Wednesday, October 9, 2013

Fiscal crisis and negotiation chips in the Israeli-Palestinian peace talks

"Only free men can negotiate" -- Nelson Mandela

"The Palestinian leadership under Arafat signed onto the “peace process” at Oslo because it was headed towards oblivion (bankruptcy) after backing the wrong horse in the First Gulf War. In return for being rescued by Washington and Tel Aviv, the Palestinian leadership agreed to act as Israel’s subcontractors in the occupied Palestinian territory. (Former Israeli foreign minister Shlomo Ben-Ami, in Scars of War, Wounds of Peace, is very frank on this point.)" -- Norman Finkelstein

Keeping Palestine at brink of bankruptcy -- part of Israels negotiation strategy?

Financially weak partners are more ready for compromises in negotiations. The Arafat leadership, being at the brink of bankruptcy, was ready for compromises during Oslo, as Finkelstein explains. As leaked cables suggest, Israel had a tactic to keep Gaza at the brink of bankruptcy. The Israeli restrictions to the West Bank have multiple effects, some in the field of security, others in the field of economy, keeping the Palestinian economy small and dependent on the Israeli one, which in turn keeps the potential for tax revenues collected by PA small, so the PA is having a hard time increasing the share of budget under its own control, which in turn make punitive customs tax withholding by Israel more painful for PA.

How deep does the PA's financial crisis run?

To get a rough idea, this is how deep the PA's financial crisis runs -- expenditures are approximately 70%, or 1.4 billion $ above revenues:

If you deduct foreign budget support, and deduct the taxes collected by Israel (mainly custom fees), the Palestinian Authority has control over only about 40% of the money it needs to cover all its expenditures.

Without foreign budget support, the current Palestinian leadership would likely collapse. We witnessed a similar scenario after 2005 elections when the international community withdrew its budget support, the elected government had to stop paying public servant's salaries, the parliament got dissolved, and the leadership was replaced by the current one.

Becoming financially independent

It is the PA's priority to become financially independent by bringing a larger part of the annual governmental revenues under its own control. While that portion was only 40% in 2012, the 2013 budget looks much better, especially the customs losses associated to indirect, smuggled imports through Israel are being reduced. But still the PA is far from standing on its own feet financially.

A strong private sector would be key to increasing independent tax revenues to the PA, but it seems like the framework conditions imposed by Israel will not allow for much growth. Palestinian GDP could grow by 35%, if Israeli restrictions would be lifted for C-Areas of the Palestinian West Bank, according to a recent World Bank report. An earlier report by ARIJ ("the economic cost of the occupation") estimated the Palestinian GDP to grow by 85% if all restrictions of the occupation, including the blockade of Gaza would be lifted.

The other option for the Palestinian leadership to become financially independent would be fiscal consolidation. About half of the governmental expenditures goes to the 160.000 governmental employees. In other economies, especially those without oil, it is deemed unsustainable and not really effective to have one third of the workforce employed by the government.

What are the hard negotiating chips?

Under this link, you find some speculation of how the peace talks may develop.

However, not everybody is so optimistic. Some doubt that the Nethanyahu government would have any benefit from entering into serious negotiations. Others suspect certain Palestinian stakeholders who benefit from the status quo to lobby against a final status agreement.
If the enthusiasm about the Kerry initiative is to crumble at some point, what hard playing cards do the involved parties hold in their hands?

Israel has not much to win from negotiations. For the constituency of the Israeli government, the status quo seems to be the best it could wish for (apart from those that dream of getting rid of Palestinians from the occupied territory altogether). However, if no substantial agreement is reached, Israel will continue its path of being increasingly seen as an apartheid government, or a pariah state. Israel will try to sell the outcome of negotiations, however small, as a great success towards peace.

In case of failed negotiations, the PA will probably sign the Rome treaty to get access to the ICC in The Hague -- and this will initiate a flood of cases filed against current and past Israeli government officials, causing major discomfort and fast decay of the moral standing of Israel in the world.

As revenge, the Israeli government could stop transmitting customs revenues, as it did before many times, and ask befriended governments to withdraw budget support, taking the PA to the brink of bankruptcy.  From past experiences, these financial punishments never lasted very long. It appears that Washington and Knesset don't want to let the PA to collapse. Just imagine how messy and expensive it would get for Israel if they would need to take care for the entire civil administration of Millions of Palestinians.

It is a safe guess to assume that the US government, regardless of its financial cliffhanging exercise at home, will offer a sweet budget support deal to the PA government in exchange for not involving ICC. And maybe the PA will be tempted to accept that deal.

But there might be people who would find it morally acceptable to first accept the budget support, and then seek justice through ICC regardless.

And to be honest, the USA doesn't have much leverage to prevent such steps. Another temporary punitive freeze in budget support maybe, so what? USA will never take it as far as to let the PA administration collapse.

Friday, October 4, 2013

The Value Chain of Stolen Cars

On a Personal Note

What made me come up with this post is the fact that during my stay in Ramallah, two vehicles have been stolen from me -- these are the vehicles -- so in case you hear anything, please leave me a note...

Mitsubishi Pajero 2.8TD, unique feature: you honk by pushing a small green button
Suzuki DR350, unique feature: speedometer is shattered

Experiences with Palestinian and Israeli Police

When my car was stolen, Ramallah police was very friendly and welcoming, but disappointing on a professional level, to say the least. My car was stolen in front of a bank, with a security camera pointing at it. I reported the case to the police just two hours after the incident, including hinting at the existence of the security camera. Overall, I have visited the police station six times on six different days to follow up on the case. Each time I was received with very welcoming words and offered coffee and cigarettes, I was being redirected to higher ranking officials who spoke good English, just to find that there was no file on the case available, and that I had to tell my story from scratch. After telling my story for the sixth time, I gave up and went myself to the bank to find out that the police did not pass by to check the video footage.

Since I am driving Israeli number plates, and I wanted to claim my vehicle registration fees back, I also had to report to the Israeli police station responsible for Ramallah -- which is located inside the settlement of Sha'ar Binyamin (where, by the way, I was surprised to find about half of the cars parked in front of the huge Rami Levy supermarket to have Palestinian number plates). The Israeli police had much less staff to handle many more cases, still it took only 30 minutes to have my printed report done, of course without much of welcoming words, no coffee and no cigarettes offered. They assured me that if the vehicle was to cross any checkpoint, it would be stopped and confiscated -- How would that work? I could imagine they have cameras to automatically detect all number plates crossing the checkpoints and compare them with a stolen vehicle database. But do they really? I never saw cameras at checkpoints.

Bottom line is, neither of the polices were successful in retrieving either of my vehicles.

The Value Chain of Stolen Cars

Those who break into cars are usually freelancers who receive an approximate 100$ per car upon delivery in one of the hubs in Hebron, Tulkarem, Qalqilia, Nilin and other places -- typically in Palestinian villages in C-Areas of the West Bank, off-limits for the Palestinian Authority, and mostly neglected by the Israeli civil administration.

The next stage of the value chain is either
  1. Selling the car to the insurance company of the theft insurance, who returns it to the owner. The insurance company saves the cost of paying the entire price of the car.
  2. In case the car has no theft insurance, and the owner finds some informed people, he can pay a tip of a few hundred shekels to get advice where to find the car.
  3. Otherwise, the car is disassembled and sold as spare parts to workshops in West Bank and Israel. The engine and chassis have serial numbers, so they need to be changed to avoid traceability.

The first value chain seems to work efficiently through middle men who take their cut of the business.

The second value chain, which was my case (no theft insurance), I was less fortunate. Regardless of several attempts and very helpful friends, both my vehicles did not show up anywhere.

The third value chain, i.e. the spare parts market, does not work efficiently at all. When I took my car to west bank workshops for repair, they would usually install used spare parts, but often I got the wrong spare parts, or long delays, or sometimes just lack of availability of parts.

Business Case 1: Solving Market Inefficiencies for Spare Parts

Business models like or amazon's marketplace have proven to be very efficient in matching supply and demand for new and used items from a large number of suppliers, including spare parts for cars.

The e-business takes a small fee for the transaction, and facilitates the transfer of the money and the transfer of the goods, while giving buyer and seller trust and confidence through Paypal's insurance, and customer ratings.

The business model needs to be slightly adopted to be a B2B model (instead of B2C), and you might want to facilitate confidentiality on the supplier's side, by buying the most-demanded spare parts against cash, and store them in a warehouse for shipment on demand.

Business Case 2: Retrieving Stolen Cars

For retrieving entire stolen cars, you will probably need to take further efforts for confidentiality of your users. You can receive anonymous hints on where the stolen car is parked, you sell this hint to your client, and you will pass the money in form of Bitcoins anonymously, while taking your cut of the deal.

Also, you could tap the potential of smartphones for this. Imagine you have 1000 users of your smartphone app, that are driving around with their smartphones attached to their own car's windshield, and the camera activated, the smartphone could automatically compare all numberplates of all other vehicles with a list of stolen numberplates. Once it has a match, it will take a photo, and upload the photo along with GPS location to your server. You can sell this information to the victim of the theft, and pass on a part of the revenue to the smartphone user to give him an incentive.

Owners of surveillance cameras that are attached to a PC could also benefit from this scheme if they install the PC-version of that application.

Business Case 3: Preventive Action

Many modern cars make it very hard to be stolen, as all car parts that are connected to the main data bus have to receive data from an electronic key in order to be functioning. So short-cutting the starter circuit won't help. Many Palestinian car workshops can install a number-combination lock preventing the engine from starting.

Another approach to find the perpetrator is to install a GPS tracker, that will send you the current position of your car by SMS. They are available for as little as $40 or a bit more, for instance