Comprehensive report on Palestinian economy
Palestine, Economics, 5/29/1998

Despite all expectations, the growth in the national product of the Palestinian territories in 1997 did not exceed one percent whereas the population grew in the same year by 4.5 percent, causing more deterioration in the gross individual income of the Palestinians, a report said.

The recent UN report, which came out in an UNESCO periodical publication issued by the UN's special coordinator for the Occupied Territories, reviews the social and economic conditions in the Occupied Territories in 1997.

In 1997, there was a 14.7 percent increase in the number of new companies in the private sector in Gaza and the West Bank as compared to 1996. The volume of loans that the banks extended to the private sector rose in this period by 58.8 percent and reached US $545.8 million. Of these loans, the mid-term (one to three years) loans rose considerably. The proportion of loans given by non-banking institutions (various foundations and agencies such as UNWRA) for private initiatives underwent a 94 percent increase from US $18.3 million in 1996 to US $35.5 million last year. There was also a 13 percent increase in the total area of plots that were issued building permits. Likewise, there was a 9.8 percent increase in cement sales as compared with 1996.

The report reflected a tempered expectation for economic growth and a stabilizing of the basic conditions that since 1991 have had an immediate impact on the economy of the Palestinian territories. Those conditions included the guaranteed employment of Palestinians in Israel, regular import / export between Israel and the territories and travel permits for businessmen.

In 1997, there was a steady increase in the number of Palestinian workers who entered Israel and a drop in the number of days in which the Palestinian territories were held under Israeli closures as compared with 1996. In 1998, the trend of a growing number of workers continued as noted in the report's closing section.

The volume of trucks crossing the border in the first quarter of 1997 also increased in comparison with 1996. This testifies to the increased growth in production and trade. It reflects Israeli willingness to improve and make more efficient the system of checking and granting permit but in a way that would still serve Israeli interests more than the Palestinians'. The volume of trucks carrying Palestinian products into Israel increased by 12 percent a month while the volume of trucks crossing from Israel to Palestine have increased by 21 percent.

Israeli Prime Minister Benjamin Netanyahu, however, used those figures to promote his government's policy and to claim that despite the impasse in the peace talks with Palestine, the Likud government has granted the Palestinians more room for economic activity than the Labor-Meretz government.

The UNESCO report refrains from drawing conclusions regarding internal Israeli politics. It just presents the figures and portrays the background and the Palestinian patterns of behavior. Therefore, the report does not restate a known truth that the Palestinian economic activity in 1996 was so low because of the lengthy closure imposed by Israel that reached 140 days. Consequently, in the following year, when less closure days were imposed, the increase was inevitable. In other words, the less closure days the better for Palestinian economic progress.

Palestinian officials have always argued with representatives of the donor countries that it is very difficult for the Palestinian economy to grow with the continued closure policy of Israel. They have stated on a number of occasions that all what they need for their economy to rejuvenate was to have Israel cancel the closure policy once and for all.

Despite the minor positive figures portrayed in the report, it falls short of drawing an encouraging picture and therefore does not satisfy initial expectations. At the beginning of 1997, the Palestinian Finance Ministry and the IMF expected a 5.5 percent growth in the Palestinian GDP and an 8 percent increase in the GNP. In effect, there was only a 1.2 percent increase in the GDP (as compared with a 1.6 percent drop in 1996) and only a 3.4 percent increase in the GNP.

The increase in the land approved for construction is misleading, admittedly, as compared with the 1.5 million sq. m. approved in 1996, 1.7 million sq. m. were approved in 1997, a 13 percent increase, but this increase pertains to residential construction. Construction of business premises and industrial plants dropped by some 3 percent from 218,000 sq. m. in 1996 to 211,500 sq. m. in 1997. In other words, the trend of focusing on housing has continued.

Housing is one of the most important fields of investment for Palestinian private sector. It comes as a spontaneous result of feelings of dispersion the Palestinian have lived with over the past five decades. In many West Bank cities, for instance, there are more empty apartments than needed and Palestinian experts believe the reason is that the majority of private investors opted for housing as a main field of interest for them and have flooded the area with houses and living apartments. Israel's settlement policy has also contributed to Palestinian stress on housing projects. "Had we built houses on top of those hills that surround the Palestinian cities in the West Bank, we would have prevented the Jewish settlers to take over those land and set their settlements on them," argued Hassan Al Sheikh, a construction engineer in Ramallah.

In the days of the Israeli military occupation, the Israeli government had a declared policy not to allow the development of independent Palestinian industry and to restrict by all means the natural growth of the Palestinian population. When faced with a serious housing crisis, many Palestinians chose to leave and settle abroad where they found jobs and established a new life. Therefore, Israeli permits for new housing projects were very rare. And permits for Palestinian industrial infrastructure were not issued at all.

The report notes that the continued reduction in land allocated to business tells the story of the private sector in the five years since Israel handed over responsibility for these areas to the Palestinians. From high expectations that accompanied the massive construction operation, to pessimism and giant losses: In 1996, there was a 45 percent drop in the number of new companies as compared with a record 1,614 in 1994. This report does not reveal the number of companies that have closed down over the past five years but it is assessed that at least 30 percent of the new companies (and a considerable number of older companies) became bankrupt in 1996. If there has been no increase in the requests for building permits for businesses, that is because there are plenty of vacant business premises. Nevertheless, light industry has increased its share of the GDP from 16.24 percent in 1994 to 18.9 percent in 1996. This is proof of this industry's elasticity in a period of economic stagnation.

At first glance, it would appear that as compared with 1996, there has been a drop of some 8 percent in the number of Palestinians out of work. There has also been an increase in the number of those holding full-time positions (from 64.1 percent in 1996 to 69.5 percent in 1997). But if one includes not just those registering at job centers, but those who have given up and don't register as well as those who are under-employed (who work a few hours a week), the decrease in unemployment figures are less rosy: 32.6 percent was the unemployment rate for 1996. In 1997, this figure dropped to 30.1 percent of the work force, a figure that is disturbingly high.

The increase in the number of people working in 1997 is reflected in all categories: Employers, family members working without a salary, salaried workers and self-employed people. The highest increase was registered with the self-employed (from 91,579 in 1996 to 101,089 on average in 1997). In 1997, there was a relative drop in the number of unsalaried workers working in the family, mainly in agriculture, in other words, mainly on the West Bank. This has two causes: A "dead" farming season and the increase in the number of [foreign] workers in Israel. There has always been an inverse correlation between employment in Israel and agricultural work in the family.

Despite all these difficulties, Israel continues to be a magnet for job seekers. And that comes as no surprise: The relatively low pay offered by Israeli employers is still 81.9 percent higher than West Bank pay and 124 percent higher than Gaza. Palestinian workers - mainly in the Gaza Strip and Israel, worked for more days in 1997 than in 1996. But their daily pay in real terms dropped by some 7.5 percent. The Palestinian government has no system for linking salaries to the Cost of Living index or inflation, nor a collective bargaining system to provide a level of protection from employers slashing salaries. In the Gaza Strip, the drop was greater: 15.7 percent as compared with 9.6 percent on the West Bank and 4.4 percent for those working in Israel.

The drop in salary and the continued recession in Israel itself - despite signs of recovery in 1997 - have had an impact primarily on standards of living and expenditure on basic products. Compared with 1996, in 1997, there was a 7.12 percent drop in basic expenditure and 9.5 percent in secondary expenses. The basic expenses are housing, food, clothing, medical care, transportation, education and taxes. Secondary expenses are electrical household appliances, furniture, leisure expenditure, tobacco and other expenses. In food consumption for instance there was a 7.72 percent drop, in education - 22.3 percent, taxes - 35.5 percent. A family spent some 30 percent less on leisure and rest in 1997 than it did in 1996 - $18.6 per month on average (out of a $750 total) compared with $26.27 in 1996 (out of $828 a month). The drop in expenditure in 1997 as compared with 1996 reflects a continued adapting to low income.

One of the disturbing figures, notes the report, is the fact that food prices in Gaza increased in 1997 more than they did in the West Bank (3.3 percent compared to 1.4 percent). In other words, a Gazan family, which earns less than a West Bank family is spending more on food (at the expense of other items). There are two reasons for the high prices of food in Gaza: the cost of bringing food to Gaza is higher because of the closure rules - Gazan trucks are not allowed into Israel, so the food is loaded and unloaded several times.

One of the most illuminating figures in the table of family expenses is the drop in "miscellaneous cash expenditure": from $198.61 in 1996 to $102.9 in 1997 - a 15.27 percent drop. This item mostly covers mutual help in the extended family, a standard concept in Palestinian society.

Commenting on the UN report, Palestinian economic experts argue that economic development cannot be measured only by the number of trucks that cross between Israel and the West Bank and Gaza but by a stable political atmosphere. "As long as the peace process is stuck and the political future of the region is unstable, investors will have less motives to come forward with their monies to aide the Palestinian economy," said Yousef Said, an economist from Hebron. He said that not only foreign donor countries feel deterred to invest money in a politically unstable region but also Palestinians living abroad feel hesitant to come along and start new businesses in their own homeland.

Many of them, he believes, will be ready to join forces to build up a strong Palestinian economy once there is a real breakthrough in the peace talks.

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