The Palestinian Investment Fund

By: Omar Shaban

The Palestine Investment Fund is by way of the sovereign fund of the Palestinian Authority, as it manages its investments inside Palestine and outside it. The fund was founded in 2003 within the international community's demands of President Arafat to strengthen transparency and disclose the Authority's possessions and investments — which was interpreted at that time as an attempt by the donor states to reduce President Arafat's powers, lessen his supervision over the public money, and restrict his freedom in disbursing financial allocations outside the frame of the budget. Accusations were directed at the late President Arafat that he administered unregistered investments to spend on military work and that he allocated part of the donor states' aid to spend on the refugee camps in the diaspora, and especially in Lebanon. The Western community's demands at that time included creating the post of prime minister and appointing a specialised finance minister to manage the public money. Dr Salam Fayyad assumed that post, to be the first finance minister of the Palestinian Authority from outside the school of the Palestine Liberation Organisation.

The Palestine Investment Fund was founded by a presidential decision, as the decision provided that the fund be under the supervision of the Ministry of Finance; therefore Mr Salam Fayyad, in his capacity as finance minister, took up the presidency of the fund, and Mr Khaled Islam, the economic adviser to President Arafat, was appointed director-general of the fund. All the possessions and assets of the Palestinian Authority at home and abroad were transferred to the fund's supervision — for example the Palestinian Authority's share in the mobile network in the two states of Tunisia and Algeria, the governmental lands in the Gaza Strip from which Israel withdrew in the year 2005 (the settlements' lands), as well as the Palestinian Authority's shares in the communications and electricity sector and other real estate and movables. Shortly after the death of President Arafat in November 2004, by a few months, Khaled Islam relinquished the administration of the fund and the finance minister Salam Fayyad became the fund's president and its director for a very limited period. With Hamas's victory in the elections of January 2006 and its formation of its first government, a process of tugging began between the two institutions — the government formed by Hamas and the presidency institution controlled by the Fatah movement and the factions of the Palestine Liberation Organisation — on the background of the disagreement over the affiliation of some of the Palestinian Authority's institutions: are they to the government, which means the Hamas government's control over them, or to the presidency, which keeps them away from it. Within the emergency measures President Mahmoud Abbas announced in response to the Hamas movement's control over the reins of rule in the Gaza Strip, the responsibility for the investment fund was transferred from the Ministry of Finance / the government to the office of President Mahmoud Abbas, where Dr Mohammed Mustafa, the economic adviser to President Mahmoud Abbas, assumed the post of director-general of the fund and, later, chairman of the board of directors.

The results of the fund's work

There is no doubt that the founding of the Palestine Investment Fund formed a portfolio for the assets and possessions of the Palestinian people, as it prevented their loss and dissipation, as is the case with the Liberation Organisation's assets. Likewise the fund formed a financial tributary for the Palestinian Authority in critical times. The fund's works also contributed to stimulating the Palestinian economy, increasing the gross domestic product, and creating thousands of new job opportunities. The fund's final accounts for the year 2011 show that the equity reached 747 million American dollars, with a slight decline also in comparison with 2010; this decline is attributed to the distribution of profits of about 45 million dollars for the two years 2010 and 2011, alongside the fund's being affected by the financial crisis from which the national economy suffers and by the world financial crisis regarding the profits. Meanwhile the value of the assets is 888 million dollars. The fund achieved profits reaching about 33 million American dollars after deducting the tax in the year 2011, so that the total of the profits achieved since the fund's creation became 800 million dollars. The fund transferred 20 million American dollars of its profits in the year 2011 to the treasury of the Palestinian National Authority, so that the total of the profits distributed to the Authority's treasury since the fund's founding in 2003 and until the year 2011 reached more than 653 million American dollars — that is, what forms 105% of the value of the paid-up capital.

The fund's administration: -

The fund's internal regulation provides the following: the Palestine Investment Fund works as a public limited joint-stock company, owned by the Palestinian people, and it is independent financially and administratively. It has an independent board of directors and general assembly. The fund manages a number of investment portfolios and specialised companies belonging to it, which in their turn invest in a group of vital projects.

In reality the fund is managed by a board of directors composed of 11 members since the year 2012, after their number had been 7 members, and a general assembly composed of 30 figures. The fund's board of directors is chaired by Dr Mohammed Mustafa, who occupies the post of director-general as well, and likewise the economic adviser to President Mahmoud Abbas. Dr Mustafa is raised from time to time as a candidate for the premiership of a national-unity government in the event that the reconciliation between Hamas and the Palestinian Authority is completed.

Required reforms:-

Without diminishing the fund's accomplishments, there is a need to carry out more reforms, whether in the pattern of administration or in the fields of investment:

• Dr Mohammed Mustafa gathers three posts at one time, which places some doubt on the level of transparency and oversight over the administration of the fund's work, especially as the fund's president also holds the chairmanship of the boards of directors in a number of subsidiary companies owned by the fund.

• Likewise the membership of the fund's general assembly includes a number of persons who have ministerial posts in the Palestinian government or posts inside the Liberation Organisation; likewise some members of the board of directors and the general assembly are owners of large companies having a work and partnership relation with the investment fund itself, which creates a state of conflict of interests or their convergence — especially as the investment fund works in the same fields in which these companies work, whose owners occupy the membership of the fund's board of directors and its general assembly.

• The methodology of appointing the members of the general assembly is not clear; although the investment fund is a public joint-stock company, the members of the board of directors are appointed by presidential decisions, which requires obtaining the Legislative Council's approval of their membership. This increases the degree of ambiguity around the fund's legal character! Is it a sovereign institution belonging to the presidency institution, or is it a public joint-stock company subject to the companies law in force in Palestine!

• Some members of the board of directors and members of the general assembly are owners of large companies enjoying monopolistic contracts in the sectors of communications, insurance, banks, contracting, and import and export. It is understood from this that the Palestine Investment Fund strengthens the state of monopoly accused by Palestinian society of being one of the principal causes of the state of poverty and unemployment. And they point to the state of the marriage between power and wealth, the state that marred the Arab regimes of despotism and that the mass movement of the past two years did away with.

• The fund's investments vary among economic sectors such as construction, tourism, small and medium loans, communications, and others. It is observed that the fund concentrates a large proportion of its investments in the field of construction, and especially the new, very upscale residential neighbourhoods. Some see in these investments a commendable attempt by the investment fund to lighten the housing crisis in the Palestinian territories in the face of the Israeli settlement's encroachment on the West Bank's lands, while some look at the investment fund as forming an unfair competition with the private-sector companies, especially those working in the field of construction; likewise that the upscale housing projects do not suit the middle-income earners, who are the dominant category in Palestinian society

http://www.al-monitor.com/pulse/ar/contents/articles/opinion/2013/05/palestinian-investment-fund-reform.html