arrived here I talked to my former landlord, a pharmacist, who lives across from the Muqata and after we had chatted for a while he said: “Honestly Luke, I don’t know where all the money is coming from. They are building there and there (pointing) and we don’t know who is behind it!” “And the building across the street is empty!” his wife interjected.  “It’s strange!” he exclaimed “And you know what, all people we know are in debt, it’s really scary!”.

One of the bigger construction projects

Yes, the economic activity and especially the real estate boom in Ramallah has been covered extensively by the press, some articles claiming that there was a raise of real estate prices in the last two years of 30%.  So I would be  fortunate, had I a house in Ramallah. Some articles hail this as sign of the successful Fayyad government reforms and others, being more cautious, pointing towards the continued dependency of regular aid inflows. The Jordan Times writes:

But experts warn that Ramallah’s new-found wealth does not in any way reflect the state of the economy in the occupied West Bank or the impoverished Gaza Strip.

Economic growth in the West Bank did reach 8.5 per cent last year, but much of that was the result of generous international aid, according to the International Monetary Fund.

In fact my brother-in-law said simply: “If the donors cut off the funding, everything will go down the drain within weeks. But this time things will be worse, because people will not wait, they will fight each other. They say we have a service economy! Hah!” It seems we have a lot of capable economists here in the West Bank, because the following graph by the IMF seems to support his viewpoint:

In my quest to understand where the money is coming from, I had read that the donors now provide credit guarantee funds to back local banks in lending to to small medium enterprises. Just like the Middle East Investment Initiative with its Loan Guarantee Facility:

Since the LGF provides $160million in guarantees, backing 70% of possible loan amount, over the medium term, LGF will guarantee $228 million in loans, generating tens of thousands of local jobs.

Some people I talked to could not believe this, but it really happening. “It is golden times for banks in Palestine!” I thought in my mind. Making more with less risk. And the Portland Trust seems to agree:

Palestinian banks recorded $42m of profits in the first quarter of 2010. This is over 50% higher than the same period last year ($25m profits in Q1 2009) and 5% higher than the previous quarter ($40m profits in Q4 2009).

At the same the supply of credit available was increased, because according to the IMF:

the Palestine Monetary Authority (PMA) lowered the limit on bank deposits placed abroad from 65 percent to 55 percent of total deposits.

And of course, as Haaretz points out these loans are not only given to SME but also for consumers:

Palestinian and Arab banks in the West Bank are offering loans making it easier than ever to own a new car. Anyone who has a job can pay 10 percent down and borrow 90 percent of a new car’s cost from the bank, payable with interest over five to six years.

The World Bank concurs:

Credit facilities to non-government resident customers at the end of December 2009 were almost 23 percent higher than in 2008.

And ho is now doing all that construction? Perhaps some international investment funds are involved in the bigger buildings, but I could not find any documentation. Perhaps some reader would like to help out? The Jerusalem Post , relying also on the World Bank report, writes:

The biggest jump in private business activity has been in the construction and real-estate sectors, with PA civil servants and nongovernmental organization employees forming the “backbone” of the market, the report said.

So going back to the beginning and trying to answer that question of my former landlord:  Where is the money coming from? It is coming from tax payers and banks and we could be witnessing some sort of speculative mini-bubble here, which could mean that for the next two years it would be good to invest in real estate in Ramallah, but let us not forget, this mini boom is fueled by easy access to credit, which reminds me lot of the trigger of the financial crisis.


The Jordan Times: Ramallah property boom belies fragility of Palestinian economy Friday, August 6th, 2010

Fox Business, Ramallah building boom symbolizes West Bank growth, August 02, 2010, Reuters

Haaretz Mess Report / In the West Bank, new cars signal the good life, Published 02:20 16.07.10

The Jerusalem Post, World Bank report: PA economy needs more private investment, Bloomberg 04/13/2010

The Portland Trust, Palestinian Economic Bulletin, July 2010

IMF, Macroeconomic and fiscal framework for the West Bank and Gaza, Madrid, April 13, 2010

World Bank, Towards a Palestinian State:Reforms for Fiscal Strengthening WORLD BANK report April 2010

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