This Post considers the Palestine Investment Fund.
The fund's rules of procedure state that the PIF is as a limited public company, is owned by the Palestinian people and is independent both financially and administratively. The fund has a board of directors and is an independent public body. The fund manages a number of investment portfolios and specialized companies, which in turn invest in a range of vital projects.
Since 2012, the fund is administered by an 11-member council. There used to be seven members before that. The fund also has a general assembly of 30 members. The fund’s council is headed by Mustafa, who is also the fund’s general director and Abbas’ economic adviser. (Omar Shaban, Palestinian Investment Fund Needs Reform, Palestinian Pulse, Al-Monitor, May 14, 2013).
Yesterday the House Foreign Affairs Committee held a hearing to re-examine U.S. aid to the Palestinian Authority in light of its plan to go to the UN rather than negotiate with Israel. In his testimony, Jonathan Schanzer of the Foundation for Defense of Democracies cited the PIF as an “egregious example” of the abuse of power by PA President Mahmoud Abbas — currently in the 81st month of his 48-month term, ruling by decree since the PA has no functioning legislature:
The PIF’s operating procedures call for the Fund to operate as an independent vehicle for economic stimulus for the benefit of the Palestinian people. In recent years, however, Abbas changed the charter, installed his own choices for board members, placed the PIF under his full control, and neglected to have the PIF audited by outsiders. Today, Prime Minister Fayyad has zero oversight of the PIF, despite his celebrated mandate for transparency.Schanzer reported Abbas has been borrowing money from the PIF for PA salaries, “repaying the PIF with land that will be used for additional businesses that enrich his inner circle.” A former PA official told Schanzer that if Congress demanded an accounting of the PIF, it would cause an “explosion” — showing corruption at the highest levels of the PA. Schanzer told the Committee that Hamas has taken control of the PIF’s assets and offices in Gaza, and he described how the PA secretly funds Hamas through an electricity scam:
Electricity in Gaza is produced by a power plant that is guaranteed by the Palestinian Authority, but the bills are collected by Hamas. As one former advisor to the PA confides, “the Hamas authorities collect their bills from customers in Gaza, but never send the funds back to the West Bank. And the PA continues to foot the bill.”Elliott Abrams, in his testimony, expressed the highest regard for Fayyad and said he believes he is a completely honest official, but observed that:
[H]e is surrounded by a Fatah/PLO crew that was thoroughly corrupt when Arafat was alive and I do not believe they have eliminated corruption since. In fact, since 2006 the very large Palestine Investment Fund or PIF has been out of Fayyad’s control, and there are plenty of allegations about corruption in its activities and about self-dealing by its board. You don’t have to spend much time in Ramallah to hear more allegations about growing corruption at the highest levels.Abrams suggested Congress might demand an investigation of the PIF and require “far more U.S. government pressure to stop the corruption U.S. officials will privately acknowledge exists.” He said it would be a “good way of telling the PLO officials that their caper in New York [at the UN] was a serious mistake and that they will pay a price for it.” (Rick Richman, Who Owns the Palestine Investment Fund, Commentary, Sept. 15, 2011).
Without minimizing the fund’s achievements, there is a need for further reforms, both in the administration and investment spheres:
--Mustafa occupies three positions at the same time, thus placing the fund’s transparency and management in doubt, especially given that he also heads the board of several subsidiary companies owned by the fund.
--The fund’s general assembly includes a number of people who have ministerial positions in the Palestinian government or the PLO. Some members in the council and general assembly own large companies with a working relationship and partnership with the fund. That may represent a conflict of interest, especially since the fund operates in the same areas as those of the companies.
--It is not clear how the general assembly members are appointed. Even though the fund is a public company, the fund’s board of directors is appointed by the president and approved by the Legislative Council. The fund’s legal status is also unclear. Is it a sovereign institution affiliated with the presidency or a public company governed by Palestine’s corporate law?
--Some members of the board of directors and the general assembly own large companies with monopolistic contracts in the sectors of telecommunications, insurance, banking, construction and import-export. So the fund may be promoting monopolistic practices, which the Palestinians blame the high poverty and unemployment on. This kind of mixing of political power and wealth has characterized the Arab despotic regimes, against which the people revolted two years ago.
--The fund’s investments include construction, tourism, small- and medium-sized loans, telecommunications and others. The fund invests heavily in construction, especially in high-end residential neighborhoods. Some consider those investments to be laudable attempts by the fund to ease the housing crisis in the Palestinian territories in the face of the spreading Israeli settlements in the West Bank, but think the fund also constitutes unfair competition with private sector companies, especially those working in construction. Moreover, high-end housing projects do not match the incomes of most Palestinians. (Omar Shaban, Palestinian Investment Fund Needs Reform, Palestinian Pulse, Al-Monitor, May 14, 2013).
PIF seeks to manage its investments with high competency toward generating real investment returns in the middle and long run within acceptable risk levels. PIF also seeks to create the basis for the construction of a strong national economy by investing in strategic projects that engender significant benefits for Palestinian citizens, most importantly employment generation. (Palestine Investment Promotion Agency, The Palestine Investment Fund).
One of the most interesting projects of PIF involves investment in areas of Palestinian settlement within the region.
With President Mahmoud Abbas’ guidance, and in partnership with the “Mahmoud Abbas Foundation”, PIF launched the Empowerment program, which aims to benefit Palestinian refugees in Lebanon. The program endeavors to improve the standard of living of Palestinian refugees by improving their economic and social conditions and by decreasing unemployment rates. (PIF Annual Report 2012, p. 46).The program goals includes improving the living conditions of Palestinians in Lebanon; establishing Palestinian owned enterprises in those regions; creating new job opportunities; and securing greater economic independence for the target populations. (Ibid). The object is to fund about 2,000 projects at the initial stage with micro-loans of $500 - $5,000 U.S. (Ibid).
As expected, because of the internal investment objectives of the PIF, it must be careful to maintain close relationships with sponsors, usually abroad. In a sense this suggests an inversion of the usual arrangement of relationships between SWF home and host states.
The leaders of Palestine’s Export and investment community are visiting London on 16 and 17 January 2014 to reinforce trade links between the UK and Palestine and attract investment to the nation’s flourishing stock market.In a sense, then, the PIF begins to acquire the character more as a vehicle for the disbursement of foreign aid than as a means of channeling sovereign wealth. The context may make this inevitable in this time in Palestinian history. But in a sense, the PIF is most interesting for the possibilities it offers as a means of serving as a "reverse" SWF. If the PIF is able to build string institutional structures, it might then well serve the state of Palestine as it seeks to arrange its economy and find a means of both internal development and avoid the corruption that sometimes attends to the inbound flow of aid funds.
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The Road Show is part of a strategic drive to increase exports of the Palestinian services sector by promoting potential investment opportunities in the Palestinian economy and portraying success stories of listed companies. It also aims at attracting institutional investors to stocks listed on the Palestine Exchange (PEX), building long term relationships with UK companies, and demonstrating the promising trading environment that Palestine represents.
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It is noted that the road show is part of the Trade In Services Project, a 2011 year initiative funded by the European Union (EU) and implemented by the Palestine Trade Center (PalTrade) in partnership with the Palestinian Ministry of National Economy (MONE) under the Trade Diversification / Competitiveness Enhancement Program. The Project’s main objective is to support and empower the services sector within the Palestinian economy. This sector holds a great potential both domestically, in the context of economic diversification, and internationally, through regional integration with neighboring countries and third markets such as the EU. This project essentially supports the efforts by the government and private service sectors in realizing business potential and contributing to the development of the national services export strategies. (Senior Delegation To Visit London To Promote Palestine Investment Opportunity - National Export Body (PalTrade) And Palestine Stock Exchange To Lead Mission Dec. 23, 2013)