I INTRODUCTION

  1 . THE MAIN COMPONENTS OF PPIP

  2 . COMPOSITION OF THE PALESTINIAN PUBLIC INVESTMENT PROGRAM

  3 . THE IMPLEMENTING CAPACITY OF THE PNA

  4 . TIME FRAME OF THE INVESTMENT PROGRAM

  5 . CRITERIA FOR INCLUSION

  6 . POSSIBLE FUNDING CHANNELS

II DEVELOPMENT STRATEGY

  1. INFRASTRUCTURE

  2. SOCIAL SECTORS

  2.1 Education

    2.2 Health

    2.3 Housing

    2.4 Social Affairs, Culture and Youth

  3. PRIVATE SECTOR

  3.1 Agriculture

  3.2 Industry

  3.2 Tourism

4. INSTITUTIONAL DEVELOPMENT

III CONCLUSION

ANNEXES:

  Annex 1: List of Abbreviations

  Annex 2: Summary Sheet of PPIP for 1997

  Annex 3: Palestinian Investment PROGRAM for 1997

  Annex 4: Comparison between 1996 & 1997 PPIP

INTRODUCTION

This document presents an overview of the Palestinian Public Investment

PROGRAM (PPIP) planned to commence in 1997 in the West Bank and Gaza

Strip. The PROGRAM has been developed by the Palestinian National

Authority (PNA) in consultation with the donor community, the World Bank and

the United Nations through the local aid coordination mechanisms. The

PROGRAM reflects the funding needs for projects and Programs that have

been identified to start in 1997 and is based on the multi-year Public

Investment PROGRAM presented at the Consultative Group meeting held in

Paris on 18-19 October 1995.

1. The Main Components of the Palestinian Public Investment PROGRAM

 ( i ) Investment in physical infrastructure, aimed at laying the groundwork

for both sustained private-sector-led economic growth in the medium-term

and, more immediately, at bringing about direct welfare improvements for the

Palestinian people;

 ( ii ) Investment in the social sectors, critical to the achievement of

sustained and equitably distributed medium-term economic growth, as well as

to bringing about more immediate direct socio-economic improvements for the

population;

 ( iii ) Investment in direct support of private sector development, aimed

notably at fostering productive activity in the agricultural, tourist and

industrial sectors, as well as at promoting private investment more

generally through the provision of adequate credit and risk-reducing

facilities; and

 ( iv ) Investment in capacity-building for the public sector in order to

enhance both its competence and effectiveness as well as its regulatory and

oversight functions.

In addition, funding requests are presented to donors to provide support to

the Palestinian National Authority’s recurrent budget and employment

generation initiatives with the aim of holding part of the funds raised in

reserve against future contingencies such as an economic turndown brought

about by extraneous factors.

The philosophy underlying the planned 1997 Public Investment PROGRAM

continues to be one of private-sector-led development, with the public

sector working to provide a stable legal, regulatory, and policy framework

conducive to private investment and productive activity, as well as

providing essential support to infrastructure and social services that

cannot be provided by the private sector.

2. Composition of the Palestinian Public Investment PROGRAM

The overall envelope for the Palestinian Public Investment PROGRAM 1995-98

(PPIP) has been estimated at $ 1.32 Billion. The 1996 Core Investment

PROGRAM totalled US$ 551.9 million, to which donors have thus far

committed an estimated US$ 270.2 million (49 per cent of the total cost).

The PPIP is made up of two main categories; newly developed priority

projects for 1997 and unfunded and under-funded priority projects remaining

from the 1996 Core Investment PROGRAM presented in Paris on 18-19 October

1995.

In terms of composition, the US$ 845 million public investment PROGRAM for

1997 (see Summary Sheet 1997) continues to give substantial weight to

infrastructure (42.1 percent of the PROGRAM) and the social sectors (33.7

percent of the PROGRAM), where needs remain great despite

already-substantial donor-supported investment efforts. However, public

investment in direct support of the private sector occupies a larger share

(16.3 percent) compared to that of 1996. This reflects a concern among

Palestinian policy-makers that adequate resources be devoted to laying the

groundwork for sustained economic growth in the medium term, despite the

enormous pressure--in the prevailing environment of closure-induced economic

decline--to channel donor contributions to activities yielding quicker and

more visible benefits. In the same vein, public sector capacity-building

(7.9 percent of the planned 1997 investment PROGRAM) has also received

greater prominence than in the past. For item (6) in the Summary Sheet 1997,

the funds allocated for support to the Palestinian National Authority’s

recurrent budget will be announced later, while employment generation was

allocated US$ 25 million.

3. The Implementing Capacity of the Palestinian National Authority

Projects included in the PPIP are those which are ready for implementation

by various PNA institutions. It is worth noting in this regard that the

implementing capacity of the PNA has enhanced over the past two years due to

the experience gained and to the increased involvement of different PNA

agencies in the process. Ministry of Public Works, Ministry of Local

Government and some other municipalities in the West Bank and Gaza Strip are

increasingly taking part of the actual implementation of investment projects

along with PECDAR. Other ministries are following suit in establishing their

implementing capabilities. The same is true for the Palestinian local

private sector contracting firms.

4. Time Frame of the Investment PROGRAM

It should be carefully noted that the Investment PROGRAM summarized in

Summary Sheet 1997 is made up of investment projects planned for launching

in 1997, whether or not projects already have donor funding commitments

(which may vary in degree of firmness) attached to them. In addition, the

full value of each project that is expected to begin in 1997, rather than

just that portion strictly pertaining to 1997, is listed in the annexed

matrix. Consequently, one cannot equate the total value of the 1997

Investment PROGRAM presented in Summary Sheet of 1997 PPIP with a

projection of actual disbursement in 1997.

 5. Criteria for Inclusion

The specific project proposals underlying the 1997 Public Investment

PROGRAM summarized in Summary Sheet 1997, details of which are enumerated

in Annexes 3 to this paper, have been selected on the basis of several

criteria. Key among these are:

 · Readiness for implementation. In most cases, projects involving works

that have been selected for inclusion in the 1997 investment PROGRAM are

either ready for tender or will be so early in the year.

 · Beneficiaries. Many projects have been selected for both their

geographic distribution as well as their prospective beneficial impact on

substantial numbers of people, particularly among the lower-income segments

of the population.

 · Employment creation potential. Where possible, projects have been

selected to maximize employment creation, both through the investment

project itself and once the resulting physical assets are in operation.

 · Addressing key developmental bottlenecks. Certain projects (e.g., the

Gaza harbor and airport, and the Al-Muntar industrial park project in Gaza)

have been selected for their key role in addressing bottlenecks to economic

growth stemming from the present closure-induced constraints on external trade.

 · Other technical criteria. Feasible sequencing orders have been taken

into account, so that investment projects (e.g., construction of a sewage

treatment plant) requiring prior investment under separate projects (e.g.,

rehabilitation or construction of a sewage trunk line) are not begun until

implementation of the latter is assured.

6. Possible Funding Channels

While implementing agencies for projects in the 1997 Public Investment

PROGRAM have generally been agreed upon, funding channels for projects

have not always been determined ex ante. In some cases ready-made vehicles

for donor funding are available, though donors would also have the option of

funding projects in a direct bilateral fashion and establish (or adapt)

their own project monitoring structures as needed. In other cases, the

funding channel also serves as the implementing agency for the project;

consequently donors would be requested to use the pre-identified channel.

 II DEVELOPMENT STRATEGY

The proposed Palestinian Public Investment PROGRAM (PPIP) is based on the

Palestinian Development Strategy and fully meets the requirements and

priorities of the Palestinian National Authority (PNA) in continuing to

rehabilitate and develop physical and social infrastructure, strengthen

institutional capacity and promote private sector investment.

The issues addressed by the PPIP are critical to achieving the developmental

objectives of the PNA.

In order to achieve the short and medium-term developmental objectives, the

PNA faces considerable challenges and uncertainties stemming both from

external (clearly illustrated in 1996) and internal factors. By the

beginning of 1996, the development process had entered a smooth and steady

phase of normalization, allowing an opportunity for more forward looking

policies to assume greater weight. However, the prolonged closure of the

West Bank and Gaza Strip beginning in February 1996, as well as subsequent

closures, highlighted the need for the development effort to pursue a two

track approach in order to ensure that the medium and long term development

process was not overwhelmed by short term emergency needs.

Important among internal factors are the demographic, infrastructural and

economic differences between the West Bank and Gaza Strip which the

development effort must take into account. Measures of population density,

of the percent of the population who are refugees and of those who live

below the poverty line continue to indicate that the Gaza Strip not only

remains under-privileged but that the developmental needs of the two areas

differ widely.

1. INFRASTRUCTURE

This sector still faces serious problems in spite of its importance in

relation to the development of the economic and social sectors. The long

years of occupation and neglect have contributed to the poor condition of

this sector in the fields of roads, water and waste water, solid waste,

transportation, power, and telecommunications. Key elements of the

infrastructure in these areas are under- developed and cannot satisfy

existing demands. The PNA, with the support of the donor community, the

World Bank and the United Nations have achieved some improvements over the

last two years, but more remains to be done.

In view of the enormous needs of infrastructure development, the first

priority for the PNA continues to be the rehabilitation as well as the

operation and maintenance of existing physical infrastructure.

Simultaneously, sustainable capacity is being developed in order to manage,

operate and maintain these facilities, and plans for capital investments in

infrastructure are being accompanied by technical assistance. In the medium

term, the focus will be shifted from rehabilitation to expanding capacity

through new investment, enhancing efficiency and cost recovery. The

long-term feasibility and sustain ability of projects will depend on meeting

running costs through the increasing involvement of the private sector in

the provision of infrastructure services and a progressive transfer of the

maintenance and operation cost to the managing institutions.

2. SOCIAL SECTORS

The ability to establish a sustainable economy rests not only on the

development of a solid physical infrastructural base, but also on the

strengthening of the social infrastructure. The PPIP addresses this issue

and ensures that rehabilitation and investment in basic education, health

and housing will continue.

2.1 Education

Human resource development is crucial for sustained long-term economic and

social development of the West Bank and Gaza Strip. Key problems, however,

are still facing the Palestinian education sector which need to be resolved

through continuing investment. The PPIP focuses on the rehabilitation and

expansion of basic education facilities and strengthening the management of

educational institutions. In addition to the construction and rehabilitation

of schools to meet the needs of the rapidly expanding student population,

the PPIP also addresses the issue of unifying and upgrading the curricula

and improving the quality of technical and vocational training centers.

Development of higher and technical education is also addressed within this

sector.

2.2 Health

Health matters continue to be addressed by the PNA based on the needs of the

Palestinian population. Plans have been developed to improve the quality and

coverage of health care in general and primary health care in particular.

The PNA aims to integrate preventative and promotive strategies with

curative services and is developing a more comprehensive approach to women’s

health. The strategy also targets the improvement in the standards of health

institutions. The on-going harmonization of health policies between the

United Nations Relief and Works Agency for Palestine Refugees (UNRWA) and

the PNA will be extended to include non-governmental organizations (NGOS) and

the private sector.

2.3 Housing

The development of the housing sector is fundamental to improving living

conditions of the Palestinian people. This sector is faced with a high

population growth rate compounded, more recently, by an increase in the

number of returnees. The PNA aims to increase the supply of financially

affordable housing units for low-income people, provide long term financing

and insurance via commercial banks, upgrade infrastructure in impoverished

areas and encourage private sector participation in the development of

housing. To this end, the PNA is working closely with the World Bank to set

up a comprehensive financing system in the housing sector that include the

establishing of a Palestinian Housing Bank, a Housing Assistance Fund, a

Secondary Mortgage Facility, and a Mortgage Insurance Fund.

2.4 Social Affairs, Culture and Youth

The PPIP addresses several key issues in these sectors, such as the

rehabilitation and re-integration of ex-detainees, the establishment and

upgrading of social centres and the provision of insurance to needy people.

The establishment of cultural and sports facilities for youths, which

complement formal education, aim at encouraging democratic and civil values

and promoting regional cooperation and exchange of information. The

promotion of public awareness among the community can be achieved by the

establishment of cultural facilities such as libraries, museums, theaters

and recreation centers.

3. PRIVATE SECTOR

The private sector, which the PNA expects to play a central role in the

development of the economy, faces major challenges resulting inter alia from

the policy of imposed closures on the PNA areas. While steps are being taken

to improve the legal and regulatory environment, this sector will remain

hampered by the lack of secure access to markets of choice and the inability

to import raw materials and export finished products. Crucial to the

development of the private sector is the need to maintain and upgrade the

existing physical infrastructure.	

Consistent with the PNA’s overall developmental strategy identifying the

private sector as the principal engine of growth, the PPIP’s priorities

include the creation of an enabling environment and basic infrastructure for

industry, agriculture and tourism; the promotion of medium-term lending,

particularly for small businesses and for farming activities, and the

promotion of private sector participation in infrastructure development.

3.1 Agriculture

In spite of limited natural resources, efforts to develop this sector will

be intensified as a major component of the private sector development

strategy. The PPIP encourages private cultivation by improving the legal and

regulatory framework, developing financial institutions, making

technological advances in the sector and improving access of agricultural

products to regional and world markets.

3.2 Industry

Despite only having a share of eight percent of GDP, this sector is being

targeted for development support by the PPIP. The PROGRAM supports both

large and medium export-oriented industries and small and micro enterprises.

The PNA strategy offers two broad packages of assistance. The first supports

border and local industrial zones which will be open to capital from

domestic and foreign sources. The second aims at small enterprises to

complement industrial zones through industrial complexes and incubators.

3.2 Tourism

Given the unique religious and cultural features of the West Bank and Gaza

Strip, tourist sites should be rehabilitated and upgraded. The PNA will

focus its activities on upgrading and supporting private sector development

of these sites. In particular emphasis will be placed on preparing for

Bethlehem 2000.

 4. INSTITUTIONAL DEVELOPMENT

The PNA is giving high priority to building institutional capacities and

continues to stress the need to invest in people as well as in the

supporting equipment and facilities, in order to develop a competent,

streamlined and effective public sector. The PNA also advocates the

importance of donor-funded technical assistance as a means of developing

institutional capacities.

Institutional development needs include improving the system of governance

and the building of local capabilities such as the civil service, in order

to implement the economic development strategy. In particular, focus will be

put on strengthening the technical and managerial capabilities of municipal

government and developing efficient financial management and systems of

accountability.

III CONCLUSION

The Palestinian Public Investment PROGRAM for 1997 represents the urgent

priorities of the Palestinian development effort in the West Bank and Gaza

Strip. However, the realization of these priorities rests on several factors:

 ( 1 ) Funds required for 1997 should be made available as early as possible;

 ( 2 ) Implementation agencies on the ground should strive to disburse these

funds in a timely manner;

 ( 3 ) A suitable political environment is required; and

 ( 4 ) The policy of closure and restrictions on access of goods and lab our

should be lifted.

In all these areas, the international community’s support is crucial.

Despite assistance from the donor community, the Palestinian economy has

suffered a serious downturn.

The PNA remains committed to the peace process in order to improve living

conditions in the short run and to achieve a viable and promising future for

the Palestinian people in the long run. The PNA is determined to realize

these goals, with the assistance and support of the donor community and the

multilateral agencies.

ANNEX I

List of Abbreviations

CAA: Civil Aviation Authority

EIB: European Investment Bank

GS: Gaza Strip

JCU/PEC: Job Creation Unit / PECDAR

LG: Ministry of Local Government

MA: Ministry of Agriculture

MC: Ministry of Culture

ME: Ministry of Education

MF: Ministry of Finance

MH: Ministry of Housing

MHE: Ministry of Higher Education

MHL: Ministry of Health

MI: Ministry of Industry

MJ: Ministry of Justice

ML: Ministry of Lab our

MOPT: Ministry of Post and Telecommunications

MPIC: Ministry of Planning and International Cooperation

MS: Ministry of Supply

MSA: Ministry of Social Affairs

MT: Ministry of Tourism

MTE: Ministry of Trade and Economy

MYS: Ministry of Youth and Sport

PA: Port Authority

PCBS: Palestinian Central Bureau of Statistics

PEA: Palestinian Energy Authority

PEC: Palestinian Economic Council for Reconstruction and Development (PECDAR)

PHC: Palestinian Housing Council

PLC: Palestinian Legislative Council

PMA: Palestinian Monetary Authority

PNA: Palestinian National Authority

PPF: Palestinian Police Force

PW: Ministry of Public Works

S.Arabia: Saudi Arabia

UK: United Kingdom

UN: United Nations Agencies

USAID: United States Agency for International Development

WA: Palestinian Water Authority

WB: West Bank