Challenge statement
Challenge type: If you are working on multiple challenges, please indicate if this is your "big bet" or "exploratory" challenge.
Please note: we ask you to only submit a maximum of 3 challenges - 1x Big Bet, 2x Exploratory. Each challenge must be submitted individually.
BIG BET
Challenge statement: What is your challenge? (Please answer in specific terms: "Our challenge is that...”.)
Our challenge is that current development approaches and initiatives targeting Micro, Small and Medium (MSME) in Palestine do not lead to systemic transformation of the MSME sector or contributing to inclusive and resilient Palestinian economy.
Background: What is the history of your challenge? What is causing or driving it? Who is involved? How does the current situation look like? What undesired effects does it produce?
Palestine’s economy is built on dependencies driven by Israel’s political and economic will or international development aid.This relationship has eroded Palestinian self-determination, access to free markets, and prosperity. The State of Palestine faces a constant state of instability and shocks. To cope, there is a need to transform the current economic system. This presents an opportunity to transform the status quo and find new ways of working. New tools, practices, and policies are needed for a resilient and inclusive economy. MSMEs constitute approximately 98% of the Palestinian economy- of which 25% are women-led businesses and employ around 80% of the Palestinian private sector labor market, which emphasizes the importance of their resilience as a key pillar toward a resilient economy. MSMEs are usually situated in the grey economy, between the formal and informal sector, and do not enjoy equal access to market and economic opportunities introduced by national and international private sector development actors compared to large businesses-comprising only 2% of the Palestinian economy. Therefore, it is imperative to facilitate policies that would ease the operational risks for MSMEs. More specifically, Micro and Small businesses tend to have less diverse networks, limited access to external markets, finance and exposure to business development support, and often lack adequate capacities in management, competitiveness and commercialization. All of that make it difficult for these businesses to bounce back, required to repurpose and transform business practices to adapt to the new normal due COVID-19 crisis. The pandemic has exacerbated the challenges and barriers faced by MSMEs. The World Bank’s recent assessment of COVID-19 impacts in the State of Palestine highlighted that serious repercussions on MSMEs have been reflected by (i) falling demand, (ii) reduced input supply, (iii) tightening of credit conditions and liquidity crunch, (iv) lack of resources to setup remote work and (v) rising uncertainty. Unfortunately, the current socio-economic recovery plan of the Palestinian government does not include a clear strategy or actions to ensure inclusive response that benefits the most vulnerable segments of the economy- including the informal micro and small businesses. Moreover, there are emerging and genuine but competing schemes by national and international development actors that are not well-coordinated or institutionalized to ensure that support provided is tailored to the most critical needs of the MSMEs. Note: The Palestinian National Authority has adopted the definition of MSMEs in the State of Palestine as set forth by the Ministry of National Economy pursuant to the Cabinet decision dated 4/10/2011, where Micro includes 1-4 employees with up to 5,000 USD capital and annual turn-over up to 20,000 USD, Small includes 5-9 employees with (5,001 to 50,000) USD capital and annual turnover of (20,001 to 200,000) USD and Medium includes 10-19 employees with (50,001 to 100,000) USD capital and annual turnover of (200,001 to 500,000) USD.
Quantitative evidence: What (official) data sources do you have on this challenge that better exemplifies the importance and urgency of this frontier challenge? You can add text, a link, or a picture.
Micro, small, and medium enterprises (MSMEs) dominate the Palestinian economy constituting 98% and employing 87% of the Palestinian people. The Palestinian economy is dominated by the service sector; the contribution of the service sector generates more than 67% of Palestinian GDP, compared to 4% for agriculture and 17% for the industrial sector. The service sector includes the public sector, tourism, storage, financial services, communications, transportation, education and health amongst others. Starting a business, closing a business or generally doing business in Palestine is often problematic. The World Bank’s “Ease of Doing Business Survey 2020” ranked Palestine 117, 173, 54 and 114 among the 190 states regarding ease of doing business, starting a new business, trading across borders and protecting minority investments, respectively. Importantly, according to the World Bank, it is harder to even close a business in Palestine than in any other country in the world. According to the Palestinian Central Bureau of Statistics (PCBS) data, about 37,336 MSME establishments shut down completely during the lockdown period as a result of the government’s decision to enforce a lockdown during the pandemic. These institutions employed 105,345 workers in the West Bank and Gaza (71,043 in the West Bank and 34,302 in the Gaza Strip). The total decrease in operating capacity at these facilities is estimated at 26%. For example, 20% of exporting Agro-processing businesses put their production on hold and Palestinian exports declined in 2020 by 7% compared to 2019.According to the Small Enterprise Center (SEC), about 44% of MSMEs reduced wages by 50 % or more in light of reduced demand and revenues and unemployment rate in Palestine is already high, where more than 32% of labour force are unemployed (18% in the West Bank and 52% in Gaza Strip) where unemployment among females was 51% compared to 25% among males. Moreover, 59.8 % of MSMEs reported increase in operation costs and 66 % witnessed decrease of over 50 % in cash flow. The World Bank’s recent assessment of COVID-19 impacts in the State of Palestine highlighted that serious repercussions on MSMEs have been reflected by (i) falling demand, (ii) reduced input supply, (iii) tightening of credit conditions and liquidity crunch, (iv) lack of resources to setup remote work and (v) rising uncertainty. PMA has classified MSMEs as companies that employ a maximum of 25 people, with annual sales not less than USD 7 million, or equivalent. As for the Ministry of National Economy, according to the 2011 Cabinet Resolution on MSMEs, the following applies: Micro enterprises Employs 1-4 workers with a capital of USD 5,000, and annual revenues of USD 20,000. Small enterprises: Employs 5-9 workers with capital of USD 5,001-50,000, and annual revenues of USD 20,001-200,000. Medium enterprises: Employs 10-19 workers with capital of USD 50,000-100,000, and annual revenues of USD200,001-500,000. Therefore, it is very difficult to coordinate and monitor the provision of emergency response or services, analysing data to inform policies and strategies for MSMEs recovery and development without a unified national definition for MSMEs.
Qualitative evidence: What weak signals have you recently spotted that characterizes its urgency? Please provide qualitative information that better exemplifies the importance and urgency of this frontier challenge. You can add text, a link, or a picture.
The pandemic is currently delivering a major negative shock to MSMEs with a differentiated impact on businesses in terms of size, location, sectors/products, expected impact of the COVID-19 pandemic on the demand for their products, workplace protection needs and the required changes in businesses. Therefore, any support to MSMEs should be better tailored to the most critical and different needs of the MSMEs. By following social media and attending relevant workshops and webinars including those discussing the results of macro and micro socio-economic assessments, there is a serious criticism to the government response and recovery plans for not being inclusive or addressing the real emergency and development issues facing the most vulnerable businesses across the West Bank and Gaza- including informal businesses. MSMEs are the backbone of the Palestinian economy, however, the existing and new policies and measures taken by the government before and during the pandemic and the business enabling environment don’t support MSMES recovery and development. For example, during the pandemic, liquidity restrictions and a lack of credit options have limited the ability of MSMEs to deal with the high prices of production inputs, especially as suppliers require cash payment in order to approve order and were unable to pay the wages of their employees. Despite the government adoption of lending programs to support SMEs, the Estidama (Sustainability) program, conditions set by banks and microfinance institutions for granting loans favored large businesses and were not tailored to the micro and small businesses. Also, due to lack of clarity, these businesses were exploited by some lending institutions. For example, the postponement of monthly payments to one employer led to a dramatic increase in the interest rate on the loan, which put an additional financial burden on his facility, especially in light of a large decline in production. This negatively affected MSMEs desire to obtain financing in the future. Moreover, the current and new response and recovery initiatives targeting the private sector and led by different development actors with government support were designed and delivered in away that overlooked the vulnerable segments of the MSMEs or only benefited medium and large businesses that already have the resources and know-how to mitigate the negative impact of the crisis. These examples reflect unintended implications of poor understanding of the needs and challenges faced by MSMEs and the absence of institutional set-up and enabling polices to support this sector, which has been exacerbated and became more evident after the MSMEs were hit hard by the crisis.
Value proposition: What added value or unique value proposition is your Accelerator Lab bringing to solving this challenge? Why is it your Lab that needs to work on this challenge and not other actors within UNDP, other stakeholders in the country respectively? Why is it worth investing resources to this challenge?
The accelerator lab has been heavily engaged in the Deep Demo under the Innovation Facility aiming at supporting UNDP, Palestinian Authority and other partners to strengthen, develop and dynamically manage a portfolio of initiatives aimed at facilitating system transformation of economic development in Palestine including the MSME sector. The CO team involved in the exercise are adopting the AccLab methodology to sense, explore and map potential solutions that would transform economic development efforts not only by UNDP but also by other development actors toward more inclusive and resilient economy. This can be achieved by understanding the root causes of system level failure, identify drivers and enablers and propose a package of strategic options and approaches to transform economic development in the State of Palestine. The deep demo embraces a new way of thinking and doing business at UNDP to avoid the same traditional development approaches that proved inefficient in reviving the Palestinian economy. The Acclab has the mandate, space and tools to support the CO in adopting and socializing these approaches.
Short “tweet” summary: We would like to tweet what you are working on, can you summarize your challenge in a maximum of 280 characters?
Supporting MSME development is dispensable to achieve inclusive and resilient Palestinian economy. We are exploring new and non-traditional approaches to support the dynamic resilience of MSME sector including informal, women and youth-led businesses.
Partners
Who are your top 5 partners for this challenge? Please submit from MOST to LEAST important and state Name, Sector and a brief description of the (intended) collaboration.
Please state the name of the Parter:
Federation of Chambers of Commerce Industry and Agriculture
What sector does our partner belong to?
Private Sector
Please provide a brief description of the collaboration.
The federation is the umbrella organization for all chambers in the west bank and Gaza, as a legal and autonomous body representing the interest of MSMEs membership of more than 70,000 registered facilities. We will partner we PFCCIA to better understand the need and challenges facing MSMEs and help us design and institutional mechanism to support MSMEs including informal business.
Is this a new and unusual partner for UNDP?
Yes
Who are your top 5 partners for this challenge? Please submit from MOST to LEAST important and state Name, Sector and a brief description of the (intended) collaboration.
Please state the name of the Parter:
Palestinian Monetary Authority
What sector does our partner belong to?
Government (&related)
Please provide a brief description of the collaboration.
As part of its financial inclusion strategy (2018-2025), we will work with PMA to explore new ways to enhance MSME financial and access to finance and work together on exploring and articulating practical and actionable policy responses to support business transformation and strengthen the resilience of the MSMEs.
Is this a new and unusual partner for UNDP?
Yes
Who are your top 5 partners for this challenge? Please submit from MOST to LEAST important and state Name, Sector and a brief description of the (intended) collaboration.
Please state the name of the Parter:
Bank of Palestine
What sector does our partner belong to?
Private Sector
Please provide a brief description of the collaboration.
Explore new ways of supporting micro and small businesses that don't have access to finance or business development support by the banking sector
Is this a new and unusual partner for UNDP?
Yes
Learning questions
Learning question: What is your learning question for this challenge? What do you need to know or understand to work on your challenge statement?
What the main pain points facing MSMEs that need to be addressed?
To what stage(s) in the learning cycle does your learning question relate?
Sense, Explore
Usage of methods: Relating to your choice above, how will you use your methods & tools for this learning question? What value do these add in answering your learning question?
These tools will help us understand the pain points facing the MSMEs and proposed solutions to address these challenges. We will use these tools to engage marginalized MSMEs including women and youth-led business to understand why the previous interventions delivered by the government and other development actors fail to address their needs and what can be done to have genuine engagement in the design and delivery of more responsive interventions in the further.
Existing data gaps: Relating to your choice above, what existing gaps in data or information do these new sources of data addressing? What value do these add in answering your learning question?
These sources will bridge the data gap on informal businesses and even formal businesses (mainly micro) that are usually difficult to reach out and capture their insights and needs using traditional data collection tools.
Learning questions
Learning question: What is your learning question for this challenge? What do you need to know or understand to work on your challenge statement?
Why previous private sector development initiatives failed to address the needs achieve the desired impact on MSMEs? sub-question: which approaches worked/did not work? what can be done differently?
To what stage(s) in the learning cycle does your learning question relate?
Sense
Usage of methods: Relating to your choice above, how will you use your methods & tools for this learning question? What value do these add in answering your learning question?
We will analyze trends from previous initiatives, use collective intelligence with stakeholders and MSMEs to highlight successes, understand the root causes of failures and proposed solutions to address development challenges differently.
Existing data gaps: Relating to your choice above, what existing gaps in data or information do these new sources of data addressing? What value do these add in answering your learning question?
Learning questions
Learning question: What is your learning question for this challenge? What do you need to know or understand to work on your challenge statement?
Which MSME segments are usually overlooked from governmental and non governmental support?
To what stage(s) in the learning cycle does your learning question relate?
Sense, Explore
Usage of methods: Relating to your choice above, how will you use your methods & tools for this learning question? What value do these add in answering your learning question?
Collective intelligence and sensemaking are powerful tools to generate insights that cannot be captures with quantitative tool. Listening to MSME stories and experiences across different sectors will help better understand the root causes of the problem, validate and complement other data available from traditional sources (statistics, assessments, reports...etc.)
Existing data gaps: Relating to your choice above, what existing gaps in data or information do these new sources of data addressing? What value do these add in answering your learning question?
These tools/sources are not new but they will be designed and applied in away that generates new insights.
5Gender equality
8Decent work and economic growth
9Industry, innovation and infrastructure
Comments
Log in to add a comment or reply.