Boosted by promising growth rates and a large fiscal stimulus, Palestine's economy was on its way to a fragile recovery. But sustainability going forward is in question, said experts at a recent conference at Oxford University’s Saïd Business School on February 13 – the Role of Economics and Business in Peacemaking: Views from Israelis and Palestinians.
Palestine saw nine percent GDP growth in the first three quarters of 2010, which followed from seven percent growth for the full year in 2009. But market turmoil has punctuated the beginning of this year, in large part due to increasingly violent pro-democracy movements spreading across the Middle East and North Africa that threaten to disrupt the global economy.
Speaking at the conference, professor of economics at the Hebrew University of Jerusalem, Ephraim Kleiman, pointed out that any solutions seeking peace as a result of economic cooperation between Israel and Palestine reflect wishful thinking far more than reality. In fact, he argues, it is peaceful conditions that encourage economic development.
“Israel will long remain a major trading partner, but the need to diversify means the international business community could respond by facilitating the access of small firms to far away markets, establishing joint ventures with Palestinian firms, encouraging and investing in Palestinian start-ups, and providing managerial and technological expertise as well as introducing new technologies,” said Professor Kleiman during the presentation.
And steps to nurture investment are being taken by the Palestinian Authority – the administration that governs part of the West Bank and Gaza. On January 13, President Mahmoud Abbas approved new amendments to the Investment Promotion Law, aiming to simplify procedures and reduce bureaucracy in hopes of creating a more attractive investment climate, according to a recent report by London-based think tank The Portland Trust.
Political Factors Inhibit Investment
Political uncertainty, as well as pervasive and capricious security checkpoints, repel investors said conference participants, with some expressing frustrations of unloading trucks for produce deliveries of a mere 10 – 15 kilometres.
These checkpoints further exacerbate existing problems presented by a fragmented market with a 110-kilometre gap and unevenly distributed economic growth – of the nine percent GDP growth cited, the West Bank saw around four percent, while Gaza came in at over six times that amount. Experts explain that this high rate has more to do with the territory rebounding from the devastation of the last few years and is not an indicator of its potential under normal circumstances.
Moreover, manufacturing and agricultural activities have slumped, in part attributed to economic restrictions by Israel, but also as a result of withdrawl of fiscal stimulus. Between 2008 and 2010, Palestine’s economy received a $6 billion injection, representing a large proportion of GDP at 30 percent. There is concern that this successful kickstart to consumer purchasing power will be hit hard if liquidity is withdrawn too fast, too soon without an attractive environment for private sector involvement.
Other solution-specific topics included the need to remove obstacles that not only make conducting business difficult, but also complicate tax collection. Support for entrepreneurial ideas that attract tourists or provide access to markets for Palestinian products were promoted as important steps to create international funds flow and liquidity to the country’s economy, as well as reinforcement of financial structures, such as the Palestine Securities Exchange (PEX).
Ahmad Aweidah, Chief Executive of PEX, says that the market is an important element of stability, as it lists major companies as well as family businesses in the West Bank and Gaza. “We should grow, become more important and diverse – if people have more to lose, they are more careful about not losing it. But whether that has to do with peace, I am not so sure. Stability, yes.”
Read an interview with Ahmad Aweidah on PEX performance during 2011 market turmoil
For more statistics on Palestine's economy see the Palestinian Central Bureau of Statistics
Source: The Portland Trust Palestinian Economic Bulletin February 2011
Anna Reitman - Anna Reitman is a journalist currently working and residing in London, UK, having completed an MA in international journalism (print).
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