Palestinian National Authority drafts laws to attract investors

18 April 2008
Company and investment rules under revision in advance of conference showcasing opportunities.

The Palestinian National Authority (PA) is pushing through a series of legislative reforms ahead of a major investment conference in May to showcase opportunities to potential foreign investors.

Supervised by Prime Minister Salam Fayyad, the PA will finalise a new company law and make amendments to the existing Investment Law before the end of April.

Once agreed by government, the legislation will pass to Palestinian President Mahmoud Abbas for final approval.

The Palestine Investment Conference takes place in Bethlehem from 21-23 May and the president is expected to have approved the legislation by then.

The revised Investment Law will offer additional tax breaks to start-up companies in a bid to encourage entrepreneurship among local and foreign businesses.

Groups with a start-up capital of less than $1m already enjoy a five-year break from income tax. Under the new law, this will be extended to seven years. Any company that makes substantial investments during this seven-year period could then be granted tax breaks for a further 12 years, during which it would pay half the normal tax.

In the IT sector, where start-up costs are lower, the $1m threshold will be reduced to $100,000.

Details of the new company law have yet to be revealed, but it will supplant legislation based on an outdated Jordanian code.

"We have been working according to Jordanian law drafted in 1964. It is simply too old to apply to modern business and to attract investors," says Nafez Hirbawi, chairman of Paltrade, the Palestinian private sector trade body. "The new law has been put together through careful co-operation between the government and the private sector. We hope it will be seen as a model for the region."

As the first high-profile investment conference to target the occupied territories, the PA is desperate to make a success of the event in Bethlehem. The new legislation is seen as critical to proving the country has the legislative and regulatory framework in place to reassure investors.

About 300 local and foreign investors have already expressed interest in attending the conference. Although organisers expect only a modest number of deals to be announced, worth a total of about $1.5bn, they hope to make it an annual event.

However, some people in the local business community remain sceptical that the changes will be sufficient.

"Reform of the judicial system is critical," says Fadi Kattan, managing director of Transjordan Engineering, a Palestinian importer and distributor of consumer goods. "Why would you invest in Palestine at the moment? The judicial system is not working. How would you appeal in a business dispute?"

Ahead of the conference, on 23 April, the government is due to hold the first meeting of a committee set up to foster co-operation between the public and private sectors. Chaired by Fayyad, the committee will bring ministers together with senior businessmen to discuss political and com-mercial issues, and agree on a reform agenda.

The finance, national economy, agriculture, tourism and planning ministries will be represented, while from the private sector, a board of 12 will represent 40 members. A detailed three-part agenda will cover legal and regulatory reform, negotiations with Israel, and reform of government services.

Among other areas, the committee is likely to seek opportunities for public-private partnership (PPP) schemes, which are rare in the West Bank and Gaza.

Several previous attempts to establish a similar body have been rejected by the government. However, the PA now appears to have accepted that greater private sector involvement is needed.

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