Saturday, April 28, 2012

Designing a Palestinian Shopping Mall for Israeli Clients

The Idea of a Palestinian Service and Shopping Mall for Israeli Clients

Palestine has cheap labour, so most services can be offered at much more attractive prices than in Israel. Same applies to some goods from Palestinian production that would have to go through a complicated procedure to enter the Israeli market, but could be sold easily under Palestinian jurisdiction. Also some goods receive different taxation, which then could be offered at more attractive prices.

Choosing a Location: Come Close to Your Clients

The Westbank is zoned in A- B- and C- zones, A-zones being inaccessible for Israelis (at least according to Israeli law), C-zones being virtually impossible to develop for Palestinians thanks to the Israeli military administration (that calls itself civil administration). So this business model is likely to be placed in a B-zone, administered by the Palestinian Authority, and security being under Israeli responsibility.
Furthermore, it makes sense to place the mall not too far away from the clients. Looking at the densely populated Tel Aviv area, and the ABC zoning map, it seems that the Palestinian villages north of Ariel Junction, for example Kifl Hareth, being just 20 minutes from Tel Aviv via Highway 5, and 5 minutes from Ariel, might be a promising location.
Another option may be, that a '48 Palestinian (Israeli passport holder) gets hold of a piece of land in a C-Area -- so to speak a settlement, but develops it to be Palestinian.
Placing the Mall inside Israel might be another option, but it is increasingly hard to get work permits for Palestinians to Israel. Labour regulations and taxation seem less attractive for businessmen. Also having to officially import all the products, and submitting everything to Israeli taxation may reduce a lot the attractiveness of such a business model.
Therefore: B-Zones is probably the place to invest. An Israeli partner is probably still necessary, at least for advertising in Israeli media and to get permission to mount a huge banner at the Ariel junction roundabout.

Palestinian Threats and Israeli Paranoia

How to make clients feel safe, that is definitely not an easy one. Still, there is a small threat of attacks to this kind of soft targets. And, there is a well-known Israeli obsession with security.

Security and PR in Palestine

Well, I wouldn't want to create a fortress, but a few technical measures and some security staff to avoid violence happening on the premises might be required. At the same time, a good campaign is necessary, creating awareness that this business is not about normalization of the occupation, but about creating jobs in Palestine, and economically competing with Israel (independently from occupation, from two-state or one-state or whatever other political discussions). The campaign should include some testimonies from local employees, happy about their job, and some testimonies from businessmen happy to beat their Israeli counterparts in this competition.

PR and Entering the Market in Israel

Starting with advertising addressing Arab Israeli population, eventually one would expand the client base by creating awareness using social media, word of mouth, and a good website that offers lots of great discounts in Hebrew language.
To face the Israeli fear, word of mouth can be quite helpful, maybe accompanied with a campaign about fear and ignorance, ridiculing Israeli paranoia... for those that are still hard to convince, there could be delivery services or mail order (via the Ariel post office). Maybe a network of informal courier services would be built up, that commute between Tel Aviv and the mall to get things through the checkpoints without official import procedures.


What Kind of Goods and Services to Include in the Mall

Some ideas were mentioned in an earlier post already. These goods and services look promising due to the huge difference of market prices between Israel and Palestine:

  1. Gas station (fuel 15% cheaper)
  2. Cigaretes (14.5 Shekel instead of 20)
  3. Hairdresser (for 25 Shekel instead of 100)
  4. Drycleaner (4 Shekel per shirt instead of 10)
  5. Tailor (small fixes for 5 Shekel instead of 50)
  6. Pharmacy (Palestinian generics are half the price or less; besides you can get prescription drugs without prescription)
  7. Medical services (cheaply get extra treatments that the Israeli insurance doesn't cover)
  8. Manicure/pedicure/massage (a fifth of the price)
  9. Car workshop (about one quarter the price as in Israel)
  10. Bike workshop
  11. Car wash (20 shekel for a thorough inside and outside wash)
  12. Fruits and vegetable market
  13. General Supermarket
  14. Restaurants
  15. Plastics and other factory outlet shops (Royal Co., and others)
  16. Shoes "Made in Palestine" outlet store
  17. Knafeh / sweets outlet from Nablus
  18. Furniture from local production
  19. Nuts and dried fruits shop
  20. Fresh juices
  21. Ice cream from Nablus (Al-Arz)
  22. Handicrafts shop with pottery and glass from Hebron, carpets, embroidery, etc.
  23. Possibly a bar/disco
  24. Free parking, free childcare with a huge playground, cinema, etc.
  25. KFC and some local-flavor fastfood (falafel for 4 shekel, shawarma for 10)

Customer-Friendliness

The Israeli shopping landscape is pretty much comparable with Europe. Most retail prices are fixed, and transparent with labels etc... For example, you go to a car workshop, they give you a quotation, you will confirm, and then they start to do the repair. Palestine tends to be much cheaper but less transparent. So, the operator of the mall should define certain standards and policies to come closer to the client's purchasing habits. Obviously Hebrew language would be one of those. Maybe some kind of money-back guarantee for anything purchased in the mall would create additional trust in Palestinian quality.

Saturday, April 21, 2012

The Economics of Weed

Considerations about legalizing marijuana, and how growing weed in Palestine would benefit health and economy...


Solving the PA's Budget Deficit

The PA government regularly faces fiscal problems, partly because of the Israeli occupation, that deprives them of an estimated 400M$ of tax revenues p.a. due to lacking control over its borders. Partly because the PA hires about 140.000 public servants which are bread winners for about one third of the population on the demand side of the economy. Partly because the supply side of the economy is performing poorly (well explained on a one-pager here), and the moderate taxation is poorly enforced, both of those phenomena can partially be blamed to the occupation.
The potential of Marijuana tax revenues was calculated among several European countries, estimating tax income of between 15 and 40 Eur per capita per year if legalized. Compared to Europe, Palestine has a very young population with higher consumption patterns. The black market prices are estimated 1.5 times higher than in Europe, so regardless of lower purchasing power, I believe it is fair to estimate 40 Eur per capita tax revenues. Palestinian grass would inevitably end up on the Israeli market after being taxed, so you would serve a population of around 11 M people with an averaged 30 Eur per capita per year (due to older population in Israel), that's 330M€ or about 0.5 billion $, that would solve about half of the PA's 2012 budget deficit.

Health and Quality Control

Contrary to popular belief, legalization of Marihuana does not lead to significant raises in consumption patterns. Compare, for example consumption in the Netherlands with its neighbouring countries. Also, legal Marijuana keeps people away from distribution channels of illegal hard drugs (such as Heroine or others). Furthermore, a governmental control of the sector can lead to better quality, less chemical content and less pesticide residues. With a legalized and transparent market, even quality labels such as "organic production" can be established, and the locally produced high quality Marijuana can also be utilized for medical purposes.

Export Market to Israel

Today, over 90% of Marijuana on the Palestinian market is imported from Israel, further worsening the deep trade deficit that Palestine has with Israel. Legalizing Marijuana in the areas under Palestinian sovereignty is likely to cause local grass not only conquer the Palestinian domestic market, but also end up serving the largest part of the Israeli market. Just imagine a small plastic bag with organic label and taxation seal from the Palestinian Authority being sold at affordable prices in Tel Aviv. How thankful those Israeli clients would be to have a well established system of quality control in the neighbouring country.

Attracting Tourists

Besides Iran, Palestine would be the second country in the Middle East to legalize Marijuana. What has proven to attract a lot of tourists in Amsterdam, could likewise bring more visitors to the coffee shops in Nablus, Hebron, Ramallah, Bethlehem and so on.

Knowledge Transfer from Netherlands

Not only with effective legal and regulatory environment, but also technical expertise in seeds, and cultivation indoors and outdoors can be found in the Netherlands. If the PA government decides to take steps towards legalization, I am sure that the Dutch development aid would be in a good position to recruit the needed international expertise to develop the legal and regulatory framework as well as a strong and competitive agricultural and processing industry.

Oslo and Weed

According to the Interim Agreement on the West Bank and the Gaza Strip, also known as Oslo II, in particular chapter 4 refers to drugs:
"cooperate in combating criminal activity which may affect both sides, including offenses related to trafficking in illegal drugs and psychotropic substances, smuggling, and offenses against property..."

Well sounds like Oslo would be kind of infringed by legalizing Marijuana -- or maybe not? It's talking about illegal drugs, but if the PA defines cannabis to be legal, then it is actually no infringement, right? And if some Israeli dealers decide to buy Palestinian weed and smuggle it out to Israel, that's beyond control of the PA -- and the PA doesn't need to pay special attention to it.

Islam and Weed: "And do not kill yourselves" [Al-Nisaa' 4:29]

If sin is present and it is great, then it is forbidden. Undoubtedly this alcohol is harmful to the mind and body, and Allaah has forbidden everything that harms the body and mind, and saps the strength. Everything that is harmful to a person is not permitted, because Allaah says (interpretation of the meaning):
“And do not kill yourselves”
[al-Nisaa’ 4:29]

...so if sin is great, it is forbidden, but what about the small sins like Marijuana? Correct me if I'm wrong, but from Islamic point of view, smoking weed falls into the same category as, for instance, smoking cigarettes, or an unhealthy diet. Six million people die each year from smoking cigarettes, probably a similar figure from heart diseases as a consequence of unhealthy diet, but there was not a single case of death as consequence of smoking weed reported worldwide.
So, isn't' it hypocritical to allow smoking and all kinds of unhealthy food, while banning Marijuana, which, in contrast to cigarettes, or french fries, actually has a proven medical use?
The principle of necessity can be applied on the basis of the Islamic principle; “Necessity legalizes prohibitions”. This principle is taken from Allah’s saying: “He has explained to you in detail what is forbidden to you except under compulsion of necessity.” [Sûrah al-An`âm: 119].

If there is necessity out of medical use, and even recreational use of Marijuana is a smaller sin than other legal things, why not just legalize it all together? If it's ok in Iran, which pretends to be an Islamic theocracy, Palestine shouldn't have an issue with it, right?


Business Ideas in Energy Sector

Often people are complaining about the high energy prices in Palestine. At the same time, you could see them as a chance for Palestine to develop fields of business, that would never be profitable in Egypt or other neighbouring countries that heavily subsidize their energy. Palestine can pioneer in building up experience in fields of energy efficiency and renewable energy. As the world energy prices are expected to rise sharply in the coming 50 years, this knowledge will be badly needed everywhere, including in those neighbouring Arab countries that will be no longer able to afford their heavy energy subsidies in the long run.

So these business models in the energy sector seem to be most feasible in the short run...

  • Energy efficiency contracting / energy performance contracting
    It's a well established business model elsewhere, but the Palestinian market seems to be unaware of it, even though with the high energy prices, and the terribly bad insulation that houses, commercial buildings and factory facilities often have, it could be surprisingly profitable, even without any subsidy scheme or donor involvement. Many investments in energy efficiency will have pay-back periods well below 5 years. The major obstacle seems to be that people (and companies) are hesitant to invest in their buildings and facilities. They like to have the cheapest investment possible into their house or commercial building, while forgetting about the running costs. This obstacle can be addressed by shifting the investment to a contractor, who will then be able to recover his investment through an energy performance contract, that will still deliver the needed energy (usually heat) to the client at a cheaper rate than diesel, electricity, or gas would cost.
  • Solar Boom through Net-Metering
    A long-awaited regulation from the Palestinian Energy Authority is in the pipeline: Net-Metering. It will allow people to feed in electricity into the network, making solar installations on private and commercial properties a profitable business model (with a 20-year loan at reasonable interest rates of 6% p.a.). Profitable, it seems to be if the Energy Authority agrees for people to feed in electricity at retail prices (around 0.53 Shekel per KWh). Instead of the retail price, the Energy Authority seems to envision a price of 0.38 Shekel, which resembles the price at which Palestine is buying electricity from Israel. This price leaves a decent profit margin for municipalities and electricity distribution companies, but unfortunately it will hinder the development of a profitable photovoltaic boom in Palestine, that would make Palestine become more energy-independent from Israel, and vastly improve Palestine's foreign trade balance. I believe we need to work on models how to satisfy the justified needs of municipalities and electricity distribution companies, while at the same time enabling a solar boom in Palestine through net-metering at retail prices.
  • Biogas from agriculture
    Biogas from landfills is part of Palestine's national energy strategy. Let's hope that this will soon materialize. Biogas from agricultural waste would be particularly of interest for large cattle farms (Al-Juneidi, Al-Jebrini, etc..), but other agricultural waste can be used as well. With the high energy prices, and the well-skilled and low-cost labour in Palestine, this business model can be profitable even on much smaller scales than elsewhere in the world.

    Possibly even biogas from housing units. Take an average apartment building with 10 appartments, the average household size of 5.8 people, you can turn the feces of 50 people into biogas, which you feed into the gas tank, and sell it back to the residents. Given the extremely high rate of newly constructed buildings in Palestine, the fermentation tank can in many occasions be built cheaply upon construction of the house, so it could be profitable in a matter of maybe one or two years..

Thursday, April 19, 2012

Youth Hostel, Torrent Servers, and others...

In response to initiating my blog, I immediately received some additional ideas from the facebook community, which I was authorized to share anonymously..

In case you are interested in the Youth Hostel idea, drop me a note, and I will connect you with somebody who definitely has good experience in hosting travellers in Ramallah, and would be a great partner working on this idea.

  • Indian or Thai restaurant: I'm amazed no one's done this, it's so obvious, you'd get all the expats and the Palestinians who've lived abroad and some curious locals.
  • Online network of expats/returned Palestinians providing freelance services
    in English document editing for locals (especially job applications). Win-win.
  • Weather-proofing homes:
    Everyone complains about how drafty the homes here are. Again, how is it that no one's thought to set up a company at a minimum installing seals on doors and windows (which can be bought in hardware stores), all the way up to installation of double-pained glass and insulation in walls and ceilings?
  • Youth hostel:
    This one's my idea so nobody steal it! But unfortunately I don't have 1 million USD to buy a nice old central Ramallah house. If I had inherited one, however, it would be a gold mine. So many foreigners looking for a place to crash, volunteer for short periods of time for the cause, and eager to take all kinds of tours. If someone out there has a location available, I will seriously invest in this.
  • World HQ for pirated material:
    With all these file-sharing websites being shut down in Europe/US, why not just use the legal gray area that is the West Bank/Gaza and set up massive servers to host all this material
    ? If they haven't shut down Stars & Bucks on Manara, who's going to come after some guys in Beitunia with a wharehouse full of computers? 
  • Gaza Strip: A gentlemen's club. Just saying...


What Made Me Start This Blog -- A First Brainstorming of Business Ideas

As a European living in Ramallah, Palestine since a couple of months, I come across things that I am missing on the local markets, or products that Palestine is could be producing for other markets, such as Israel or elsewhere in the world...

As a foreigner, I can hardly implement these business ideas myself (also due to the fact that Israel will not grant me residency for pursuing business in Palestine), so I invite any Palestinian entrepreneur to copy, utilize and adapt these ideas, to write business plans, and seek for investors, and you are welcome to comment and get back to me for questions and consultations any time.

This is a first brainstorming of business ideas that crossed my way:

A. Profiting from Israel

The cost of the occupation inflicted on the Palestinian economy is estimated at 6.9 billion $, that´s more than half the total size of the Palestinian economy.
The occupation is doubtless bad, in many cases illegal according to international law and human rights, but hey, it is no excuse to remain lazy. While Israeli investors are largely profiting from using Palestinian land, water, and other resources, we can look for ways to profit from the Israeli economy, and take some money back to Palestine. What helps in this is
  1. The vast availability of cheap and skilled labour in Palestine
  2. About 7% of Israels citizen are illegal settlers, for whom the State of Israel wants to have easy transfer between Israel and Westbank. Therefore we can expect the borders to remain easy to cross, at least for Israeli citizen, of which 20% are Palestinians.
  3. The low (direct) taxation in Palestine, and some limited sovereignity on indirect taxation (mostly limited through Paris Protocol), and in general a less regulated market causing less friction for business, especially in the services sector.
The following are some examples how to exploit this potential:
  • Tailor-Made Suits for Israeli Market.
    Following the business model of Dolzer  http://www.dolzer.com/ who takes measurements of their clients in Germany, and lets them choose the fabric, and then sends that information to low-income countries such as India or Eastern Europe, where a suit is half-tailored, and sent to Germany, where the client will try it on and small corrections are marked, the suit goes back to India, will be finalized there, and sent back to Germany. Now take the same business model, but instead place your shop into Tel Aviv, and have the suit tailored in Nablus, saving plenty of time and transportation cost.
  • Dry-Cleaning and Ironing
    In a similar manner as described above, a large discount dry-cleaner in Tel Aviv or Jerusalem could have the labor-intensive ironing be done in the Westbank, saving a large part of the cost. This will probably work only if you have large amounts of shirts every day, making a daily courier drive profitable.
  • Maintenance for Israeli CarsThe price difference between car workshops in Israel and those in the west bank is huge. The Israeli government knows that, and protects its domestic service industry by such a law:  http://www.ynetnews.com/articles/0,7340,L-3525971,00.html
    Anyhow, I am sure there are many ways to circumvent this law. Get a lawyer to check the options... just a few ideas, the car workshop could be placed in Al-Ram, which belongs to Jerusalem, but is on the Ramallah side of the Wall. Or the workshop could be placed in a settlement, or elsewhere in a C-Area, employing Palestinian labor. Or somebody with Jerusalem ID could take the car to the Workshop, or maybe there is another loophole...
  • Advertising Palestinian Gas Stations in Hebrew and English for Israelis and Tourists
    On the way on Route 60 for example, on the southern-western end of Bethlehem, there is a gas station, not a minute from the main road, where any Israeli passing by could fill his tank for a price approximately 15% less than at an Israeli gas station. You could place an add in Hebrew or English: "Welcome to Palestine. Fill your tank at Palestinian prices. Turn left, after 100m..".. A side-effect is that these customers will be helping to solve the PA's budget issues by paying Palestinian fuel taxes.
  • Casino
    There has been a Casino in Jericho that was quite popular, especially among Israeli visitors whom religion forbids gambling, so does the state of Israel. It has been closed for a while. Why does nobody else try to open one?
  • Sell Cheap Cigarettes to Israelis and Tourists
    Cigarette tax seems to be lower in Palestine, saving approximately 5 shekel per pack. Now you could place shops somewhere easily accessible for Israelis (B-Area, somewhere close to Route 60, next to Hizme checkpoint, and next to Maale Adumim), and place large ads in Hebrew or English.

B. "Made in Palestine" branding

There is a great solidarity for the Palestinian cause around the world. Many of the supporters can do little to really help Palestine, because the key decisions on the fate of Palestinians are taken in Knesset. International political support (US, UN, etc.) might push Knesset to certain extent to find a fair solution that will grant Palestinians proper citizenship and equal rights, but these efforts didn't achieve much in the past 45 years, and it seems to be out of reach of common people. That's bad, and a common person can't change much about it. Still, we can see the solidarity for Palestine from a business perspective on the local market, as well as on export markets. Very few products you find in the world are labelled as originating from Palestine. By buying products branded as Made in Palestine, it serves as a display of solidarity for customers, who can, in spite of political frustration, at least support the Palestinian economy.
There are a few shops existing, e.g. http://www.palestine-shop.net/

Palestinian Cigarette Brand
There is an existing Palestinan cigarette manufacturer in Jerusalem (http://jerucig.com/products/index.html), and several smaller outlets in Jenin. The cigarettes are however positioned in the local low-price segment. Cigarettes with a good branding of "Made in Palestine" could have success on the large domestic market, as well as leftwingers-Israeli market, and export market to Europe for the audience attached to Palestinian solidarity. You need some catchy symbol or picture, such as Handala or such, and maybe a Kafieh pattern on the box, as well as a sales partner with well established distribution channels in Europe. Cigarettes with no chemicals seem to be en vogue among the young and well informed generation, so it may be wise to jump on that train especially for European customers.


C. IT and Telecommunications

With thousands of university graduates in IT and other technical fields every year, many of them remaining unemployed or over-skilled for their job, many experts agree that the IT industry of Palestine is bound to pick up pace -- also thanks to data being more likely to travel across borders unhindered than physical goods are under Israeli occupation or siege in Gaza. But what is there beyond some IT hardware and mobile phone retailers, two large telcos and a bunch of internet providers? Is there real innovation taking place? Here are some ideas...
  • Creating a Community Based Meshing Data-Network
    Israel doesn't grant Palestine frequencies for 3G internet. This creates a market situation where a community based WLAN-meshing network could be successful, and save a lot of cost.  Get some technological inspiration here: http://villagetelco.org/
    It could work even without additional hardware. Modern phones like Samsung Galaxy S2 have a WLAN-access point built in, so all they need is a tweaked version of the Linux firmware that allows meshing to forward data between other 802.11n peers. A random number of phone providers could pop up, offering voice/asterisk and internet uplink services within the mesh.
    Asterisk could also bridge the expensive transition between Israeli and Palestinian phone networks, so you could cheaply call your cousin in Haifa who is using an Israeli provider.
  • Digital Travel Guide
    The street maps of Palestine are horrible, and neither on Google places nor elsewhere online you find hotels, restaurants, and tourist sites. Openstreetmaps currently seems to have the best data, which could form the basis for an Android app with user-generated content. Update: aparently, I wasn't the first to come up with this idea. Check  http://www.marhabapalestine.com/ -- they didn't go live so far though.
  • GPS RoutingAlong the lines of the previous point, there is no proper maps for GPS routing. Israel is well-mapped, including the settlement routes in C-Areas of the West Bank. However, for Palestine, you need a routing where you need to determine the type of car you have (yellow or white numberplate), otherwise you will end up on the wrong road. Also the traffic situation around bottlenecks like Qalandia Checkpoint could be transmitted online -- optimizing the routing algorithm. Update: Found a company that seems to be offering related fleet management services. However, no end-user product seems available at the time being.
  • Delivery service mobile app
    A significant obstacle to successful delivery of mail, of pizza, etc. is that you have to describe in a complicated manner where your house is located. A mobile app with your GPS-enabled phone could enable hassle-free online orders, and possibly improved mail delivery/address system.
    Update: The company click and pick somehow comes close to that...

Looking forward to your comments and suggestions!