Palestine Investment Fund (PIF)
The Impact Paradox
For over two decades, businesses have been grappling with the notion of “doing well by doing good”: achieving financial success while investing in an ethical or socially responsible manner. The discourse surrounding the need to balance financial interests and good corporate citizenship has resulted in drastic changes to traditional investment models. Corporate Social Responsibility (CSR) has become almost universal in large corporations, while many organisations are flocking towards socially responsible investment by adopting selective approaches to investing, including negative screening or the exclusion of certain sectors such as weapons and tobacco.
In recent years, Impact Investing has emerged as a modern investment model to harness the power of private business to create positive social, environmental and economic impact. Impact investments are made with the intention to generate positive, measurable social and environmental impact alongside a financial return. A growing number of investors are incorporating impact investments into their portfolios; the Global Impact Investing Network estimates that the market size for impact investment reached $114 billion in 2016, with funds directed towards addressing some of the world’s most daunting challenges from combating poverty to environmental protection and conservation.
PIF’s Transition to a National Impact Investment Platform
Palestine, like many developing economies around the world, also struggles with a litany of challenges that are exacerbated by the occupation and its restrictions on movement, access and natural resources. These harsh political and economic realities have created a less than desirable investment climate, leading to stunted economic growth. This is clearly reflected in the Palestinian labour market, where unemployment reached 28% in 2017, with youth unemployment soaring to 41%. Private investment levels have averaged around 15% of GDP in recent years and have largely focused on low productivity sectors that are less susceptible to political shocks (e.g. construction).
To make matters worse, the Palestinian government faced with mounting fiscal pressure, due to a sharp reduction in donor assistance, has resorted to slashing its public investment budget, with development expenditures dropping from 5.7% of GDP in 2006 to 2.5% of GDP in 2016, leading to deteriorating infrastructure, which in turn further depressed the investment climate, resulting in lower growth and higher unemployment, effectively, a downward spiral of economic decline.
It thus becomes clear that breaking this vicious cycle can only come through revitalising economic growth with higher levels of purpose driven investment in Palestine’s productive base.
Against this backdrop, the Palestine Investment Fund (PIF), Palestine’s sovereign development fund, has launched a $2.5 billion seven-year impact investment program for the period 2018–2025. The program aims to build a resilient, innovative, and vibrant economy that enables the Palestinian people to thrive.
In the same way traditional investors consider risk and return, PIF will introduce a third dimension, impact, to its performance measurement and management objectives, thus targeting a double bottom line of financial returns as well as positive social and economic impact. For PIF, impact measurement and management will focus on key metrics namely; GDP growth, Trade Deficit Reduction to build a resilient economy, Investment leveraged through crowding in partners, Investments in marginalised areas including Jerusalem, Gaza and Area C, SMEs supported and jobs created. Additionally, PIF will dedicate resources to supporting Palestine’s transition towards a knowledge-driven economy.
Combining Philanthropic and Financial Capital
To anchor its philosophical pivot, PIF will no longer classify its resources as either CSR or investment but will rather use its entire asset base to effect positive social and economic impact. Nowhere is this more evident than PIF’s new investment program, Innovate Palestine, which seeks to:
Promote challenge-driven innovation and build the skills of Palestinian innovators and entrepreneurs,
Connect the innovation landscape through ecosystem mapping, content development, and enhanced links with the diaspora and international experts,
Enable innovation with supportive infrastructure including a national fibre optic network, research labs and other physical resources,
Improve access to finance through a variety of financial tools.
Innovate Palestine will be a joint effort between two PIF platforms, the Palestine for Development Foundation (PSDF) and Sharakat, PIF’s SME investment arm. The program will offer a wide spectrum of grant-based, debt-based and equity-based interventions. This harmonised approach allows PIF to combine the goals of its financial and philanthropic capital. Furthermore, the new approach allows PIF to crowd in investor capital, which would not otherwise be available for purely philanthropic purposes.
Innovate Palestine represents a continuation of PSDF’s efforts to promote entrepreneurship and youth empowerment through a set of programs that have created over 56,000 jobs and supported 1,334 SMEs during the last 10 years through programs such as ‘Ibda’ which promotes entrepreneurship, education and awareness amongst Palestinian youth, and is complemented by a $30 million financing component in partnership with Palestinian Microfinance Institutions (MFIs).
Additionally, PSDF has been running two dedicated programs; the first is the Jerusalem Financing Facility, which provides matching grants to Jerusalem-based small and medium-size businesses in areas that include tourism, industry, services, trade, information technology, workshops and crafts. The second dedicated program is the Lebanon Economic Empowerment Program, which provides microfinance to entrepreneurs in Palestinian communities and refugee camps in Lebanon to help improve their living standards and offer them a stable income.
