Private Palestinian investment in Israel, as of 2010, amounted to $2.5 billion in a conservative estimate, and according to a more optimistic estimate this investment possibly even amounts to $5.8 billion. For purposes of comparison, private Palestinian investment within the West Bank, as of 2011, was only $1.5 billion.

This is the surprising conclusion reached by Issa Smeirat, who for his master's thesis in economics has done the first research of its kind into this phenomenon, its extent and its implications - issues that until now have not been discussed in the professional literature.

Open gallery view Part of the Palestinian investment is in the Barkan Industrial Zone. Credit: Tomer Appelbaum

What do you think of this article? Visit Haaretz.com on Facebook and share your views.

Had the $2.5 billion been invested in the territories of the Palestinian Authority, he estimates, the money could have created 213,000 jobs for Palestinians. According to records, in the Palestinian areas of the West Bank, some 16,000 Palestinian businessmen from the West Bank, recipients of permanent permits to enter Israel, have founded companies and various kinds of factories in Israel and in the industrial zones of Jewish settlements in the West Bank, and pay taxes to the treasury of Israel.

Smeirat examined the motivations for this decision, which is very sensitive politically, especially during the past several years with the increased call for a boycott of Israel or of products from the settlements. Because of the sensitivity, Smeirat has not mentioned the investors by name, nor has he revealed details that would suggest their identities.

In a conversation with Haaretz he said that in the wake of his research, the PA's Ministry of National Economy, which headed the campaign to boycott products from the settlements, made it clear that the Paris agreement (the economic pact between Israel and the PA ) does not prohibit investment in Israel and the settlements. Palestinian political and social activists who have seen the findings of the study told Haaretz they were shocked at the extent of the phenomenon.

Smeirat, 43, is from Bethlehem. At the end of the summer his MA thesis was discussed at Al-Quds University in Abu Dis. He received basic information about the investors with entry permits to Israel from the West Bank governorates and contacted 540 of them directly. He handed out detailed questionnaires to 420 of them (to which 374 responded ) and also met with 120 for individual interviews. In this way he succeeded in drawing an interesting sociological profile in addition to his economic estimates and calculations.

Hebrew-speakers, over the age of 40

Smeirat's sample shows among other things that most of the businesspeople know Hebrew and more than half of them are over the age of 40. These data indicate a generation that grew up at a time when Israel allowed almost free movement of Palestinians into Israel (until the start of the 1990s ) and was familiar with Israeli society (in contrast to the younger generations ). Thus, for example, 23 percent of them had been workers in Israel before they opened a company there, usually in the same industry in which they had worked. Only 0.5 percent of them reported they do not know Hebrew. Nearly half of them also speak English as well as Hebrew as second languages, a figure that accords with the fact that one-fifth of the respondents reported that their investments are split among Israel, the settlements, the West Bank and abroad. One-fifth of the respondents said they invested only in Israel and the settlements. Nearly 90 percent reported that their first experience with investment had been in Israel.

The sample shows an inverse relationship between educational level and investment in Israel: Half the respondents had 12 years of schooling or less and 28.1 percent are university graduates.

Investments in industry and construction

Nearly one-quarter of the investments are directed to industry, which indicates that as Israeli investors moved into high tech, opportunities opened up in the traditional production industries and Palestinian investors have moved in. Indeed, one-third of the investment in industry is directed to providing skilled workers for the various industries. The area of construction also remains significant among the Palestinian investors, comprising of more than one-fifth of the total investments.

Of the investments in construction, 45 percent is directed to infrastructure and 38 percent to building homes. The annual investment of one-fifth of the investors stood at $100,000 or less; 13.9 percent have invested $6 million and up. According to the sample, 37.2 percent of the investors had an annual income of $100,000 or less, 39.6 percent swept in income of up to $0.5 million and 12.8 percent had annual income of up to $1 million, with 10.4 percent bringing in more than $1 million in annual income.

Fictitious partners to speed up the bureaucracy

The data also indicate that of the 16,000 investors, 3,300 are from the Hebron area, 3,1000 from Ramallah, 3,000 from Nablus and 2,000 from Bethlehem. Only 1,000 come from the Governorate of Jerusalem (which is outside the municipal borders of Jerusalem ). But also in East Jerusalem itself, says Smeirat, the number of Palestinian investors in Israel is relatively small, despite the fact that they are not subjected to the same mobility restrictions and bureaucratic demands as residents of the West Bank.

The low number is indicative of the process of the impoverishment of Palestinian society in East Jerusalem under Israeli rule. A look at the registration methods of the Palestinian companies shows that although 23 percent of the companies are in partnership with Palestinian residents of Jerusalem, in fact sometimes this is indicative of a fictitious partnership aimed only at making the bureaucratic proceedings easier. Another 16.6 percent are in partnership with a Palestinian citizen of Israel, 16.3 percent are in partnership with a Jewish Israeli and 8.8 percent reported that their Jewish partner was only "cover" and received either a one-time or a regular commission. Twenty percent are subcontractors of Israeli companies.

Contrary to the usual motivations for investment in foreign countries, it is not cheap labor that motivates the Palestinians to invest in the territory of the occupying state. The Palestinian investors do bring cheap manpower with them, says Smeirat. Sometimes they employ Jews in management capacities. Many investors told him they pay high salaries to Jews who had previously served in Palestinian cities in the West Bank in the army, the Civil Administration or the Shin Bet security service. Their main role is to ease the additional bureaucratic procedures every Palestinian businessperson encounters.

Refuge from restrictions

Until now the assumption had been that the Palestinian businesspeople are involved mostly in trade relations with Israel and not in investing their money there. According to Smeirat, there were those in the PA who estimated the extent of the Palestinian investment at about $1 billion at most. Whatever the figure, official publications do not include Palestinian investment in the calculations of foreign investment in Israel.

Sources in the PA calculated the Palestinians' savings at about $7 billion. Of this sum, says Smeirat, about $5 billion is invested abroad (not counting the investments in Israel ), either in shares or in direct investments. This indicates the absence of a suitable economic atmosphere in the West Bank for investment and development.

Smeirat finds that the Israeli military restrictions imposed in the past and still imposed on the Palestinian economy are the main push factors behind Palestinian investment in Israel. However, in his opinion the PA has room to maneuver and improve conditions that will enable it to attract at least some of the investments - and investors - back into the West Bank.

Israeli control of 60 percent of the area of the West Bank, its control of the water sources, the restrictions on the movement of people and goods within and outside the West Bank, the Israeli market's blockage of Palestinian goods, the lengthy process of importing raw materials from abroad and of exporting - all these limitations mean the Palestinian manufacturers' inputs are much higher than the Israelis'. Land for leasing or purchase is more expensive because of its scarcity, water and electricity cost more and a Palestinian manufacturer's waiting time for raw materials is longer than that of his Israeli counterpart. Therefore production in the PA areas of the West Bank are more expensive by 30 to 40 percent than production in neighboring countries.

These are the main reasons impelling wealthy Palestinians to invest in Israel. At the same time, investors are also pushed into Israel because of the weakness of the Palestinian law and court system, incompetent management and a tax system they say does not encourage investment. They are attracted by the geographic proximity to Israel, the friendly and more experienced business environment in Israel, Israel's developed international trade relations, easy access to banks and familiarity with Israeli society and how it works (as compared to unfamiliarity with the system in other states ).

Smeirat's findings reinforce the Palestinian national economy ministry's view as manifested in its study of the price the occupation exacts from the Palestinian economy. According to this study (Haaretz, November 11 ), the Israeli restrictions depicted as security restrictions are connected to the colonial nature of the Israeli occupation, and are aimed at preventing competition from the Palestinian economy.

Smeirat asked the subjects of his study whether they would want to go back and invest in the areas of the West Bank. Of his respondents, 35.3 percent replied in the negative, 28.9 percent said they would go back if the PA manages the economy better, and 35.8 percent said they would go back if conditions were improved (such as better infrastructure and loans ).