Construction in Ramallah (AP)"There are three key areas to moving forward on the long-term goal of reaching a two-state solution. One is a political settlement, two is economic development and three is progress on the security sector."
Can you tell us about the work that OPIC and its partners, both on the ground and in the United States, are doing to help develop the Palestinian economy?
We’ve been engaged in supporting the development of the economic sector in the West Bank probably since 2005. So, it’s been about four years or so and during that time period we’ve worked on a variety of different projects, one of which is currently operational. That project is the loan guarantee facility, which is a program that is implemented in a partnership among OPIC, the Palestine Investment Fund (PIF) and the Middle East Investment Initiative, a U.S. non-profit organization. The program enables OPIC and the PIF to provide partial guarantees to banks that are operating in the West Bank to make small business loans to their customer base. We currently have seven banks that are in the program and are negotiating to add three or four other banks. The portfolio has about 53 loans totaling $25 millions dollars or so. It’s been operational about 15 months. The primary focus is to support small businesses and to generate job growth in an area which obviously has a difficult time creating jobs and is limited by serious mobility restrictions, checkpoints, etc. The loan guarantee facility is administered on the ground by the Middle East Investment Initiative which contracts with CHF International, a non-profit development company, to supervise the program, ensuring accountability, transparency and implementation. So, as far as we’re concerned, I think it’s been pretty successful; it’s in the early stages and we expect the portfolio should be somewhere around $50 million by year end 2009.
The sectors are pretty diverse in terms of what is supported – agriculture, production, manufacturing, transportation – and interestingly the geography is pretty diverse also. Whereas many people think that the whole economic base in the West Bank is largely focused around Ramallah, this program is spread out across the whole West Bank. It’s in Bethlehem, Hebron, Nablus, Qalqilya, Jenin, so not all of it is just in Ramallah.
We “rolled out” the loan guarantee facility in 2007, and as a result, OPIC developed a strategic partnership with the Palestine Investment Fund. Then we had a session to try to figure out what other areas to support, and we agreed that we would try to focus on supporting the development of affordable housing, which is part of a larger initiative that was promoted by the Palestine Investment Fund to make affordable housing available in planned communities throughout different areas of the West Bank.
OPIC and the PIF decided we would work together to put in place a vehicle that would make mortgage money available for home owners. So OPIC ultimately ended up partnering with the PIF, the International Finance Corporation (IFC) and two local banks—the Cairo Amman Bank and Bank of Palestine. The five entities together are going to provide up to $500 million of loan capital, which would be used to make 25-year fixed-rate and 25-year five-year adjustable rate mortgage loans. This will be administered through a company called Amal – Affordable Mortgage and Loans – but I believe it is also Arabic for hope. Amal is expected to be operational by the fourth quarter of 2009. Amal will actually provide funding to the homeowners through the two local banks, the Bank of Palestine and the Cairo Amman Bank.
What you may or may not know is that there are at least four housing developments that are underway. One is a private sector project. PIF itself has three projects that it’s working on for 2009. Two of the projects are in Ramallah – Rawabi and al Reehan – one is in Jenin and one is in Qalqilya.
The two in Ramallah are quite large; the al-Reehan project will probably be about 2,000 housing units and the Rawabi project, planned by Bashar al-Masri and the Qataris, will be about 5,000 units.
We are literally trying to time our development – the creation of Amal, the operationalizing of it and completing the entire finance package – so the company can be ready to offer the first mortgages when the first housing units are available. That being said, we believe that the first mortgage loans made for the first house will probably not actually be made until 2010.
What is fascinating is that the scale of these projects will hopefully have a transformational effect on the economy. We’re talking about a very large number of construction jobs and a large number of service jobs. When it’s finished, we’re talking about more than just housing. We’re talking about creating communities, with shops and other facilities. The Rawabi project, in particular, will be a virtual town and will create significant lasting, in addition to temporary, employment.
We have two other smaller projects that we’re working on. One is a commercial building on a site of land at the Friends Academy in Ramallah. It owns a plot of land that is adjacent to an existing soccer field where we want to build an office building. We told them we would finance it if they agreed to use the cash flow that comes from the office building to establish an endowment. The school doesn’t have an endowment, and we’re trying to encourage them to establish one for students to be able to get scholarships to attend the school. They agreed to do that.
There’s another smaller project we’re working on with the Episcopal Church in Jerusalem, and they have a wide span of health clinics and educational facilities both in the West Bank and Gaza that are not operating on a cash flow positive basis. These facilities provide primary health care and schooling. Meanwhile, the church has undeveloped real estate that could be developed. We’re working with them on one project now to build an apartment building in West Jerusalem and the profits from that apartment building will be used to fund the clinics and educational facilities they have operating. We’re looking at other real estate the church owns, possibly for other housing developments in the Jerusalem area and also the Jaffa area. All of which would improve their cash flow and help them support their other Palestinian projects.
And, of course, OPIC is working with MEII on a risk insurance product for small and medium sized Palestinian businesses, but that project doesn’t fall under my jurisdiction.
How did these projects come about?
In 2005, a delegation of Palestinian businessmen came to Washington to meet various government officials and agencies and to look for somebody in the U.S. government who would help them develop their economy. And we were asked to come to a meeting with them and to explain our programs and talk about what we might be able to do. We had put together a similar kind of project for a loan facility in Iraq, and we offered this out casually to the group. We said it would be interesting if OPIC partnered with the Palestine Investment Fund to develop loan guarantees to support small businesses. We didn’t even know it, but several of the people in this group who were visiting Washington were board members of the Palestine Investment Fund. So out of serendipity we were talking to the right audience. They immediately said they were interested in pursuing this. We had a couple of follow up meetings while they were here in Washington. They asked us to put together an outline of how we’d want to approach this, which we did. And by the time they left, two or three days later, to go back to the West Bank we had essentially come up with the outline of a program to pursue. That’s how this started.
The whole program would have been launched earlier had it not been for the elections of 2006 when Hamas won. It was only the results of that election that delayed the implementation of this project. We had to wait till the dust settled before we continued.
That’s the way that we first started working on a day-to-day basis with the PIF, and then we just started talking. We thought that they were a natural partner. In fact, when we first started working with the PIF, most of their portfolio assets were invested outside the Palestinian territories. We encouraged them that they ought to consider taking some of those offshore investments and liquidating them and using the proceeds to develop their own economy. Their own management was thinking along the same lines and were interested in changing the proportions to have a much heavier emphasis on investments that would promote the Palestinian economy.
We started looking for other areas in which to cooperate. OPIC is very active in providing mortgage finance around the world, especially for low- and moderate-income homeowners. The PIF was looking at developing affordable communities. So we started talking about getting together a mortgage facility that would give long-term mortgages at fixed rates, and by virtue of the fact that the mortgages are long-term, monthly payments are lower, and therefore they are more affordable to a wider audience. The fact that they’re fixed-rate, rather than floating rate, means for the homeowner that the interest rates won’t go up, and this eliminates interest rate uncertainty. The current market for mortgages is generally in the range of maybe ten to fifteen years. Our loans will be for up to 25 years with lower monthly payments.
From your perspective, what have been the successes and what have been the challenges that these projects face and how does that relate to the challenges for the overall economy?
I have been with OPIC for nine years and I’ve worked with a lot of different countries. One thing is that in all these cases we need help to get things done from the government officials of different countries. Sometimes getting a government to actually implement changes in relation to policy can be extremely challenging or can take a very long time. But I think, ironically, in the case of dealing with the officials who are running the government and the governmental agencies now, they have been incredibly easy to work with, extremely helpful and very cooperative and supportive of all these efforts. Putting together a mortgage scheme in a market that has very little mortgage activity did require some changes to government rules and regulations. We have had conversations with officials at the Palestinian Monetary Authority and the Capital Markets Authority, and they were very supportive and helpful in working with us to make the necessary changes to implement this scheme. So it has been very easy for us to work with the government officials, and you can’t always say that in all the countries we work with.
The biggest challenge we had initially was the results of the election. It made it difficult for us to continue to try to operate our programs. After Hamas took control over Gaza, it made it easier for us to operate in the West Bank, but difficult to operate in Gaza.
What are the opportunities for development in Gaza?
The programs that have been set up, both for the loan guarantees and the mortgage facility, are set up to be able to operate in Gaza at some point in the future when conditions are ripe for supporting them. But that is a process that we would undertake to review with other entities in the U.S. government to make a joint determination as to when the right time might be. As of now, the conditions aren’t ripe.
What do you think the challenges are overall for the Palestinian economy?
They have a lot of challenges. They have an extremely high unemployment rate. The checkpoints are obviously a challenge to moving goods and services, and sometimes the ability to do projects in Area C.1 For example, the Riwabi project is trying to get support from the Israelis to build an access road through Area C and needs to convince the Israeli authorities that this is the right thing to do.
On the other hand, our general impression is that the work force is a well-educated workforce that is willing to work if the opportunities are available.
How do you see your work fitting into the larger picture in terms of U.S. policy toward developing the Palestinian economy, governance and security and also in terms of efforts to help Israelis and Palestinians reach a two-state solution?
There are three key areas to moving forward on the long-term goal of reaching a two-state solution. One is a political settlement, two is economic development and three is progress on the security sector. The areas where I think in the short term our ability to make progress this year are better are on the security side and on the economic side.
There needs to be some visible progress to show the Palestinian people that something good is happening, and the international community needs to support that. In the short term, there needs to be economic improvement, and we need to keep the focus on trying to develop the economy in some way that is conducive to improving the quality of life. Hopefully these economic and security improvements will ultimately make the atmosphere more conducive for political progress.
Can you build the economy without political progress or a political horizon?
I would think that in practical terms, probably the biggest political development could be on the high number of checkpoints. Clearly, if you can minimize the checkpoints or at least develop some solution to move commercial goods in an expedited manner through checkpoints, that would make a big difference. No question about that. I think the other issues, that is Jerusalem, or the refugee status, or where the borders are going to be, to me, they’re much more political issues. To develop an economy that could grow, that is on an integrated basis trading with Israel, or trading with other partners, such as Jordan, could be done within the current situation provided some progress is made on checkpoints.
Can you tell us about a bit what else you’re doing in the region and how it might relate to this work?
We’ve been very active in Jordan. We supported the first independent power project which is starting to be built right outside of Amman. Last year, the king of Jordan declared 2008 as the year of affordable housing. They actually have their own affordable housing initiative, and they asked us, because they knew we were working on the housing sector in the West Bank, to provide part of the financing for that affordable housing. While they have a more developed financial market than the West Bank, they do not have a long-term fixed-rate mortgage market. We put together a program to lend $250 million to three Jordanian banks. That money that we’re providing to them over 25 years, in dollars, they’re going to exchange the dollars with the central bank into dinars, and they will have dinars available to give to homeowners that qualify for fixed-rate mortgages for their first homes. We think the first loans are going to be made in late 2009.
We’re supporting microfinance in Jordan. There’s a water pipeline project that’s transporting fresh water to Amman from the Disi Aquifer in the south of Jordan. We’re very active in Jordan.
In Lebanon, we’ve been active. We’ve supported the recapitalization of CHF, a microfinance lender, after the conflict in 2006 between Israel and Lebanon. We’ve also provided long-term loans to Lebanese banks to make mortgage loans in Lebanon.
And we’re working on an interesting project in Israel to expand an existing program that makes microfinance, small business loans to the Arab-Israeli community. We’re working with a group that’s been doing this business for about fifteen years and was looking for the best way to scale it up. We decided to support it. What’s interesting is that part of this project is in an area of Israel, Gilboa, adjacent to Jenin, and there are increasing interchanges between Palestinians from the West Bank and Israeli Arabs who are working together in business ventures.
1 The Oslo Accords created different jurisdictions. Area C is area that is under full Israeli control.