The occupied Palestinian territory faces significant levels of poverty and unemployment. A September 2009 report published by the United Nations Conference on Trade and Development indicates that poverty is getting wider and deeper in the occupied Palestinian territory, with 67 percent of Palestinian people living below the poverty line, and 48 percent living in extreme poverty. This is ten percent higher than ten years ago. In addition, Gaza and the West Bank have one of the highest youth unemployment rates in the Arab world at 40.2 percent (Palestinian Central Bureau of Statistics 2008).

Within this context, the demand for new jobs is critical, as is the need to promote sustainable enterprises that create productive and decent jobs for women and men.

In 2009, the Office of the Prime Minister requested assistance from the International Labour Organization (ILO) for assistance in preparing a policy framework for micro, small and medium-sized enterprise (MSME) promotion. In response, the ILO and the Ministry of National Economy (MNE) have formulated a project, entitled “Towards a Policy Framework for the Development of Micro, Small and Medium-sized Enterprises in the Palestine Territories”. The MNE is driving and overseeing this project in partnership with the ILO and in collaboration with other relevant public, private, civil and donor organisations.

Dr Simon White, Managing Director of Southern African IDEAS was commissioned to produce the two reports of this project.

The project complements and supports other initiatives of the Palestinian Authority, including the programme entitled “Palestine: Ending the Occupation, Establishing the State”, launched on 25 August 2009. It outlines several national goals, including the achievement of “economic independence and national prosperity” (Palestinian Authority 2009, p. 11).

The ASSESSMENT REPORT presents the findings of an assessment of the MSME sector in the occupied Palestinian territory, including its opportunities, constraints and capacities for development. These findings will be used to inform the design of a policy framework that will guide the PA in its efforts to support the development of MSMEs.

This report is available from: http://www.mne.gov.ps/pdf/OPTMSMEAssessment.pdf

The POLICY FRAMEWORK for the Development of Micro, Small and Medium-sized Enterprises in the Occupied Palestine Territory presents a coherent and integrated response to the challenges and opportunities facing existing and emerging MSMEs.

The long-term vision for MSMEs in the occupied Palestinian territory is as follows: The entrepreneurial spirit of Palestinian men and women drives sustainable MSME development, economic growth and the creation more and better employment opportunities.

In working toward this vision, the Policy Framework for the Development of MSMEs has the following mission: To promote the development of the Palestinian economy by creating conditions for MSMEs that enhance their capacity to contribute to and benefit from sustained economic growth by becoming more competitive and profitable in local, regional and global markets.

MSMEs in the occupied Palestinian territory have established and grown in difficult circumstances. Israeli occupation limits the access MSMEs have to regional and global markets and undermines the dynamic contribution these enterprises can make to economic growth and the creation of productive and decent employment. Private enterprises are the most important contributors to economic growth in the occupied Palestinian territory––there were 105,880 private sector enterprises in the territory in 2007, 99 percent of which employ less than 20 fulltime workers. MSMEs employ 87 percent of the Palestinian workforce.

The Policy Framework for the Development of MSMEs establishes the following definition of MSMEs operating in the occupied Palestinian territory: Private enterprises in the occupied Palestinian territory are separate and distinct business entities managed by one or more owners. They can be formally and informally organised and can assume different legal and operational structures: family-owned, sole proprietor, partnership, company, cooperative and non-government organisation; they can be independent entities, branches or subsidiaries and can operate in any economic sector or sub-sector, including agriculture. Private enterprises in the occupied Palestinian territory can be classified into four size classes: microenterprise, small enterprise, medium enterprises and large enterprise. Three measures are applied to define enterprises: Employment, Annual Turnover and Registered Capital. The table below defines enterprise size classes according to these measures.

Enterprise size class definitions

Explanatory Notes: (1) Employment number refers to the number of fulltime equivalent workers; (2) Annual Turnover and Registered Capital figures are in US Dollars. Enterprises are assigned to the above size classes based on at least two of the three criteria. In some cases, an enterprise will meet all three criteria. In others it will meet only two. For example, a technology-based enterprise employing three fulltime equivalent workers with an Annual Turnover of US$80,000 and Registered Capital of US$40,000 would be defined as a Small Enterprise. While an agriculture-based enterprise with 15 fulltime equivalent workers, an Annual Turnover of US$15,000 and Registered Capital of US$4,000 would be defined as a Microenterprise. Furthermore, it is recognised that enterprise reporting on these indicators can be subjective and difficult to confirm, especially among the smaller, unregistered enterprises.

The Policy Framework for the Development of MSMEs sets out a series of principles that guide the Palestinian Authority and its business and civil society partners in their efforts to promote the development of MSMEs. It then describes the strategic and complementary roles all actors can play in supporting the achievement of the vision and mission of the framework.

The Palestinian Authority establishes the policy and legal framework in which MSMEs start-up and operate. While all public, private and civil society actors have a role to play in MSME development, the Palestinian Authority, and in particular the Ministry of National Economy, sets the direction and focus of these efforts. Local municipalities perform a primary role in the administration the registrations and licenses MSMEs are required to comply with. Municipalities should identify and pursue opportunities to reduce the regulatory and procedural barriers to full compliance, for example, through the creation of one-stop-shops and the introduction of electronic and internet-based registration, licensing and monitoring systems.

Business membership organisations and platforms for public-private dialogue (such as the Private Sector Coordinating Council) should develop specific measures to ensure they incorporate the needs and interests of MSMEs, especially those at the small end of the size spectrum. Business membership organisations provide a unique mechanism for linking large enterprises with smaller enterprises, facilitating business linkages within specific value chains and creating opportunities for mentorship.

Academic and research agencies can contribute to MSME development by promoting innovation and technology transfer that improves the competitiveness of MSMEs. Special attention should be given to the creation of MSME incubators, innovations centres and the creation of technology-based clusters.

International donor and development agencies can support the development of market-based financial and business development services and the design and piloting of new methods and tools for MSME development.

In responding to the critical concerns of Palestinian MSMEs in the occupied Palestinian territory and achieving the policy vision and mission a four-pillar framework is established:

Pillar 1: Improve the policy, legal and regulatory framework and administrative mechanisms for MSME development

Pillar 2: Improve the access MSMEs to markets and financial and business development services

Pillar 3: Improve MSME representation, advocacy and dialogue with government

Pillar 4: Fill the current knowledge gaps on MSME development and monitor change in the MSME sector

While knowledge gaps are likely to change from year to year, the critical gaps currently identified are the need to better understand the issues affecting poor compliance among MSMEs to the Palestinian Labour Law, and the need for a detailed assessment of the markets for business development services.

The Ministry of National Economy is responsible for implementing the Policy Framework for the Development of MSMEs. This will involve the establishment of an MSME Development Agency. The MSME Development Agency will not replace any existing public, private or community-based organisation. Instead, it will fill a gap that currently exists in the institutional arrangements for Palestinian MSME development and will enhance the capacity of government to perform its role in this field.

The Ministry of National Economy will oversee the preparation of two-year work plan that details the immediate next steps required to implement the Policy Framework for the Development of MSMEs.

In 2012 the Ministry of National Economy will review the Policy Framework for the Development of MSMEs. This review will be done in close consultation with the MSME sector, formal business membership organisations and other civil society organisations.

 The policy framework is available from: http://www.mne.gov.ps/pdf/OPTMSMEPOLICY.pdf

Southern African IDEAS

May 2010