Palestine’s Ace: The PIF

Ashby Monk

I read an interesting article in Foreign Policy over the weekend. Bernard Avishai takes a step back from the political and security debates that dominate coverage of the Israeli–Palestinian conflict and instead examines the state of the Palestinian economy. In his view, a strong economy will be crucial for enhancing and sustaining peace:

“The good news is that the Palestinian private sector, though small, is prepared for a take-off…Palestine’s billion dollar sovereign wealth fund, the PIF, has been investing strategically in construction and wireless telecommunications; it is transparently run by Mohammed Mustafa, a former World Bank official…’

I haven’t spent much time studying the Palestine Investment Fund, but I find it remarkable that it is having such an important domestic impact. That said, the PIF has increased its domestic investing over the past two years. Today, approximately 50% of its assets are invested domestically (with a goal to push this up to 70%). In addition, the PIF works with foreign investors to bring capital into Palestinian SMEs (small and medium enterprises) across a range of sectors. For example, in January the PIF launched a new $50 million private equity fund with Abraaj Capital targeting Palestinian companies.

So there is quite a lot of money coming into Palestine, which could make their economy independent from foreign aid. However, the success of this SWF and its policies will depend on its structure and governance. Indeed, investing locally is fraught with problems, such as corruption, mismanagement, and political interference.

Interestingly, the PIF seems to have avoided all of this; it’s pretty well governed actually. It publishes annual reports. It partners with major international and private sector investors. It is internally audited by PricewaterhouseCoopers and externally audited by Ernst & Young. And it is commercially oriented; despite the financial crisis, PIF earned a profit of $58 million in 2008. That’s pretty remarkable.

This success may have caught the eye of other “sub-national” governments, as I have seen quite a few that are considering SWFs to bolster their domestic economies in a bid to facilitate autonomy (and independence). For example, Greenland recently set up a SWF for the purpose of facilitating independence from Denmark. Scotland considered the idea of a SWF to facilitate independence from the UK. Even South Australia’s Commissioner for Aboriginal Engagement saw a SWF as an innovative tool to help Aboriginal communities support themselves instead of relying on government welfare.

So Palestine has one important thing going for it: the PIF.

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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