8.

economy



 8.

Economy
 8.1


GENERAL
BACKGROUND
&
OVERVIEW
 With the establishment of the PA in 1994, numerous economic and development projects were initiated, but the WBGS are still totally dependent on support from outside. Palestinian economy is dominated by services, while industry remains underdeveloped and at a low level, and the agricultural sector from the lack or restrictive access to natural resources. The main reason behind the current economic crisis is the general closure and separation policy imposed by Israel in March 1993, which has never been lifted since. In violation of international law, the closure is used as collective punishment against the Palestinian people, preventing WBGS residents from entering Jerusalem or Israel unless they hold an Israeli-issued permit. Any sustained Palestinian economic recovery will ultimately require the dismantling of the closure system. The economic restrictions have remained and the situation in Gaza continues to deteriorate. The PCBS estimates that real GDP growth in the WBGS in 2007 was 0.5%, while IMF analysis notes a drop in GDP of -0.5% in 2007 and modest growth of 0.8% in 2008. (The World Bank. Palestinian Economic Prospects: Aid, Access and Reform. Sept. 2008.) With a growing population and a shrinking economy, real per capita GDP is now 30% below its height in 1999; had the annual growth trend of an average 6% from 1994-1999 continued, GDP per capita would nearly be 85% higher than it is currently. (The World Bank. Palestinian Economic Prospects: Aid, Access and Reform. Sept. 2008.) Economic progress has been insufficient to stimulate growth in the OPT because of the restrictions on movement, while dependency on aid was increasing. Approx. half of all Palestinian households are dependent on food assistance provided by the international community (80% of households in Gaza, 33% in the WB). (ILO, The Situation of Workers of the Occupied Arab Territories. May 2008.)

Key Indicators of the Palestinian Economy (Excl. Jerusalem, selected years) GDP (US$ million) GNI (US$ million) GDP per capita (US$) GNI per capita (US$) Real GDP growth (%) Real GNI per capita growth (%) Domestic expenditure (% of GDP) Inflation (CPI - annual %) Poverty rate4 (% of population) West Bank: Gaza Strip:

1995 3,276 3,799 1,400 1,615 6.1 7.9 151.8 10.8

1999 4,517 5,454 1,590 1,920 8.6 4.1 163.0 5.5 20 13 32

2002 3,156 3,546 999 1,122 -3.8 -8.9 145.8 5.7 51 41 68

2003 3,624 4,105 1,108 1,255 5.8 6.2 150.2 4.4 47 37 64

20041 4,007 4,534 1,203 1,337 6.0 1.5 150.7 3.0 48 38 65

20051 4,478 5,017 1,191 1,334 6.0 -1.0 154.5 3.6

20062 4,533 5,068 1,165 1,303 -4.8 -14.9 173 3.6

20073 5,045 5,620 1,261 1,405 0.0 -0.7 -

22 47.9

19.1 51.8

1

Revised; 2 preliminary; 3 estimates 4 World Bank estimates Source: UNCTAD. Report on UNCTAD’s Assistance to the Palestinian People. July 2007, except: 4 World Bank estimates.

• PCBS uses two measures of poverty: Deep Poverty (absolute) and Poverty. The Deep Poverty line reflects a budget for food, clothing and housing only. For a family of six it was NIS 1,837 in 2006. The Poverty line adds other necessities, incl. health care, education, transportation, personal care and housekeeping supplies; raising the line to NIS 2,300 for a family of 6. In 2007, the Deep Poverty rate was 69.9% in Gaza and 34.1% in the West Bank. • According to OCHA, the income-based poverty rate was 57% in 2006 while the 44% lived in absolute poverty. (OCHA, 2008). • A Sept. 2008 IMF report states that unemployment in Gaza was over 30% and inflation 18%, with at least 79% of the population living below the poverty line. • By mid-2008, inflation was projected by the World Bank to be about 9.5% (as compared to the expected 4%)

363

WBGS Economic Structure, 2007 (% of GDP)

Financial Intermediation, 4.7%

Agriculture & Fishing, 8.2%

Public Admin. & Defense, 13.5%

Mining, Manufacturing, Electricity & Water, 12.7% Construction, 2.5%

Other Services, 21.9% Wholesale and Retail Trade, 10%

Transportation, Storage, Communications, 11.6%

Source: PCBS, Quarterly National Accounts, 2008 (Jerusalem excluded).

 C o n s u m e r P r i c e I n d e x (Yearly Averages) 120.66 120.79 117.67 123.58

Oct.
2008


109.28 109.06 109.71 107.86

2007
 2005


133.32

2003


127.7

Total

137.73 140.88 136.14

West Bank Jerusalem

124.79 127.34 123.32 122.99

2001


Gaza

119.93 120.23 120.95 119.78

1999
 99.66 99.74 99.8 99.6

1995
 0

20

40

60

80

100

8.2


AGRICULTURE
 The Agricultural Sector at a Glance WBGS Total Cultivated area (dunums) (2007) 1,834,851 Agricultural land as % of total land area (2006) 25.2 - of which irrigated 10.7 Area of fruit trees (2007) 1,164,562 - as % of total cultivated area 62% Area of field crops (2007) 482,494 - as % of total cultivated area 27.2% Area of vegetables (2006) 187,344 - as % of total cultivated area 10.5% Area of cut flowers (2007) 451 No. of cattle (2007) 34,255 No. of sheep (2007) 744,764 No. of goats (2007) 343,565 No. of poultry (2005) 43,197 No. of beehives (2003/04) 59,946 No. of plant nurseries (2005) 197 Source: PCBS, Agricultural Statistics, 2006/07, previous years.

364

152.09 149.15 149.71

120

140

160

(Source: PCBS, various years.)

• As of Sept. 2008, 14.9% of the employed persons in the WBGS were working in agriculture, fishing and forestry (PCBS, Labor Force Survey, July-Sept. 2008). • In the first quarter of 2008, Agriculture and Industry combined were approx. 19% of GDP (as compared to 25% in 1999). (The World Bank. Palestinian Economic Prospects: Aid, Access and Reform. Sept. 2008.)

• Sealing off the Gaza Strip was especially harmful, as its agricultural sector and many of its industries are export-oriented. Only one fifth of its two main export products - carnations and strawberries – was exported in 2007 while the remainder was used as animal feed, resulting in some $6.5 million in losses for carnation farmers and US$7 million for strawberry exporters million. (UNCTAD. Report on UNCTAD’s Assistance to the Palestinian People. July 2008). • The sector generates approx. 25% of all Palestinian exports; major export goods are fruits, olives and olive oil, vegetables and cut flowers. The sector suffers from the lack of access to markets (Israeli export companies still control the quantity and the quality of Palestinian agricultural commodities), and restricted water resources. • Approx. 900,000 dunums are planted with 10 million olive trees, constituting 45% of cultivated land and contributing 1519% of agriculture output. In 2008, some 128,000 metric tons of olives were estimated to be picked and 32,000-35,000 metric tons of olive oil were expected to be produced. (UN, The Olive Harvest in the West Bank and Gaza Strip, Oct. 2008). • In 2007, there were 6,976 agricultural establishments operating. (PCBS, Establishment Census, 2007). • In 2005, Gaza’s 2,998 fishermen - operating 707 boats - caught some 1,818.3 tons of fish, mainly sardines. (PCBS, Agricultural Statistics, 2006). • Due to the separation barrier important areas of land and water resources are becoming increasingly difficult to bring into production, affecting some 170,000 dunums of fertile agricultural lands or 10.2% of the total area cultivated in the West Bank, with an average economic value of US $38 million – equal to roughly 8% of Palestinian agriculture product (World Bank, The Economic Effects of Restricted Access to Land in the West Bank, Oct. 2008) • The halt in exports and the prohibition on importing fertilizer, pesticides, packaging materials and other inputs has led to the loss of more than 40,000 jobs in the agriculture sector. PalTrade estimates total agricultural export losses at US $30 million in the 2007/2008 season. (World Bank, West Bank and Gaza Update, Oct. 2008). • It is estimated that as a result of the construction of the separation barrier some 15% of West Bank agricultural land will be lost (UNCTAD, 2008).

8.3


INDUSTRY
&
PRIVATE
SECTOR
 Facts & Figures • The industrial sector’s share of the Palestinian GDP was estimated at 14% in mid-

•

• •

•

• •

2008 (manufacturing: 11.3%, mining/quarrying: 0.5%, construction: 2.7%) and its share in total employment at 12.3% (1995: 17.5%) (PCBS. Quarterly National Accounts. 2008). At the end of 2007, the share of the GDP of manufacturing, mining & quarrying was estimated at 10.9%, that of construction at 2% that of transport, storage & communications at 12.1% and that of services (health, education, social, real estate, business, hotel & restaurants) at 24.5% (PCBS. Quarterly National Accounts. 2008). In the first quarter of 2008, Agriculture and Industry combined were approx. 19% of GDP (as compared to 25% in 1999). (The World Bank. Palestinian Economic Prospects: Aid, Access and Reform. Sept. 2008.) While employment in services consistently increases, employment in industry and construction is declining, which is particularly apparent in Gaza, where it declined from 21% of total employment in 2000 to 7% by the end of 2007. (ILO, The Situation of Workers of the Occupied Arab Territories. International Labor Conference, May 2008.) Especially Gaza suffers from severe capacity underutilization owing to the lack of access to inputs and markets. According to World Bank research, 96% of the 3,900 industrial establishments that existed in Gaza June 2007, employing 35,000 workers, have been forced to close. Consistent with the lack of borrowing, industrial output continues to decline. According to PCBS estimates, in 2007 manufacturing output was approx. 1.8% lower than in 2006 and nearly 23% off from 1999. In 2007, there were 132,874 establishments in the WBGS, excl. Jerusalem (WB: 94,205 or 70.9%; GS: 38,669 or 29.1%), implying a 34.1% increase compared to 1997. Some 116,804 of the total are operating (WB: 82,871 GS: 33,933), while 3,657 are completely and 5,130 temporarily closed, 638 are under preparation, and 6,645 are auxiliary units. (PCBS, Establishment Census, 2007). Establishments by Operation Status

Completely Temporarily Closed Closed 2.7% 3.9% Under Preparation 0.5% Auxiliary Unit 5.0%

In Operation 87.9%

(Source: PCBS, Establishment Census, 2007.)

365

• Hebron governorate has the highest number of establishments (17,661), followed by Nablus (14,582) and Gaza (14,053), while Jericho has the lowest number (1,388). (Ibid.). • Some 90.7% of the total establishments are owned by the private sector, 4.9% to the govt., 3.3% to NGOs and 1.1% to local authorities, UNRWA and international organizations. (Ibid.). • The main economic activity of 54.0% of the establishments is wholesale, retail trade and repairs, while 14.0% is manufacturing. (Ibid.). • Some 296,965 persons are engaged in the operating establishments, 81.4% of them males (18.6% females) and 70.6% of them in the West Bank (29.4% in Gaza). (Ibid.).

Establishments by Ownership

Establishments by Employment Size

NGO Sector Central 3.3% Government 4.9%

5-9 Employees, 15.5%

1-4 Employees, 56.8%

Local Authority 0.7% UNRWA & International Organizations 0.4%

10-19 Employees, 9.6%

20-49 Employees, 7.5%

Private Sector 90.7%

50+ Employees, 10.6%

Financial Transport, Intermediation, storage & 0.8% communiHotels & cations, 1.1% restaurants, 4.2% Real estate, renting, business services, 3.9

Establishments by Economic Activity

Wholesale, retail trade & repairs; 54

Education; 2.2 Health & social work; 3.9

Construction, 0.6% Electricity & water supply, 0.4%

Mining & Manufacturing, quarrying, 0.3% 14%

Establishments by Legal Status

Sole Proprietor, 86.2%

Agriculture, 6.4%

Other community, social & personal services, 8.2%

General Partnership De Facto Co., Co. , 1.6% Shareholding 6.1% Co. , 1.5% Public Shareholding Co., 0.3% Others; 0.8 Assoc. & Charities, 3.5%

(Source: PCBS, Establishment Census, 2007.) • The Palestinian Federation of Industries (PFI) estimates that 98% of Gaza’s industrial operations are currently inactive, with only 23 of Gaza’s 3,900 industries operating. (The World Bank. Palestinian Economic Prospects: Aid, Access and Reform. Sept. 2008.) • As of June 2008, 12.1% of the employed persons in the WBGS were working in mining, quarrying and manufacturing and 10.8% in construction (PCBS, Labor Force Survey, April-June 2008).

366

8.4


LABOR
&
EMPLOYMENT
  Labor Market – General Development • The labor force participation rate of the working age population (15+ years) stood at 41.6% (43.5% in the West Bank and 38% in the Gaza Strip. (PCBS, Labor Force Survey Report Series, April-June 2008). • As of June 2008, 89.2% of WBGS workers were working in the Palestinian territories (85.8% of West Bankers; 100% of Gazans), 80.2% of them within the same governorate. Another 10.8% were employed in Israel, incl. settlements (14.2% of West Bankers, incl. Jerusalemites) (PCBS, Labor Force Survey, April-June 2008). • The highest percentage of unemployment - 43.4% - is found among the age group 20-24 (WB: 35.1%, GS: 58.5%). • Of the employed workforce, 61.3% were working in the private sector, 22.7% in the public sector, 10.8% in Israel and settlements and 5.2% in other sectors (PCBS, Labor Force Survey, April-June 2008). • The main reason for those not economically active (58.4% of the working age population of 15 years and above) was housekeeping (46.7%), followed by studying/training (34.8%) and age/illness (11.5%). The main reason among men was studying/training (54.8%) and among women housekeeping (65.3%) (PCBS, Labor Force Survey, April-June 2008). • Unemployment figures do not include underemployed workers who have turned to unpaid family or seasonal agriculture labor, nor discouraged workers who have left the labor force, nor the large number of “workers absent from their usual work” (assumed to be temporarily away from jobs due to illness, work stoppage, or other reasons but still receiving normal pay; UNRWA estimates their number at nearly 45,000 in Gaza early 2007). • As of June 2008, unemployment – by ILO standards - stood at 25.8% - 16.3% in the West Bank and at 45.5% in Gaza. Lowest West Bank unemployment was in Jericho and Jerusalem (8%), highest in Qalqilya (23.2%). Gaza unemployment rates ranged from 34.1% in northern Gaza to 64.3% in Deir Al-Balah. (PCBS, Labor Force Survey, April-June 2008). • Average daily wages ranged from NIS 146 in Jerusalem to NIS 70.4 in Jericho to 52.8 in Gaza City, and from NIS 143.3 in Israel/settlements to NIS 79.5 in the public and NIS 74.6 in the private sector. (PCBS, Labor Force Survey, AprilJune 2008).

• Highest average daily wages were paid in the construction sector (NIS 155) and in services/other branches (NIS 156.8) in Israel and settlements. In Gaza, highest average wages were found in services/other branches (NIS 70.4) and in the West Bank in the transportation, storage and communication sector (NIS107.7) (PCBS, Labor Force Survey, April-June 2008).

• The average monthly wage in the WBGS, as of June 2008, was NIS 2,413 (West Bank: NIS 2,603; Gaza: NIS 1,601) (PCBS, Labor Force Survey, April-June 2008).

Palestinian Labor Force – Various Features (by ILO Standards) by employment status (%) Labor force participation rate Full employment Underemployment Unemployment by labor status (%): Employers Self-employed Waged employees Unpaid family members by economic activity (%): Agriculture, forestry, fishing Mining, quarrying, manufacturing Construction Commerce, hotels, restaurants Transportation, storage, communication Services and other branches

2008 (April-June) WB GS Total 43.5 38.0 41.6 75.8 45.7 66.0 7.9 8.8 8.2 16.31 45.5 25.8

1997-99 Average 42.85 77.7 6.7 15.5

2000 41.5 80.9 5.0 14.1

2005 Average 40.7 69.9 6.6 23.5

4.3 24.1 60.4 11.2

3.3 16.9 71.3 8.5

40 22.4 63.0 10.6

5.5 20.4 65.4 8.7

4.6 19.6 66.1 9.7

4.3 26.1 59.5 10.1

15.7 14.5 14.1 20.6 4.2 30.9

12.3 4.6 0.4 17.0 4.3 61.4

14.9 12.1 10.8 19.8 4.2 38.2

12.8 15.8 21.2 17.8 4.7 27.7

13.7 14.3 19.7 17.5 4.9 29.9

14.6 13.0 12.9 19.4 5.7 34.4

Working time and wages

WB

GS

Israel

Average weekly working hours Average monthly working days Average daily net wage – NIS Median daily net wage - NIS

42.7 22.3 86.9 76.9

40 24.2 61.5 57.7

44.3 20.2 143.3 150.0

1997-99 44.3 22.6 67.8 53.8

WBGS average 2000 2005 43.1 42.0 23.2 23.8 77.3 78.1 69.2 60.0

(Source: PCBS, Labor Force Survey Report, April-June 2008, previous rounds.)

367

70 60

61.4

Labor Force Distribution by Sector (%)

West Bank Gaza

50

44.9

Israel

40

34.3

30 20

20.4

17.1 12.3

14.6 7.4

10

14.1

22.1 17 9.7

9 4.6

4.6 4.3

0.4

0

Agriculture Fishing Forestry

Mining Quarrying Manufacturing

Construction

Commerce Restaurants Hotels

1.8

Transportation Storage Communication

Services and other branches

(Source: PCBS, Labor Force Survey, April-June 2008.)

 Women in the Labor Force • Despite the high and successful secondary school enrolment of women, which generally correlates positively with female work, women’s labor force participation (15+ years) remains low, accounting for only 15.2% of the formal labor force, making it one of the lowest in the world. (PCBS, Labor Force Survey, July-Sept. 2008). As of Sept. 2008, 12.1% of the female labor force was unemployed. Main reasons for the low participation is “housekeeping”. • Of the women participating in the labor force, 42.1% had 13 or more years of schooling. However, also among the unemployed women the largest group (33.1%) was that with 13 and more years of schooling. Of the women outside the labor force, 65.3% did not participate due to housekeeping and 26.8% due to studying/training. (PCBS, Labor Force Survey, April-June 2008). • Historically, employment of women has been concentrated in agriculture, often as unpaid family helpers, and in services, mostly in public administration. At the end of 2007 employment of women was 48.9% in services and 33.7% per cent in agriculture. (ILO The Situation of Workers of the Occupied Arab Territories. May 2008). • Of the female labor force in mid-2008, 52.1% were employed in services and other branches, 30.7% in agriculture,

forestry, fishing, 9.2% in mining, quarrying, manufacturing, 7.1% in commerce, hotels, restaurants, 0.4% in construction, and 0.5% in the transport, storage and communication sector. The vast majority (58.2%) were wage employees, 27.8% unpaid family members and 13.5 self-employed. (PCBS, Labor Force Survey, April-June 2008).

 Child Labor • In 2006, 5.3% of the total number of children aged 10-17 years (WB: 7.4%, GS: 2.1%) participated in the labor

force, up from 3.8% in 2005. Of these, approx. 2/3rd were working for their families (unpaid). In 2005, about 47.6% of the employed children were not at school. (PCBS, Child Statistics, Annual Report, 2006 and 2007).

• The main reason for child labor is low economic status of the household: 71.0% of employed children aged 5-17

years are working because of economic need (51.4% to assist in family projects, 19.6% to contribute in increasing family income). (PCBS, Child Statistics Series No. 9, Annual Report, 2006)

• In 2006, child labor was concentrated in agriculture 53.6%, followed by trade, hotels and restaurants 26.6%, then

mining and manufacturing 9.5%, and construction 6.7%. Average weekly working hours were 26.8 for boys and 16.6 for girls (PCBS, Child Statistics Series No. 9, Annual Report, 2006).

• Youth employment: 14% of the age group 15-19 years and 41.2% of the age group 20-24 years were part of the labor force as of June 2008. (PCBS, Labor Force Survey Report, April-June 2008).

 Public Sector Employment • Of the employed workforce, 61.3% were working in the private sector (WB: 66.4%, GS: 45.1%) and 22.7% (WB: 14.9% and GS: 47.5%) in the public sector. As of June 2008, highest public sector employment in the West Bank was in the Salfit (27.3%) and Tulkarem (23.3%) governorates, lowest in the Jerusalem governorate (3.9%). In Gaza, the largest percentage of public sector employees was found in the Deir Al-Balah (63.8%), the lowest in the GazaNorth (46.4%) governorate (PCBS, Labor Force Survey, April-June 2008). • PA employment averaged 142,000 during the first half of 2008, compared with 150,000–153,000 expected in the budget. (IMF. Macroeconomic and Fiscal Framework for the West Bank and Gaza: Second Review of Progress, Sept. 2008). • The daily average wage in the public sector was NIS 79.5 (West Bank: NIS 82.1, GS: NIS 74.1) compared to NIS 74.6 (West Bank: NIS 81.1, GS: NIS 39.7) in the private sector. (PCBS, Labor Force Survey, April-June 2008).

368

• As part of its continued reform efforts under the Palestinian Recovery and Development Plan (PRDP), unveiled in Dec.

2007, the PA reduced govt. employment from over 180,000 in late 2007 to about 141,000 in the first half of 2008, well below the 153,000 limit set in the PRDP. (The World Bank. Palestinian Economic Prospects: Aid, Access and Reform. Sept. 2008.)

• Education, Health and Public Administration accounted for almost 25% of GDP in the first quarter of 2008. (Ibid.)

• IMF estimates of GDP indicate that the PA’s wage bill alone is equivalent to over 27% of GDP.  WBGS Laborers in Israel • According to PCBS data, 146,000 Palestinians (116,000 from the West

Bank, incl. East Jerusalem, and 30,000 from Gaza) worked in Israel, incl. industrial estates and settlements, during the third quarter 2000. Since then, numerous Palestinian workers have lost their jobs in Israel as a result of Israel’s closure policy. In 2007, they numbered 63,000 (ILO, The Situation of Workers of the Occupied Arab Territories, 2008), the majority of which held an Israeli-ID or foreign passport. The balance in the number of workers in Israel from the West Bank - excl. East Jerusalem - are believed to be divided roughly equally between those holding work permits and those working illegally.

• As of Sept. 2008, 16.3% of West Bank employees worked in Israel

and Israeli settlements, whereas since April 2006, labor flows from Gaza have been non-existent. The average daily wage was NIS 138. The majority of workers employed in Israel were Jerusalemites (PCBS, Labor Force Survey, July-Sept. 2008).

• According to data by the Israeli DM’s Coordination of Government Activities in the Territories (COGAT), the quota for

Palestinian workers to access Israel and the settlements was 47,062 in mid-March 2008, while the actual number of permits issued was only 44,478 (20,280 for Israel, 21,162 for settlements and 3,036 for Jerusalem). Permits are valid for three months at a time but are no guarantee of actually being able to get to work, since army-imposed curfews and/or ad hoc closures of crossings may prevent access. (ILO, The Situation of Workers of the Occupied Arab Territories, 2008).

8.5


TOURISM
  Hotels and Related Features

End of 1999 as of June 2008

1

Area

Hotels

WBGS WB all - North - Middle - South J’lem Gaza Total

92 46 6 21 19 26 10 82

Rooms 3,752 2,477 107 877 1,493 1,089 391 4,049

Beds

Guests

8,102 5,424 246 2,041 3,137 2,566 714 8,885

316,871 105,009 2,166 44,111 61,732 104,251 1,057 213,3171

Since Jan. 2008 (average length of stay in hotels: 2.4 days) •

2

316949

335711

300000

100000 50000 0

403

1,234

23.7% 21.9% 18.3% 50.5% 1.3% 42.5%

14.7% 14.5% 16.4% 36.9% 2.8% 38.5%

259

980

1,637

1,2392

(Source: PCBS, Hotel Activities Surveys, 2008.)

Nationality (Jan.-June 2008):

350000

150000

30.3%

As of June 2008, 19.8% of the employed persons in the WBGS were working in commerce, restaurant and hotels (PCBS, Labor Force Survey, April-June 2008).

400000

200000

Workers engaged Admin. Operation Total

35.5%

incl. 176 female

 Hotel

250000

Room Bed Occupancy

229712220850 131908

214220

100,184 60208 51357 62725

81209

213317 124530

Palestinian (from abroad) Arab Israeli US/Canada South/Central America Australia/New Zealand EU Other European Asia Africa Total:

32,289 1,011 10,070 13,798 3,566 706 86,643 40,577 17,751 6,916 213,317

(Source: PCBS, Hotel Activities Survey, 2008.)

G u 369

ests in Palestine, 1996-June 2008

8.6


TRADE
  Facts & Figures • Besides food and live animals, main trade items of the Palestinian economy are manufactured goods (exports), as well as manufactured investment goods and raw materials (imports).The sector suffers from an underdeveloped industrial base and a lack of access to economies of scale, to natural resources, and to an investment horizon due to the uncertain political situation and Israel’s permit and closure policy. • Trade flows represent 85% of Palestinian GDP, with imports of goods and services representing over 80% of total flows and exports around 20%. Some 90% of Palestinian trade is with Israel. (World Bank. An Analysis of the Economic Restrictions Confronting the West Bank and Gaza: Access to Economies of Scale, to Natural Resources and to Investment Horizon, Sept. 2008.) • The main constraints to trade between the West Bank and the outside world are the internal restrictions, the commercial crossings along the Separation Barrier and the inefficient operation of the Allenby Bridge. To break their dependence on Israel, access the wider world markets, and take full advantage of the preferential trade agreements the PA has signed with a number of countries, (incl. the EU and the US) there must be significant improvements in trade logistics and a relaxation of Israel’s strict security regime. (Ibid.) 2% 3% 1% • In 2007, Israel accounted for 92% of the total value of Israel 2% Palestinian trade with its main partners, representing Jordan 92% of total imports and 91% of exports. In contrast, Palestine’s second bilateral trade partner, Europe, Asian (non-Arab) accounted for only 3% of Palestinian trade with main 92% Europe partners, Jordan and Asian non-Arab countries 2%. (UNCTAD. Report on UNCTAD’s Assistance to the Others Palestinian People. July 2007) • Even before the Hamas takeover, Israeli policies

– such as keeping WBGS goods for 48 hours at Ashdod port or prohibiting air cargo from being shipped on passenger airlines out of Ben Gurion - were rendering Palestinian exports uncompetitive. It took a West Bank firm an average of 10 days to clear customs and a Gazan firm 30 days. But it also took as many as 30 days for goods destined for the West Bank and 60 days for goods destined for Gaza to clear. In comparison, goods imported by Israeli firms cleared customs within a day or two. (The World Bank. Palestinian Economic Prospects: Aid, Access and Reform. Sept. 2008.)

• Trade dependence on Israel persists. The trade deficit with Israel has been persistently high, with over 40% of GDP

devoted to covering it, and peaked in 2007, reaching unprecedented proportions of 73% of GDP, which was equivalent to almost 90% of total net current transfers (mainly donor support). Israeli closure policies and the loss of local production to imports, notably from Israel accounts for over half of the Palestinian trade deficit. (UNCTAD. Report on UNCTAD’s Assistance to the Palestinian People. July 2007 and July 2008).

• Alternative Trade Routes: For sea shipments from the West Bank to North America and Europe, Israeli ports offer an advantage while for flows from Asia, Aqaba offers significant savings relative to Haifa. Egyptian ports are not economical because of additional road transport costs and the added border crossing with its delays and informal payments. For air shipments, Ben Gurion Airport offers more flights to Europe and North America and has better facilities, but security requirements create a burden. Jordan’s Queen Alia offers competitive rates and service, but is often avoided by shippers because of the complicated procedures for crossing the border, the risk of damage from inspections, and lack of cold storage. For goods from Gaza via the Rafah Crossing, Egypt’s container terminal at the Suez Canal or Cairo Airport are more efficient than Israel’s ports and airports. Cairo Airport not only allows for direct access to the Gulf, other Middle East locations, and Europe, but alo permits the use of cargo capacity on passenger aircraft (not allowed at Ben Gurion). By sea, Egypt offers comparable services in time and cost to Europe, faster times to Asia, less expensive and faster service to the Gulf, and greater frequency to all destinations. By land, Rafah offers the possibility of trucking goods directly to Gulf countries in 4-5 days. (World Bank. An Analysis of the Economic Restrictions, op.cit., Sept. 2008). • Under the Arab Free Trade Area Agreement (AFTAA), Palestinian goods have duty-free access to this burgeoning market. According to a Dec. 2006 study by the Peres Center and Paltrade (“The Untapped Potential”), merchandise imports into this zone amounted to $170 billion in 2005 and are projected to reach over $500 billion by 2015. • In 2007, wholesale & retail trade accounted for an estimated 10% of the GDP. (PCBS, National Quarterly Accounts, 2008). Wholesale, retail trade and repairs is the main economic activity of 54.0% of all WBGS establishments (PCBS, Establishment Census, 2007).

External Trade (excl. Jerusalem) - Key Indicators (millions of US$) Exports of goods and services Imports of goods and services Trade balance (% of GDP) Trade balance with Israel (US$ million) Trade balance with Israel (% of GDP)

370

1995 499 2,176 -51.2 -1,388 -42.4

1999 892 3,805 -64.5 -1,766 -39.1

2002 465 2,536 -65.6 -1,149 -36.4

2003 465 2,844 -65.6 -1,370 -37.8

20041 535 3,279 -67.3 -1,618 -39.7

20051 587 3,596 -67.2 -1,920 -42.9

20062 535 3,558 -66.7 -1,876 -41.2

20073 595 3,960 -66.7 -2,119 -42.0

Total PA trade with Israel - % of total Israeli trade PA trade with Israel - % of total PA trade 1

Revised; 2 preliminary; 3 Estimates

3.7

3.7

2.1

2.2

2.2

2.3

2.1

2.2

78.8

58.4

58.6

59.2

59.6

65.7

64.2

69

Source: UNCTAD. Report on UNCTAD’s Assistance to the Palestinian People. July 2008.

Total Value of Palestinian Imports and Exports by Group of Countries, 1996-2006 (in US$1,000) Group of Countries

Exports 1996 2000 Asian Arab Countries 19,043 28,960 Asian Countries 319,353 369,988 African Arab Countries 11 162 Other African Countries 0 0 North American Countries 806 71 Central American Countries 0 0 Caribbean Countries 0 0 South American Countries 9 0 EU Countries 244 1,675 Free Trade Countries 0 0 Eastern European 1 0 Australian 0 0 Sundries 0 0 Total 339,467 400,857 Source: PCBS, Foreign Trade Statistics, 1996-2006.

2006 29,867 327,148 4,164 27 2,553 0 0 2,638 274 28 7 0 366,706

1996 7,398 1,769,088 19,172 1,776 25,450 707 15 2,703 148,625 5,592 6,534 2,218 0 2,016,279

Imports 2000 25,734 1,958,322 13,934 2,243 58,127 2,392 52 6,396 263,605 8,561 26,570 16,001 871 2,382,807

2006 35.052 2,354,584 31,885 4,425 24,248 2,944 52 20,586 225,615 16,125 27,133 14,888 1,189 2,758,726

Commercial Crossing Points in the West Bank and Gaza Strip Crossing Point Qalqilya North Taybeh / Ephraim Al-Jalama Bisan Meitar Tarqumiya Al-Jaba’ Mazmouria/An-Nu’man Qalandia, Shu’fat RC, Zaytoun and Gilo Beituniya

Crossing Point Beit Hanoun (Eretz) Nahal Oz Al-Muntar (Karni) Sufa / Al-Matar Karem Abu Salem (Karem Shalom) Rafah Al-Ojah (Nitzanah)

WEST BANK Location Notes Near Qalqilya (Green Line) • Workers with permits to enter Israel (using electronic palm readers). Near Tulkarem (Green Line) • Mayor back-to-back terminal for goods to and from the northern West Bank. • Workers with permits to enter Israel. Near Jenin • Back-to-back terminal for Palestinian goods. • Workers with permits to enter Israel. Near Jordan Valley • Back-to-back terminal for produce grown in the Jordan Valley. • Workers with permits to enter Israel. Southern West Bank border • Workers with permits to enter Israel (using electronic palm readers). West of Hebron (nearest • Back-to-back terminal for Palestinian goods. terminal to Ashdod port) • Workers with permits to enter Israel. • Major access point for imports into the West Bank Southwest of Bethlehem • Workers with permits to enter Israel South of Jerusalem • Terminal for goods due to open in late 2008. • Main entry point got West Bank goods to East Jerusalem 4 checkpoints around Jerusalem • Entry points for Palestinians with permit to Jerusalem for work, health, education or religious reasons. • Gilo and Qalandia use biometric scanning by electronic hand-print reading. North of Ramallah • Mayor back-to-back terminal for goods to and from Israel and East Jerusalem. GAZA STRIP Location Notes northern Gaza-Israel border • Primary crossing for Palestinian workers and humanitarian personnel north-east Gaza-Israel border • Entry point for liquid fuels north-east Gaza-Israel border • Primary commercial crossing (import/export) southern Gaza-Israel border • Entry point predominantly for aggregates and construction materials Gaza-Israel-Egypt border • Entry point for goods from Egypt Gaza-Egypt border Egypt-Israel (south of Gaza)

• International terminal, crossing point for people • used by some Palestinian importers to get cargo from Egypt to Gaza via Karni crossing

Source: OCHA.

371

8.7


FINANCES
  Taxation • The Gaza-Jericho Accord (May 1994) transferred the authority to organize all tax-related issues to the PA, the details of which were outlined in the Early Empowerment Agreement of 29 Aug. 1994. Taxation is the PA’s main source of income; during the current Intifada, Israel’s refusal to hand over taxes collected on behalf of the PA (for VAT adjustments, import, fuel, income and health taxes) and problems/inefficiency in collecting taxes domestically have reduced the PA’s fiscal revenues considerably. By the end of 2002, the net amount of monies withheld by Israel since Dec. 2000 was estimated at US$560 million. Israel resumed transfer of revenues in Dec. 2002 following US pressure and PA assurance to implement auditing reforms; however, following the Hamas election victory Israel again suspended payments since March 2006. • Under the quasi-customs union between Israel and the PA, stipulated in the 1994 Protocol on Economic Relations, the Palestinians adopted - with minor exceptions – Israel’s tariff structure; the PA applies the Israeli VAT rate (17%) with the option to increase or decrease it by 2% on a limited number of goods. Israel collects tariffs and VAT on Palestinian imports on behalf of the PA. • The PA’s revenue remains vulnerable to Israel’s ability to withhold the tax and customs clearance revenue it collects on its behalf, as stipulated in the Paris Protocol signed by the PLO and Israel in 1994. This renders the PA’s fiscal position inherently dependent on Israeli goodwill; in 2002, for instance, Israeli withheld revenue clearance, led to a 66% drop of Palestinian public revenues. In 2005, total revenue reached $1.2 billion, but collapsed again to $358 million with the withholding of more than $800 million in clearance revenue in 2006 (OCHA, 2007).Transfer of revenues levied by Israel resumed in July 2007 after the caretaker PA government led by PM Salam Fayyad received the support of the Middle East Quartet. (UNCTAD. Report on UNCTAD’s Assistance to the Palestinian People. July 2008).

 Budget and Fiscal Accounts The recurrent deficit on a commitment basis is estimated at about NIS 4,891 million in the second quarter and NIS 5,356 million in the first half of 2008, which is within the 2008 budget. In nominal local currency terms the 2008 commitment budget deficit is estimated some 18% lower than 2007. The recurrent deficit will be about 22.5% of GDP compared to 26.7% in 2007. On a cash basis, the annual deficit is set to be almost 48% more than budgeted because the PA has made much larger arrears payments than planned. (The World Bank. West Bank and Gaza Update, Oct. 2008).

WBGS: Central Government Fiscal Operations (in million NIS), 2007-09

Total net revenues Gross domestic revenues Clearance revenues Tax refunds Total recurrent expenditures and net lending (commitment basis) Wages Non-wages Net lending Recurrent Balance (commitment basis, before external budgetary support) Recurrent Balance (cash basis, before external budgetary support) Recurrent Balance (commitment basis, after external budgetary support) Recurrent Balance (cash basis, after external budgetary support) Development Expenditures (Public Investment) Overall Balance (cash basis, incl. development expenditures) Total Other Financing

2008 projected 6,014 2,288 3,968 243 10,247

2007 4,894 1,326 3,673 105 10,430

budget 5,349 1,507 3,842 0 10,244

2009 6,172 1,917 4,389 134 10,348

5,262 2,974 2,193 -5,535

5,333 3,471 1,440 -4,895

5,333 3,270 1,645 -4,233

5,478 3,324 1,546 -4,176

-3,901

-5,676

-5,510

-4,388

-1,386

986

2,135

225

248

205

858

13

1,270 -1,022

1,771 -1,566

1,040 -182

1,684 -1,671

1,022

1,566

182

1,671

Source: IMF and Finance Ministry estimates, quoted in The World Bank, West Bank and Gaza Update, Oct. 2008.

The current pension systems for PA employees are insolvent and are operating on funding from the PA budget. The PA is accumulating pension fund arrears with respect to the payment of the government’s contribution averaging nearly $5.8 million a month in 2008. (The World Bank. West Bank and Gaza Update, Oct. 2008). Clearance revenue is with 60-70% of the revenues the cornerstone of the PA’s public finance. The frequent withholding by Israel makes budget planning extremely difficult and has made the PA’s reliance on foreign budget support the norm. In 2007, international budget support reached $1 billion, accounting for 39% of public expenditure. (UNCTAD. Report on UNCTAD’s Assistance to the Palestinian People. July 2008).

372

In Dec. 2007, the Palestinian Recovery and Development Plan (PRDP) was published, containing a detailed three year budget, which laid out a path towards fiscal strengthening. Since, the PA has implemented a number of reforms and made substantial progress towards improving its fiscal position. However, the grave fiscal crisis remains and the government scrambles every month to scrape together enough bank borrowing and donor budget support to pay salaries and continue operations. Despite all reform efforts, the fiscal deficit increased from 17% of GDP in 2005 to 27% in 2007, mainly as a result of Israel’s withholding of clearance revenue and lower GDP. The gap was financed mainly by the accumulation of arrears on public wages, pension contributions and private suppliers. (Ibid.) Less progress than hoped for was made on reducing net lending, which in the first half of the year was about 20% higher than budgeted, mostly due to the unexpected increase in world fuel prices and larger than anticipated deductions for debt by Israel. (The World Bank. West Bank and Gaza Update. Oct. 2008.)

 Banking Before 1967, there were 32 banks in the WB and 6 in the GS; the period from 1967-1980 was characterized by the total absence of a banking system; only in 1981 did a Bank of Palestine branch open in Gaza. During 1986-1989, 10 further branches of the Bank of Palestine and the Cairo-Amman Bank opened in the WBGS, but the real boom started in 1993 following the signing of the DoP: currently, there are 21 banks with a total of 140 branches (10 Palestinian banks with 70 branches, 1 foreign bank with 1 branch and 10 Arab banks with 69 branches) in the WBGS. The largest national bank is the Bank of Palestine with 25 branches and the largest non-Palestinian bank is the Arab Bank with 22 branches (PMA, website). Throughout 2008, bank deposit growth was sluggish and credit contracted, reflecting subdued economic activity and investment. As a result of the declining economy, the Gazan banking sector activity is estimated to have dropped from 40% of total Palestinian banking to about 7% (The World Bank. Palestinian Economic Prospects: Aid, Access and Reform. Sept. 2008.)

 Capital Market Palestine Securities Exchange was established in 1995 and the first trading session took place on 18 Feb. 1997. As of 30 Sept. 2008, 35 companies were listed, and as of Nov. 2008, the trade volume was US$1,147,965. The Al-Quds Index, which had started at 139.13 in 1997, had its peak in 2005 with 1128.59 and stood in Nov. 2008 at 423.53, Implying a -19.67% Annual growth.

 Donor Assistance As of Aug. 2008, the PA govt. had received about $1.2 billion in recurrent budget support (with $1.85 billion needed by year's end) in addition to some $300 million in development aid. Together, external aid will be at least 32% of the 2008 GDP (by comparison: in 2007 it was 25%). The 2009 budget calls for $1.3 billion in budget support (and $0.5 billion of development aid) (The World Bank. Palestinian Economic Prospects: Aid, Access and Reform. Sept. 2008.) Economic activity would have been even weaker were it not for the exceptionally high level of external budgetary support (albeit with reduced purchasing power due to inflation and shekel appreciation), which amounted to $953 million in the first half of 2008 (14% of annual GDP), more than double the amount disbursed in the second half of 2007. It is commonly agreed that additional donor assistance aid would have little impact other than alleviating day-to-day hardship, unless there is an end to Israel’s closure policy. With a freeing-up of the constraints on economic activity and committed Palestinian reform, the World Bank estimated that an additional US$500 million per annum could by 2006 spur a growth in real personal incomes of about 12% (and 20% in nominal terms), and could reduce unemployment to levels only slightly higher than prior to the Intifada. The Mid-Year-Review of the Consolidated Appeals Process (CAP) (International Humanitarian Action Plan and Appeal for 2008) - a coordinated program jointly undertaken by UN organizations and international NGOs – stated a total request of US$ 448.2 million (compared to the original US$ 462.1 million). As of Sept. 2008, the 2008 CAP was 64% funded to cover 135 projects in a range of sectors. The largest sectoral assistance in 2007 was required for Jobs and Cash Assistance ($158 million or 34%), followed by Food Aid ($156.1 million, 33.8%), Water & Sanitation ($42.9 million), Health ($40.1 million), Agriculture ($22.2 million), Coordination & Support Services ($18.3 million), Protection/Human Rights/Rule of Law ($8.7 million) and Education ($7.8 million). Main funder was the European Commission. The budget for the 2009 CAP stands at $462,3 million for 159 projects. (CAP Summary 2008, CAP Mid-Year Review, 2008, CAP, 2009). Because of the ongoing closure policy, no substantial development projects are currently underway in Gaza, with the exception of a water treatment facility there are. Recommended
Research
Sources:
 http://electronicintifada.net/v2/businesseconomy.shtml http://www.pcbs.gov.ps (Economics Statistics) http://www.pma-palestine.org/ (Pal. Monetary Authority) http://www.worldbank.org/ps http://www.pmof.ps/ (Ministry of Finance) http://www.unctad.org/en/docs/tdb55d2_en.pdf http://www.imf.org/external/np/wbg/2008/pdf/072208.pdf http://www.psc.ps/ (Palestinian Shippers’ Council) ILO, The Situation of Workers of the Occupied Arab Territories. International Labor Conference, May 2008. IMF. Macroeconomic and Fiscal Framework for the West Bank and Gaza: Second Review of Progress, Sept. 2008. IMF. Macroeconomic and Fiscal Developments in the West Bank and Gaza, Sept. 2007. Nashashibi, Karim. Palestinian Finance under Siege: Economic Decline and Institutional Degradation. OCHA Special Focus Paper, April 2007. Palestinian Monetary Authority. Monthly Statistical Bulletin (various issues). PCHR Destruction of Gaza’s Economy, August 2008. UNCTAD. Report on UNCTAD’s Assistance to the Palestinian People. July 2008. West Bank and Gaza Update - A Quarterly Publication of the World Bank WBGS Resident Mission.

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The World Bank. West Bank and Gaza Investment Climate Assessment: Unlocking the Potential of the Private Sector., March 2007. The World Bank. An Analysis of the Economic Restrictions Confronting the West Bank and Gaza: Access to Economies of Scale, to Natural Resources and to Investment Horizon, Sept. 2008. The World Bank, The Economic Effects of Restricted Access to Land in the West Bank, Oct. 2008. The World Bank. Palestinian Economic Prospects: Aid, Access and Reform. Sept. 2008.

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