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COUNTRY NAME: Palestine
LAND AREA: 6,220 km2
POPULATION: 4 million (2010 est.)
LANGUAGE: Arabic
CURRENCY: 1 Israeli New Shekel (ILS) = 100 Agorot ; 1 EUR = 4.98 ILS (Nov. 2010)
MAIN CITIES: Jerusalem (capital), Gaza, Ramallah, Nablus
NATIONAL DAY: 15 November
TIME ZONE: Standard Time is GMT + 2
The Palestinian economy has been sustained by enormous injections of foreign aid and the recent growth in the West Bank has been a direct result of a large increase in such investment flows combined with increased security. In 2008, budget support alone increased by nearly 80% from the 2007 level and at close to $1.8 billion, was equivalent to about 30% of GDP. The Palestinian Authority (PA) has relied on donor funding to pay salaries and clear arrears to public sector employees and the private sector that had accumulated during 2006 and 2007. The 2009 budget assumes that donors will maintain the high level of budget support and calls for close to $2.8bn in aid for 2009, taking into account the recovery and reconstruction needs in Gaza.
Economy
The International Monetary Fund has said that the Palestinian economy could post its strongest performance in years in 2009, but only if border restrictions on Palestinian trade and movement are eased substantially. The growth, projected to be as high as 7%, could further stabilise the West Bank, bolster peace efforts and ease the financial burden on the international community. Donor countries spent some $1.8 billion in 2008 alone to cover the Palestinian deficit, in part to make up for a stagnant economy. For solid growth to be sustained beyond 2009, trade restrictions imposed on the West Bank would also need to be eliminated, stated the IMF representative in the Palestinian territories, Oussama Kanaan, on 15 July 2009. The Palestinian economy grew 2.3% in 2008, despite a sharp downturn during the final quarter under the impact of the global downturn. The Palestinian Central Bureau of Statistics (PCBS) indicated that the gross domestic product (GDP) of the West Bank and Gaza rose to $4.64bn in 2008, up from $4.53bn in 2007. The figures would make 2008 the best year for the Palestinian economy in terms of GDP alone for more than a decade. The largest contributing sectors to the economy were mining, manufacturing, electricity and water, retail, and public administration and defence. Palestinian authorities are in the process of rebuilding the economy following the devastating impact of the three-week onslaught on Gaza at the end of 2008. According to the World Bank, budget support remains indispensable to allow the PA to continue to provide basic services and is appropriate given the good performance in public sector management. Improvements in security in the West Bank have not yet translated into increases in private sector activities and investment projects have still to deliver tangible results. Funds pledged at the “International Conference in Support of the Palestinian Economy for the Reconstruction of Gaza”, which was held at Sharm El-Sheikh in Egypt on 2 March 2009, have not yet translated into tangible progress towards reconstruction of Gaza due to the restrictions that that region is under. According to a World Bank report, “Palestinian Economic Prospects: Gaza Recovery and West Bank Revival”, published in June 2009, restrictions imposed on both the West Bank and Gaza are still “preventing any real upturn in economic activity”. As a result, the West Bank economy in particular is “dramatically failing to fulfill its potential even in periods of relative stability in the security situation”. The report showed that progress in the relaxation of economic restrictions during 2008 had been marginal at best. As a result of imposed security measures, the Palestinian economy “hollowed out”, with the productive sectors declining and the public sector growing, with more of the Palestinian population looking to the public sector for employment and assistance in coping with the impact of unemployment. Even before the onset of hostilities in Gaza in late December 2008, the macroeconomic environment in the Palestinian territories had been more difficult than anticipated in the Palestinian Reform and Development Plan (PRDP) for 2008-10. Restrictions in the West Bank continued during 2008, while Gaza’s isolation increased. Moreover, inflation was much higher than anticipated, which further eroded real wealth and incomes. Nevertheless, in the West Bank the adverse impact of these factors on private sector confidence and growth was tempered by the redeployment of security forces in several cities, as well as prudent expenditure policy that minimised new arrears accumulation. Overall, real GDP growth in 2008 in the West Bank & Gaza is estimated at about 2%, which translates to a decline of almost 1% in real per capita terms, resulting in a per capita income of just over $1,000 in 2008. The Gaza economy, already devastated from years of blockade, was further ravaged by the recent military operation. Consequently, what little growth has occurred, has taken place in the West Bank. On the other hand, the global financial crisis has thus far not had a significant impact on the Palestinian economy, according to IMF assessment.
Agriculture
Agricultural output in 2008 was about 55% below its peak in 1999, according to statistics bureau PCBS. The agriculture sector has been severely affected by continued military operations, with the widespread destruction of cultivated land, greenhouses, livestock and poultry farms, water wells, irrigation networks, and other productive assets. Fragile ground-water resources have been severely compromised, particularly from the destruction of the waste-water infrastructure, which released hundreds of thousands of cubic meters of raw sewage into the environment. Palestinians suffer from serious water shortages and investment in water supply and sanitation infrastructure has dropped to very low levels. For example, current investment in the West Bank water sector is one tenth of planned levels, the World Bank estimates. Few major investments are going ahead and more is being invested in small local emergency projects than in large infrastructure projects. In effect, emergency projects have become the norm. Waste water treatment investments have been blocked for a decade, and only one of seven planned new plants, at al-Bireh, is operational. Meanwhile, Gaza drew up a well designed master plan for water and sanitation, but unfortunately less than 2% of the investment programme has been implemented. The plan provided for an integrated production and conveyance system, and a major expansion of wastewater treatment capacity, including three new plants.
Construction
The construction sector saw little growth in the last four years and is only a third of its size in 1999. Recently, a few large housing construction projects have been announced in the West Bank, including a new planned community north of Ramallah, which will require over $500 million in private investment. If these projects come to fruition they would give a large boost to the construction sector. The development plan envisages a dynamic private sector as the engine of economic growth. Private sector growth is necessary to provide jobs for the rapidly expanding Palestinian population and tax revenues to support government programmes. The plan affirms the Palestinian economy’s enormous potential for future growth and the urgent need for a revival from its current condition, recognising that political uncertainty, combined with continued expansion of settlements, restrictions on movement and trade, and restrictions on access to resources, have strangled investment and stripped the economy of the bulk of its productive capacity. Nonetheless, strategies are being developed to encourage productivity and growth in the industrial, agricultural, housing, and tourism sectors and allow the Palestinian economy to develop a diversified export portfolio. To this end, in 2008, the Palestinian Public Private Partnership was established with representatives from the public
and private sector. This organisation meets regularly to identify needed policy changes and help guide the PA’s private sector strategy.
Telecoms
During 2008, on the back of three major Palestinian investment conferences held in Bethlehem, Nablus, and London, a number of large initiatives were launched, among others the introduction of a second mobile telephone provider (Wataniya Telecommunications Company), the planning of large new housing projects, and a new housing finance fund. In addition, older initiatives for the construction of several industrial estates across the West Bank in Jericho, Jenin, Tarkumiya and Bethlehem, were revived. However, in the face of ongoing economic restrictions most of these projects have not got off the ground to date. The World Bank report pointed out that although a frequency agreement was signed between the PA and Israel to enable the introduction of a second mobile telephone provider in 2009 the frequencies have so far not been released. This could have serious consequences for the investment climate, competition in the telecommunications sector, as well as for the PA’s fiscal position due to the potential loss of an estimated $354mn in licensing fees. In the PA’s budget for 2009, the share of development projects in total spending was targeted to rise from 8 to 13%, as part of the authority’s strategy of assuming increased “ownership” of public investments. Expenditure on development projects for 2009 was budgeted at $503mn, consisting of $200mn in large infrastructure projects and $303mn in community-based projects. This compares with an estimated total public investment of $250mn in 2008, about $60mn of which was on community-based projects.
Outlook
Despite the problems, Palestine as a market-based economy has tremendous investment potential in the future given the right conditions. Though the Palestinian economy faces immense challenges, especially since 2000, it also has many advantages, including a forward-thinking, entrepreneurial, and talented private sector, and a rapidly growing and well-educated workforce. The business sector consists of many small local businesses that aspire to a high-level of professionalism and product quality. Large enterprises are internationally connected, with partnerships extending to Europe, the Gulf, and North America. Human capital is an invaluable asset for the Palestinian economy as it seeks to develop and strengthen. With a very young population, the workforce is expected to expand significantly over the next several decades. Palestinians entering the labour market are generally highly educated, multilingual, and well versed in the new technologies and practices conducive to doing business at a global level. Palestine also boasts a multitude of promising economic sectors offering opportunities for investment. The services sector, with the sub-sectors of internal trade, transport, tourism, and information technology, are all ripe for expansion. The construction, manufacturing and mining, and chemical industries also promise fruitful investment opportunities.
Source: Austro-Arab Trade Directory 2011.
The mentioned data are subject to modification. No responsibility is taken for the correctness of the details provided.
Last modified: 28 January 2011
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