The European Commission decided today (22.12.10) to provide an initial financial package worth €100 million for the Occupied Palestinian Territory under the 2011 budget.

Now that is a pretty cool donation, especially from an international organisation also financing at least 4 economies suffering meltdown. And this public money is going to end up in an economy that does not officially exist, at least as a member of the UN.

This is not the only set of Western taxpayers funds ending up in the Treasury of the Palestinian Authority. The UK recently confirmed that it had contributed approx US$45 in 2010 to the World Bank Trust Fund, which “pays the salaries of public sector workers in both Gaza and the West Bank”. Japan gave US$12m in early December. Mrs H Clinton came up with US$150m. And so the list seems to go on.

Conglomerates from the private sector have also joined the game:

• Cisco will invest $5 million in a venture capital fund for Palestinian startups.
• Google is investing $2 million which will include contributions to the same VC fund and to the local operations of NGO Mercy Corps.
• A long term commitment by HP to expanding business operations in Palestine and local collaborations with USAID.
• Intel will expand cooperation with Palestinian IT/software firm Asal Technologies.

Is this a wise bet on the future or just politically correct? SKY TV recently reported on the new strengths of the Palestinian economy. Google Bethlehem at Christmas and you will find plenty of info on how Manger Square has been full of tourists this year.

According to David Makovsky of the Washington institute for Near East Policy, Prime Minister Salam Fayyad claims that 120 schools have been built in the last decade. Those and 3 new hospitals, 50 health clinics, hundreds of new or resurfaced roads, etc, etc. And tax collection was up 50% in 2010, although starting from a meager base.

Bottom line for Fayyad is that poverty is down a third as are expected contributions from foreign assistance.

 It’s all looking very positive….that is until you start to ask a few questions.

1) The European press release above recognises that “the EU now fulfils by far the pledges made at the Paris Donors’ Conference in December 2007.” Good. Encouraging. So where are the equivalent donations from Arab countries. What do they know that is stopping them from fulfilling their pledges and thus investing?

2) If the World Bank Trust Fund is asking the UK and others to contribute to salaries of public workers in Gaza, they are effectively paying the wages of Hamas officials. Hamas is listed as a terrorist organisation. As I write, news came through that Hamas has illegally arrested over 3000 political opponents in 2010 alone.

3) If the Palestinian economy is improving so much, why is so much aid needed in the first place.  The World Bank talks about 8% annual growth. New luxury hotels are to be seen in Gaza and in the West Bank. Israel is no longer withholding tax revenues as all debts by the Palestinian Authority are accounted for. Even the number of manned Israeli roadblocks in the West Bank is only 14 in number, thus allowing for easier commerce.

So here’s my issue: When an investor or venture capital group seeks to become involved with a new project, they look at the skills available, the team, transparency, history, and future accountability. They consider who else will share the risk. Above all, is it possible to assess the true need.

Would you invest 100m Euro in one go under such conditions? There again, in this case, it was signed off by those who are not necessarily accountable.