Palestine – Placebo effect for people and society with 20 bn bucks

Article published on April 9, 2010
community published
Article published on April 9, 2010
No Results: 12 Billion Dollars Disappeared in Palestine”. This headline popped recently to my eyes. First I was thinking that it is Zionist propaganda or comment in some hard-line Israel newspaper. Then I saw that headline was based to a learned discourse of Dr. Ghania Malhis - chairwoman of the board of trustees at The Palestine Economic Policy Research Institute (MAS) and former senior economist in the League of Arab States. MAS was founded in Jerusalem in 1994 as an independent non-profit institution to contribute to the policy-making process by conducting economic and social policy research. Presentation of Dr. Malhis was held in UN Seminar on Assistance to the Palestinian People on 25 March 2010 in Vienna.

The core conclusions of Dr. Ghania Malhis were that, despite the considerable economic help from various institutions of the international community and NGOs – about 20 billion US Dollars over the last 15 years

it has been almost impossible to trace any positive impact of these mobilized resources on the ground” and

“the GDP of 2009 is 13% lower than the GDP of 1999, and the GDP per capita is 30% lower for the same years”.

Her original study “International Assistance in Support of the Palestinian Economy: The Role of Regional Partnerscan be found here as pdf file and it has been my main source for this article.

The Aid

Dr. Malhis summarizes the International assistance to the Palestinian people as follows:

The international assistance to the Palestinian people has an accelerated annual growth rate. The average annual contribution from 1994-2000 represented 500 million dollars and jumped to an average of 1 billion dollars a year from 2001-2005. Although 2006 witnessed a slight decrease registering 716 million dollars, the numbers rapidly escalated to 1.5 billion dollars in 2007, 1.7 billion in 2008, 1.8 billion in 2009 and is expected to reach almost 2 billion dollars in 2010.

the International community and Arab countries have managed to mobilize substantial resources to assist the Palestinian people amounting to no less than 12 billion dollars over the past 15 years. An additional 6 to 8 billion dollars were also mobilized during that same period through an array of active Arab and international civil society organizations and NGOs.

These numbers are also exclusive of the assistance provided through popular national campaigns from the Arab region, NGOs and other informal channels. These are estimated to have exceeded 5 billion dollars over the past decade mostly in the form of relief campaigns and food and cash donations. These numbers neither include the contributions provided by Arab governments to the UNRWA budget where the bulk of its expenditures are used to support its activities in the occupied Palestinian territories, nor the expenses associated with hosting more than 4 million Palestinian refugees in Jordan, Lebanon, Syria and Egypt.

These numbers are of course highly encouraging when taking into consideration the size of the targeted part of the Palestinian people which do not exceed 3.9 million people in the occupied Palestinian territories and their GDP does not exceed 4.5 billion dollars annually according to the 2009 estimates.

The Impact

The impact of the international assistance is however poor if not even non-existent. Quote from study:

It has been almost impossible to trace any positive impact of these mobilized resources on the ground, even when taking into consideration the substantial investment carried by the Palestinian private sector in the occupied Palestinian territories, including those made by the Palestinian Diaspora as according to findings, these investment represent one third of the national GDP.

And despite donors’ generous assistance and contribution, we witnessed an incessant increase in the need for the Palestinian Authority to borrow from local banks to meet its obligations whereas the accumulated public debts of the Palestinian Authority to the local banking system has exceeded 733 million dollars in mid 2009 with accumulated arrears payments to the private sector of 188 million dollars; and therefore affecting the private sector’s ability to mobilize financial resources.

The main economic and social indicators are confirming the poor impact as expressed in table below:

Main Economic and Social Indicators (from study of Dr. Malhis)

- In 2009, the GDP is 13% lower than that of 1999 and the GDP per Capita 30% lower for that same year.

- The production capacity in the occupied territories was higher in the early nineties prior to the peace process, and the registered contribution of the agricultural and industrial sectors to the GDP did not exceed a mere 18.2% and only contributed to 29.2% of employment.

- The exports coverage to imports became a feeble 19%.

- The ability of Domestic Production to cover domestic national consumption has highly deteriorated resulting in an increase in dependency on Israeli imports and a heavy reliance on Arab and international aid to finance the cost of these imports.

- We have also witnessed a decrease in the Palestinian authority revenue stream resulting in its turn in an evident deterioration in its ability to provide basic services such as health, education, social development and security unless heavily subsidized by Arab and international donations and aid to support its expenditures.

- In 2009, international support was required to address a budget deficit of 61.4% equivalent to 39% of the Palestinian GDP.

Whatever progress there has been in the establishment of Palestinian Authority institutions, along with security, fiscal and administrative reform efforts, the bottom line is that these tens of billions of dollars spent in the past decade have ultimately failed to bring back the performance witnessed in 1999 on the socio-economic front.

The Mistakes

The study gives also indication about mistakes and causes of them related to transforming Aid into progress on the ground. From study:

These numbers and facts are giving us a clear indication that these practices and contributions have failed to capitalize on the resources mobilized, quite the contrary; one cannot but feel that these resources have been wasted. When the outcome of more than a 12 billion dollar investment results in such disastrous numbers, then it is obvious that immense mistakes were made on a strategic level.

Looking back, the mistakes done were not the responsibility of a sole partner, rather it has been the result of collective failures of all stakeholders from the Arab countries, to the International donor countries and institutions to the Palestinian Authority and Israel as well as the cumulative effect of an assistance that became donor and even charity driven rather than investment driven.

The Arab countries have also deviated from their decisions taken in the October 2000 Arab Emergency Summit in Cairo where it was clearly stated that emergency relief to the Palestinian people has to be coupled with developmental aid, and that 80% of the Arab funds mobilized should be channelled into investments to enhance the capacity of the Palestinian Authority and supporting it in creating a viable independent economy, more integrated with Arab, Regional and international economies in order to reduce its heavy reliance on lessen the smothering imposition of Israel.

The approach taken was a reactive one, where donors’ countries responded to crisis after crisis rather than work on an active engaged plan to build a stable environment and therefore avoid and pre-empt crises. Thus resources were wasted in trying to compensate and respond to the urgent needs of the Palestinian losses as a result of the aggressive Israeli policies and practices such as closures, embargo, confiscation of agricultural land and, control of water resources, demolition and destruction of agricultural produce, industrial plants and services, public and private properties, impediments to trade and crippling the movement of goods and people. The cost of such practices overshadowing all resources mobilized by donors therefore resulting in an always negative impact no matter the size of the investment.

Palestinians Responsibility

While International donors had only slight idea what they want to achieve with their donations and even worse strategy how to implement foggy visions in beneficiary region it's clear that the Palestinian Authority also hold a sizeable responsibility. They failed to invest the funds mobilized by Arab and International donors on development, they used Aid to cover their current running expenditures and filling their own pockets instead of sustainable development.Hundreds of millions were invested by the PLO though private investments in businesses, restaurants, supermarkets in the US with no records kept with tens of millions lost for ever. With no one bothering to protect public funds, one has to wonder how many hundreds of millions people and individuals within the PLO and Fatah were able to make out of having monopolies for distributions of fuel, food, and other monopolies granted by Arafat and the PLO.

From study:

The Palestinian Authority failed to provide developmental sustainable solutions to unemployment, choosing governmental recruitment over encouraging and nurturing a vibrant productive economy to create jobs. They have also chosen to take the easy way to improve public revenues by financing the budget deficit through increasing the trade balance deficit, as well as competing with the private sector through public investments in vibrant sectors of the economy rather than invest in infrastructure to enable the private sector to flourish.

The Palestinian Authority has also failed to timely address allegations of misuse of funds, power and mismanagement as well as a lack of accountability and transparency in addition to fostering a large public sector that exceeds the national needs.

Our efforts need to multiply and result in well-studied strategies for development that will reflect our sincerity and commitment to the Palestinian people. These efforts need to be translated into massive reforms and visionary partnerships between donors, the Palestinian Authority and key sectors of Palestinian society, which would signify a paradigm shift in developmental strategies, a main component of which needs to be a capable and innovative workforce.

And the working model that can most effectively translate such strategies into positive realities is one that proposes to bring together prudent Arab, International public and private actors, progressive coordinated policies, a responsible private sector and an engaged civil society, whose purpose is to create a highly skilled, dynamic workforce that will push the Palestinians towards sustainable and balanced development. We need to work together to create the much needed infrastructure for a flourishing Palestinian economy, one that nurtures creativity and innovation, a productive knowledge economy that will allow the Palestinian people to build a life and not just an existence.

My Opinion

I do not believe that the case of Palestine is unique with development projects by big donors. In my earlier articles I have described some similar aspects and critical examples. More e.g.

Bulgaria wrestles for EU funds and credibility” “Donors & Field: Will Kosovo rise with 2 bn bucks?” “Squandering Kosovo's Aid Funds” “World Bank destroyed Albanian village in joint operation with corrupted Government – a typical crime story from Balkans” From my viewpoint the first task for donors should be to put Aid programs into general context. Today seems that donors framework is fixed only to two-state solution. So Aid is going to state-building activities e.g. to construct some infrastructure in Gaza. When some building is ready and Hamas use that facility for their activities, Israel Defence Forces destroy it, then donors build it again and IDF destroys it – again and again the same vicious circle. In my earlier articles I have proposed other alternatives e.g. population transfer to get some buffer zone between IDF and Hamas (more in “Gaza War: Could Balkan history show way out?” ) or changing two-state solution to three-state option (more in “The Three-State Option could solve Gaza conflict” ). Putting other options on the table could give totally different vision to international Aid and maybe some positive outcome to beneficiaries too.

From project management point of view I like to highlight following aspects:

* At planning stage the correct information from the field should be provided, not only high level marketing reports

* The Aim(s) and output should be clearly defined and understood by both donor and beneficiary

* The final project plan should include realistic Logical Framework Approach (LogFrame)

* At implementation stage the events on the ground and the progress reports should be compared to verification measures in LogFrame

* The feedback from the event on the ground level and about inappropriate connections on the management level should be used to make necessary correction to original plan

* If the aims of original plan look unreachable or the methods with implementation are incorrect the financier should have courage to stop project when it is still ongoing without waiting yearlong investigations to be ready

* Internal investigations should be supported not prevented by donor management.

There is also question if aid money should be channelled through beneficiary government or through civil society/NGOs. My answer is complicated. First there is difference if we speak about emergency aid or more long term state building projects. In emergency case I think that effective actions can be made even without state authorities, directly on the field, in second case results are very difficult to achieve without government commitment.

Speaking development projects on the ground - not on emergency stage - there are many alternatives depending individual cases. Easiest for donors is to give aid through generalized budget support - results can vary from state to state and be like in Palestine, nonexistent. Through sector program assistance is the other option. Then it is possible contract international or national NGOs for implementation or give aid through multilateral mechanisms such as World Bank, UN programs etc. The core question too is to find in each case right balance between aid through government or aid through civil society organizations.

Whatever channel for Aid is selected from my viewpoint the core issue is to apply the Logical Framework Approach for implementation as well some more improved versions of it. The Logical Framework Approach is the matrix (the Logframe), which summarises what the project intends to do and how by selecting a preferred implementation strategy. It also analyses, what the key assumptions are, and how outputs and outcomes will be monitored and evaluated. From following link you may find the basic matrix of LogFrame idea: logical-framework2

In challenging and fast transforming environment there might be wise to use some improved LogFrame method such as the Appreciative Inquiry tool developed by SIDA, where the focus is placed on the things which are working well, and on finding positive action alternatives for resolving a situation. As LFA is found by many to be an overly problem-oriented model the Appreciative Inquiry tool is analysing also motivation and driving forces. Also useful might be further developed Social Framework, rather than a Logical Framework, because it emphasises people and their relationships, rather than more abstract events and processes.

But like I wrote earlier even the best project plans and their implementation can fail, unless they are coupled with a political solution with realistic vision about future.

The bottom line

Just look at the empirical reality on the ground. There is no Palestinian state, never was intended to be, and there isn’t one! (opinion from discussion forums)

There seems to be a huge gap between fine ideas/plans/collected money in Brussels and their reasonable distribution at local level in Palestine. The biggest mismanagement or misuse of Aid money is not according my opinion local criminal activities. The strategic error has made in international level by not knowing the demands or challenges on the ground, not adjusting ideas and plans according local needs or the moment of Aid delivery, using indefinite mixture of emergency relief and long term planning, lack of simple and unambiguous development strategy and strategic leadership. The real crime will be if international community does not correct earlier errors and practices at strategic level – only after that one can demand smoothly flowing project at local level. The strategic error is to use Aid funds only in a right way, not to right purposes.