Banking on The West Bank?

Courtesy of The Providence Journal, an article examining the potential of the West Bank as an investment opportunity.  As the report notes:

“…FOR NEARLY 30 YEARS, I’ve made my living identifying golden opportunities to invest in the bonds and other debt instruments of such developing world countries as El Salvador, Nigeria, Turkey and Zambia. I’ve never relied on sophisticated economic analyses or spread sheets; I’ve been a gut player relying on intelligence gathered by walking the streets of those countries and talking to bankers, businessmen, government officials and even taxi drivers.

If they had bonds to sell, which they don’t, at least not yet, I’d be lining up to buy bonds issued by the Palestine Monetary Authority (PMA), which, though it doesn’t have its own currency, is the Palestinian central bank.

Why would I buy their bonds? There is something of a slow economic miracle unfolding in the West Bank. (It is important to differentiate between the West Bank, under the authority of the Mahmoud Abbas’s Palestinian Authority, and Gaza, which under Hamas, remains in utter economic ruin and in a perpetual state of siege.) Now, just how remarkable the West Bank’s economic resurgence has been is a matter of perspective. Economic growth is about 7 percent a year, enviable under any circumstances, but astonishing amidst a severe global recession. Wages have risen 24 percent.

The local stock market is up 18 percent, tourism in Bethlehem is up 94 percent, which has created 6,000 new jobs, trade with Israel is up 82 percent and, since 2008, some 2,000 companies have registered with the Palestinian Authority. And all of this has been accompanied by a drop in terror-related violence that has let the Israelis loosen security measures that have severely restricted the free movement of people and goods in the area, a critical condition for a strong economy.

Against this rather rosy picture, however, one has to consider the West Bank’s recent economic history. In 2000, Israel responded to terror from the West Bank by clamping down hard, limiting free movement and virtually isolating it. The local economy was devastated. Even with all of the recent growth, the Palestinians in the West Bank haven’t made up for all the lost ground.

Per-capita gross domestic product, which was, according to Reuters, $1,500 in 1999, is just $1,000-$1,200 today. (In Israel it’s over $24,000.) And the Palestinian Authority remains the largest employer, heavily dependent on aid from donor nations. Israel remains in control of roads, telecommunications, energy, air space and access to land and water. Thus, many Palestinians, though glad to see economic improvement, aren’t exactly popping the champagne. They know the full economic potential of the Palestinians in the West Bank won’t be realized until sovereignty is achieved.

Nevertheless, I’d bet on the West Bank. During a recent trip to the International Monetary Fund (IMF)/World Bank meetings in Istanbul, I had a lengthy talk with Dr. Jihad al Wazir, governor of the PMA. British-educated, Al Wazir is the son of a notorious terrorist (though the Palestinians, of course, see him as a freedom fighter), assassinated by the Israelis in Tunis in 1988. When I pointed out to al Wazir the odd juxtaposition of his father’s role as leader of the military arm of Fatah, and his as a traditional banker, he replied, “It’s a different generation.” Where Palestinians once almost uniformly saw their future in armed struggle, the younger al Wazir sees a future through economic development and political reconciliation.

In the West Bank, al Wazir represents the future and he has ambitious plans for the PMA. Modern standards for bank governance and transparency have been put in place, a striking contrast to the eternally corrupt financial dealings of the Palestinian Authority itself. He’s keeping illicit, laundered money out of the system, which thwarts terrorist funding.

According to its Web site, the PMA has for two years been engaged “in a Strategic Transformation Plan (STP) — a major restructuring process designed to transform the PMA into an independent, transparent, modern, efficient and well-governed central bank.” This could be sheer rhetoric, but having met al Wazir I have confidence he will deliver. He’s intelligent, forthcoming, earnest and determined. And thus far, the International Monetary Fund, which is following the transformation, has reported favorably on the PMA’s progress.

Make no mistake. The West Bank has a long way to go, even though it has already come far in the past year or so. Economic development and peace will always be interdependent, two sides of the same coin, and peace has always proven elusive in the Middle East. Nevertheless, when the PMA starts selling bonds to raise capital, I’ll be buying.”

This entry was posted on Tuesday, November 10th, 2009 at 9:26 am and is filed under Uncategorized.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.