Israel witholds tax revenues will have an impact on public finances
News of Unesco’s decision to accept Palestine as a full member brought great cheers among supporters of the Palestinian cause, but things are expected to get tougher for its economy.
Israel’s decision to withhold the authority’s customs and VAT payments, which contribute 33 per cent to the Palestinian Authority’s (PA) revenues, is going to hurt.
“It will have an impact on public finances and might affect sentiment about the economy. Overall, it is not good for the market and is one more thing to worry about as far as investors are concerned,” says Ahmed Aweidah, chief executive officer of the Palestine Exchange (PEX).
Leading shares have dropped, with the Al-Quds Index dropping 0.48 per cent to 472.41 points on 2 November.
“It will lead to further negative sentiment in the short time, but it will not have a major impact in the long term. We have been through tougher times before,” says Aweidah.
It is the PEX’s experience through these tough times which have included Israeli invasions, a civil war, sanctions and blockades that have enabled it weather the effects of the Arab uprisings and the European debt crisis.
There are currently 45 companies listed on the exchange, with another set to join on 30 November. About 20 of these actively trade on a daily basis. The market is entirely virtual, with no physical trading floor. About 20 per cent of trading takes place online with the rest over the phone.
The PEX is keen to encourage more local businesses to list, particularly family-owned enterprises.
“We have identified 20 family companies that are big and in terms of quality they can rival listed companies. We are in the process of working with them and encouraging them to see the potential value in taking themselves public,” says Aweidah.
Currently the PEX is dominated by Palestine Telecommunications Company (Paltel) and Palestine Development and Investment Company (Padico), which make up 40 per cent of daily turnover, currently at about $2m a day.
Close to 47 per cent of the shares are foreign. The exchange has an open policy to foreign buyers and has no restrictions in place.
Aweidah is keen to list the PEX itself to give it greater credibility.
“We are in advanced negotiations with three different regional investors to sell 20 per cent to private placement. After that the exchange will be floated,” says Aweidah.
One of the biggest hurdles to development is the lack of long-term financing in the economy.
“There are no pension funds. We are trying to work with the PA to enact legislation for a private sector pension-led industry. We believe it would generate $100m a month in contributions, which would be a very good source of long-term capital for the exchange,” says Aweidah.
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