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Present Capital:Ramallah and Gaza East Jerusalem is the desired capital of the future
Population: 4,018,332 (July 2007 estimate)
Land Area: 6,220 km²
Official language: Arabic
Largest City: Gaza
Investment in Palestine is estimated to have declined considerably with donors sharply cutting back on financing development projects. Project financing is estimated to have fallen by almost half in 2006, to about $180 million, compared to some $330 million in 2005.
A considerable part of the funds available to finance development projects is typically used to finance imports of goods and services. Hence, the immediate net impact on output has been more limited. The impact will be felt more over the medium term in terms of lower growth rates than otherwise would have been possible.
One indication that the decline in consumption may have been relatively modest is provided by banking sector data, which show that deposits continued to grow in 2006.
Private sector deposits increased by about 7% in 2006, an even higher growth rate than in 2005, when deposits increased by 2%. A breakdown between businesses and households is not available, but the continued expansion of deposits appears to reflect strong financial inflows from abroad. No comprehensive data are available on remittances either, but interviews with commercial banks indicated that private inflows from abroad have indeed picked up considerably in 2006. Also, banks continued to extend credit to the private sector, albeit at a much slower pace than in 2005. In 2006, credit to the private sector increased by about 7%, compared to an increase of more than 27% in 2005. To some extent, this may reflect an increased need for distress financing, as businesses and households tried to compensate for non-paying customers and employers.
Another indicator is the labour market, which, according to the IMF, surprisingly witnessed an increase in overall employment in 2006. According to the Palestinian Central Bureau of Statistics (PCBS) average employment increased by 33,000 workers in 2006, reaching a total of about 666,000 workers ? an increase of 5% over 2005. Employment increased in the trade, services, and public sectors, and fell in agriculture and construction. The largest part of the increase, however, was concentrated in the public sector and workers less-than-full employed, including unpaid family members. Also, the increase in employment was insufficient to absorb the growth in the labour force, which grew by 6%, and the overall unemployment rate edged up to 23.6% in 2006, compared with 22.4% in 2005.
A third indicator is the fairly modest decline in imports in 2006. A large portion of consumer goods are imported and, vice versa, a large part of imports are consumer goods.
Import levels also will have remained relatively strong thanks to the higher levels of humanitarian support.
Private investment is a relatively unknown quantity, but increased insecurity is bound to have had an adverse effect on investment decisions. Investment had fallen sharply after the start of the second Intifada and had not yet recovered fully in more recent years. As such, with private investment still at a relatively depressed level, it is estimated to have fallen again, although not by as much as during 2000-01. But with overall activity sustained mainly by consumption ? in part financed by external support, the sale of assets, or incurring debts ? any decline in investment implies that the Palestinian economy will be less able to generate future growth.
Based on the available information, real GDP is estimated to have fallen by some 5 to 10% in 2006.
UNDP’s Program of Assistance to the Palestinian People (PAPP) in early September 2006 released initial findings of an assessment of destruction inflicted on Gaza during the summer. The estimated total cost of damages incurred from 26 June to 28 August as a result of the military intervention was $46 million. Initial damage assessed per sector was: $8 million to municipal infrastructure, $8 million to energy, $23.5 million to agriculture, $2 million to housing, $4.2 million to public buildings and $300,000 to industry.
A dramatic indication of the suffering caused by the withdrawal of foreign aid hit the headlines in March when a sewerage treatment facility in Gaza collapsed killing five people and flooding the village of Umm al-Naser, home to 3,000 people. Commenting, Fadel Kawash, head of the Palestinian Water Authority, stated that several sewage projects, including one in the village, had been halted after international funding dried up in the wake of the election victory of Hamas in January last year. "We had a project to treat sewage in north Gaza, it was worked on for two years," he said. “We built a pressure pipeline and pumping station but it was stopped after... troubles began,” Deutsche Welle news reported at the time.
The Palestinian government was confronted with a severe fiscal crisis in 2006 mainly as a result of the imposition of sanctions immediately following the elections in January. Resources to fund the government’s recurrent expenditures consequently fell by more than one third compared to the previous year forcing major pressure on expenditure. Government employees received on average only about 50-55% of their regular incomes. As new financing mechanisms were set up to bypass the government and banks were reluctant to transact with the government, the public financial management system became increasingly fragmented, with no proper budget framework, no central control, and less transparency and accountability. At the same time, the PA’s already unsustainable underlying fiscal position deteriorated further in 2006.
Fiscal developments were largely shaped by the domestic and international political reaction to Hamas’ victory in the January 2006 parliamentary elections. After the first quarter of 2006, resources to fund recurrent government expenditures fell sharply. As a result, the Palestinian Authority (PA) government was unable to pay full wages and faced increasing pressures to reduce non-wage expenditures and transfers, while also building up arrears. This situation has contributed to a deepening in the PA’s fiscal difficulties.
At the same time, the crippling of the Palestinian economy, including through restrictions on movement and access, further reduced the government’s ability to mobilize domestic revenues, put added pressure on the labour market in Gaza, and contributed to a further decline in collection rates of utility fees.
As the IMF noted in a report issued in March 2007, Palestinian resources to fund recurrent budget expenditures in 2006 fell by more than one third compared to the previous year. Cash resources ? including domestic tax and non-tax revenues, the share of indirect taxes collected by Israel on behalf of the PA (or so-called clearance revenues) that could be used, and domestic and external financing ? totalled $1.4 billion, as opposed to $2.2 billion in 2005.
The shortfall in resources was mainly the result of a sharp decline in the PA’s revenues. This mainly reflected the withholding of clearance revenues since March 2006. Out of an estimated $730 million in clearance revenues collected, preliminary and unreconciled estimates suggest that only about $270 million was directly or indirectly available to fund government spending. In addition, only $290 million in domestic tax and non-tax revenues were collected in 2006, down from $476 million in 2005. This reflected mainly a drop in non-tax revenues as the Palestine Investment Fund (PIF) had paid exceptionally large returns to the budget in 2005. Tax revenues fell by a little over 10% to $206 million, broadly in line with the decline in economic activity. Reportedly, a significant part of tax revenues was withheld by banks to help cover the government’s debt servicing obligations.
Ramallah-based Arab Islamic Bank (AIB) is establishing the first takaful company in the Palestinian countries what means that the system of bank is based on mutual co-operation, responsibility, assurance, protection and assistance between groups of participants. AIB will own a 25% stake in the new company, which will have a capital of $10 million. Palestine Investment Bank will take a 12% stake. Three local insurance companies – National Insurance Company, Trust Insurance Company and Ahliea Insurance Group – will each hold 750,000 shares or a 7.5% stake. Private investors will take a 30.5% stake. The remaining 10% will be sold in an initial public offering. The company has already received 25% of the required capital and is due to register with the companies controller in August 2006.
Meanwhile, the Housing Bank for Trade & Finance (Housing Bank) is expanding its network in Gaza and the West Bank. The Jordan bank will open five new branches in Khan Younis, Jenin, Bir Zeit, Bethlehem and Halhoul. The bank already has five branches in Ramallah, Nablus, Hebron and Gaza.
The past year has been a turbulent one Palestine’s Al-Quds Index, which fell to its year-to-date low in July when it hit 524.96 points. “Some of the losses resulted from a correction movement that swept across the region’s capital markets, while others were in reaction to more specific political risks,” says Aram Rabadi, associate analyst at Jordan-based Atlas Investment.
Recently, the index has rebounded and the market appears to have absorbed the shock of the January 2006 election results. On 28 November, the Al-Quds closed at 647.79 points. “The market is trying to reflect the value of traded companies, which have adjusted to obscure conditions and are still making money,” said Hassan Abu Libdeh, chief executive officer of the Palestine Securities Exchange (PSE), speaking in December 2006. “If we isolate the political conditions, the market is in fact doing much better than others in the region.”
The two market pillars remain Palestine Development & Investment Company (Padico) and subsidiary, Palestine Telecommunications Company (PalTel), who together account for more than 80% of capitalisation. “Most Palestinian companies are undervalued,” says Abu Libdeh. “They have very different experiences and face different challenges from other companies in the region.” At least seven companies, including Commercial Bank of Palestine, plan to list on the PSE by mid-2007.
Some sectors have been more adversely affected by the political situation than others. Manufacturing has been influenced by falling purchasing power and the inability to access outside markets. In the third quarter of 2006, real estate companies saw the number of new building licences issued shrink by 35.8%. But cheap stocks offer good long-term opportunities for investors willing to take the risk.
Palestine may not be highlighted on the world tourist map at present because of the prevailing situation. But Palestine has great potential to become one of the greatest places to visit for all types of travel. It was in the lands of Palestine where the origins of early human civilization can be traced and flourished. The world's great religions all flowered in Palestine. Jerusalem, the city of peace, is still home to the great cultural and religious mixture. While the tourism sector, along with the rest of Palestinian society and economy, has suffered greatly during recent decades, it is still hoped that progress can be made in developing the tourism industry.
Palestinian’s Telecommunications & Information Technology Ministry awarded Kuwait’s Wataniya International the second mobile licence in the territories in September 2006. Wataniya was the highest bidder for the 15-year licence with an offer of JD 251 million ($352 million). “We envisage additional capital investment and working capital of a further $300 million,” says Ahmad Haleem, chief executive officer of Wataniya International. The company was planning to establish a new mobile telecommunications company in which it will hold a 40% stake. The Palestinian Investment Fund would take 30% and the remaining 30% sold in an initial public offering (IPO). The Palestinian population is estimated at around 4 million, with a current market penetration of 18%.
Office of the General Delegation of Palestine
Michaelkirchstr. 17/18
10179 Berlin
Germany
Tel: + (49) 30 20 61 77 0
Fax: + (49) 30 20 61 77 10
Email:
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Website: www.palaestina.org
Quelle: Ghorfa, Arab-German Chamber of Commerce and Industry e.V.
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