Sunday, May 29, 2011

PA economy seriously screwed up by NGOs

I recently posted a couple of articles about how NGO money, poured into the Palestinian Arab territories, has been counter-productive.

Another article, written by a businessman who is trying to build a real business in the PA-controlled areas, sheds light on the problem from his perspective:

Due to the enormous amounts of donor funds provided as “development aid,” many NGOs are able to lure educated and professional Palestinians by offering salaries that are three to four times higher than what the local private sector can afford. This causes labour costs to rise significantly, and directly undermines the local private sector’s ability to recruit educated professionals and build an autonomous Palestinian economy.

When Palestinian businesses do hire employees, they are forced to offer exaggerated salaries that reduce overall capital returns and hinder Palestine’s competitiveness in attracting investments. Limiting private investment stifles Palestine’s economic growth and reduces government tax revenue that can otherwise be utilized to fund the public services currently provided by NGOs.

This dynamic compromises the “non-profit” status of NGOs, which receive all the tax benefits of charitable organizations. This means that, for NGOs, offering high salaries is the equivalent of a business distributing profits among its employees. If Palestinian businesses were to triple the salaries of their employees and offer “hazard pay” for their locally stationed expatriates, as NGOs do, they could surely arrange their income statements to report zero profit. Would private businesses then become non-profit organizations? Could they receive tax exemptions? Clearly, the answer is no. The private sector cannot flourish in an environment where it is forced to compete with the financial prowess of donor governments. This is an example of a much greater problem that has enormous implications for Palestinians.

Today, international aid accounts for 30 per cent of Palestinian gross domestic product (GDP), with a large number of educated and professional Palestinians flocking towards NGOs and donor-sponsored projects, thus further exacerbating Palestinian donor dependency.

To complicate matters, international aid is highly political, and is provided in the interests of a donor states’ foreign policy rather than due to a genuine interest in helping Palestinians. Palestinians saw the detrimental effects of this donor dependency when they elected their own government in a free and fair election only to have donor states boycott them because of whom they elected. The international community turned off the tap of donor aid, leaving roughly 150,000 Palestinians who were employed by the Palestinian Authority and NGOs helpless without income. Only the employees of the private sector continued to receive paycheques and maintain their independence regardless of how they exercised their right to vote.
Interestingly, this businessman has no problem with a terror organization being part of the government. He believes, perversely, that such a move could help Palestinian Arab self-sufficiency:
The recent Hamas-Fatah agreement could cause a repeat of the donor boycott that took place in 2006. It may, however, also prove to be another example of how the private sector can play a vital role in empowering people in developing nations while liberating them from the shackles of foreign-donor dependency.
The problems of a Hamas government do not exist for him. He just wants to get rid of the NGOs sucking out his ability to make money.

Which shows, from a Palestinian Arab perspective, the choice is not to make real peace with Israel or not. It is to choose between staying a welfare state while pretending to be against terror, or officially embracing terror and becoming more economically self-sufficient.

By the way, there are plenty of NGOs who support Hamas - and they are proud of it.

(h/t Anne)