Thirty years of Israeli occupation of the West Bank and the Gaza
Strip (WBGS) have led to a steady deterioration in the political
and economic conditions there. During that period, Israel succeeded
in restructuring the Palestinian economy in such a way that it
became dependent on the Israeli one. This led to a small and feeble
Palestinian economy, with a limited capacity for job creation and
labor force absorption. One-third of the Palestinian labor force
depends on the Israeli work market.
This restructuring of the Palestinian economy can also be looked at
as forced integration, since a small economy was integrated into a
much larger one, causing tremendous economic imbalances,
bottlenecks, unfair trade practices and the imposition of regional
restrictions. For example, the Palestinians were able to sell their
labor regionally, especially in the Gulf area, but not their
commodities, because of the total integration of the Palestinian
economy into the Israeli one.
The economic situation in the WBGS at present is somewhat unique.
There is the dependency factor, as mentioned above. However, it is
important to note that since the Palestinian National Authority
(PNA) took power in the Palestinian territories in 1994, its main
objectives were the creation of an independent Palestinian economy
by decreasing this dependency through seeking new trade and
commercial relations with its neighboring Arab countries, as well
as with Europe, the United States and South East Asia.
It should also be noted that the PNA took over a complex economy
constrained by a legacy of political restrictions imposed by the
Oslo Accords and the various agreements signed between the PLO and
the Israeli government which, in the absence of an implementation
mechanism, worked to the detriment of the Palestinian
economy.
Nonetheless, the PNA has maintained its high expectations for
economic progress. Thus, on the economic level, the main
proposition behind the peace process was to improve the living
standards of the people in the region, particularly in the West
Bank and the Gaza Strip. The basic concept was that peace would
bring economic development and prosperity; economic development, in
turn, meant increased support for the peace process. This unique
situation where the political and the economic are so tightly
intertwined laid a heavy burden on the shoulders of Palestinian
decision-makers as they attempted to meet the high and, sometimes
unrealistic, expectations of the public, especially in an
environment where political issues impeded economic
development.
Impediments to Economic Development
After the major partners in the Middle East peace process - the
PNA, Israel, Egypt and Jordan - signed the peace agreements and,
consequently, trade agreements among themselves, one of the major
assumptions underlying those agreements was that there would be
free movement of commodities and people among the four countries.
However, when it came to a practical implementation of the trade
agreements, a long chain of bureaucratic barriers was created that
drastically affected the long-awaited fruits of peace.
A main impediment to development in Palestine and cooperation in
the region is the collective punishment Israel imposes on the
Palestinian people under the closure policy, causing tremendous
hardships on the Palestinian population and economy as it restricts
movement of people and goods and trade with the external world.
Hence, a vast gap exists between the movement of commodities in
real terms compared to what has been agreed upon in the peace
accords.
A second trade impediment is the fact that the Israeli government
has complete control of the border checkpoints and has the final
word in the decision-making process regarding who is allowed
residency in the Palestinian territories and who is not. This
discourages potential investors from taking the necessary risks to
invest in Palestine.
PNA Economic Policies
During the past five years of the Interim period, PNA policy aimed
at the achievement of certain objectives:
• to give priority to the rehabilitation and reconstruction
of the Palestinian economy in order for it to regain its strength
and its ability to grow and to lay the foundations for sustainable
development;
• to raise the standard of living of the Palestinian people
and to improve their quality of life, through the efficient
management of available economic resources (human and physical) and
the proper administration of external economic relations;
• to promote the performance of the Palestinian economy on
both macro and micro levels, expand its productive capacity, and
enable it to benefit from the potential of regional and
international cooperation;
• to work towards securing strategic storage of basic goods
at fair prices to prevent shortages and avoid monopolies;
• to reform the Palestinian-Israeli economic relationship by
focusing on renegotiating the Israeli-Palestinian Economic
Protocol, which has been abrogated de facto because of the Israeli
policy of closure and economic siege.
The PNA seeks to achieve the above objectives in several ways.
First, it is abiding by free market economic principles, which
enable an effective role in organizing economic activities and
guaranteeing fair competitive opportunities for all members of the
Palestinian society during the process of reconstruction and
development. Second, it is working on the melting of the various
components of the Palestinian economy in the West Bank and the Gaza
Strip into a unified national economy to achieve economic and
sectoral balance. Third, it is undertaking a full integration of
the governmental sector through the provision of an investment
environment. This must be supported by legislative and
institutional frameworks. The public sector must play its role in
the reconstruction and development of the urgently needed
infrastructure, alongside the leading role of the private sector in
the process of economic growth. The PNA plans to regain the
necessary internal ties between the various components of the
Palestinian economy, its supply and demand in the labor and goods
market, as well as in production, consumption, savings and
investments. And, finally, the PNA aims at the achievement of the
economic stability necessary for the promotion of growth and
sustainable development. This demands appropriate policies in the
monetary and financial fields, in taxation and the management of
revenues, in employment and the labor market, in the encouragement
of savings and in an effective banking system.
Since it has taken power, the PNA has been focusing on the
following main sectors:
Agriculture. PNA policy in this sector aims to increase PNA land
holding and control over water and agricultural resources, which
are at present under Israeli control. It will concentrate on
agricultural produce requiring less irrigation for water
conservation purposes. Finally, it plans to work towards
maintaining the existing agricultural share in gross domestic
product to expand employment capabilities and also to restructure
the agricultural sector in order to meet the increasing local
demand for basic food products on the one hand, and to bolster its
exporting potentials on the other.
Industry. The PNA is working towards increasing the role of the
industrial sector in the gross domestic product by increasing
investment in this sector and diversifying production. The object
is to support small- and medium-size industrial projects through
financial backing and effective marketing, giving priorities to
labor-intensive industries and to those that utilize domestic
resources. By observing international standards, specifications and
measurements, the PNA aims at enabling national industries to
compete locally, regionally and internationally, while, at the same
time, protecting the consumer by maintaining quality control over
products and safeguarding against monopolies and bottlenecks.
Trade. The PNA is trying to increase the role of internal trade in
the overall Palestinian trade activities; to adopt a foreign trade
policy that would reduce Israeli hegemony over Palestinian foreign
trade and expand trade relations with other countries; and to
demand control of the borders and the various checkpoints.
Tourism. Palestine should be able to benefit greatly from its
unique comparative advantage as the cradle of religions by
improving the tourism infrastructure, including hotels, restaurants
and transportation, and through regional tourism cooperation
(package deals).
The PNA is aware of the importance of regional cooperation and
integration, particularly in the era of globalization where no one
nation can, regardless of its military power, geographic,
demographic or economic size, achieve growth, sustainable
development or progress by remaining in complete isolation.
Recognizing international trends, the PNA is participating in
regional economic activities, bearing in mind that only peace
building will lead to the next phase - regional cooperation.
Conclusion
The PNA expects confidence-building measures through the
implementation of the various agreements it signed with Israel. The
challenges facing it are many. It has to provide potential
investors with a secure and attractive investment environment.
Upgrading the administrative and technical capabilities of PNA
civil servants working in the economic sector, as well as improving
the quality of a wide range of financial services to be extended to
the various sectors and to the public at large are also matters
that are under careful PNA consideration and planning.
On the other hand, Israelis have to accept the Palestinians as
equal partners with whom they will have to share their destiny and
future. After all, we share the land, the water, the air and all
other fortunes and misfortunes that face the area.