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San Diego International Airport
(All photos courtesy of
Nassar Investment Company)
As you rush through the airport terminal to collect your bags and make off for your final destination, do you ever look at the surrounding décor? The murals, the fancy lighting, the floors? Well, the next time you pass through San Diego’s airport, check out the flooring. It is part of a rare business success story in a far off world of poverty and political strife.
Despite the fact that the Palestinian economy has been virtually wiped out during the violence that began almost four years ago, one West Bank business can claim to be a success story of sorts. The Nassar Investment Company in Bethlehem, the largest stone producer in the Middle East, is on the verge of returning to its pre-violence sales levels, but to do so the management has had to deal with problems that CEOs at Fortune 500 companies probably could not even imagine.
Nassar distributes cut stone to some 26 countries around the world, including the U.S. – which makes up 57 percent of the company’s export market – Europe, China and naturally the Middle East. Nassar had sales of $15 million in 2003.
Nassar’s Marketing and Sales Manager Samir Hulileh explains that many Palestinians expected the 1993 signing of the Oslo Accords to ultimately bring peace and economic prosperity to the region, but the company took preventive measures when it seemed that the peace process was off track.
Hulileh says that Binyamin Netanyahu’s election as Israeli prime minister in 1996 signaled a turning point in the peace process and economic conditions. “We didn’t know the magnitude, but we knew something was changing.”
Sensing a change on the horizon, in 1999 Nassar transferred some of its operations to outside of the volatile West Bank. “We were expecting a collapse in the peace process. That’s why we established the factory in Jordan.” Some operations were also moved to Egypt and Oman. But while this was done to ensure the company’s survival, the move meant that some Palestinian jobs were transferred abroad.
In April 2001, Hulileh says, the Bethlehem factory was hit by shells fired by Israeli tanks. “Eighteen shells landed in our factory,” he says. “We lost some $700,000 of machinery. It was at night, so only six workers were there and no one was injured.” The company received no compensation for the damage and work at the factory had to be halted for several days, he says.
About a year later business operations were again disrupted as thousands of Israeli troops entered various cities in the West Bank and Gaza Strip, including Bethlehem, as part of Operation Defensive Shield, which Jerusalem said was aimed at dismantling the terror infrastructure.
“The whole city was closed for 50 days, 45 days of which the army took the factory and turned it into an interrogation center because it’s very close to the Daheisha [refugee] camp,” says Hulileh.
In response, Nassar’s senior staff was moved to Jordan where it provided service to its customers from the Aqaba seaport, but this was more expensive than serving customers from the company’s Bethlehem headquarters.
The most difficult problem Nassar faced involved the movement of its workers, particularly early in the troubles. “We had to fire some 70 people from Hebron because they couldn’t arrive and we replaced them with people from Ramallah and neighboring villages,” says Hulileh. “This of course affected our productivity.” In addition, Nassar has set up temporary housing for 40 to 50 workers if they are unable to return home in the event of a closure by the Israeli army.
Another major headache constantly faced by Nassar and other Palestinian businesses is the transportation of goods because of Israel’s tight restrictions on movement within the West Bank and to pre-1967 Israel. To address this problem, the company bought land outside the Bethlehem area – ostensibly to avoid being located inside a city often subject to Israeli military operations – and established a logistical center for transporting blocks of stone. Two other logistical centers to transport goods soon followed – one near the Adam Bridge between the West Bank and Jordan to allow goods to be transported to Amman and the other in the Al-Kha’dr area on the outskirts of Bethlehem.
According to Hulileh, 2001 sales were down 25% as compared to the pre-violence levels the previous year, while 2002 was even worse, down 35%. But as the company learned to cope with the reality of the situation, Nassar’s numbers have improved with 2003 sales down just 8% and projections for 2004 for sales to return to their pre-2000 levels.
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Al-Marwani Mosque, Jerusalem
But Nassar and other Palestinian businesses have had to pay a steep price in order to survive in the current economic conditions, explains Dr. Samir ‘Abdullah, general director of the Palestinian Economic Policy Research Institute and former economic adviser and head of the economic policies department in the Palestinian Prime Minister’s Office.
“This means that they had four years of lost growth,” says ‘Abdullah in regard to its sales. “If you look at the overall picture, this is a big decline.”
“Nassar invested millions of dollars in its Oman operations,” he adds. “This investment could have been of greater help to the Palestinian economy if it had been invested here.”
‘Abdullah says that while big businesses have the resources needed to survive in the difficult economic conditions created by the troubles, and can afford to transfer operations outside of the West Bank and Gaza Strip, this is not the case for small or medium sized businesses.
“Big factories can afford the high losses and large costs, but many of the smaller businesses close their doors,” he explains. “This makes more room for big business to expand. This is a redistribution of market share and profits, while the overall size of business is getting down.”
According to a Palestinian Authority report released in April, the troubles have cost the Palestinian economy $11 billion. The World Bank set the cost at over $5 billion for the first two-and-a-half years of the violence, says ‘Abdullah, with similar numbers for the interim period.
‘Abdullah says Israeli settlement activity and its separation fence “will have a long-term negative impact on the Palestinian economy,” but this can be reversed if a peace settlement is reached.
“It seems that the damage done to the psychology of (Palestinian) business people was greater than what was expected,” he says. “We can’t get them to invest before we have a final peace settlement in place.”
“People will not come back with their money unless they see a final agreement and all the conditions necessary for sustainable economic development in the Palestinian economy in place,” he adds.
‘Abdullah says the experience of the private sector must be taken into account when thinking about revitalizing the Palestinian economy.
“They trusted that the peace process was irreversible,” he explains, “but they have been hit by events and it came as a surprise that the political situation was reversible.”
With Israel blocking internal Palestinian trade, shootings on factories and confrontation between Israeli forces and Palestinians, there has been comprehensive devastation in many sectors of the economy, ‘Abdullah says. “You won’t be able to use the Road Map to convince anyone to come back” to the Palestinian economy, he says. “Now we need a final settlement so the private sector feels that the process is irreversible.”
‘Abdullah says that while the economic situation in the West Bank appears to have been improving since the end of 2003, the situation is getting worse in the Gaza Strip because the violence has moved there.
According to ‘Abdullah, there are some positive elements to doing business in the West Bank and Gaza Strip: With unemployment at 30-40%, people are willing to work for less, which has driven labor costs down 20-30%, and land prices have stagnated and even gone down in some areas. “This stimulates investment for those who have resources, who feel it is an opportunity – high risk but high reward for them – but this doesn’t change the overall picture.”
According to Johny Zeidan, a private sector specialist for the West Bank and Gaza Mission of the USAID (U.S. Agency for International Development), 90% of Palestinian businesses are small and employ 10 or fewer workers. This means that few are like the Nassar Investment Company, which has the resources to survive the harsh economic conditions created by the troubles.
Zeidan explains that one of the most pressing problems for Palestinian business has been outstanding debt because the Oslo Accords prompted many Palestinians to take out loans in anticipation of the economic growth expected to be around the corner. “No one anticipated that we would be where we are today,” he says.
To address this problem, USAID has helped set up an emergency-loan program – which is currently in its pilot phase – that is partnered with two commercial banks in the West Bank. This program helps borrowers with serious debt problems to refinance their loans in an effort to inject new capital into Palestinian businesses to revitalize them.
As many firms go under and most struggle to survive every day in the Palestinian areas, the Nassar Investment Company can look with considerable pride at its achievements, both in the realm of accounting and at famous sites around the world. From the magnificent Church of St. Francis in Assisi, Italy, to GAP stores in California, and, of course, San Diego International Airport, the firm has quite literally chiseled itself a permanent niche a long way from home.
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Church of St. Francis, Assisi, Italy