Deep Demonstration in Palestine: Grassroot economics in a state of fragility

By Ismail Abu Arafeh, Ruba Aladham, and Tala El-Yousef (UNDP in Palestine)

“SMEs and informal businesses revealed their significant economic potential during the Covid-19 pandemic, embracing agility and willingness to adapt in face of crisis”. A prominent Palestinian economist and investor serving on the Palestinian Deep Demo advisory board

In UNDP we have been on a journey to learn about how to best support an inclusive resilient economy in the State of Palestine. We have done this in a ‘Deep Demonstration’ (for details see our first blog here). The intention has been to explore models and approaches that allows marginalized Palestinians to better absorb shocks and adapt during crisis. Witnessing constant volatility and the harsh realities on the ground of the protracted conflict, we remain committed to explore what future economic systems could be best suited in the face of sustained crisis.

Early in this process we realized that our focus should not be at the macro-level economics and large corporations, but rather to venture into the dynamics of grassroots economic activity. But the informal characteristics of this layer of economic activity made it hard for us to research, understand, and rely on pre-existing data and figures to make sense of the economic system behind it. Delving into informality can be daunting, particularly considering the breadth of work and the sheer number of people actively engaged in the informal economy. As a result, we have often times, over the past year, felt ourselves getting lost in abstracts without being able to get a feel and sense of what is it that we’re trying to tackle.

To help us break this impasse we have been looking for entry points and different ways of learning about the informal economic sector in Palestine. We have found it useful to start looking for small to medium enterprises (SMEs) that are aggregators of products made by informal groups and individuals. A series of meetings, field visits, and community immersion activities have in this connection provided us with invaluable insights and proven to be a breakthrough in our work, helping us discover new entry points for how UNDP can support inclusive resilient growth in Palestine.

In this blog we share stories from our community immersion, revealing some of the observations we encountered as part of field visits held with the production clusters of furniture, leather, local crafts, and agribusinesses.

We hope you’ll find these stories interesting as examples of entry points for developing economic resilience in sustained crisis settings as well as how useful community immersion activities can be to help us all learn about the nuances, complexity and realities of complex informal economic systems.

Canaan fair trade — tapping onto the growing global demand for natural, sustainable, and fairly traded products

Canaan is one of the most prominent social enterprises working in the State of Palestine. During our visit, we were welcomed by Nasser Abu Farha, the founder and CEO of the largest Palestinian exporter of Fair Trade agricultural products. Recognizing the reality that Palestinian produce cannot compete fairly under occupation, Nasser recognized that a different business model ought to be followed. This is why in 2004 he started building a highly organized grassroots network of Fair Trade production that can compete in the international organic markets. Today, over $5 million worth of organic olive oil is exported annually thanks in large part to Canaan Fair Trade. The eventual beneficiary of this inflow of hard cash is the Palestinian economy, and the multitude of direct beneficiaries include 43 producer groups that constitute Canaan’s highly organized supply chain. The model’s success goes beyond economic, as the premium prices provide extra cash to marginalized households, while the “social premium” as Nasser calls it covers the development of farming communities his company works with. Canaan has diversified their Fair Trade products beyond Olive Oil, winning lucrative and long-term business deals with prominent international brands such as Ben and Jerry’s ice cream, Lush cosmetics, Dr. Bonners’ soaps, and various other fair trade and natural retail stores such as New York’s Whole Foods supermarkets, Britain’s Sainsbury’s, and boutique shops across the globe.

Canaan’s model sparked a new model where Palestinian economy can compete, through tapping onto value-based consumerism. The power of the value-based consumer can be one way where Palestinians can trespass the hurdles and unfair economic conditions they are continuously subjected to. This model has sparked many thoughts for us in the Deep Demonstration: how many other sectors can benefit through applying fair trade practices similar to Canaan’s? Are we able to galvanize on medium to high-end brands whose interest is increasingly in sourcing ethically where Palestinian produce can provide a niche? And most importantly, can we start to imagine how many — otherwise excluded marginalized families — can benefit from such inclusive economic activity, with high potential to compete despite the structural challenges facing the economy?

A thriving model for small-scale furniture producers in Salfit

The second model we explored is the furniture cluster in Salfit, where we were amazed to see such viable and growing economic activity in a small area classified as Area C. These territories, constituting over 60 percent of the West Bank and the Gaza Strip, were subjected to full Israeli civil and security administration under the 1995 Israeli-Palestinian Interim Agreement, with gradual transfer to Palestinian jurisdiction that should have been completed by 1997. Unfortunately, this transfer has not been implemented, heavily restricting most kinds of economic activities in the area. The current administration manner of Area C detrimentally restricts its significant economic potential, which if adequately mobilized “would help a faltering Palestinian economy” (World Bank Study “Area C and the Future Palestinian Economy”)

In these areas, Palestinians have limited access and control of land and natural resources, which constitute the basic elements for any conducive business activity. Despite these restrictions, we were amazed to see over 70 small and medium furniture producers come together under one cluster to become an essential contributor to Palestinian GDP. The newly formed furniture cluster produces different designs of bedrooms, dining rooms, office furniture, and different kinds of tables, sofas and kitchens. The strong social bonds and physical proximity made collaboration easier for producers in the Furniture cluster, eliminating the sense of competition. The cluster members are now benefiting from collective activities including collective procurement of wood and other input materials, joint bids and tenders, exposure to new markets and buyers and competitive deals with large service companies and financial institutions.

Product customization is what distinguishes furniture industry in the State of Palestine from mass furniture producers in the region including Turkey, where the latter offers top notch furniture designs. However, and according to the interviewees, the Turkish furniture is not as durable as the locally produced with a small margin of price difference in favor of the Turkish furniture. This makes locally produced furniture highly attractive in the Israeli market contributing to around 80% of the cluster sales. That being said, the Palestinian furniture producers work as sub-contractors for Israeli traders, who also export Palestinian-made furniture under Israeli brands. The cluster management recognize the risk of solely depending on the Israeli market and the untapped opportunity of diversifying and directly penetrating the regional and international markets with Palestinian branded furniture — also cutting the costs of Israeli intermediary companies. They also acknowledge the challenges of direct exporting, associated with high transportation costs and logistical constraints incurred as a result of policies and procedures imposed by Israel. The cluster also aspires to establish a design academy fully financed by the cluster members in partnership with national universities to feed the cluster with skilled designers with contemporary and utilitarian design ideas that meet various markets taste and needs.

While we thought there is a noteworthy opportunity to facilitate trade access in international market, we felt such intervention is better suited for other organizations and trade entities, who are better positioned to provide these services. Moreover, international market access requires political clout that allows for negotiation and policy dialogue to lift restrictions and ease procedures from the Israeli side. On a different note, it was evident that there are no original designs or creative innovation in the type of products made by the cluster, which if tapped onto could further distinguish Palestinian furniture.

Bethlehem Fair Trade Artisans — Securing deals for small scale producers

The next visit in our journey was to Bethlehem, where a prominent Fair Trade organization was established in 2009 to promote the works of local artisans and craftsmen. Over the years, the Bethlehem Fair Trade Artisans (BFTA) worked with over 50 family-owned wood workshops, ceramics and blown glass factories, women’s’ embroidery cooperatives, and felt wood products. It was great to hear that the association started as the dream project of co-founder Suzan Sahori, under the flagship UNDP-implemented Transfer of Knowledge through Expatriate Nationals project (TOKTEN). What brought Suzan back to Bethlehem from Germany in this 1-year long initiative soon grew to become the bridge for local artisans and small producers to international market outlets. Today, BFTA is well connected with the international fair trade market selling products to Palestinian diaspora and a range of wholesalers in the markets of Europe and the Unites States.

One of the more interesting stories we heard was about linkages BFTA facilitated between producers and international designers. Bringing in young designers and getting them to work with producers on customized products for the international market was a rewarding outlet for these artisans. Yet, BFTA voiced the frustration of many producers of the long-term nature of these deals, where they could work for periods of more than 6 months on the quality assurance of one product even without any commitment that it will lead to sales. We immediately saw the opportunity and untapped potential where these local artisans can connect with medium and even high-end global brands who are striving to diversify their sustainable and ethical sourcing. The opportunity was evident as we spoke with other stakeholders, particularly potential consumers, who were eager to add a Palestinian twist and part of its rich heritage in their everyday accessories. We also thought of the great potential of engaging Palestinian diaspora, serving as ambassadors for the unique Palestinian products made by local artisans and craftsmen and women.

Have you ever heard of Palestinian leather?

While we had heard of Palestinian leather as an otherwise small industry that includes footwear and bags, we were surprised to see how effectively organized some of these producers have become. Historically, a few producers in the Hebron district have made a name for Palestinian leather in the production of shoes and selling them in the region. It was evident that the quality of Palestinian leather products was well renowned. However, the production is focused on a very small range of products. An important observation we made during our visit, however, was the advancement of some of these producers in terms of their modernized production, and enhanced marketing potential. One of the most heart-warming updates we heard was the ability of one of the main leather producers — Camel Sandals — to bring its products to international brands including Macy’s.

We saw many opportunities where innovation in production models and marketing avenues can make a huge difference to this up-and-coming sector. We thought of the huge potentials that can be generated through improving the Palestinian brand for leather through digital and social media tools. Again, linkages to medium brands who are seeking to introduce more sustainable, organic, and ethical produce is a key area where significant benefit can be realized. Another surprising observation is the very limited visible engagement of women in this industry. Due to the conservative nature of Hebron, women’s engagement in the leather industry was primarily from home and in niche and traditional areas such as stitching and sewing work. The potential of making the linkages between leather producers and women who are excelling in e-commerce would be a tremendous mutually beneficial relationship for the promotion of Palestinian leather products. In addition, we thought of the great benefit that can be realized through using digital tools and social media to boost the Palestinian leather as a unique, quality-assured, and ethically sourced brand.

What next?

The visits we held to the four above mentioned clusters has opened our eyes to an interesting aggregator value-based model for small scale producers. One of the breakthroughs we had was bringing in a local economist consultant joining the deep demo team, who was able to point to the service company model. The notion behind this model is to bring a wide range of small-scale producers where they together form an economy of scale in their production to allow them to penetrate new and lucrative markets, reduce cost of inputs, and allow for cross-learning and exchange. We will be exploring more insights around the model of the service company in the next blog.