Economic assistance for the West Bank and Gaza – Role of World Bank group and its organization – Speech by WB Country Director for West Bank and Gaza/Non-UN document

Good afternoon Minister Sinokort, Mr. Masrouji and friends, and thank you for inviting me to meet and speak with you today.  I have met some of you already but for those of you who I have yet to meet, my name is David Craig, and I took over as the Country Director from Nigel Roberts on the 15th of January this year.  As I am still very new here and have much to learn about the issues facing West Bank and Gaza, I especially welcome the opportunity to hear from the other speakers and members of the private sector.

I have been asked to speak with you today about the role of the World Bank Group and its organizations – including the Multilateral Investment Guarantee Agency (MIGA) and the International Finance Corporation (IFC) – in the West Bank and Gaza.  My MIGA and IFC colleagues could not be here today to explain their program in detail but I’ll try my best to give you an overview of their work here generally.

But let me first talk about the World Bank Group role in countries dealing with or emerging from conflicts, in general.  This, I hope, will stress to you the importance we attach to the private sector as a driving force for development.

As you may know, reconstruction and growth in areas of conflict is at the heart of the World Bank’s mission, dating from our creation after World War II.  Over time, our mission evolved into poverty reduction in all countries, including financial and policy assistance to developing countries throughout the world.  New institutions within the World Bank Group have emerged to tackle important issues such as private sector development, investment guarantees and investment dispute resolution, among others.  But these are all related activities forming part of our poverty reduction mission.  As you know all-too-well, unrest and conflict are both a cause and a consequence of poverty. So growth in conflict areas is an intrinsic part of our overall development agenda.

Development is now accepted by the international community to be a critical tool in preventing both potential and renewed unrest.  A 2003 World Bank study showed that developing countries with poor policies and institutions are fifteen times more likely to suffer from conflict than the richest countries. So, understanding the link between development and conflict is crucial to making a lasting impact anywhere.  It also follows that any assistance program should establish the basis for sustainable growth.

Since 1990, the World Bank has substantially increased its assistance to conflict-affected countries.  One event was a turning point for a new, multilateral approach. This came in 1994 when the international donor community asked the Bank to administer multilateral trust funds to support the peace process in the West Bank and Gaza.  The first trust fund supported the establishment of the Palestinian Authority and its capacity to deliver public services.  Subsequent trust funds provided for emergency employment generation projects during a time of renewed conflict

This framework has operated on the view that, in addition to physical reconstruction, the World Bank and other donors should support the development of institutions and build the capacity needed for sustainable development driven by the private sector. This requires sound policies for macroeconomic management, good governance, growth and employment generation, access to social services and social safety nets.  In a nutshell, this is about establishing the social and economic foundations of a well-functioning market economy.

In other words, post-conflict reconstruction means not only a transition from conflict to peace, but also a transition from a planned to a market-based economy.

Now, let us move to the World Bank’s program in the West Bank and Gaza.  Since 1994, our Board of Directors representing the 184 countries that own the World Bank, has approved 34 projects worth approximately $500 million, of which a third are in the form of a grant.  These projects have covered a range of areas from electricity to land administration to education and other social services.  To date, a total of about $435 million has been disbursed on these projects. We have compiled a brief information sheet which we will distribute at the end of this meeting.

In terms of overall support to the private sector, the World Bank’s main contribution continues to focus on the institutional reforms I just highlighted, as well as the creation of an overall business and economic environment, mainly through improved access and movement into and out of the West Bank and Gaza.  It has been widely accepted that the future economic viability of the Palestinian economy depends on the creation of a trade logistics system which permits the safe, reliable and competitively-priced movement of people and cargo.

In order to attract and maintain private investment, investors in the West Bank and Gaza need a system which is reliable and predictable.  Elements of such a system would include freedom of internal movement within and between Gaza and the West Bank, across the Israel borders, either to Israel or through Israel to third countries, and direct access to third countries, via land borders to Egypt and Jordan, by sea and by air.  This system has been described in detail in a number of World Bank reports which are available on our website (www.worldbank.org/ps). Unfortunately, what we are reporting is that the system that exists today is virtually unchanged from that which existed in December 2004.

However, as I am sure you are all acutely aware, the current political situation has created a bit of uncertainty for the work programs of the donor community.  In terms of the World Bank, our current work program of 12 projects is quite advanced and continues to be implemented.  The bulk of our projects are already being carried out by private sector consultants and contractors who have been hired under competitive bidding processes consistent with the World Bank’s procedures.  Our future program and projects will, as has been the case so far, depend on the future mandate given to us by our Board of Directors.

The Bank also continues with its analytical work, which has been used by donors and PA to weigh the costs and benefits of their policies.  We are currently completing our “Country Economic Memorandum”, as well as a “Economic Monitoring Note” which will be presented to the Ad Hoc Liaison Committee, and the community at large.  In both of these analyses, the role of the private sector as an engine of growth will be analyzed, and constraints to private sector growth will be addressed. We will present a preliminary assessment of how the private sector has fared since the onset of the second intifada compared to its pre-intifada levels and what can be done to improve competitiveness in the current political climate.

In addition to the work I just described, the World Bank will continue in its role as the secretariat for the Private Sector Working Group, including overseeing the implementation of various aspects of the joint Palestinian – Israeli private sector declaration on promoting economic growth in the West Bank and Gaza.  This declaration was written ahead of the Investors Conference in London in December of last year and presented to the Chancellor of the Exchequer, Gordon Brown.  As you might suspect, the main objectives of the declaration centered on increasing the reliability and efficiency of movement of goods and people; protecting investors and their businesses; and reducing the legal and regulatory obstacles facing private investors.  The first meeting of the executive committee will take place tomorrow in Jerusalem and will set the agenda for the upcoming year.

Now, let me turn your attention briefly to another aspect of the World Bank’s involvement with the private sector.  As Youssef Habesh could not attend this meeting today, I would like to take the liberty of discussing a bit about the work of our sister organization, the International Finance Corporation, or the IFC, which is the private sector arm of the World Bank and an organization with whom we work with closely.  Prior to the Intifada, IFC was very active in the territories and had committed a total of US$54 million in 15 companies, of which US$31 million had been disbursed, including equity investments amounting to US$ 14 million.  In the period since September 2000, IFC has focused on managing the portfolio and has reduced its exposure significantly.  By end September 2005, IFC’s outstanding portfolio stood at $15 million in 11 firms.

Looking forward, IFC believes that there could be an opportunity to re-enter the market, and it plans to re-engage in Gaza with its traditional investment products as well as by providing technical assistance through the Private Enterprise Partnership for Middle East and North Africa also known by the more catchy acronym of “PEP-MENA.”  Teams from the IFC have completed mapping missions to assess private sector opportunities.  IFC is considering investments in the financial sector, industry and services which could include microfinance, a small business financing facility with local banks, a hotel, a private hospital in Gaza, an offshore gas investment and industrial estates.

Through PEP-MENA, IFC plans to provide support through increased technical assistance for micro, small and medium-enterprise development, including an SME management training program, technical assistance for microfinance institutions, advisory services for banks to help them cater to SME clients including the provision of credit, and an SME sector analysis targeting growth sectors such as agribusiness, stone and marble, construction and pharmaceuticals.  In general, TA interventions will be designed to develop SMEs and make them more bankable.

Another organization affiliated with the World Bank is the Multilateral Investment Guarantee Agency or MIGA.  Since 1998, MIGA has been administering a $23 million trust fund for insuring investments in the West Bank and Gaza against political risks such as currency transfer, expropriation, war and civil disturbance.  This has been financed by the Palestinian Authority under a World Bank loan, the European Investment Bank and the Government of Japan.  The fund is currently capped to a maximum of $5 million per project though donors will be asked to consider whether this cap should be raised to accommodate larger investments.

This is a brief summary of the World Bank’s work, its current portfolio, etc.  If you’d like more information on any of these issues, please visit our website or feel free to get in touch with us. 

Thank you.