Financial Times: Palestinian fund breaks the mould

Financial Times  FT.com

Palestinian fund breaks the mould

By Tobias Buck in Ramallah

Published: March 24 2008 18:29 | Last updated: March 24 2008 18:29

Mohammad Mustafa runs perhaps the world’s most unusual sovereign wealth fund.

While his counterparts in China, Dubai or Qatar have made headlines by shovelling billions of dollars into troubled banks in the US and Switzerland, Mr Mustafa must think carefully before committing even a few million dollars.

There are no oil revenues or soaring export earnings to inflate his fund, and no western executives beating a path to his door.

The television in his office is not tuned to international business channels, but shows burning US tanks on al-Jazeera, the Arabic news channel.

Mr Mustafa, a veteran economist who spent much of his career at the World Bank in Washington, is in charge of the Palestine Investment Fund , or, as he puts it, “the wealth of the Palestinian people”.

The chief executive and his 25 investment professionals manage assets worth about $850m (€550m, £430m). It is a small sum compared with the vast fortunes at the disposal of other sovereign funds in the Middle East. But Mr Mustafa says he is determined to make it count.

“We are not just investing. We are on a mission,” he says. “We want to build on the little we have.”

The PIF was founded in 2000, soon after the creation of the Palestinian Authority, when the quasi-government started selling concessions to telecom and electricity providers.

It was initially seen as yet another outlet for the shady financial transactions of Yassir Arafat, consolidating and managing the various pots of money accumulated by the former Palestinian leader.

However, the fund has since escaped its murky past, Palestinian and international experts say, and its books are now audited by Ernst & Young.

Until Mr Mustafa took over as the PIF’s chief executive three years ago, the fund operated much like any other sovereign wealth fund: 75 per cent of its capital was invested abroad, reflecting the conviction that higher returns could be found outside the shaky Palestinian economy.

“Since then we have been working on a new strategy. We want to play a different role, to move from being a financial vehicle to a vehicle for sustainable development in Palestine,” says Mr Mustafa.

By the end of this year the fund expects to have at least half its capital invested in the Palestinian territories, and by 2012 that share is set to rise to 70 per cent.

Many of the PIF’s new flagship projects are joint ventures with businesses from abroad. Wary of the violence and instability, foreign investors have generally shunned the territories in recent years. But Mr Mustafa believes the fund’s capital, contacts and expertise are starting to make a difference.

“This is not the most simple and straightforward investment environment in the world,” he remarks with understatement, “so, for someone sitting in Doha or Qatar, this is not an easy choice.”

But by investing PIF money and providing a local partner with close ties to the Palestinian Authority “we can bring projects to a point where the investment does become attractive”.

One of the PIF’s biggest projects is the creation of a second mobile phone operator in the Palestinian territories. It started a joint venture with Wataniya , a Qatar-owned telecommunication provider, in 2006.

The launch of services, Mr Mustafa says, has been delayed by squabbles with Israel over the provision of spectrum, but is now due later this year.

Another flagship project is a loan guarantee programme for small and medium-sized businesses in the territories. “About 95 per cent of businesses here are SMEs with less than 10 employees. These companies are very resilient – we went through a very difficult period, and the fact that they are still here is tremendous,” says Mr Mustafa.

However, small Palestinian businesses have little access to fresh funding. “The banks tell them: You don’t have the experience to draw up a proper business plan, you don’t have collateral,” says Mr Mustafa.

Since January the PIF and two US partners have offered Palestinian banks guarantees covering 70 per cent of individual loans to small businesses. The take-up so far – both by banks and companies – is encouraging, with five loans already agreed, and 10 more in the pipeline.

Behind these and other projects, says Mr Mustafa, lies a much broader ambition. “Despite all the difficulties, we are trying to lay the foundations for a new Palestinian economy – one that is private sector-driven, not donor-driven.”

With the heavy hand of the Israeli military still felt throughout the West Bank, and even more so in the isolated and impoverished Gaza Strip, that is a tall order.

Mr Mustafa admits that building a thriving private sector economy amid the chronic violence and instability of the Palestinian territories is tantamount “to trying to do the undoable”. But, he adds, “we have no other option”.

Copyright The Financial Times Limited 2008

http://www.ft.com/cms/s/0/d061c6d6-f9cb-11dc-9b7c-000077b07658.html?nclick_check=1

———————————————————————–

Everything about this list:

http://lists.riseup.net/www/info/epalestine

To unsubscribe, send mail to:

epalestine-unsubscribe@lists.riseup.net

To subscribe, send mail to:

epalestine-subscribe@lists.riseup.net