Promoting Value-Based Models for Inclusive Economic Development in Palestine 

Our challenge is that there is an exponentially growing global demand for value/sustainable products and Palestine happens to have plenty of unseen sustainable products made through generations-old mechanisms of production. Produced by family-run businesses and MSMEs that form 98% of the enterprises in Palestine. Yet, these businesses are fragmented and are unable to leverage their collective potential to tap onto lucrative value-based markets abroad. Without strong institutions to promote cooperation, resource sharing, and knowledge transfer, Palestinian businesses will remain fragmented and isolated. To best use the rich human, natural, social and knowledge capital of Palestine requires a shift in thinking. At a strategic level, our approach to creating a resilient and inclusive Palestinian economy is to leverage the shared interests of businesses to organize proxies of social and institutional capital. After all, business remains a viable organizational force in Palestine. By leveraging businesses, Palestine has the opportunity to grow its economy and reduce dependency by empowering businesses that are already uniquely capitalizing on Palestine’s rich stocks of human, natural, and knowledge capital. Therefore, if businesses leveraged the uniqueness of the Palestinian terroir, it could build a value-based offer for which there is a growing global market. 

Micro, Small and Medium Enterprises (MSMEs) are the backbone of the Palestinian economy forming more than 98% of the businesses and employing 85% of the labor force. The number of MSMEs in the State of Palestine reached 146,866 in 2017 employing 444,086 workers, of which 25% are women. MSMEs in Palestine have great odds stacked against them from the limitations of a hostile and bureaucratic business environment to bearing the brunt of the limitations of the occupation. MSMEs do not enjoy equal access to markets and economic opportunities introduced by national and international private sector development actors to large businesses-comprising only 2% of the Palestinian economy. Aggressive competition on price in local and export markets in the present hostile business climate does not deliver success for Palestinians. It actually exacerbates the mutual challenges of Palestinian businesses and makes it difficult for these businesses to bounce back or adapt to current and future shocks.    Overall, a number of interrelated structural constraints are hindering small businesses from reaching their potential, thereby improving employment prospects and income generation for the most marginalized.   Fierce competition in a confined market  The Israeli security measures and the cumbersome customs and logistics procedures produced inward-looking enterprises focusing on a relatively confined market. Most MSMEs focused their business on local markets and the low-margin Israeli subcontracting market. Increasingly, small and medium businesses are over-reliant on the Israeli market which has gradually been set up to exploit the cheap labour and lower production costs of Palestinian businesses. By and large, MSMEs' subcontracting arrangements involve labour-intensive tasks with very low margins and risky business terms. Operating in this relatively confined market, MSMEs are resorting to fierce price competition rather than value-based competition. There is an evident need to reorient the economy away from its heavy dependence on Israeli markets through regional and global integration.  Weak market support services  Palestinian businesses lack specialized institutions capable of assisting them in complying with Palestinian and international quality standards and industrial specifications. There are a few industry-specific research institutions and modern laboratories for testing local and imported products. Market linkages between MSMEs are limited, with most small and medium businesses selling directly to consumers rather than to other firms and intermediaries. As a result, MSMEs are having less diverse networks and do not enjoy equal access to market, finance, and exposure to business development services.  Labour Shortage  Labour-intensive businesses have produced a dilemma that has been overlooked for years, an increasing shortage of labour. Many of the businesses visited cited labour shortage as a primary challenge to growth. This is because employees can easily be attracted to higher paying jobs in Israel and/or settlements (up to 3 times higher) meaning that talent is frequently leaving. While there is a salary benefit to working out-of-country, there is also a cost to not spending more time at home with family.  Weak enabling environment  There is no vision or strategy on how to restructure the Palestinian MSMEs base to allow for increased specialization in products with higher value proposition. Labour strategies are also lacking, with no vision on how to tap onto the high unemployment rates to compensate some of the labour shortages facing MSMEs. The PA’s and development actors’ efforts are concentrated on short-term strategies that respond to the immediate needs of MSMES, rather than developing a macro level, long-term strategy of how to restructure the Palestinian economy to be more inclusive and resilient. MSMEs performance is also tied to a weak comprehensive legal framework regulating transactions.

This portfolio of value-based economic models adopts an exploratory and experimental approach to introduce, test and learn more about new mechanisms, schemes and investments needed to support transformational changes at the business, community and national level toward value-based economy in the State of Palestine. The Accelerator Lab methodology and approaches introduce a unique opportunity for the CO to contribute to fulfilling the objectives of this portfolio by shedding light on new models and unusual actors to UNDP to advance the thinking and implementation of a well-coordinated interventions aiming at promoting and advancing value-based models across different sectors. Also, the Accelerator Lab will generate learning from testing different models and provide lessons learned and direction for other actors to follow throughout the journey of adopting new models and transforming business operations toward value-based economy.  

Testing, incentivizing and promoting value-based models toward inclusive economic development in the State of Palestine 

What models could be introduced to promote value-based products?

These methods would provide new insights and shed the light on existing and new initiatives promoting value-based models. Engaging multidisciplinary experts outside UNDP including experts from the diaspora with different and new perspectives, will enrich the design thinking process and the piloting phase beyond the traditional ways of thinking and work that UNDP or the other actors has introduced before.

There are no national statistics or studies tied to the potential of value-based products and services or models adopted to promote them inside and outside Palestine. The tacit knowledge and collective intelligence of the experts as well as the results of the pilots will inform the business case for the proposed models as well as the strategy for scale-up and growth. 

The market actors including export companies, clusters of MSMEs in the handicrafts, food and tourism sectors and relevant private sector support organizations will benefit from the learning and intelligence captured from the AccLab experiment and relevant learning materials developed as part of conceptualizing and piloting different models emerging from the exploratory work and design thinking process.  Adopting value-based models does not only require investing in value-chains, but also a mind-shift among relevant actors to adopt value-based models. This could be achieved though providing a proof of concept on the viability of these models in better positioning Palestinian products and services locally and globally, especially in growing sustainable markets.