Growth over the last few years has mainly been driven by large inflows of donor aid that has enabled the expansion of the public sector, resulting in consumption driven growth. Decomposition of recent growth trends indicates that the contribution of government-funded services to the economy has been on the rise, while the share of trade sectors has declined, mainly due to the ongoing Israeli restrictions on movement, trade, and access to Area C. Two studies were conducted regarding the potential for investment in Palestine «A Palestinian Private Sector Initiative for Investment, Growth and Employment « published by Portland Trust, and more recently, «The Initiative for the Palestinian Economy» by The Office of the Quartet in Jerusalem.

Palestine’s population reached 4.17 million: 2.58 million in the West Bank and 1.59 million in the Gaza Strip. In In 3Q2013, Palestinian GDP was 2.6% higher than in In 3Q2012 in real terms, but decreased by 1.3% with respect to the previous quarter. In 2012, unemployment amongst young people reached 39%.

Main potential investment areas:

• Tourism
• Light manufacturing
• Information communication technology
• IT & Digital Entrepreneurship
• Agriculture
• Energy
• Construction (see our special report in this issue)
• Building materials
• Water
• Agriculture

to watch the video:

In July 2009 Haaretz reported that Palestinians rejected Netanyahu’s economic peace plan.

Fast forward to May 2013 and we still hear more and more about the “elusive economic peace”.
According to Israeli newspapers some of the country’s top businessmen met with Prime Minister Benjamin Netanyahu in May 2013 to express concern that the stalled peace process with the Palestinians would ultimately harm and even endanger the Israeli economy.

The businessmen told Netanyahu they are worried by the signals they are getting from the international business community.

“We come from the field, and we’re feeling the pressure,” one said. “If we don’t make progress toward a two-state solution, there will be negative developments for the Israeli economy. We’re already noticing initial signs of this. The future of the Israeli economy will be in danger.”

One businessman who attended the meeting told Haaretz that the lack of progress toward a two-state solution could send Israel down a slippery slope toward a binational state that would be either not Jewish or not democratic.

“The world will not accept this,” he said. “Foreign investments will not come to such a state. No one will buy goods from such a state.” Heading the group was high-tech entrepreneur Yossi Vardi, who had served as an economic adviser to Netanyahu during the talks with the Palestinians that resulted in the Wye Agreement of 1998.

Joining Vardi were Shlomi Fogel, a close friend of Netanyahu’s and the owner of Ampa; Ruth Cheshin, a member of Teva’s board of directors and the founder of the Jerusalem Foundation among others. The same group of Israeli businessmen participated in a conference at the World Economic Forum on the Middle East and North Africa at the Dead Sea, Jordan later that month and they were joined by their Palestinian counter-parts. The group calls itself the BTI (Breaking the Impasse) said: “The current situation endangers the economy and the social fabric of both nations, and may render the two-state solution unattainable.” The Initiative was launched jointly by Munib R. Masri, Chairman, PADICO Holding, and Yossi Vardi, Chairman, International Technologies Ventures, in May 2012, and had been facilitated by the World Economic Forum. Masri and Vardi demanded that the leaders of the two countries to be bold and to move forward with an agreement to end the conflict seizing on the historic Arab Peace Initiative and work toward a historic end to the conflict. That was in May 2013.

Now in October 2013, a World Bank report comes out to highlight the obstacles facing the Palestinian economy. The report criticised Israel for stifling the Palestinian economy by the imposition of restrictions, road-blocks and other arbitrary measures. The Israelis say these measures are necessary for security reasons.

The World Bank says:
“Agriculture would be boosted if restrictions on access and water supply were eased. Israel’s control of a huge swath of the West Bank is costing the Palestinian economy $3.4bn (£2.1bn) a year, or 35% of its GDP”

Restrictions on Palestinian access and movement within Area C, the 61% of the West Bank that is under full Israeli military control, is stunting the Palestinian economy, says the report. Area C and the Future of the Palestinian Economy, published on Tuesday, is the first comprehensive study of the potential impact of land restrictions in the region, according to the World Bank.

If the Israeli Prime Minister Benjamin Netanyahu is serious about “Economic Peace” as the solution, how about paying attention to the World Bank’s recommendations. Implementing any of the recommendations would give a positive signal that Israel is serious about peace. The report said movement of people and goods “is severely limited by a multi-layered system of physical, institutional and administrative impediments. Physical barriers are compounded by unpredictable regulatory measures and practices”. How about the easing such restrictions?

How about permitting access to the Dead Sea which according the report would provide opportunities for mineral extraction and tourism. The Palestinian economy could earn $918m (£571m), 9% of 2011 GDP, if minerals such as potash and bromine were harvested from the Dead Sea. The Palestinian tourism sector could be boosted by $126m (£78m) annually or 1% of GDP, by creating Dead Sea hotel resorts, similar to those in Israel and Jordan.

The Palestinian economy would expand by more than a third if Israeli restrictions on movement, land access and water use are lifted in the majority of the occupied West Bank that remains under full Israeli control, the report has said.

The report warned of a “bleak” future if Israel did not relinquish its economic strictures in what is known as area C, which comprises 61 per cent of the West Bank, but it also said Palestinians would have to address Israeli security concerns there. At the end of 2012, sixty Palestinian communities were still compelled to use detours that are 2 to 5 times longer than the direct route to the closest city, the report said.

I am aware of Israel’s security concerns, but these can be addressed by a comprehensive political agreement between Israel and the Palestinian Authority and with the help of the Quartet. In the final analysis only a full and final political settlement will deal with all outstanding issues.

A new EU Report Critical of the Palestinian Authority:

The Palestinian Authority is required to tackle mismanagement of aid funds and corruption. Last week a damning report by the European Court of Auditors, the Luxembourg-based watchdog revealed that the EU transferred more than £1.95 bn (approx. 3 billion US Dollars) to the occupied territories between 2008 and 2012. The auditors who visited sites in Jerusalem, Gaza and the West Bank said they were not happy with what they saw. They complained about the lack of measures to deal with the mismanagement of funds and corruption.

The London Financial Times reported on 23rd September that “Israel offers boost to Palestinian economy”. A great optimistic headline compared with the bleak World Bank report? Are we missing something?

A Palestinian labourer works at a construction site of a residential project funded by the United Nations Relief and Works Agency for Palestine Refugees (UNRWA) Photograph: Said Khatib/Getty Images

These days, the economic health of any country relies on that of others – but the Palestinian Territories are exceptionally dependent on factors outside of them. On what do Palestinian economic fortunes rely on and how does the future look?

Israel

Israeli occupation in Palestinian territories, the barrier it has constructed along and within the West Bank as well as its land, air and sea blockades in the Gaza strip have placed severe limitations on the success of Palestinian economic policies.

A complex web of checkpoints and roadblocks make it difficult for Palestinians to travel within the Palestinian Territories for jobs, to bank or to trade. Farmers whose land is now behind the barrier are required to apply for ‘visitor permits’ which Israel regularly rejects – in Akkaba it approved 49% of applications in 2011, and just 20% by 2012. More recently, a report from the World Bank found that Israeli restrictions in the West Bank alone cost the Palestinian economy $3.4bn (£2.1bn) a year, or 35% of its GDP.

Image: UN OCHA. Click to view full interactive

Israel’s reach in the Palestinian Territories means it can exert enormous power over Palestinian livelihoods. Oxfam estimates that 800,000 olive trees have been uprooted by Israeli authorities since 1967. As a result, the 80,000 Palestinian families that the UN claims are economically reliant on the olive harvest lose $12.3m each year To show the impact of this, Visualizing Palestine showed what an area with one thirty-third the amount of trees – Central Park – would look like if it were destroyed.

Image: Visualizing Palestine. Click to see full infographic

Israel may have policies that hamper the Palestinian economy, but it is also a major source of Palestinian livelihoods. Unemployment is exceptionally high in the West Bank and the Gaza strip where almost 1 in 4 adults are jobless. According to the latest report from the International Labour Office, some 87,000 Palestinians aged over 15 (around 10% of all those with jobs) are employed in Israel and its settlements.

The majority of these Palestinians are employed in the construction sector, followed by manufacturing and agriculture – all of which tend to be characterised by insecurity. A survey by Palestine’s main trade union found that only 11% of workers in Israeli settlements said they had job security, over half received less than the minimum wage and 65% had been exposed to toxic substances.

Palestinian authority

Corruption is rampant inside many of Palestine’s institutions. In its latest report, the Coalition for Integrity and Accountability (part of the Transparency International Secretariat) produced a catalogue of corruption cases within Palestine’s public bodies. In just over six months, the Corruption Crimes Court received 41 cases, which they say:

included embezzlement, money laundering, fraud, and exploitation of position for personal gain. Those involved in these crimes were high-level employees, such as heads of government divisions, who were conspiring with lower and intermediate level employees.

Pharmaceutical companies and their agents have also been accused of distributing expired food and medicine – though the risks of obtaining evidence on this means that often these crimes go unpunished.

In a 2012 opinion poll, 40% of Palestinians said they had used various forms of corruption to receive a certain public service. In 2011, 47 thousand traffic tickets had not been paid and tax evasion represented 40% of all tax revenues.

Image: AMAN. Ministries most prone to corruption in Palestine during 2012

International aid

The Palestinian economy is dependent on international aid and around 4 in 5 Gazans rely on donations for their survival. As a result, when aid falls short of expectations and stated commitments as it did in 2012 (the Palestinian Authority received 80% of the US$1 billion it was expecting in direct budget support), the results are deeply felt. The decline in international aid is cited as one of the key reasons that the West Bank’s GDP shrank in early 2013, for the first time in a decade.

In 2011, the single biggest donor to Palestine was the United States followed by the EU who gave $281m and $206m respectively.

Egypt

Israeli blockades mean that illegal activity is essential for Palestine’s economic survival. Weapons, fuel, food, people and even vehicles regularly flow through the tunnels under the Gaza-Egypt border. But turbulence since the military takeover in Egypt has meant that these can no longer be relied upon to bolster the weak Palestinian economy. Gaza’s deputy economy minister stated that economic activity had declined by around 80-90% since the ousting of the Muslim Brotherhood and the declining availability of basic produce has resulted in a sharp rise in prices.

Link to video: KFC smuggled to Gaza from Egypt via tunnels

Palestinian diaspora

The estimated one million Palestinians who have emigrated since 1948 (as well as their children) serve as a vital lifeline for Palestinians who remain in the West Bank and Gaza Strip. As a percentage of its GDP, the Palestinian territories are one of the most dependent economies in the world on remittances. The latest data from IMF in 2010 shows US$ 431m being transferred by workers employed abroad.