| COUNTRY PERSPECTIVES
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PALESTINIAN AUTHORITY |
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Country presentation |
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Introduction |
After nearly four decades of war and occupation and five years of conflict and destruction since the second intifada, the disengagement of Israel from the Gaza Strip in 2005 has created the groundwork for a possible improvement in the situation. Efforts by Palestinian authorities to establish the foundations of an “economically viable” State parcelled out and divided between non-contingent zones are more than ever challenged by a political context and institutional architecture that do nothing but increase Palestine’s vulnerability and dependency on Israel and international assistance.
The Oslo agreements created a climate of optimism in the Palestinian Territories, resulting in strong economic growth, with regular increases in GNP (recording 8.4 percent in 1999) and an unemployment rate of 11.9 percent. But since the start of the second intifada at the end of September 2000, economic activity in the Palestinian Territories has been seriously undermined by the explosion of violence and Israeli military response, in particular the system of internal closure of the Palestinian territories and withholding of tax revenues collected by Israel on behalf of the Palestinian Authority (some two thirds of its tax resources). By the end of 2002, GDP per capita had fallen by 39 percent. Tax transfers and assets blocked since December 2000 were finally released starting in November 2002.
Palestine’s economy slowly started to recover, with GDP growth of 6.1 percent in 2003, 6.2 percent in 2004 and 6.3 percent in 2005, according to the World Bank’s Economic Update and Potential Outlook of 15 March 2006. Several factors contributed to sustained recovery, in particular over the first three quarters of 2005: robust growth in the Israeli economy and growing trade between the Palestinian Territories and Israel, increased international assistance, more bank loans to the private sector, an increase in the number of Palestinians employed in Israel or in the settlements (some 64,000 at the end of 2005, up from 50,000 at the end of 2004 but considerably less than the 116,000 recorded at the end of 1999), and sustained high growth in the building sector (+ 25 percent, 13 percent of the labour force).
Palestine’s economy in the West Bank and Gaza is concentrated primarily on services. The country has limited natural resources, but the population is well educated and labour is highly skilled. Agricultural activities, including fishing, are gaining importance in the Palestinian economy. The major agricultural products include olives, citrus fruits, flowers and vegetables. The industrial sector is based primarily on small establishments that produce agricultural products, shoes, and clothing. The Palestinian economy enjoys a considerable volume of remittances from expatriates and companies operating abroad. The country also has a promising tourism sector. |
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Challenges |
As a result of the current crisis, the economy of the West Bank and Gaza is clearly shifting to a new growth trajectory. Closely integrated with Israel since 1967, the Palestinian economy enjoyed modest growth in real per capita income and significant declines in unemployment following signing of the Paris Protocol in 1994. At the same time, high levels of remittance from Israeli employment, restricted trade relations and significant donor aid inflow contributed in part to an expansion of the non tradable sector, particularly the government wage bill, declining competitiveness in the tradable sector and higher costs of production, particularly domestic labour (World Bank 2002 ”Long Term Policy Options for the Palestinian Economy”, and IMF 2001 “West Bank and Gaza: Economic Performance, Prospects and Policies”).
Periodic closure worsened growing imbalances in the Palestinian economy, further weakening the economy’s ability to move itself to a more sustainable growth path. Following the outbreak of civil conflict in September 2000 and heightened Israeli security procedures, significant declines in trade, employment, investment have contributed to decline per capita income of 48%.
Since September 2000 and the intensification of the closure regime, private firms face even higher transport costs, physical losses to capital equipment, diminishing market share and credit shortages. The private sector has borne the brunt of physical damage, estimated to be as high as US$ 728 million, with foregone investment opportunities totalling US$ 3.2 billion. The situation is particularly acute for firms in vulnerable sectors such as tourism and traditional industries—food processing, sewing and furniture—while pharmaceuticals, information technology and handicrafts appear to be surviving the current crisis more readily. |
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Strong points |
Palestine, with its strategic location and need for widespread infrastructure development is an untapped emerging market with enormous investment potential. The Palestinian economy is a market-based economy with the private sector playing the leading role. The Palestinian Territories benefit from the high quality of Palestinian labour, from the existence of a large diaspora, and the financial support of a number of States.
The Palestinian economic strategy being developed is export-oriented and outward looking. The Palestinian economy has already begun the process of integrating with regional and international economies through a network of free trade agreements and trade associations.
Current short-term goals focus on improving access to foreign markets and overcoming the obstacles hindering the movement of people, goods and services to these markets. |
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References |
| Seat of the Palestinian Authority |
Ramallah |
| Claimed capital |
Jerusalem Est (Al Quds) |
| Population (Source: Palestinian Central Bureau of Statistics) |
3.8 million inhabitants (2,4 million in West Bank and 1.4 million in Gaza (end of 2005)
Growth rate: 4.91% |
| Languages |
Arabic (official)
English (population generally conversant) French, German, Hebrew, Italian, and Spanish are widely spoken |
| GNP (dollars) |
US$ 1,146 (2004) |
| GNP/per capita (dollars) |
4,011 million US$ (2004) |
| Currency |
No local currency. Currencies used: new Shekel NIS, US dollar, Jordanian Dinar |
| Religion |
Muslims, Christians, Jews |
| National holiday |
15th November (independence in 1988) |
| Association Agreement with EU |
Interim agreement since /07/1997
EU web site:
http://www.delwbg.cec.eu.int/
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| WTO membership |
Observer since 2005 |
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