The period covered by this report, October 1, 2000 to January 31,
2001 - a total of 123 calendar days - has witnessed the most severe
and sustained crisis in Israeli-Palestinian relations since the
signing of the Declaration of Principles in September 1993. In
addition to unprecedented levels of confrontation, the period has
been characterized by the most severe movement restrictions ever
imposed on the occupied territories.
Movement Restrictions
The lack of freedom of movement for people and goods caused by the
present crisis has resulted in socioeconomic hardships in the
Palestinian territories. During the 123-day period, the
Israeli-Palestinian border used for labor and trade flows was
closed for 93 days, or 75.6 percent of the time. In addition, the
"safe passage," which was supposed to insure Palestinians
relatively free access to the West Bank and Gaza, was closed by the
Israeli authorities on October 6.
The severity of the movement restrictions has been compounded by
the most draconian internal closure measures ever implemented. In
the case of severe internal closures, this has entailed the
prohibition on use of primary roads and the placement of physical
barriers on many secondary roads between Palestinian villages and
towns. Internal movement restrictions and internal closure -
partial or severe - have been in place for 100 percent of the time
in the West Bank and for 89 percent of the time in Gaza.
The international border crossings between the Palestinian
territories and neighboring countries have also been closed to
passengers and trade for much of the reporting period. Crossings to
Jordan (from the West Bank) and to Egypt (from Gaza) have been
closed for 29 percent and 50 percent of the time, respectively, and
the Gaza airport has been closed over half of the reporting
period.
The international commercial land crossings at Allenby/Karameh and
Rafah have also been significantly affected by border closures,
which has diminished the volume of imports from Jordan and Egypt.
Access to the Israeli ports at Ashdod and Haifa, the entry points
for most non-Israeli products, has also been impeded, resulting in
long delays and significant losses - and added storage and demorage
fees - to Palestinian merchants.
Direct Economic Losses
The short-term and direct economic effects of such policies are to
reduce income to farmers, workers, merchants and businesspeople who
cannot reach their places of employment or who are unable to obtain
inputs and/or sell their goods and services. This has been true of
all economic activities. However, there were disproportionately
large losses for hotels and restaurants (tourism); construction;
agriculture; and community, social and personal service
activities.
From an estimated average daily Palestinian labor flow of about
130,000 in the first 9 months of 2000, the confrontations and
movement restrictions reduced the daily flow to an estimated 30,650
in October. The direct economic losses arising from movement
restrictions are estimated at 50 percent of gross domestic product
(GDP) for the 4-month period and 75 percent of wage income earned
by Palestinian workers in Israel. The GDP loss is estimated at
U.S.$ 907.3 million, while the loss of labor income from employment
in Israel is estimated at U.S.$ 243.4 million. The total loss is
estimated at U.S.$ 1,150.7 million, equal to 20 percent of the
projected GDP for the year 2000 (assuming no border closures). The
loss is about U.S.$ 11 million per working day or U.S.$ 3.5 per
person per working day during the reporting period.
In addition, there have been hundreds of millions of U.S.$ in
damage to public buildings and infrastructure and to private
property and agricultural land, in costs for caring for more than
11,000 injured Palestinians, and in public revenue losses and other
effects of the closures.
Unemployment and Poverty
The immediate effect of the crisis was the "disemployment" of more
than 100,000 workers formerly employed in Israel. Within days of
the onset of the crisis, the core unemployment rate rose from less
than 11 percent to nearly 30 percent of the labor force.
In the weeks and months following the border closure on October 9,
and with the imposition of internal movement restrictions, normal
internal economic activity was disrupted, leading to additional
amounts of internal unemployment. It was estimated by the
Palestinian Authority Ministry of Labor that about 82,000 persons
lost their jobs due to the impact of the movement restrictions. To
this must be added the approximately 71,000 persons who were
unemployed prior to the crisis and an average of 100,000 job losses
in Israel. The average number of unemployed in the Palestinian
territories, therefore, is estimated at about 253,000, or about 38
percent of the labor force during the reporting period.
Evidence suggests that the average employed Palestinian supports
himself/herself plus 4 other people; therefore, the crisis has
directly reduced the income of 728,000 other Palestinians. In
total, an average of 910,000 persons - or about 30 percent of the
population - have been directly and negatively affected by mobility
restrictions. Added to some 355,000 previously unemployed persons,
the number of Palestinians experiencing economic distress rises to
1,265,000, or 40.8 percent of the population.
Significantly higher unemployment and depleted savings have led to
a significant and rapid increase in poverty rates. The report
estimates the portion of the population falling below the poverty
line (estimated by the World Bank as U.S.$ 2.10 per person per day
in consumption expenditures - less than NIS 9 per day) at 21.1
percent in September 2000. Under the impact of movement
restrictions and border closures, the poverty rate is estimated to
have risen to 31.8 percent at the end of 2000. Thus, within 3
months, the poverty rate and the absolute number of poor are
estimated to have risen by 50 percent. This suggests that about 1
million persons now live under the poverty line. Moreover, even
with a partial relaxation in restrictions on mobility, the report
estimates that the poverty rate will rise to about 43.8 percent by
the end of 2001.
Longer-Term Impact
The present crisis - now in its sixth month - has interrupted
nearly four years of economic recovery and progress that included
significant reductions in unemployment and poverty. There was also
important progress in the rehabilitation and expansion of physical
infrastructure and institution-building projects. Much of this
progress has now been undermined.
Palestinian society is characterized by rapid population growth
and, due to its youthful demography, even more rapid growth of the
working-age population. Alleviating employment and poverty will
therefore depend primarily on the ability of the Palestinian
economy to create jobs in the future. Economic growth and
employment creation will rely on the ability of the economy to
profitably produce goods and services for domestic and foreign
consumers. Given resource limitations in the Palestinian
territories, this requires significant private investment in
productive capacity and the ability to access foreign markets for
inputs and for marketing outputs.
With regard to private investment - both domestic and foreign - the
operating environment has become less hospitable both because of
movement restriction and conflict. Since the beginning of the
crisis, there has been a precipitous decline in interest by
investors. Likewise, there has been some export growth over the
past few years, most of it to the Israeli market - the destination
for about 95 percent of Palestinian exports. Palestinian exporters
may lose out permanently as Israeli customers (and those in other
countries) seek alternatives to Palestinian suppliers who cannot
reliably deliver goods due to movement restrictions.
Thus the ability of the Palestinian economy to generate employment
and income has been threatened by the damage caused to investment
and trade. In the long run and the final analysis, this is the most
dangerous economic effect of the present crisis.
From a special report prepared by the Office of the United Nations
Special Coordinator (UNSCO), October 1, 2000-January 31, 2001,
updating the September 28, 2000-November 30, 2000
report.