Wednesday, October 9, 2013

Fiscal crisis and negotiation chips in the Israeli-Palestinian peace talks

"Only free men can negotiate" -- Nelson Mandela

"The Palestinian leadership under Arafat signed onto the “peace process” at Oslo because it was headed towards oblivion (bankruptcy) after backing the wrong horse in the First Gulf War. In return for being rescued by Washington and Tel Aviv, the Palestinian leadership agreed to act as Israel’s subcontractors in the occupied Palestinian territory. (Former Israeli foreign minister Shlomo Ben-Ami, in Scars of War, Wounds of Peace, is very frank on this point.)" -- Norman Finkelstein

Keeping Palestine at brink of bankruptcy -- part of Israels negotiation strategy?

Financially weak partners are more ready for compromises in negotiations. The Arafat leadership, being at the brink of bankruptcy, was ready for compromises during Oslo, as Finkelstein explains. As leaked cables suggest, Israel had a tactic to keep Gaza at the brink of bankruptcy. The Israeli restrictions to the West Bank have multiple effects, some in the field of security, others in the field of economy, keeping the Palestinian economy small and dependent on the Israeli one, which in turn keeps the potential for tax revenues collected by PA small, so the PA is having a hard time increasing the share of budget under its own control, which in turn make punitive customs tax withholding by Israel more painful for PA.

How deep does the PA's financial crisis run?

To get a rough idea, this is how deep the PA's financial crisis runs -- expenditures are approximately 70%, or 1.4 billion $ above revenues:

If you deduct foreign budget support, and deduct the taxes collected by Israel (mainly custom fees), the Palestinian Authority has control over only about 40% of the money it needs to cover all its expenditures.

Without foreign budget support, the current Palestinian leadership would likely collapse. We witnessed a similar scenario after 2005 elections when the international community withdrew its budget support, the elected government had to stop paying public servant's salaries, the parliament got dissolved, and the leadership was replaced by the current one.

Becoming financially independent

It is the PA's priority to become financially independent by bringing a larger part of the annual governmental revenues under its own control. While that portion was only 40% in 2012, the 2013 budget looks much better, especially the customs losses associated to indirect, smuggled imports through Israel are being reduced. But still the PA is far from standing on its own feet financially.

A strong private sector would be key to increasing independent tax revenues to the PA, but it seems like the framework conditions imposed by Israel will not allow for much growth. Palestinian GDP could grow by 35%, if Israeli restrictions would be lifted for C-Areas of the Palestinian West Bank, according to a recent World Bank report. An earlier report by ARIJ ("the economic cost of the occupation") estimated the Palestinian GDP to grow by 85% if all restrictions of the occupation, including the blockade of Gaza would be lifted.

The other option for the Palestinian leadership to become financially independent would be fiscal consolidation. About half of the governmental expenditures goes to the 160.000 governmental employees. In other economies, especially those without oil, it is deemed unsustainable and not really effective to have one third of the workforce employed by the government.

What are the hard negotiating chips?

Under this link, you find some speculation of how the peace talks may develop.

However, not everybody is so optimistic. Some doubt that the Nethanyahu government would have any benefit from entering into serious negotiations. Others suspect certain Palestinian stakeholders who benefit from the status quo to lobby against a final status agreement.
If the enthusiasm about the Kerry initiative is to crumble at some point, what hard playing cards do the involved parties hold in their hands?

Israel has not much to win from negotiations. For the constituency of the Israeli government, the status quo seems to be the best it could wish for (apart from those that dream of getting rid of Palestinians from the occupied territory altogether). However, if no substantial agreement is reached, Israel will continue its path of being increasingly seen as an apartheid government, or a pariah state. Israel will try to sell the outcome of negotiations, however small, as a great success towards peace.

In case of failed negotiations, the PA will probably sign the Rome treaty to get access to the ICC in The Hague -- and this will initiate a flood of cases filed against current and past Israeli government officials, causing major discomfort and fast decay of the moral standing of Israel in the world.

As revenge, the Israeli government could stop transmitting customs revenues, as it did before many times, and ask befriended governments to withdraw budget support, taking the PA to the brink of bankruptcy.  From past experiences, these financial punishments never lasted very long. It appears that Washington and Knesset don't want to let the PA to collapse. Just imagine how messy and expensive it would get for Israel if they would need to take care for the entire civil administration of Millions of Palestinians.

It is a safe guess to assume that the US government, regardless of its financial cliffhanging exercise at home, will offer a sweet budget support deal to the PA government in exchange for not involving ICC. And maybe the PA will be tempted to accept that deal.

But there might be people who would find it morally acceptable to first accept the budget support, and then seek justice through ICC regardless.

And to be honest, the USA doesn't have much leverage to prevent such steps. Another temporary punitive freeze in budget support maybe, so what? USA will never take it as far as to let the PA administration collapse.

Friday, October 4, 2013

The Value Chain of Stolen Cars

On a Personal Note

What made me come up with this post is the fact that during my stay in Ramallah, two vehicles have been stolen from me -- these are the vehicles -- so in case you hear anything, please leave me a note...

Mitsubishi Pajero 2.8TD, unique feature: you honk by pushing a small green button
Suzuki DR350, unique feature: speedometer is shattered

Experiences with Palestinian and Israeli Police

When my car was stolen, Ramallah police was very friendly and welcoming, but disappointing on a professional level, to say the least. My car was stolen in front of a bank, with a security camera pointing at it. I reported the case to the police just two hours after the incident, including hinting at the existence of the security camera. Overall, I have visited the police station six times on six different days to follow up on the case. Each time I was received with very welcoming words and offered coffee and cigarettes, I was being redirected to higher ranking officials who spoke good English, just to find that there was no file on the case available, and that I had to tell my story from scratch. After telling my story for the sixth time, I gave up and went myself to the bank to find out that the police did not pass by to check the video footage.

Since I am driving Israeli number plates, and I wanted to claim my vehicle registration fees back, I also had to report to the Israeli police station responsible for Ramallah -- which is located inside the settlement of Sha'ar Binyamin (where, by the way, I was surprised to find about half of the cars parked in front of the huge Rami Levy supermarket to have Palestinian number plates). The Israeli police had much less staff to handle many more cases, still it took only 30 minutes to have my printed report done, of course without much of welcoming words, no coffee and no cigarettes offered. They assured me that if the vehicle was to cross any checkpoint, it would be stopped and confiscated -- How would that work? I could imagine they have cameras to automatically detect all number plates crossing the checkpoints and compare them with a stolen vehicle database. But do they really? I never saw cameras at checkpoints.

Bottom line is, neither of the polices were successful in retrieving either of my vehicles.

The Value Chain of Stolen Cars

Those who break into cars are usually freelancers who receive an approximate 100$ per car upon delivery in one of the hubs in Hebron, Tulkarem, Qalqilia, Nilin and other places -- typically in Palestinian villages in C-Areas of the West Bank, off-limits for the Palestinian Authority, and mostly neglected by the Israeli civil administration.

The next stage of the value chain is either
  1. Selling the car to the insurance company of the theft insurance, who returns it to the owner. The insurance company saves the cost of paying the entire price of the car.
  2. In case the car has no theft insurance, and the owner finds some informed people, he can pay a tip of a few hundred shekels to get advice where to find the car.
  3. Otherwise, the car is disassembled and sold as spare parts to workshops in West Bank and Israel. The engine and chassis have serial numbers, so they need to be changed to avoid traceability.

The first value chain seems to work efficiently through middle men who take their cut of the business.

The second value chain, which was my case (no theft insurance), I was less fortunate. Regardless of several attempts and very helpful friends, both my vehicles did not show up anywhere.

The third value chain, i.e. the spare parts market, does not work efficiently at all. When I took my car to west bank workshops for repair, they would usually install used spare parts, but often I got the wrong spare parts, or long delays, or sometimes just lack of availability of parts.

Business Case 1: Solving Market Inefficiencies for Spare Parts

Business models like or amazon's marketplace have proven to be very efficient in matching supply and demand for new and used items from a large number of suppliers, including spare parts for cars.

The e-business takes a small fee for the transaction, and facilitates the transfer of the money and the transfer of the goods, while giving buyer and seller trust and confidence through Paypal's insurance, and customer ratings.

The business model needs to be slightly adopted to be a B2B model (instead of B2C), and you might want to facilitate confidentiality on the supplier's side, by buying the most-demanded spare parts against cash, and store them in a warehouse for shipment on demand.

Business Case 2: Retrieving Stolen Cars

For retrieving entire stolen cars, you will probably need to take further efforts for confidentiality of your users. You can receive anonymous hints on where the stolen car is parked, you sell this hint to your client, and you will pass the money in form of Bitcoins anonymously, while taking your cut of the deal.

Also, you could tap the potential of smartphones for this. Imagine you have 1000 users of your smartphone app, that are driving around with their smartphones attached to their own car's windshield, and the camera activated, the smartphone could automatically compare all numberplates of all other vehicles with a list of stolen numberplates. Once it has a match, it will take a photo, and upload the photo along with GPS location to your server. You can sell this information to the victim of the theft, and pass on a part of the revenue to the smartphone user to give him an incentive.

Owners of surveillance cameras that are attached to a PC could also benefit from this scheme if they install the PC-version of that application.

Business Case 3: Preventive Action

Many modern cars make it very hard to be stolen, as all car parts that are connected to the main data bus have to receive data from an electronic key in order to be functioning. So short-cutting the starter circuit won't help. Many Palestinian car workshops can install a number-combination lock preventing the engine from starting.

Another approach to find the perpetrator is to install a GPS tracker, that will send you the current position of your car by SMS. They are available for as little as $40 or a bit more, for instance

Thursday, July 18, 2013

Label for High Quality Palestinian Products

Quality-minded Palestinian customers often look for imported products from Europe, USA, Israel or Turkey, which enjoy a reputation of better quality than many domestic products. This reputation may be true in some cases, but it is not fair to generalize, given that quality varies a lot from one producer to the other, and some Palestinian ones indeed are doing an excellent job in producing decent quality.

Think of food delicacies from Canaan in Burqin, think of plastic chairs from Royal in Hebron, think of Shoes from Falcon, think of diary products by Juneidi, think of matresses by Herbawi, think of furniture from Eisa Mohana Co. in Gaza, medjoul dates by Al Nahkeel farm, bell peppers by Sinokrot, turkey breast by Siniora, and many more. Further recommendations? Comment below!

Trust in Labels

A label without trust is worth nothing. Palestinian customers typically rely on word of mouth (e.g. recommendations of their neighbor), and on opinion leadership (statements of trusted, famous personalities). In addition, compliance labels to international standards (ISO, CE, DIN, etc.) would create trust, but they certify compliance with formal requirements such as material and chemical properties only, not evaluating overall product quality from customer's perspective.

A label would need to make sure its financial independence, and needs to be under the auspices of a trustworthy personality. Criteria for receiving the label, and revoking the label need to be clear and transparent.

Label Design

Since you are promoting domestic products, and addressing an audience that possibly likes to promote the Palestinian cause, a design that includes some elements of kuffieh or embroidery patterns or such, is probably not a bad idea.

The Business Model

To avoid bias in awarding your label, you should charge for a product to be tested, and the supplier needs to pay in advance, regardless of the outcome of the test. If the product passed the test, the producer is allowed to carry the label for a defined duration of time, and he can print your label onto the product.
Include the possibility of revoking the label in the contract.

To get things going in the beginning you can offer at least one product test for each producer for free. Each type of product requires different test criteria, so don't try to start with all product types at once.

Check Best Practices

Europeans love product tests and labels, so get inspired by their huge diversity of different labels. Some are completely private, some are in compliance to some law, or some technical standard. Also look for customer-centered evaluation criteria as used by Stiftung Warentest for example.

Thursday, May 16, 2013

Bitcoin Exchange in Gaza

Background: The Difficulties of Trade in Gaza

The entire export industry of Gaza is virtually dead due to the trade restrictions unilaterally imposed by Israel. The markets that Gaza used to export to (Israel, Westbank and East Jerusalem) are completely blocked by Israeli sanctions. Only a limited set of goods can be exported to Europe, such as flowers, strawberries, furniture, but logistical hurdles and high production as well as logistical costs make it impossible to compete on those markets. Everybody hopes for relief by exporting virtual goods like software, IT services, data entry, call centers, that can more easily get across borders through wire. Palestinian companies like ASAL and Unit One are pioneering in these markets.

But what if your clients abroad are struggling to pay for their services, given that all international transactions are processed by Swift, located in United States, which is blocking virtually any transaction to Gaza?

Bitcoin: A Currency Without a Central Bank

The great advantage of Bitcoin (or Litecoin) currencies is that they travel just as easy as data across any computer network. The amount of money in circulation is limited by mathematics rather than by a central bank (Which these days, under fear of inflation of most global currencies, people might feel more trustworthy). In order to have Bitcoins being used in the Palestinian economy in Gaza, you will need an infrastructure of Bitcoin exchanges, that could change the Bitcoins earned back into Dollars, Shekels, or Egyptian Pounds.

How to Establish the Exchange in Gaza

Well I leave that question to those who have more local experience in Gaza. You might want to work together with banks, you might need to consider governmental intervention from Gaza or Israel, etc.

On the more technical level, you could register your local Bitcoin exchange office under one of the following Websites, and follow the other examples of Bitcoin exchanges in other countries:

Thursday, April 25, 2013

Catering the Rich: Let's do the trickle down effect!

There are more wealthy Palestinians than you think. Those from the families that have always been influential since centuries. Those with a part of the family in diaspora who made their fortunes in USA, Canada, Europe, or the Gulf. Those who made their fortunes in local businesses, sometimes with help of their links to either of the three governments in place. Those who became rich as traders, flooding the local market with foreign products under the free trade regime of Paris Protocol. Those that came back with their college degree from abroad, and created their own successful business.

Billions are stored in bank accounts in Palestine, in Jordan and overseas. The question is, where will those billions be spent? Forget about trying to get hold of that money by force. Most of it lies outside Palestinian jurisdiction.

But if you manage to offer some classy goods and services in Palestine, chances are that people will actually spend their fortunes here, and create jobs and income in Palestine, instead of doing so in the fashionable city centers of Paris, New York or Dubai, or possibly just Mamilla Mall in Jerusalem, which caters even common Palestinian's needs during their Ramadan shopping spree.

Successful Examples of Catering the Rich

Restaurant business is booming in Ramallah, and appears to be quite profitable, regardless of prices similar to those of European metropolises. Luxury cars are selling well, it is not rare to spot brand new top-of-the-line Mercedes, Audi, Porsche cars on Palestinian roads. The weddings industry is booming, and Mövenpick Hotel's wedding hall is often fully booked in advance for weeks during summer before and after Ramadan. A few other premium services have set up their operations very successfully, such as modern beauty parlours with hairdressers who received their training by Toni & Guy, and a couple of other examples.

Identifying Gaps to be Filled

Other economies have more experience with catering the rich. It is easy to get inspired in neighboring countries, look at Beirut downtown shopping center, look at the emirates mall in Dubai. Look at all the products and services advertised in lifestyle magazines. Think of chauffeur service including VIP access through checkpoints. Think of premium medical services. Think of financial services around private wealth. Think of high-standard tailor-made suits. Bring in franchising brands that guarantee a global quality standard. Create an online portal for high-class shopping, services, with an exclusive online community with club membership card and recommendations engine.

Is it Immoral to Cater the Rich?

I know that all this will not end the occupation, and it will do little to advance the political struggle. So I am not suggesting to go for consumerism instead of resistance. The struggle for for Palestinian rights has to go on. But let's be realistic, USA will take a couple of years to shift its military focus away from the Middle East and towards East Asia, thanks to shale gas fracking, and the strength of China. And Europe will take a couple of years to call for significant sanctions for the discriminatory legal system that Israel established in the occupied Territories. Meanwhile, the best tactics for Palestine is to embark on peaceful resistance, obsoleting Israel's ever-repeated "security" argument, while the violations of international law and of discriminatory law and practices are further exposed, strengthening the notion of Israel as a Pariah state, or Apartheid state, which eventually calls for tough sanctions after a decade or two have passed, and the last bureaucrat in Europe has understood how the game is played. Diplomatic and economic pressure on Israel, and (financial, military) aid with strings attached to Israel, would eventually make the scenario of ending the occupation more attractive to the Israeli government than perpetuating the status quo.

Back to the original question, that tactics of political struggle is perfectly compatible with earning some money at the same time doing business, and trying to keep as much Palestinian money in the country as possible by providing decent goods and services for wealthy clients.
In any case, relying on the own economy will give the political struggle more room to maneuver, as opposed to relying on foreign development aid with strings attached to Palestine.

Tuesday, April 16, 2013

Car Sex in Palestine

Italians, sometimes called the "Arabs of Europe", invented the trend of car sex, that became especially popular in the more conservative south of Italy, where most young people live with their families until they get married. Via Manzoni in Naples is a famous hot spot for this:

Merchants are selling newspapers, sticky tape, and all other ingredients for a comfortable evening with privacy in your car.

Car Sex Business Potentials in Palestine

South Italy may be conservative according to European standards, but you may find Palestine slightly more conservative still. So instead of parking your car in a public road under trees by the seaside, your customers will want a more hidden spot on a private property with gate and guard.

In order to avoid conflict with local authorities, you may want to put that spot in a C-Area out of reach of the Palestinian Authoritiy's jurisdiction, but still within reach for your customers.

In order to avoid misunderstandings and outrage of religious zealots, you should call it family barbecue and camping site or something more innocent.

Also you need a large spot of land with enough trees so you can give your customers enough privacy so that they do not bump into each other.

In Saudi Arabia, an even more conservative place than Palestine, people rent tents in the desert in order to avoid being bothered by the strict hotel regulations for couples. A luxurious tent may be a value added service you can offer to your clients at a premium in Palestine as well.

So where is the best spot for a camping site with some privacy? You don't want to be more than 30 minutes away from the large populated areas. So, at least one campsite can be established for Bethlehem/Hebron area, and another one for Nablus/Jenin/Tulkarem area. Towards Jordan Valley, there is a lot of C-Area but very few trees. The western end of the West Bank is greener, but more inhabited by jewish settlements. So finding the perfect spot, buying it, and receiving permission by COGAT to develop it, will be the most challenging part of the exercise. The good thing is that COGAT is usually concerned only about permanent structures cast in concrete. So you can run your site with trees, tents and cars, and that should work without much interference by Israeli forces.

Apart from standard clients, you could also host some special-interest events, like gay or lesbian parties.

Car Sex in '48

For '48 Palestinians (those who enjoy the benefits of an Israeli Passport -- others call them "Arab Israelis") and for Jerusalemites, there is more choice for nice spots without the need to pay for it. For Jerusalemites, the Camping Forest near Ein Kerem can be suitable, or go a bit further on Highway 443, between Modiin and Ben Shemen you will find a large forest with more privacy.

For those along the coast, e.g. from Jaffa, there are more choices, for example parking along the lonely beach south of Herzliya Marina.

Sunday, April 7, 2013

Taking Solar Thermal to a Next Level

Between 50 and 70% of Palestinian households are using solar water heaters. Typical roofs look like this:

Those passive "thermosiphon" solutions are great for a start, mostly manufactured locally in Hebron, and widely available at low cost, but there is a lot of room for improvement:

  • Poor insulation of collector, storage, and pipes, so that in the winter time you will hardly have warm water
  • Small storage capacity, so if you wash dishes with warm water in the evening, the next morning your shower will be cold for all household members
  • Lots of wasted water -- before your shower gets warm, you have to let it run for several minutes and waste maybe 10-15 liters.
  • Heat can be used for water only, not for floor heating.

Potentials of new Technologies

Vacuum tube collectors -- have better insulation and give much better yields especially in wintertime, and require less space on your roof.

Circulation pumps -- insulate your water pipes and let the hot water circulate using a small pump. This way you will have hot water immediately as you open the tab, and no need to waste 10 liters of cold water before every hot shower you take.

Heat storage -- modern storage and heat exchange systems are much bigger in capacity, often located in the basement, and serving an entire apartment block. So even on rainy days you don't need to worry about hot water for your shower.

Space heating -- are you still freezing in wintertime, because you want to save hundreds of dollars of diesel heating cost each month? Investing in a large heat storage and plenty of vacuum tube collectors on your roof could be the solution.

Early Adopters

Several companies are selling vacuum tube passive thermosiphon solutions like this one. I saw some shops in Al Bireh. If you want to go into that business, look on Ali Baba, and you will for sure find a Chinese manufacturer that wants to export them to you. 

So far, those appliances are not yet manufactured locally. Here is a video describing the manufacturing process:

You would probably need a technology partner in order to establish a local production, for instance Ritter Solar.

The city of Rawabi offers to its residents a solar thermal solution that has the heat storage tank on the balcony, instead of the rooftop. This solution employs a circulation pump, and reduces water losses. The same heat storage tank is used for the gas burner, and there is an electronic controller to use gas once the water temperature is dropping too low. So you have not only reduced water loss, but also more convenience.

The company of Royal in Hebron offers comprehensive solutions, including large heat storage tank, circulation pumps and electronic controller. This picture is from their brochure:

Future Outlook

The use of concentrated photovoltaic (CPV) together with solar thermal is a promising future technology. A parabolic mirror reflects sun onto a small high-efficiency photovoltaic module for electricity generation, and the assembly is cooled with a cooling liquid, whose heat can be stored, and used for solar cooling, solar heating, hot water, space heating, etc.

Have a look at their prototype, which is promising an energy collection rate of up to 70% (combined heat and electricity):

Stay tuned what comes up from