Incentives and Protection for Investors

There is a consensus on the importance of the Palestinian private sector. It is believed to have the primary role in facilitating economic growth, employment, fighting poverty, reducing the trade deficit and reducing the PNA’s budget deficit. To achieve this, the PNA has established several institutions and entrusted international development agencies with the task of assisting the private sector and enabling it to play its intended role. Incentives have focused on encouraging small and medium enterprises, which comprise more than 95% of the Palestinian private sector.

These initiatives include:

Agreement with MIGA on Insurance of investment against Political Risks

In November 2008, the PNA signed an agreement with the World Bank that guaranteed local and foreign investments in the West Bank and Gaza. An Investment Guarantees’ Fund was established within this project to offer investors guarantees that they would still be able to reclaim their investments in case the security situation deteriorated, or if they were unable to complete their investment projects due to non-commercial risks. The European Investment Bank, the Japanese Government and the PNA funded this project.
The fund is administered by the Multilateral Investment Guarantee Agency (MIGA), a member of the World Bank Group specializing in the field of political risk insurance.

The European Palestinian Credit Guarantee Fund (EPCGF)

This EPCGF was established in 2005 with an initial capital of EUR 29 million, supported by the European Commission, Germany and the European Investment Bank. The fund aims to help SMEs in Palestine to overcome credit difficulties. The project also encourages partner banks to approach smaller companies and companies that otherwise could be ruled out from qualifying for credit extension. The EPCGF has signed agreements with seven banks working in the Palestinian Territories to implement the credit guarantee program.

They include: the Arab Bank, Bank of Palestine, Cairo Amman Bank, Bank of Jordan, Arab Islamic Bank, Housing Bank for Trade and Finance and Jordan Ahli Bank. More than 1,114 loans were granted to SMEs by September 2009, with a value of US$33 million.

The Loan Guarantee Facility (LGF) from the Palestine Investment Fund and OPIC for SMEs

At the end of May 2007, the Palestine Investment Fund (PIF) launched a partnership with the Overseas Private Investment Corporation (OPIC) and the Middle East Investment Initiative (MEII) called the Loan Guarantee Facility Project (LGF) for SME loans. This totaled US$230 million over the course of ten years. Through this project, PIF and its partners will provide banks working in the Palestinian Territories with guarantees to encourage them to grant loans to small and medium-size enterprises throughout Palestine. The LGF provides SMEs with greater access to funding, which in turn helps facilitate their growth. By the end of December 2009, the number of loans awarded amounted to 228, with guarantees reaching US$51.3 million, which were given to SMEs working in a variety of sectors and locations.

The Political Risk Insurance in Partnership with OPIC

In 2005, President Bill Clinton initiated the Palestinian Political Risk Insurance (PPRI). Within PPRI a number of experts in the domain of administration, insurance and politics started forming mechanisms and tools for promoting the development of the Palestinian economy. Furthermore, it protects against losses resulting from trade disruption and political violence and allows businesses to benefit from investment potential in Palestine. PPRI established a funding committee from the private and public sectors, the Special Investments Committee and the Middle East Investment Initiative (MEII). The MEII launched a credit program with more than US$160 Million in July 2007 in Ramallah. In addition, the National Insurance Company (NIC), a local Palestinian insurance company based in Ramallah, signed an agreement with OPIC and MEII in May 2008 to create a new form of insurance called Palestinian Political Risk Insurance, covering the Palestinian exporters sector. Palestinian exporters were compensated for their losses and fines accruing from their inability to deliver their goods, due to Israeli restrictions on movement. Exporters were eligible for insurance services at affordable prices covering shipped goods or vulnerable properties.