Regional Integration Framework: In dustry for Peace Initiative in Palestine

Regional Integration Framework: Industry for Peace Initiative in Palestine

Ankara, 20 March 2006

e c o n o m i c p o l i c y r e s e a r c h i n s t i t u t ee k o n o m i p o l i t i k a l a r ı a r a ş t ı r m a e n s t i t ü s ü

Regional Economic Integration Framework Slide 2

Overview

Business Association Networks Ankara Forum Process Industrial Estate Project

Local Capacity Building in Palestine Chamber Development Project Industrial Park Management

Capacity in Turkey TEPAV-Economic Policy Research

Institute


How it got started? What is in it for Turkey?

Time for regional integration of our economy for sustainable growth. (not only to foster EU process).

Need for stability in the region for enhanced trade and investment relations.

Trade is the basis of sustainable peace. Why in Palestine?

Oldest and basic conflict in the region. Why now?

A new process has started with Israeli disengagement.


What can be done? It is best to think through concrete projects

and create examples. Grand projects falter. Best to think small. An example: our efforts for the revitalization

of an industrial estate in Palestine Problems of the Palestinian Economy

Closure Problems Integration issues:

• Israeli economy requires Israeli cooperation• World economy (a re-exporting base?) requires the

support of the international community The need for job creation (especially in Gaza to

create a positive expectations process.)


The Estate Project We started with the most difficult area Idea came at one of the Ankara Forum meetings

Forum first started as a network of businessmen for cooperation

A concrete project was needed to monitor and test the words of politicians

An opportunity to leverage the know-how of Turkish Chambers in: public-private dialogue Industrial park management Doing business under extraordinary circumstances

A microcosm of all political and economic problems


Progress Recap: Where We Are Now Political decisions certified official support,

Joint Declarations signed with both Palestine and Israel on January 4 and 5, 2006

The Developer Company (TOBB-BIS) established in Turkey and registered in Palestine

Investment Promotion Activities started Task Force established for trade facilitation

and security arrangements Engineering Team on the ground, projects to

be completed by March 2006 Constructions to be finished by July 2006 March 2006 elections in Israel ?


Palestinian Industrial Free Zone


A Unique & Exemplary Project It is not an ordinary business project.

requires effective coordination among the two not-so-friendly sides – PA and Israel

private-public dialogue is key throughout the entire process

But, it is still a business project. If we want it to be sustainable, it must generate

profits. Under appropriate security conditions. If there’s fresh air for the investors, business

prospects don’t seem too bad (especially, given the resources ready to flow into the region and generous FTAs.)


Political support is now certified Joint Declarations were signed with Israel and

PA on January 4 -5, 2006 This was no easy task. We saw that many people have the tendency to

reflect big political problems on very small steps. Profit opportunities can easily fall prey to this

tendency. Lessons learned:

Effective public-private dialogue mechanisms have to be in place for protecting the small steps. (Ankara Forum as an enabling mechanism)

Steps must be small to avoid castles to be built upon, and also technical to avoid political fights.

Regional Economic Integration FrameworkSlide 10

Support of the International Community James Wolfensohn (Former President

of the World Bank President and Quarter’s Special Envoy for Palestine)

Paul Wolfowitz (President of the World Bank)

Mark Otte (EU’s representative for the MidEast Peace Process)

Olli Rehn (EU’s Enlargement Commissioner)

Javier Solana (EU’s Common Foreign Policy Commissioner)

US Agency for International Development (USAID)

The World Bank Group (MIGA, IFC) East West Institute Chicago 10 Group


Political Decisions Declared Israel has officially shown that

Job creation in Gaza is in the interest of Israel• Israel is ready to contribute to the economic growth of Gaza

It is possible to go beyond the Rafah Agreement (i.e. Movement of goods via Israel / not only the movement of outputs but also inputs)

• “ practical arrangements for the facilitation of operation of the PIFZ, including the usage of the Israeli maritime ports for exports and imports to and from the PIFZ would be coordinated between the two sides”

• Requirement of an Environmental Impact Assessment Report! PA has officially shown that

Special economic zone status will be provided• A regulatory coordination unit will be established• Concessions can be given in taxes and customs• Free Zone Status

Security issues can be handled by a third party Now the task is to transform all these possibilities and the good

will into concrete steps. Operationalize the good will statements.


Formulating the most feasible framework: Ordinary tasks, extraordinary mechanisms

Movement of Goods market access customs regulations

Security arrangements Infrastructure +

construction Investment promotion Effective service delivery

Infrastructure Regulations

Require special status and special arrangements

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Special Economic Zone ( A SEZ for Gaza)

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The need to create interim solutions Trade facilitation will not be smooth First best options are not available, at least

for the medium term i.e. Ports and airport in Gaza

Second-best and interim solutions need to be realized Access via Israel Logistic center at the border Support of the international community can

make the efforts workable (testing of the good will)

Access via South?


Investment Promotion Providing incentives (fresh air)

Security package (Overhead costs lower profitability) Incentive package (Necessary to compensate overhead

costs).• Loan guarantees• Market guarantees: contracts• Investment guarantees• Regulation – enforcement guarantees• Tax exemptions.

Resources are available, donors are willing to let them flow into the region what is needed is a concrete and doable project to

mobilize the resources we wanted not another extra well-written report, but an

initiative that can channel the resources effectively, also where we can leverage our organizational capabilities in doing business under extraordinary circumstances


Industrial activities at the Estate (before disengagement)


Services & Infrastructure Services to be provided

Physical infrastructure quality will be at highest standards

Electricity Telecom (ISDN lines, hosting and internet) Easy access to major highway and to

Ashdod Logistics center Banking and Insurance Special Security Unit


Trade Facilitation PIFZ will be extra-territorial

Industrial Free Zone Status Immune from Palestinian & Israeli regulations Customs unit will be established at the Zone Qualified Industrial Zone Privileges

• Duty and Quota Free Access to the US market– 35% Local content requirement (can be from Israel &

Jordan) Free Trade Agreements with the EU

Goods will move to/from the Ashdod Port 25 km North of PIFZ (in Israel) Transit Passage en route to the Estate

Plans to build airport and seaport in Gaza


Potential Investors New investors:

Those who want to re-export their Gaza production to third countries (Arab markets, EU, and the US)

Those who want to target the Israeli market

Incumbent investors: Palestinians Israelis with partners from third countries

(i.e. American, Turkish)


Our approach We are learning that there are two types of

approaches to private sector development Approach of international organizations:

Problems are big. Too many impediments to doing business. So develop big projects, target big problems, allocate big resources.

Our approach is different. Making profits is key for sustainability of any endeavor. Finding creative shortcuts for removing the big impediments to doing business. (Save the day, create hope for tomorrow)

• Well-functioning public-private dialogue mechanisms• Concrete and local projects. Interim solutions. (often

times, interim is eternal)• Engage in “transformational diplomacy”


Lessons being learned

This is a region where ideal options are rarely feasible. (confidence gap and a whole range of political, ideological, historical reasons).

Small steps are essential instead of long range plans. Thinking through stages makes you focus on

technical issues. (less political etc.) Local solutions are essential.

The ideal, then, is to look for interim solutions agreeable to all parties at every stage.

Interim solutions strengthen confidence and bridge the gap.


Investment Process Flow Contact TOBB-BIS

offices to be established in Gaza & Israel soon

currently TEPAV is the executive agency Obtain a license from PIEFZA Two ways to start:

Lease land & build own facility & start Lease facility & start


Capacity Building in Palestine Capacity building programs for the

Palestinian chamber-system and organized industrial estate-related personnel in Turkey- 4-10 September, 2005. Training on issues such as: Chamber management and income

resources of the chambers Turkish Chamber Quality System and

Chamber Accreditation System TOBB-Eurochambres Joint Projects Promotion of International Trade Services Arbitration and Chambers Management of Organized Industrial Zones


TEPAV- Economic Policy Research Institute

TEPAV became operational in December 2004

The objective is to create an independent research capacity for PSD and PPSD.

Organized around three programs,Economic StudiesGovernance StudiesForeign Policy Studies


Focus on the transformation process Developing policy tools for dialogues with

the government Investment Climate Assessment Competition Environment Assessment EU Impact Analysis (TurkMod)

Raising the capacity of the local stakeholders to have more active roles Local communication network for academics and

journalists Enhancing the policy making ability of local

chambers Regional Integration

Industry for Peace Initiative Eurasia Project


Contribution of TEPAV|EPRI to the economic transformation process Investment Climate Assessment (jointly with the

World Bank) determining the binding constraints to firm performance providing policy recommendations for removing barriers to

private investment Industrial Policy Document (jointly with the State

Planning Organization) Formulating Turkey’s industrial policy in accordance with

the EU accession process Labor Market Studies (jointly with the Brookings

Institution) policy choices for converting the skills of the unemployed

workforce realigning the skills of labor with the needs of the private

sector


To sum up Both Turkey and the region is undergoing a

very important transformation process Private sector has important roles (different

from those of the past) There is the need to manage the process

effectively. We need: Know what the process is about Capacity to manage it

Well functioning and integrated private sectors are central to peace

Regional Integration Framework: In dustry for Peace Initiative in Palestine

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