The Impact on the Palestinian Economy of Confrontations, Mobility Restrictions, and Border Closures--An Executive Summary.
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.

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