Next Step : Building on Hope in West Bank : Construction is booming, but long-term growth depends on tenuous Mideast politics.

The narrow streets of central Ramallah are filled with piles of construction materials and jammed with trucks delivering even more as workers erect offices, stores and homes in the biggest building boom the West Bank has seen in decades.

“The economy is the future, and Ramallah is the economy,” said Zaki Musa Bakri, who is almost doubling the size of his four-story complex of shops and offices with three additional floors. “People are already lining up as tenants although we’re months from completion. . . . “Everyone thinks the Palestinian economy will take off once we get full autonomy. This building is a vote of confidence in the Palestinian future,” said Bakri, whose family owns clothing factories in Brazil, “and I’m putting my money on it.”

Shukry Bishara, executive vice president and regional manager for the Arab Bank, is less optimistic, distinguishing between Ramallah’s building boom and real economic growth in the Palestinian territories.

“There won’t be a true takeoff until there is full Palestinian self-rule, for without full autonomy there won’t be real business confidence, the kind of confidence that investors need to justify their risk-taking,” Bishara said.

“For the moment, people are willing to put their money in property and construction because buildings retain value, they are willing to invest in the service sector, in tourism and in transport, because of a rapid return, but they are very cautious about going into manufacturing.”

As they assess the economy in the West Bank and Gaza Strip, Palestinian business people say economic development is tied directly to political developments: Palestinian elections, full autonomy throughout the West Bank, the pullback of Israeli forces there.

“People are investing on the hope that the economic situation will improve soon, but the political situation needs to change for that to happen,” said Mohammed Ameen, vice president of the chamber of commerce and owner of a furniture factory in Ramallah, a large Palestinian town north of Jerusalem.

“You can make money from real estate and construction but, because of the Israeli occupation, not from factories or exports.”

Salah Odeh, the chamber’s secretary general, estimated the value of new construction in Ramallah, Nablus to the north and other nearby West Bank towns at more than $100 million and added, “The total probably goes up $10 million a month.”

That worries Bishara. “A building boom can have an adverse effect on the whole economy,” the banker said. “It is unregulated, unplanned and somewhat haphazard. Funds are flowing in, expectations are heightened, yet there is no growth in output, and that is inflationary.”

Ameen is an example of the quick-return investor, setting up a new family entertainment center last month with rides and games rather than expanding his furniture business or establishing a new factory.

“Don’t mistake the building boom for real growth,” he cautioned.

Real economic growth--and the jobs and better living standards it would bring--is a key element both in the strategy of the six-month-old Palestinian Authority, headed by Yasser Arafat, and in the success of the peace accord signed by Israel and Arafat’s Palestine Liberation Organization in 1993.

“It’s a circular argument: Create prosperity and conditions for social improvement and the political environment and economic performance will also get better,” Bishara said.

“We have to break the political deadlock we are in now with the Israelis, but that is not in the hands of the businessmen nor the investors nor the economists. . . . We have no clarity about how things will evolve over 12 months; 80% of our efforts go into things like getting residence permits from the Israelis for our employees. Most laws are still being written.”

An assessment prepared for one Arab company considering investing in the Palestinian territories ran through a long list of discouraging factors: continued military occupation, political instability, no dates for elections and establishment of Palestinian government, no legal framework for commerce, inoperative courts, weak banking system, poor communications and transport.

“To invest in the Palestinian territories today is an act of faith, of hope and, yes, of charity,” the confidential analysis said.

Odeh said that the 1993 peace accord “gave many the impression that peace is here, Palestine is independent and we’re open for business. The reality is that little has changed for the Palestinian businessman.

“We are still facing most of the same problems in business development that we have had for 27 years under the Israeli occupation--security controls, no access to foreign markets, a weak infrastructure, difficulty in entering the market, over-regulation, over-taxation.”

Odeh said that Palestinian business people have been preparing--gathering substantial capital from around the Arab world, Europe and the United States, registering their new companies, getting licenses and permits--in anticipation of a real boom later this year.

“Most of the building boom is the result of Palestinians abroad sending their capital home, and frankly we encourage the sons of Ramallah to send their money here even if it means putting up another office building rather than a factory,” Odeh said.

“But a lot of these new offices will have a name on the door, new furniture inside, but their books will still be empty.”

The Arab Bank, based in Jordan but Palestinian-owned, has nonetheless recently reopened five branches in the Palestinian territories and, Bishara said, is prepared to wait a number of years before it sees a profit.

Already, the bank’s deposit base is growing at a pace that Bishara predicted will lead to its doubling within a year.

“Things are promising if the Declaration of Principles (between Israel and the PLO) is carried out,” Bishara said. “In economic terms, the Palestinian Authority has the right ideas, it is asking the right questions and it is making the right initial moves. The main questions are political.”

Samir Huleileh, the Palestinian Authority’s director general of trade, agreed that the political uncertainty leads to increased economic risks for investors, but argued that the business environment is improving.

Huleileh ticked off the pluses quickly: Taxation is now in Palestinian hands, not that of the Israeli military; Arab banks are reopening long-closed branches, giving Palestinians greater access to foreign financing; new companies can register in a single day, compared to three or four weeks under Israeli authorities; import and export licenses can be obtained quickly, and $128 million in infrastructure projects have been approved by foreign donors.

“One good measure of the economic upturn ahead is that we have issued three times as many import licenses in 1994 as Israel did the year before,” Huleileh said.

On the agenda for the first quarter of 1995, he said, are a new investment law, the harmonization of the often contradictory laws under which businesses operate and further regulations implementing the economic agreement Israel and the PLO signed in May.