US embassy cable - 02AMMAN4086

UNCLAS SECTION 01 OF 03 AMMAN 004086 
 
SIPDIS 
 
SENSITIVE 
 
DEPARTMENT PASS USAID FOR MSCOVILL 
 
E.O. 12958: N/A 
TAGS: KPAL, EINV, EAID, PREL, IS, JO 
SUBJECT: PALESTINIAN-JORDANIAN BUSINESSMEN PONDER ROLE IN 
PALESTINE'S ECONOMIC FUTURE 
 
 
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Summary 
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1.  (SBU)  A group of Palestinian-Jordanian businesspeople 
met with econoffs July 11, to discuss what they believe might 
be the leading investment opportunities and economic 
prospects following the establishment of a Palestinian state, 
as well as the role of Palestinian-Jordanians in promoting 
development in Palestine. The businesspeople outlined which 
sectors were of interest to them, what conditions would be 
needed to facilitate business, and what obstacles would need 
to be overcome. The meeting demonstrates that despite the 
ongoing conflict in Israel and the Palestinian territories, 
Palestinian-Jordanian businesspeople are still convinced that 
a future settlement is attainable and would provide 
substantial economic opportunities 
 
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Opportunities 
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2.  (SBU)  Palestinian-Jordanian businesspeople representing 
a variety of sectors (pharmaceuticals, paints, poultry, olive 
oil, QIZ textiles, real estate development, etc.) highlighted 
several investment opportunities they were looking into 
within Palestine, prospectively based on cooperation between 
Palestine and Jordan following the establishment of an 
independent Palestinian state and reduction of violence in 
Israel and the West Bank.  Following months of one-on-one 
commentary on the matter from contacts within the 
Jordanian-Palestinian business community, Econoffs arranged 
for a roundtable discussion among key contacts to spark a 
broader dialogue on long-term business prospects in the West 
Bank and a frank discussion of internal impediments to 
investment.  The assembled businessmen included owners of 
both commercial and industrial concerns, landholding and 
shareholding companies, and a number of  licensees and 
distributors of U.S. products/companies, with individual 
business assets ranging between USD 1 million and USD 10 
million both within Jordan and in the West Bank. 
 
3.  (SBU)  Several of the businesspeople pointed to 
opportunities they had identified in food processing, 
chemicals and paints, housing, and private education which 
were hampered by the ongoing conflict, infrastructure 
limitations, and transportation difficulties, but which would 
again become attractive following establishment of a 
Palestinian state. Moreover, they saw opportunities for 
cooperation between Jordan and Palestine in the tourism 
sector and through export-oriented mergers in the agriculture 
sector. The businesspeople claimed that high wage 
expectations (a result of years of enjoying the benefit of 
Israeli minimum wage laws) might hinder international 
competitiveness until investments in education and productive 
capital bring the economy up to speed with wage expectations. 
 
--Real Estate/Construction: The businesspeople were 
enthusiastic about the real estate sector, stating that even 
now the demand and resources are there for the sector to take 
off. One attendee claimed that land could be acquired for 
development in exchange for a stake in anticipated returns 
following construction. They claimed that with the onset of 
peace and the adoption of legal instruments conducive to long 
term financing and mortgages, real estate will be an 
instantaneously profitable sector. 
 
--Agriculture/Food Processing: When discussing food related 
industries, the businesspeople emphasized processing over 
production, given the small scale of agriculture. One 
businessman with experience in poultry suggested that with 
minimal electrical infrastructure to support refrigeration, 
meat processing would gain a more secure foothold in the 
Palestinian market. Moreover, many saw potential for "cottage 
industries" in high-end, specialty food products such as 
tahini or quality olive oil and its byproducts, including 
soap. 
 
--Private Education: Several businesspeople stated that 
private education would be a major target of investment. As a 
business, they said it would be supported by the Palestinian 
cultural emphasis on education, families from abroad wanting 
to send children back to the homeland, and a lack of serious 
competition from the severely embattled established 
institutions. They also mentioned partnerships with U.S. 
private universities as a potentially profitable avenue for 
development. 
 
--Tourism: Many businesspeople felt that both the West Bank 
and Jordanian tourism sectors would benefit immensely from 
coordinating traditional religious tours of West Bank holy 
sites with tours of Jordanian destinations. Increased traffic 
to Jordan,s own famous holy sites at Mount Nebo and the 
newly revitalized baptism site would have knock-on benefits 
for other Jordanian tourism draws like Petra and Jerash. 
 
--Pharmaceuticals: In one of their more improbable schemes, 
they talked about the opportunity posed by the lag between 
the establishment of the Palestinian state and accession to 
international intellectual property agreements. Given this 
window to profiteer from the production of patented 
medications, one businesswoman suggested that the 
infrastructure for a legitimate pharmaceuticals industry 
could be financed though the profits of illicit production 
(sic!). 
 
4.  (SBU)  Beyond identifying opportunities sector by sector, 
the businesspeople suggested that the Palestinian-Jordanian 
community would serve as an eager source of venture capital 
for the fledgling state economy. They claimed that financial 
flows from Palestinian Jordanians would mirror those of 
Palestinians worldwide waiting to take money out of bank 
accounts in the Caymans and Switzerland and put it into 
Palestinian development. They pointed to the flood of funds 
from abroad in the early days of the Oslo Agreement, 
suggesting that this extreme enthusiasm for investing that 
followed a temporary peace agreement would be far outstripped 
by the outpouring of financial support for a newly 
established state. Several businessmen even expressed an 
interest in relocating current Jordanian operations to the 
West Bank, moving entire businesses, not just dinars, into 
the new state. 
 
5.  (SBU)  Looking at a broader trading picture, the 
businesspeople expressed their desire to keep IFTA benefits 
and to extend existing US tax incentives for investment in 
Israel to a new Palestinian state. They also expressed hope 
that the Palestinian territories could be brought under the 
US-Jordan FTA umbrella. The businessmen see an opportunity to 
use the incentives for investment and special trade 
relationships provided under the free trade framework to 
consolidate businesses currently competing within Jordan and 
the West Bank (stone, olive oil, glassware, vegetables, etc.) 
into export industries targeted at the US and Israeli 
markets. Additionally, they look forward to the development 
of the Gaza port as an alternative to Haifa, movement into 
upper-end textile production (through use of Palestinian 
skilled/semi-skilled labor developed largely through past 
employment in Israel), and displacing Israeli goods both 
within the West Bank and in US export markets. 
 
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Obstacles 
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6.  (SBU)  Having set aside fundamental issues of achieving a 
peaceful settlement to the Palestinian-Israeli conflict and 
the subsequent establishment of a Palestinian state for 
purposes of this discussion, the businesspeople focused 
primarily on their visions for private investment and 
relations between the private sector and the new state. 
However, even after theoretically removing the primary 
obstacles to Palestinian statehood, several additional 
obstacles to economic development were identified. 
 
7.  (SBU)  The businesspeople made clear that the development 
of a business friendly environment in the new state would be 
critical to its success in attracting private investment. 
Anecdotes of the costs of PNA and municipal intrusions into 
privately identified business opportunities (in dairy, 
cement, and poultry) helped to drive home the central theme 
of the night, the need for a strictly limited public sector. 
 
8.  (SBU)  The businesspeople were highly cynical about 
government involvement in the economy beyond the development 
of "minimal" infrastructure (water, electricity, roads, Gaza 
port etc.), going so far as to envision a new state with no 
currency, a constitutional upper limit on taxation (taking 
advantage of its status as a new and debtless nation), and a 
transparency-inducing monitory board representing/composed of 
businesspeople, NGO members, and international agencies. More 
modest goals included active business associations, 
government focus on fiscal soundness, and the adoption of 
accounting standards to allow some degree of transparency, at 
least in business. 
 
9.  (SBU)  In terms of cooperation between Jordan and 
Palestine, Jordanian hostility to the acquisition of 
prominent Jordanian industries by Palestinian investors and 
insistence on a partial (through a currency basket) adoption 
of the Jordanian dinar pose a threat to the environment of 
cooperation between the two nations which will be essential 
to future bilateral flows of investment, according to the 
businesspeople. 
 
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The Aid Conundrum 
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10.  (SBU)  The businesspeople argue that within Palestine 
the need to develop infrastructure and the demand for basic 
social services are immense, and the corresponding pressure 
to raise state revenues will threaten the ability of private 
businesses to keep the public sector at bay. The 
businesspeople recommended that aid to the new state should 
be targeted at addressing these initial hurdles rather than 
at servicing future debts, so as to reduce pressures for 
early growth of the public sector. These requests for public 
sector aid seemed at odds with earlier statements imploring 
econoffs that all future aid to the new state target the 
private sector. The inconsistency suggests a disconnect 
between their understanding of a fundamental demand upon the 
new state to help business by supplying infrastructure and 
their gut-aversion to putting any funds into the public 
sector, whether through aid or taxes. 
 
 
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Comment 
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11.  (SBU)   This meeting was seen as the first in a series 
to identify opportunities, mobilize investors, and address 
barriers to development in a future Palestinian state. This 
discussion was an encouraging sign that 
Palestinian-Jordanians are ready to look beyond the barriers 
to a peaceful settlement in the short term, and have 
identified ways to invest their own capital and their own 
businesses in the economic future of an independent 
Palestinian state. 
Gnehm