ePalestine: [ePalestine] WSJ: Wariness Accompanies West Bank's New Boom

Monday, December 20, 2010

[ePalestine] WSJ: Wariness Accompanies West Bank's New Boom

Wall Street Journal

MIDDLE EAST NEWS

DECEMBER 19, 2010

Wariness Accompanies West Bank's New Boom

By CHARLES LEVINSON

RAMALLAH, West Bank—Swank coffee shops, luxury-car dealerships, and a designer boutique are among hundreds of new businesses that have sprouted here in recent months, part of a boom that has defied failures to make progress toward peace with Israel.

But even entrepreneurs who have invested here say gloomy prospects for long-term stability threaten to derail gains.

Economic growth in the West Bank raced at 9% through the first half of 2010, according to the International Monetary Fund. Proponents of a Palestinian state have taken heart in that growth.

"It is easier than ever to envision an independent Palestine able to govern itself, uphold its responsibilities to provide for its people, and ensure security," U.S. Secretary of State Hillary Clinton said in October, in a speech highlighting that growth.

Improved Palestinian governance, better security and relaxed Israeli restrictions appear to be underpinning investors' booming confidence.

After the second Palestinian intifada, or uprising, erupted against Israel in 2000, the Palestinian territories were plunged into violence and the economy took a nose dive. As the violence started to recede, the militant Hamas Party won elections, triggering a punishing boycott of the Palestinian Authority by Western donors. Salaries went unpaid, militias ruled the streets and government barely functioned.

Hamas was forced from power in the West Bank in 2007. Under the new government of Prime Minister Salam Fayyad—a University of Texas-educated former IMF official—the Palestinian Authority moved to reduce corruption, make government more transparent and attract business.

The European Union and the U.S. stepped in to oversee the retraining of the Palestinian security forces who have since imposed law and order on the West Bank's streets. In response, Israel has eased its tough regime of restrictions on the movement of goods and people.

Meanwhile, the stability also drawn a generation of Palestinian expatriates, who fled during the years of unrest, back home with savings to invest.

"Investors are taking a leap of faith," says Sam Bahour, a Palestinian-American businessman who invested money in the West Bank long before most, opening the $10.2 million Plaza Shopping Center in Ramallah in 2004. "These investors want to be the first movers in postoccupation Palestine."

But pervading the growth is a sense the flush times will be short-lived. Israeli military occupation and extensive restrictions on travel and trade still in place make it virtually impossible to sustain the current growth rates, the IMF has warned.

There is also widespread fear that pent-up frustrations over the lack of progress toward statehood will eventually bring violence again to Palestinian streets, reversing economic gains.

Proponents of putting economic progress ahead of political progress are betting that prosperity may bring some calm, or at least change the situation by giving activists something to lose if violence flares again. Few people here say the present calm will hold indefinitely.

"To have a stable economy and development you need a stable political environment and we don't have that," says Mohammad Omayr, a 24-year-old entrepreneur.

In August, Mr. Omayr borrowed $75,000 from relatives and opened a small, bustling nursery in downtown Ramallah, one of 100 new Palestinian companies registered that month.

Signs of new wealth are ubiquitous here. "The Boutique," Ramallah's first haute couture clothing store, opened late last year, offering Palestinians python-skin purses by Prada for $3,000, Sergio Rossi heels, and one-of-a-kind Valentino dresses. Next door, the Zaman Café serves up Belgian microbrews, French Bordeauxs and $4 cappuccinos.

This spring, the West Bank's first licensed Mercedes dealership opened a showroom on Ramallah Boulevard. Owners say it is doing a brisk business selling luxury-class sports cars and sport-utility vehicles, with sticker prices ranging from $100,000 to $200,000, to wealthy Palestinians.

On Nov. 1, Mövenpick Hotels & Resorts made its Palestinian debut, opening the city's first five-star hotel. The 172-room, $40 million hotel boasts a head chef imported from Florence, a pastry chef from Paris, and a lobby bedecked in marble and Italian suede.

In the past six months, the West Bank has also seen the launch of three private- equity funds.

So far, evidence of a boom is still largely confined to Ramallah, home to the Palestinian Authority headquarters and the de-facto Palestinian capital, where civil servants in a bloated public sector spend paychecks backed by international donors.

"It's a flurry of economic activity," says Mr. Bahour, "distinct from economic activity required for statehood that won't last if the occupation continues."

Israel controls 60% of the West Bank's land, keeping it off-limits to Palestinian development. Israeli red tape on Palestinian imports and exports, which can languish unpredictably at checkpoints and seaports, cuts into profit margins, Mr. Bahour says.

The IMF recently warned that current economic gains won't last without substantive policy changes in Israel's administration of the Palestinian Territories.

Israeli officials say the West Bank's economic growth is evidence that Israel is succeeding in easing restrictions on trade.

Any further Israeli easings will likely require politically difficult policy shifts, such as turning over Israeli-controlled West Bank land to Palestinians, or reducing the protective envelopes around Jewish settlements.

Another hindrance to sustained growth is the lack of access to other big swaths of Palestinian territory, potentially lucrative markets for Palestinian businesses. About 50% of Palestinians live in the Gaza Strip, which has been sealed off by Israel since the Islamist group Hamas took over, and East Jerusalem, which is still largely off- limits to West Bank businessmen because of Israeli restrictions.

Without easy access between Ramallah and Jerusalem's historical sites, for example, the hotel's managers say they can't hope to tap the lucrative tourist market, since tourists will stay in Jerusalem instead of Ramallah.

The Mövenpick also depends on a handful of international employees, but because none have been given the necessary work visas by Israel, the hotel management says, they must leave and return every three months to get tourist visas renewed—making it harder to attract and retain talent from abroad.

Write to Charles Levinson at charles.levinson@wsj.com