Snapshot of the Economy

The Palestinian economy is made up from the following industries:

•  Construction – this is one of the biggest sectors of the Palestinian economy. Demand for his sector is from the rapidly growing population, displaced persons still living in squalid camp conditions and reconstruction of war damaged property.

•  Agriculture is one of the biggest exporting sectors of the Palestinian economy and is also a major source of employment. Demand for this sector is expected to rise due to cost advantage enjoyed by this sector and growing demand from the local population.

•  Tourism is one of the major sources of foreign currency income for the Palestinian economy. With such world famous sites as Bethlehem and Jericho under its jurisdiction this sector is expected to contribute significantly to the economy of the Palestinian economy for the foreseeable future– as long as there is an absence of armed conflict.

•  Light manufacturing is one of the growing areas of the Palestinian economy. Sources of demand for this sector are from the local Palestinian population and also Israel where Palestinian products enjoy a strong cost advantage against their Israeli competitors.

The Palestinian Authority's economy is largely dependent on the Israeli economy as most points of import and export are controlled by Israel's security forces. Furthermore Israel's close proximity to the Palestinian market make the country one of its biggest trade partners. Subsequently the economic fortunes of the Palestinian economy are closely tied to the peace process. In times of calm between the two sides the Palestinian economy has witnessed marked improvements, especially in areas such as construction and tourism. Periods of peace have also been marked by higher rates of investment in its economy and lower rates of unemployment. In times of conflict such as the recent intifada the reverse has proven true where as a result the Palestinian economy entered a period of major recession and even almost collapse.

Another major source of income for the Palestinian economy is wages earned for daily employment in Israel. During period of calm every day tens of thousands of Palestinian labourers cross the border into Israel to work and return home at night with their wages. Remittances sent from hundreds of thousands of Palestinians abroad   also assist the Palestinian economy as a form of income. Aid from international donor organisations and Arab and Muslim countries also contributes to the Palestinian economy.

The Palestinian economy faces major challenges. One of the major sources of problem is its inability to control its own external borders as all points are either fully or half controlled by Israel for security reasons. Therefore in times of conflict many such points are closed for security reasons or as punishment by Israel for attacks carried out by Palestinian militants. Such closures have a major impact on the Palestinian economy. Another problem of the Palestinian economy is corruption. This problem stifles economic progress and reduces investment in the Palestinian economy. Corruption also reduces the level of aid raised for the Palestinian economy as donors are unwilling to provide funds for poor people when there is a chance that it may end up in the pocket of rich corrupt officials. The damage caused to the Palestinian economy through conflict and the massive reconstruction bill is also another challenge as it reduces business efficiency whilst creating social problems. As the local economy can not raise the required funds needed for reconstruction therefore it has to borrow thus meaning more debts to carry. In some circumstances donations from other countries are accepted instead of loans.

Unemployment is also another major problem for the Palestinian economy and society. It is also a political issue as the unemployed are sometimes recruited into extremist organisations. Lack of funds for health and education services is a problem whose consequences can be felt now and quite possibly in the future as the working population does not have the high level of education required to attract additional investment for the economy.   

The new Palestinian administration of Mahmud Abbas has taken it upon itself to reform the Palestinian economy by reducing corruption and opening up the private sector of the economy. Success of his campaign will be a major contributor to the advancement of the Palestinian economy. Co-operation from Israel in areas such as border control and free flow of goods will also be an important success factor.    

By: Meir Javedanfar- www.meepas.com

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