Palestinians see profit in Jerusalem investment

JERUSALEM Wed Jan 12, 2011 9:09am EST

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JERUSALEM (Reuters) - Palestinians seeking to invest in Jerusalem need time, patience and a good lawyer.

A small but growing number of them are rising to the challenge, seeing the chance to make a decent return while helping to revive the city's decaying Palestinian economy.

Palestinians, say local businessmen, have long been hesitant about investing in Arab East Jerusalem, governed by Israel since it occupied the West Bank in 1967.

The deterrents include the political uncertainty surrounding a city at the heart of the Middle East conflict and Israeli policies that complicate Palestinian life here.

While those factors have not changed, Palestinians seeking to do business in the city see a greater willingness to explore opportunities in a market they say has been ignored for years.

"In my economic reading, the market in East Jerusalem is virgin and the opportunities are enormous," said Mazen Sinokrot, a Palestinian businessman who last year helped set up a holding company, licensed in Israel, to invest in the city.

For many, it has been easier to invest in Ramallah, the nearby West Bank city governed by the Palestinian Authority. Lower taxes and cheaper labor add to the business case. Ramallah is booming, thanks largely to Western donor support.

By contrast, economic life in East Jerusalem's walled old city and nearby Arab districts, home to some 350,000 Palestinians, has been suffocated by the impact of the barrier built by Israel during the last Intifada, or uprising.

Erected on what Israel described as security grounds, the barrier has severed East Jerusalem from its Palestinian West Bank hinterland, denying traders access to their main domestic market.

That is why Palestinian businessman Osama Salah chose to invest in tourism. "It's the only chance we have," he said.

"TOURISM GOLD MINE"

"There is only one Jerusalem. It is a tourism gold mine that we are not exploiting," he said. "The Israelis are."

He has invested in a hotel just a five-minute walk from the old city, whose Christian, Muslim and Jewish holy sites draw visitors from the world over.

After four years of renovation, Salah reopened the National Hotel in September. At the same time, another hotel reopened just down the road. Around the corner, builders are renovating another that will be ready for business later this year.

Nearby, a complex housing a mall, offices and a hotel is also due to be completed this year, said Mohammed Nusseibeh, the developer who is investing $7 million in the project.

Salah had to fight 14 separate court cases related to his project, battling claims of ownership from other Palestinians and fighting Israel's Jerusalem municipality over planning-related issues. The problems are now resolved, he said.

The 100-room hotel, in which he invested $10 million, is now worth up to $25 million, he estimates. Having created 60 new jobs, it serves as an example of what can be done.

"Don't make the Israeli occupation a hook upon which to hang all your problems," he advises other Palestinian and Arab businessmen. "If you want to invest, you can."

More investment is crucial to sustaining Palestinian life in East Jerusalem and combating Israel's efforts to deepen its control of the city, said Adnan al-Husseini, the Palestinian Authority-appointed governor of Jerusalem.

"Jerusalem should not just be the focus of songs and poetry. Today, Jerusalem is about work. People who want to protect Jerusalem must work in it. Israel is working hand over fist and putting in billions. The Arab nation must spend more," he said.

Money put into hotels and cultural centers meant the situation in East Jerusalem was improving from the "ghost town" it had been a few years ago, he said. "This year, the progress will become more apparent," he said. But much more needs to be done, he added.

NOT FOR CHARITY OR POLITICS

To Israel, East Jerusalem is part of what it describes as its eternal and indivisible capital. Israel annexed East Jerusalem and a belt of surrounding West Bank land after the 1967 war. That step has never won international recognition.

The Palestinians want East Jerusalem as the capital of the state they hope to found in the West Bank and the Gaza Strip.

The heads of EU missions, in a recently leaked confidential report, identified inadequate investment as one of many factors undermining the Palestinian presence in East Jerusalem.

These also included Israeli settlement expansion, evictions of Palestinian families and demolition of Palestinian buildings erected without hard-to-obtain Israeli permits and a restrictive zoning and planning regime by Israel's Jerusalem municipality.

Samir Hulileh is the chief executive of a company that has been waiting for a decade for Israeli permission to build 166 new homes in a predominantly Palestinian residential area of Jerusalem.

Now, finally, he is confident that the first quarter of 2011 will yield a license for the start of ground work on the $33 million housing development in Beit Safafa.

"It's not charity, it's not politics. We have to start first with making a profit," said Hulileh, CEO of Palestine Development and Investment Limited (PADICO), a holding firm traded on the Palestine Securities Exchange.

"You have to be patient and add to the cost of the project the cost of waiting. This squeezes the profit margin," he said.

"However, there are always possibilities. The opportunity from investing in Jerusalem is much higher than in investing in the West Bank. In Jerusalem, you are alone," he said.

PADICO is the investor behind the restoration of the St. George Hotel. Located near the old city, the 144-room hotel is set to reopen in July or August. It also renovated the nearby Alhambra Palace, an events venue with restaurants.

PADICO has two more hotel renovation projects in the pipeline, though its Jerusalem investments are just a fraction of its portfolio in the Palestinian territories, Hulileh said.

"People have overcome the psychological barrier," he said. "They can do something about investment in Jerusalem and shouldn't wait for others, neither the Palestinian Authority or the Arab world."

(Editing by Samia Nakhoul)

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