Country Profile: Palestine
The area of Palestine, or what is known as the West Bank and Gaza Strip
(WBGS), has been under occupation for the past several hundred years.
Within this century alone, the Ottoman Empire, Great Britain, Jordan and
Israel have taken turns occupying this area. As a result, Palestine
constantly has been subjugated economically and politically and has not had
a proper opportunity to develop as an autonomous entity. For the purpose
of this study, Palestine's history in relation to Israel will be
highlighted.
The Six-Day War of 1967 marked the beginning of Israel's occupation of
Palestine. This occupation resulted in a further weakening of the WBGS
economy and its subsequent dependency on the Israeli economy. According to
UNSCO:
For the last 30 years, the WBGS economy's pattern of growth and development
has been conditioned by its relationship to the larger and more dynamic
Israeli economy. The basic elements of Israeli economic policy for most of
this period were to allow relatively free movement of labor and commodities
between Israel and the WBGS, to restrict WBGS trade with the rest of the
world, and to generally inhibit the types of WBGS agricultural and
manufacturing production that might compete with Israeli producers. This
was combined with minimal public sector development. In general, the
effects of the WBGS's integration into the Israeli economy were to create
unbalanced growth and reduced viability of many productive activities.
This enforced economic dependency was still in place in 1987 during the
beginning of the Intifada, or Palestinian uprising against Israeli
occupation. A time of political and social unrest, the Intifada created
more economic hardship for the Palestinians. Boycotts of Israeli products
lead to an increase in prices. Furthermore, border closures prevented
Palestinians from going into Israel proper to find work. As a result of
the Intifada (and the international attention the Intifada drew to the
Palestinian situation), peace negotiations began between Israel and the
Palestinians.
In 1993 an agreement between Israel and Palestine was reached regarding
limited self-rule of the Palestinians. In 1994 the Palestinian Authority
was established and Arafat was elected as its leader. As part of the
agreement, what is known as the Paris Protocol was signed, allowing WBGS
limited economic independence. The agreement included:
oThe liberalization of Palestinian export trade, subject to certain
restrictions. . . oThe establishment of a Palestinian Monetary Authority
(PMA) with the power to devise a full range of monetary policies, de jure
power to license and regulate banks in the West Bank and Gaza, to manage
official reserves, to serve as a lender of last resort, and settle foreign
exchange accounts with Jordan and Israel. This should encourage savings and
investment and facilitate trade. oThe same import policy will apply to both
Israelis and Palestinians, as well as the policies for import licensing and
the maintenance of product standards. The PNA is to determine customs
duties and taxes for imported goods, including vehicle imports and
petroleum products. oPermission for the Palestinian side to use all
designated points of exit and entry into Israel for import/export purposes.
oThe right for each side to issue import licenses to their own importers
and thus be responsible for the implementation of the prevailing licensing
requirements and procedures. oPermission for the PNA to determine direct
tax levels independently, and the right to levy and collect direct taxes
generated by economic activities within its areas. Indirect taxes such as
VAT and tariffs are more complicated but are still transferred to the PNA
and partly collected by it. oThe transfer to the Palestinian Treasury of
75% of income tax collected from Gaza and the Jericho area Palestinians who
are employed in Israel, and 100% of income taxes collected from
Palestinians employed in the Gaza Strip and Jericho area (Palnet).
Ideally, this agreement would have allowed Palestine at least to begin a
program of liberalization; however, Israel's unwillingness to adhere to the
agreement and the PA's inability to adequately carry out such policies led
to continued underdevelopment for WBGS.
Though free elections are held in Palestine, there is a high degree of
corruption in the Palestinian government, and it is, for the most part, an
autocracy. Therefore, even though the PA has the power to create its own
fiscal policy, the government is either incapable of or unwilling to
enforce beneficial economic policies. Furthermore, though the PA has the
ability to regulate banks, there is no central bank, and policies that
would have been relegated to the central bank are undertaken by the
government. There is, therefore, an implicit inability to form an
autonomous regulating agency. As a result, there is a high degree of
instability within WBGS.
The West Bank and Gaza has not yet achieved the level of political
stability required to attract major corporate investment. In addition to
political uncertainty, the business environment suffers from confusing
commercial legislation and a lack of public sector regulatory institutions
(World Bank).
Palestine, therefore, lacks creditworthiness and is not able to attract
foreign investors into the area.
By far the largest component of the Palestinian economy is agriculture.
The main crops in Palestine include citrus fruit, olives, vegetables, and
almonds. According to a Palestinian Economic Review, "Agriculture has
played a very important role in the Palestinian economy, contributing 30%
of GNP in 1991 and employing approximately 25% of the labor force in the
West Bank and Gaza Strip. Although the Israeli occupation has hampered
agricultural development, the sector continues to grow despite frequent
border closures" ("Economic Review"). The emphasis on agriculture then,
suggests that the Palestinian economy is still largely a subsistence
economy. This is especially suggestive when taking into account that the
least developed sector of the WBGS economy is industry and manufacturing.
According to the same economic review:
In 1993, this sector contributed only 8% of GDP at factor cost in the West
Bank and Gaza Strip. By 1994, the situation took a turn for the worse. Due
the frequency of border closures by Israel, consumer demand fell. The
rising price of imports caused a downswing in manufacturing output. Because
of the difficulties of working under the occupation, this sector, despite a
long history, is still in its early development stage. Manufacturing
patterns have changed little since the 1960s with producers focusing on
textiles, food processing, clothing, and leather.
With such a weak industrial sector, Palestine will most likely have
difficulty moving into competitive trading with more industrialized countries.
The Palestinian economy has had difficulty developing and sustaining growth
in recent years. According to the World Bank, the Palestinian economy is
extremely susceptible to outside influences. These influences usually take
shape in the form of Israeli closures of borders disallowing Palestinian
laborers work in Israel as well as halting commerce and trade. The various
closures of the borders, as well as the lack of adequate employment
opportunities in WBGS have hurt Palestinian growth.
Since 1993 these have come essentially from disruptions to trade and labor
flows with Israel. Employment in Israel deteriorated sharply between 1993
and 1995. This was not offset by a commensurate increase in domestic
employment. In 1992 some 116,000 Palestinians (34 percent of the work
force) were employed in Israel. For 1995 as a whole, this number declined
to about 29,500. Domestic private sector employment grew only marginally,
with increases in agriculture and construction offset by a decline in
industry. As a result, unemployment increased from about 11 percent of the
labor force in 1993 to 23 percent in 1995 (World Bank).
The lack of employment opportunities, however, is not the only problem
within the Palestinian economy.
Conclusion
The Palestinian Authority has not been able to bring the economy of the
WBGS to an adequate level of development. This has been due, in part, to
the lack of political stability and autonomous regulatory agencies that
would prove Palestine creditworthy of attracting international investment.
In order for Palestine to develop adequately enough to successfully engage
in the world economy, several developments need to be made. These
developments include maintaining a politically responsible government,
establishing an autonomous regulatory agency to oversee monetary policy,
and brokering more investment into the area. These changes cannot begin to
occur, however, until an adequate and lasting peace agreement can be made
to which both Israel and Palestine can adhere.
Preview
Further analysis will be based on Israel's use of economic policy to
maintain an economically dependent Palestinian entity. By doing so, Israel
effectively undermines Palestinian self-determination. The topics to be
discussed will include trade and tariffs, taxation, the use of border
closings to restrict the earning power of Palestinian labor, and Israel's
ability to hinder infrastructure development. The above topics will be
discussed in the context of the ongoing Peace Process.
Bibliography
"Economic Review"
http://www.awo.net/country/overview/crpal.asp
Palnet. "Palestinian Economy: Resources, Activities and Infrastructure."
http://www.palnet.com/inv/iiieco.htm
UNSCO. "The WBGS Private Economy."
http://www.arts.mcgill.ca/MEPP/unsco/private/report.htm
World Bank. "The World Bank Group: The West Bank and Gaza."
http://www.worldbank.org/html/extdr/offrep/mena/wb&g.ht