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Over the last 30 years, the Palestinian economy has deeply suffered from the political situation, which prevented it from seizing numerous development opportunities. Nevertheless, everything seems to suggest that, once peace and stability has been restored, the recovery will be rapid, and this, in all sectors of the economy. Indeed, during periods of relative lull that occurred in the 90s, the Palestinian economy recorded annual growth rates exceeding 10%.

When it was established in 1994, the Palestinian Authority has even faced significant challenges. Along with the institutional and political reconstruction, it was urgent to revive the economy in order to finance investment, create many jobs for the population, and expand exports for better trade balance. Despite the difficult political situation, steps towards improving the business environment have been adopted: institutional reform, development of financial intermediation through the opening of a national stock exchange, legislation to encourage investment, foreign trade agreements, infrastructure and social services reconstruction, etc.

With policies promoting market economy, the Government continues its efforts to remove obstacles to domestic production and private sector development. Although it has considerably developed since 2000, the public sector has historically had a low weight in the Palestinian economy. Consequently, the country should not experience the heavy privatisation and restructuring period that developing countries generally have to pass through. The most immaterial activities (e.g., ICT, often in collaboration with Israeli companies, pharmaceuticals, teleworking etc.) obviously suffer the least from constraints related to mobility and also allow mobilising the large Palestinian diaspora (two third of the total population).

The services sector plays a major role in the Palestinian economy. In 2007, it contributed to 65% of the GDP and 60% of total employment. Since 1994, the sector has experienced a strong growth drawn, on the one hand, by the public sector efforts to rehabilitate social services and, on the other hand, by the needs of industry and construction (transport, engineering, design, communications, financial services). With the development of ICT and the increasing integration of the Palestinian economy with global markets, this sector is expected to grow further.

The revitalisation of the manufacturing industry is a major challenge for the country's reconstruction. It has required the adoption of measures for investors servicing and the creation of links with other sectors, particularly agriculture, construction and public works. Thanks to these efforts, the contribution of industry to GDP rose from 8% in the mid 80s to 17% in the mid 90s. In 2007, the sector accounted for 16% of national production and 11% of total employment. Some sectors such as agri-business and chemicals could emerge. With its highly skilled population, the country has a real potential for development in the plastic, electrical, electronic and engineering industries.

As for the Gaza Strip, the recovery would certainly be quicker in some areas than others in case of reopening of the borders with Israel. In the construction and public works sector, many stopped projects could restart almost immediately. The same goes for most industries, especially plastics, chemicals, metals and agri-business. In contrast, the textile and furniture industries, which export most of their output to Israel, will need assistance programmes to move to other markets, particularly in the South. The agreements signed in 2005 with Egypt in the framework of the Arab League, which provide access to Gaza Strip companies to the airport of El-Arish and to Port Said Port via Rafah, lay the groundwork for such a development. 

In order to attract investment in the Palestinian territories, the Government has put in place a regulatory framework favourable to investors. Under the non-discrimination principle, all benefits provided by the law are available to both local and foreign investors, whether acting alone or in partnership. In 2005, several amendments were made to the 1998 investment encouragement law to provide foreign investors with additional benefits. They must still be approved by the Palestinian Legislative Council. The law already contains protection against expropriation, guarantees of repatriation, tax exemptions and incentives, etc. A new enterprise law is also awaiting approval. Strongly inspired by the Jordanian model, the law aims at providing all companies established in the Palestinian territories with a modern and unified environment.  

In order to facilitate foreign trade, Palestine has signed agreements with numerous countries: the European Union, EFTA, the United States, Canada, Jordan, Egypt, Russia, Saudi Arabia, Israel, Turkey and GAFTA. To import goods within the West Bank and Gaza, a license is required. On the other hand, no license is required for exporting companies, except for certain categories of goods.

Several major international companies have established themselves in Palestine and have begun to operate in different areas of activity. They often rely on funds from expatriates who wish to make their country of origin benefit from their experience and international relations. This category of investors has been identified as a key player for Palestine’s future. In the past, business and trade development had been mainly oriented towards Europe and the Gulf. More recently, local businesses have begun to call for American groups to build partnerships, joint ventures or to transfer technical expertise.

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