Breaking down walls
Michael Borgstede

RAMALLAH - The smiling receptionist indicates that I should take a seat, so I settle into one of the lobby's leather chairs. On a glass table, there’s the latest issue of an American business magazine and a day-old local paper. Flowery wall art contrasts with the space’s cool modernism.

But this high tech company is not in Silicon Valley, not in Tel Aviv – but in Ramallah, the unofficial capital of the West Bank that some day is supposed to become part of a Palestinian state.

But Murad Tahboub isn’t waiting around for the politicians. "The technology sector is the future of the Palestinian economy," says the CEO of Asal Technologies who appears to be entirely unperturbed by the din rising up out of the street where an ornery donkey has caused traffic chaos.

Wearing a pin-striped suit and discreet tie, he sits at his huge desk in front of a bright red wall. On the desk, aligned at right angles, are his computer, printer, phone, calculator, stapler.

Some 7,000 people in 300 companies presently work in the Palestinian technology sector, Tahboub tells me. That may not be many, but every year 1,500 to 2,200 programmers and engineers – 40% of whom are women -- graduate from Palestinian universities. "There’s no way for them all to find jobs here, and most of them are unemployed."

The 42-year-old Palestinian started his own career abroad – the first business he founded was an import-export company in Greece. In the euphoria that followed the Oslo Peace Accords in the 1990s he returned home to help build a new Palestine. Asal has been turning a profit for five years, he says proudly.

At Asal, 120 software developers work in a large, air-conditioned open plan office fronted by a semi-circular glass wall. Twenty percent of them are women. As we tour the premises, some of them – veiled – are taking a break in a canteen where there are different containers for garbage separation. A list that reads "Tasks, Pending, Implementation, Review" is tacked to a wall.

"In Palestine, English is taught from the first grade on," Sharif Abdeen, Asal’s head of marketing and sales, tells me, adding that it’s no secret that the Palestinians are the best educated of any people in the Arab world.

Sharif perfected his own British-accented English in London where he worked for Lloyds Bank for 13 years before hope lured him back home too. "English is also widely used at Asal because so many international clients outsource to us."

Hewlett-Packard, Microsoft, IBM – industry leaders are slowly discovering the skills and dependability of Palestinian workers, says Abdeen. Also: in Palestine, a developer costs only 30% of what he or she would cost in Israel, and a team leader only marginally more than 30%. That’s interesting to Israeli companies – plus there’s no time difference, and communication is easier.

Israeli-Palestinian venture capital

The Palestinian high tech industry went into high gear in 2008 when Cisco decided to invest $10 million in the West Bank. Back then, the sector represented only 0.8% of Palestinian GDP. Today, it represents over 11%. By comparison to Israel’s $1.3 billion annual profits in the sector, Palestine’s $6 million might seem like peanuts – but since 2009, foreign investment in Palestine has grown 65%.

Yadin Kaufmann is one person who’s betting on the Palestinians. The Harvard-educated Israeli has shown sound business judgment so far. When in the late 1980s Kaufmann founded Verita Venture Partners to invest in young Israeli companies in the technology sector, many people thought he was crazy. At the time the industry barely existed, and foreign investors were wary because of the security situation. But Kaufmann was right, and made good money with start-ups that were soon worth billions.

Now the 51-year-old believes that the future is a few kilometers east – on the West Bank. Together with his Palestinian business partner, former Microsoft programmer Saed Nashef, he has amassed nearly $30 million for the first Palestinian venture capital fund, called Sadara. It’s not a lot of money, he admits, but the sector is still in its infancy in Palestine so you can get things done here with that money.

Nashef says that they’ve vetted 45 young entrepreneurs and narrowed them down to five. One of these is MobiStine, a company dedicated to the health and beauty of Arab women. They’re developing special apps for smartphones. There are over 150 apps in English for pregnant women, but only five in Arabic, says company head Husni Abu Samrah – “and they’re not good, yet Arab women have more children and have no fewer concerns about giving birth than other women.”

Also successful is Souktel, a jobs exchange focused on the rapidly expanding jobs market in developing countries. The exchange allows employers and workers to trade offers and CVs via Internet, SMS or phone. Construction companies use it to find day workers. It works as well in Palestine as it does in Rwanda, Egypt or Morocco.

But the very first Sadara million went to Yamsafer, a hotel-booking site. The Arabic travel industry is inefficient, says one of the three founders, Faris Zaher. In 2010 there were over 27 million hotel bookings -- worth $22.6 billion -- in the Arab world, yet only 2% of the bookings were made via Internet.

Saying "No" to NGOs

Yamsafer is out to change that. Their website in Arabic and English is attractively designed. Many hotels in the region can only be booked electronically through Yamsafer that combines accommodation packages with tourist-magnet events taking place in a given area, books rooms at group rates and then sells rooms individually at reasonable prices. People without credit cards, or reluctant to use them online, are referred to pay-points near them where they can pay for their package in cash – an especially important feature in rural areas of the Arab world, Zaher says.

When asked about the greatest potential danger for his company, the Israeli occupation was not his concern – it was the omnipresence of international aid organizations. "I believe that the private sector, not the organizations, is what’s going to get Palestine up and running," the young entrepreneur says. What’s more, the NGOs distort market reality: "They pay $1,500 salaries while we in the private sector can only pay between $500 and $700."

That’s one view of the occupation, but there are others -- starting with the fact that most Palestinian companies have no access to Paypal because to open an account, you need an Israeli bank account. Another consideration is travel: getting to meetings and conferences abroad is difficult, time-consuming – and sometimes impossible.

Tareq Maayah, chairman of Exalt Technologies, has adopted a pragmatic view: "We just have to work around it." The occupation is a regrettable reality that can’t be changed short-term. "But that’s the beauty of modern technology," says this polo-shirt-wearing boss back in Ramallah after working in Silicon Valley and for Siemens. "All we need is electricity and a good Internet connection. Travel is rarely necessary anymore." Nor is there any need for all the bother of snail mail, and the risk that projects get to clients late: "The software flows through the cable so we can always deliver on time."

In fact, Israeli-imposed limitations have even led to some creative innovation. Because Palestinian telecom companies do not have access to high frequency ranges, there is no mobile web in Palestine. "So 20% of Palestinians use Israeli providers," says Maayah – which is great business for the Israelis. But one Palestinian company, QNET, wasn’t about to accept this and created a wireless network across the West Bank. It is this spirit of invention that makes Maayah believe that in the future the Palestinian technology industry will make a name for itself in innovative software development.

Invitation to emigrate

But there is still a long way to go. First, Palestine’s reputation needs to improve. "It’s not easy to get company bosses to agree to outsource to a war zone," Maayah admits. And the many wealthy and well-educated Palestinians in exile aren’t exactly rushing back in droves.

The political situation aside, the reason for this is an Israeli regulation: Anybody who spends over seven years abroad has their right of residence revoked. Without bitterness, Maayah says: "It’s a demographic thing. They make it easy for Palestinians to leave but not to return."

The regulation is the reason why Andre Hawitt has to leave Palestine every three months. He was born on the West Bank, and grew up there – but he can only live here as a tourist. The head of Mixberry Media, a firm dedicated to targeted Internet advertising, says it’s not so bad: He likes to travel. But his wife gets panic attacks every time one of their kids goes abroad. "What if the Israelis don’t let them back in?"

If the boundless optimism of Ramallah’s high tech scene is sometimes dizzying, Hawitt’s is a voice of reason. Two-hundred million dollars worth of investment are what’s needed to get the thing properly up and running, and: "No way that’s going to happen." Without a political solution, growth will only be possible within limits. And then there’s the parallel economy of aid payments that foster “dependency and corruption.” Aid money flows in Palestine and corruption is rampant.

An optimist Hawitt is not. So what’s the answer? "Just get on with it and hope. It’s better than war any day."

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Merkel's Legacy: The Rise And Stall Of The German Economy

How have 16 years of Chancellor Angela Merkel changed Germany? The Chancellor accompanied the country's rise to near economic superpower status — and then progress stalled. On technology and beyond, Germany needs real reforms under Merkel's successor.

Chancellor Angela Merkel looks at the presentation of the current 2 Euro commemorative coin ''Brandenburg''

Daniel Eckert

BERLIN — Germans are doing better than ever. By many standards, the economy broke records during the reign of outgoing Chancellor Angela Merkel: private households' financial assets have climbed to a peak; the number of jobs recorded a historic high before the pandemic hit at the beginning of 2020; the GDP — the sum of all goods and services produced in a period — also reached an all-time high.

And still, while the economic balance sheet of Merkel's 16 years is outstanding if taken at face value, on closer inspection one thing catches the eye: against the backdrop of globalization, Europe's largest economy no longer has the clout it had at the beginning of the century. Germany has fallen behind in key sectors that will shape the future of the world, and even the competitiveness of its manufacturing industries shows unmistakable signs of fatigue.

In 2004, a year before Merkel was first elected Chancellor, the British magazine The Economist branded Germany the "sick man of Europe." Ironically, the previous government, a coalition of center-left and green parties, had already laid the foundations for recovery with some reforms. Facing the threat of high unemployment, unions had held back on wage demands.

"Up until the Covid-19 crisis, Germany had achieved strong economic growth with both high and low unemployment," says Michael Holstein, chief economist at DZ Bank. However, it never made important decisions for its future.

Another economist, Jens Südekum of Heinrich Heine University in Düsseldorf, offers a different perspective: "Angela Merkel profited greatly from the preparatory work of her predecessor. This is particularly true regarding the extreme wage restraint practiced in Germany in the early 2000s."

Above all, Germany was helped in the first half of the Merkel era by global economic upheaval. Between the turn of the millennium and the 2011-2012 debt crisis, emerging countries, led by China, experienced unprecedented growth. With many German companies specializing in manufacturing industrial machines and systems, the rise of rapidly industrializing countries was a boon for the country's economy.

Germany dismissed Google as an over-hyped tech company.

Digital competitiveness, on the other hand, was not a big problem in 2005 when Merkel became chancellor. Google went public the year before, but was dismissed as an over-hyped tech company in Germany. Apple's iPhone was not due to hit the market until 2007, then quickly achieved cult status and ushered in a new phase of the global economy.

Germany struggled with the digital economy, partly because of the slow expansion of internet infrastructure in the country. Regulation, lengthy start-up processes and in some cases high taxation contributed to how the former economic wonderland became marginalized in some of the most innovative sectors of the 21st century.

Volkswagen's press plant in Zwickau, Germany — Photo: Jan Woitas/dpa/ZUMA

"When it comes to digitization today, Germany has a lot of catching up to do with the relevant infrastructure, such as the expansion of fiber optics, but also with digital administration," says Stefan Kooths, Director of the Economic and Growth Research Center at the Kiel Institute for the World Economy (IfW Kiel).

For a long time now, the country has made no adjustments to its pension system to ward off the imminent demographic problems caused by an increasingly aging population. "The social security system is not future-proof," says Kooths. The most recent changes have come at the expense of future generations and taxpayers, the economist says.

Low euro exchange rates favored German exports

Nevertheless, things seemed to go well for the German economy at the start of the Merkel era. In part, this can be explained by the economic downturn caused by the euro debt crisis of 2011-2012. Unlike in the previous decade, the low euro exchange rate favored German exports and made money flow into German coffers. And since then-European Central Bank president Mario Draghi's decision to save the euro "whatever it takes" in 2012, this money has become cheaper and cheaper.

In the long run, these factors inflated the prices of real estate and other sectors but failed to contribute to the future viability of the country. "With the financial crisis and the national debt crisis that followed, economic policy got into crisis mode, and it never emerged from it again," says DZ chief economist Holstein. Policy, he explains, was geared towards countering crises and maintaining the status quo. "The goal of remaining competitive fell to the background, as did issues concerning the future."

In the traditional field of manufacturing, the situation deteriorated significantly. The Institut der Deutschen Wirtschaft (IW), which regularly measures and compares the competitiveness of industries in different countries, recently concluded that German companies have lost many of the advantages they had gained. The high level of productivity, which used to be one of the country's strengths, faltered in the years before the pandemic.

Kooths, of IfW Kiel, points out that private investment in the German economy has declined in recent years, while the "government quota" in the economy, which describes the amount of government expenditure against the GDP, grew significantly during Merkel's tenure, from 43.5% in 2005 to 46.5% in 2019. Kooths concludes that: "Overall, the state's influence on economic activity has increased significantly."

Another very crucial aspect of competitiveness, at least from the point of view of skilled workers and companies, has been neglected by German politics for years: taxes and social contributions. The country has among the highest taxes on income in Europe, and corporate taxes are also hardly as high as in Germany anywhere in the industrialized world. "In the long run, high tax rates always come at the expense of economic dynamism and can even prevent new companies from being set up," warns Kooths.

Startups can renew an economy and lay the foundation for future prosperity. Between the year 2000 and the Covid-19 crisis, fewer and fewer new companies were created every year. Economists from left to right are unanimous: Angela Merkel is leaving behind a country with considerable need for reform.

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