Published daily by the Lowy Institute

Focus on the Palestinian economy

Focus on the Palestinian economy
Published 10 Oct 2013 

Marty Harris is an assistant digital editor at the Lowy Institute. He holds a Master of Arts degree in Middle East and Central Asian Studies from ANU.

Two reports on the Palestinian economy were released recently.

Late last month the Office of the Middle East Quartet released a summary of the 'Palestinian Economic Initiative'. This initiative results from a speech by US Secretary of State John Kerry at a World Economic Forum event in Jordan in May, attended by Israeli President Shimon Peres and Palestinian Authority President Mahmoud Abbas, which called for the formulation of an economic development plan for the Palestinians, because 'as long as prospects for economic advancement remain weak, so do the prospects for peace and stability.'

The initiative itself is 'designed to effect rapid and positive change in the Palestinian economy' and focus 'on catalyzing private sector-led growth in the West Bank and the Gaza Strip':

The initiative aspires to rapidly grow the Palestinian economy spanning the entirety of the West Bank including Area C and the Gaza Strip over a three-year period from 2014-2016. It also aims to achieve a significant reduction in joblessness, a substantial increase in average Palestinian household income, a large surge in investment flows - both domestic and foreign - and a significant decline in PA reliance on direct budgetary assistance. 

The initiative also aims to engender, over the medium-term, a substantial shift in the Palestinian economy toward private sector-led development. By focusing on the growth of key private industries, assisted by a mix of enabling factors, the initiative aims to shift the Palestinian economy towards a model of private sector-led development and economic sustainability ahead of eventual Palestinian statehood. 

This kind of 'economy first' argument is not new.[fold]

'Economic independence and national prosperity' were key components of the Salam Fayyad Government's 'Ending the Occupation, Establishing the State' program, which received billions in international financial assistance at the Paris Donors Conference in 2007. And there was a sustained period of West Bank economic growth post-2007, with GDP growth reaching 12% in 2008 and staying above 8% through 2011. However, as the Quartet report indicates, growth slowed in 2012 and 2013, as a result of 'regional instability, political deadlock between the Israelis and the Palestinians, donor fatigue, and the absence of continued and broad-based Israeli measures to ease restrictions on Palestinian economic life'.

This brings us to the second report. A new World Bank publication states that the GDP of the West Bank contracted by 0.1% during the first half of 2013, the first GDP decrease in more than a decade:

This slowdown has exposed the distorted nature of the economy and its artificial reliance on donor-financed consumption... Private investment has averaged a mere 15 percent of GDP over the past seven years, compared with rates of over 25 percent in vigorous middle income countries.

The World Bank argues that easing movement and economic activity restrictions in Area C — that proportion of the West Bank under both Israeli security and civil control — would result in substantial gains for the Palestinian economy. 'Area C is key to future Palestinian economic development...Palestinian prosperity continues to lie in in the removal of restrictions with due regard for Israel's security.' According to the World Bank, if businesses and farms were allowed to develop in Area C it could add up to 35% to Palestinian GDP.

The Quartet report too argues for an easing of restrictions in Area C. It also notes that its plan has already been submitted to Israel and the Palestinian Authority for review. 

 Photo by Flickr user Corey Jackson.

You may also be interested in