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Will the Palestinian tech sector decouple from Israel?

Palestinian tech companies and workers have relied on the outsourcing of work from Israel, but many contracts have been torn up following October 7.

Ramallah
Ramallah, West Bank on April 9, 2024, where several Palestinian tech companies are based. They often rely on outsourcing work in Israel [Issam Rimawi/Anadolu via Getty Images]

Ramallah, occupied West Bank – In early March, a Uruguayan e-commerce company sent Marwan Khanfar and others a message on Slack. “Good morning [company] team, I hope you have had an amazing weekend,” the message began.

“Unfortunately, due to concerns regarding political stability and compliance with legal regulations,” it continued, “it will not be possible to directly hire employees residing in Palestine from now on.”

The company said the only exceptions would be made for “temporary consultants” providing their services through a third party, though the 10 percent fees the third party charges would not be covered.

In this instance at least, Khanfar managed to keep his own personal services under contract. However, a tech outsourcing company that he is the founder and CEO of, Corals, lost out on additional employment that had been discussed — only the latest contract his company had missed out on since the war in Gaza began in October.

Corals lost three contracts that month, comprising almost 60 percent of the revenue it previously generated. Khanfar estimates he has lost approximately $15,000 each month – a significant blow to his small business employing 12 people.

Serving coffee in his small Ramallah office, Khanfar, a happy-go-lucky sort of man even in these grave times, was incredulous at how abruptly years-long relationships could vanish. To self-fund his outsourcing company, which specialises in web development for e-commerce applications, he would work nights as the director of technology for a United States-based company. He says he was the first employee hired there 12 years ago.

Despite there being no performance issues ever communicated, a week after Hamas’s attack on Israel on October 7, he says the company hired an outside firm to “audit” his access to the company’s platform and infrastructure. Then, in December, the company silently removed him from their “leadership” page on the company website. In late February, they sent him a terse email informing him that his position as director of IT would be removed due to “corporate restructuring”, and he lost his job. Khanfar says they hired a new person performing the same functions immediately afterwards.

“Everything was a complete shock,” said Khanfar. “The work I’d done, the relationships I built — gone.”

Going back is impossible

Before Israel’s war on Gaza, which followed Hamas’s October 7 attack, the growing Palestinian IT sector held a special position in the Palestinian economy, offering jobs for young graduates who could not otherwise find them, and an economic bridge beyond the separation wall.

“The tech industry, we’re kind of able to bypass a lot of these restrictions that are imposed on us by the occupation,” said Jafar Shunnar, co-founder of TAP, a Dutch-Palestinian upskilling and job placement programme for Palestinians.

According to a report published in February by the US Agency for International Development (USAID), the Palestinian information and communications technology sector contributes to about four percent of Palestine’s gross domestic product, or $651m, with 9,000 Palestinians employed in jobs providing higher salaries than they otherwise could obtain.

While limitations imposed by military restrictions – including restricted importation of technical hardware or the availability of 3G internet only – still impacted the occupied West Bank, the fledgling sector often adapted its services and products to the circumstances. In Gaza especially, tech was one of the economic bright spots before the war due to the large amount of “tech talent” that could remotely work for companies in the West Bank and abroad from the besieged enclave.

However, with a very small market not conducive to achieving sustainable economies of scale, about 80 percent of the Palestinian tech sector is geared towards outsourcing services for companies elsewhere, according to USAID. And especially in regards to some of the largest Palestinian outsourcing companies, the “multinational corporations” they did work for were, to a large degree, Israeli tech companies or the offices of big tech firms in Tel Aviv.

This open secret of Palestinian tech – that many of these companies were doing outsourcing work for companies in Israel, one of the strongest tech sectors in the world — produced economic benefits but also dynamics similar to other work sectors, where cheaper Palestinian labour was imported for use in the Israeli market.

“Most of the good talent are working with multinational offices of the Israeli sector,” explained Sari Taha, 35, co-founder of Momentum Labs, a Ramallah-based startup studio and consultancy firm. “But this creates dependency on the market that might be a pressure point to maintain [the] political status quo.”

Then, everything changed following October 7. Almost immediately afterwards, many of these Palestinian tech companies were informed — often through brief emails — that their contracts with Israeli companies were suspended or terminated. Those in the sector describe “tense” and “deeply uncomfortable” conversations with Israeli counterparts.

“Palestinians I knew working for Israeli companies used to say that the politics did not affect the day-to-day work between the Palestinian teams and the Israeli teams,” said Taha, a Palestinian Jerusalemite who previously worked for an Arab venture capital firm in Tel Aviv before shifting his focus to developing the Palestinian sector. “But [considering] the magnitude of what is happening right now, I think on both sides, the Israelis and Palestinians, it’s very difficult to maintain this kind of communication.”

Out of need for skilled labour, some of the Israeli companies have started to revive certain contracts with Palestinian firms, hiring fewer numbers than before. But those in the Palestinian tech sector are discussing the severe disruption in Israeli contracts as a wake-up call.

“IT companies cannot stay dependent on the Israeli market,” said Alaa Zaineh, 35, a Ramallah-based trade and development expert for the representative office of the Netherlands, one of the leading foreign donors to the Palestinian tech sector. “There needs to be real investment and real focus on getting more business from other international countries, European countries, the US, Canada, so that if anything happens, you diversify your risk.”

The kind of change this would entail would be arduous, but a change that stakeholders now believe is necessary in a business sense.

“There needs to be different conversations, different frameworks, different everything, because going back is impossible,” said Taha. “Living in this uncertainty is impossible and is not economical and nobody wants it.”

Tricky transitions

Efforts to shift away from a tech sector dependent on Israel and towards a self-sustaining sector – either through homegrown products and services or working with non-Israeli companies abroad – are made more difficult by the current circumstances.

As the war and its massive economic damage enter their seventh month, Palestinian startups, numbering around 200, are buckling under enormous strain.

Tareq Abu Yousef, 26, is the co-founder of Turqat, a startup that provides roadside assistance services in the West Bank through an app. In spite of settler attacks and unpredictable road closures, the company reported only a small dip in revenue in the first two months of the war. “Palestinians don’t have a sense of urgency in cases like this because we think everything is temporary, and nothing is permanent,” said Abu Yousef.

As the war persisted, however, issues mounted. Sometimes, Turqat couldn’t provide services to areas due to road closures. Unpredictable GPS spoofing carried out by the army occasionally makes it impossible for them to locate customers, forcing them to revert to making phone calls to help customers at a slower speed.

And now, Turqat is experiencing revenue losses of up to 60 percent, according to Abu Yousef.

“The people’s basic needs like shelter, water and food are not being met because of the economic crisis that Palestine is going through because of the war,” explained Abu Yousef. “So people are moving less because they don’t have money for gas, and they aren’t using our service because they are prioritising other needs.”

Similar issues are described by startups across the sector, whether it be for e-commerce services or making salon appointments. Though Abu Yousef says a grant received just before the war has kept the company on solid economic footing, the same can’t be said for other startups, which are unable to receive more funding from skittish foreign investors in these times.

Likewise, some complain that the donor class – already busy trying to secure humanitarian aid for Gaza – has been slow to adapt their approach to the rapidly changing situation.

A few initiatives have begun to support the tech sector. The Intersect Innovation Hub, with support from the Bank of Palestine, recently launched the RISE Palestine initiative to support the tech sector, aiming to raise $3.5m in donations to support Palestinian tech startups and freelancers who are struggling in the current circumstances, with the bank committing $150,000 to the cause.

And with the Gazan sector all but decimated now, some foreign donors who had supported Gaza’s once-resilient tech sector – such as the Netherlands – are now shifting more of their resources to the West Bank, at least until the situation allows for re-engagement with Gaza.

Such shifts are taking place as some West Bank companies sought to — temporarily — take up the contracts of Gaza-based companies that are rendered nonfunctional under the present circumstances.

But such a transition proved tricky, and had very limited success. From a price perspective, Gazan outsourcing labour is far more competitive in the international market than labour in the West Bank. An outsourcing company in Gaza, for instance, may charge a foreign company only $3 or $4 per hour for each worker employed on a project, while the rate from West Bank companies is more like $20 per worker per hour, reflecting the economic ties to the Israeli economy and the generally higher costs of living.

At the same time, the decimation of Gaza and its tech sector has created labour issues for West Bank companies themselves, as they sometimes employed a significant number of Gazan programmers – a rare example of economic partnership across the long-standing Israeli blockade that separated Gaza from Israel as well as the West Bank.

A ‘reputation risk’

The potential “decoupling” of the Israeli and Palestinian tech sectors comes with the pain of losing the money that had been coming in from the powerhouse Israeli tech sector – which itself saw a 74 percent drop in venture capitalist investments in 2023 compared to the year before, according to recent Israeli sector estimates.

How to enable a transition towards other models – whether it be creating startups that treat the West Bank as “testing grounds” before exporting their products to larger markets abroad, like Turqat’s vision; or empowering tech talent to work remotely for foreign companies; or emphasising outsourcing with countries elsewhere, like Khanfar – continues to be debated among stakeholders.

In looking outwards, companies abroad find it hard to trust Palestinian companies during these fraught times. Company executives and sector leaders say Palestinian companies and workers are now being deemed a “reputation risk” by foreign companies.

Palestinian outsourcing companies report facing constant questions from foreign employers regarding whether they can trust Palestinians to fulfill the services required — or if they’ll even have reliable electricity and internet, a relative non-issue in the West Bank.

Since the war, Khanfar has been asked by prospective clients “whether Palestine is in Gaza”, or what he would do “if what happened in Gaza happened in the West Bank”.

In addition, companies, including Khanfar’s, report having wire transfers from countries like Saudi Arabia suddenly being blocked by banks wary of doing business with Palestinians.

All of this is putting further strain on Khanfar, who says his “main responsibility” is having work for his employees at Corals. Layoffs have already started in other Palestinian tech companies, with some opting for reduced salaries.

“I feel frustrated,” said Khanfar. “I feel like we’re always blamed and punished just for being Palestinian.”

In contrast to the outsourcing company approach, Jafar Shunnar believes remote work is the way forward for Palestinian tech. Shunnar’s TAP programme has been a leader in upskilling young tech talent in the Palestinian sector and helping them find remote jobs with foreign companies. Shunnar’s view is that remote work will provide high salaries to the Palestinian economy while endowing Palestinians with the knowledge and skills to eventually develop products and services of their own.

But perceptions abroad pose challenges nonetheless.

Shunnar described attending the LEAP conference in Riyadh in February, seeking to forge connections and pipelines for Palestinian tech employment. In one instance, he spoke with a tech company that had employed 15 Gazans before the war. “While they sympathise with them, they still have a business to run,” said Shunnar. “So we have to put more effort to explain that the West Bank itself is relatively stable…and kind of convince them to still work with us.”

Other foreign companies already employing Palestinians said they were seeking to “diversify” their human resources to minimise risk.

“What’s dangerous is not ‘I don’t like the Palestinians,’” said Shunnar. “We can live with that because there are many people who sympathise with the Palestinians. What I’m more concerned about is when someone wants to hire a Palestinian but they’re worried about the stability – because that basically renders us useless.”

‘Where are you from?’

For years, the Palestinian tech sector was cautious to avoid mention of politics in day-to-day affairs — in part to keep relations with Israeli tech companies intact, and also to emphasise the quality of the services offered.

However, with the war having such an impact on so many West Bank contracts not necessarily due to substantive changes but due to perceptions – or, in the Israeli case, politics – the sector is acknowledging the role politics plays more than it previously liked to admit.

“Decisions are based on politics, so we can’t just stand aside and let ourselves lose contracts because we’re Palestinian,” said Khanfar. “No, we really need support from different countries, and especially from the Arab countries, from the Gulf countries.”

But Khanfar’s struggles over these past few months have led him and others to question their future running a Palestinian enterprise. Khanfar, who has Jordanian citizenship, is weighing whether to open an office in Jordan or the United Arab Emirates, where his brother is. Many other Palestinian companies are considering relocating operations as well, with a couple already reportedly making the decision. If the situation persists for months more, layoffs and closures are expected to ratchet up further, and an exodus may be forthcoming.

“When someone tries to ask me, ‘Where are you from?’ I feel like I cannot really say I am from Palestine,” said Khanfar. “I know it would be just so much easier to say I’m from Jordan, and they can do the wire transfer there.

“When I say I’m from Palestine, I’m not saying something wrong. I shouldn’t be punished by not being hired because of where I’m from,” he continued. “But that’s what it feels like.”

Source: Al Jazeera

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