Economic Factors

Table of Contents:

The Palestinian economy has witnessed many ups and downs, mainly due to the general political situation. GDP growth averaged over 10 percent per year between 1994 and 1999, but slumped following the outbreak of violence in 2000, with the Palestinian economy experiencing one of the worst recessions in modern history. However, GDP has always rebounded when given the chance, increasing by 8.5 percent in 2003 and 6 percent in 2005, reaching the same level as in 1999.6

The GDP recorded an increase by about 9 percent during the three quarters of 2010 compared with the same period of 2009. The growth was concentrated in economic activities with the largest share of GDP in agriculture and fishing, construction, wholesale and retail trade, transport, storage and communications, services, and public administration. The construction activity recorded the highest growth rate during that period, by about 36 percent GDP per capita for the Palestinian Territories. This increased by 5 percent during the third quarter of 2010 compared with the same quarter of 2009.7

There was a 3 percent increase in the total number of workers during the first three quarters of 2010, compared with same period of 2009. This was due primarily to an increase in the number of workers in the construction industry and services sector in the Palestinian Territories. The unemployment rate during the first three quarters of 2010 reached about 24 percent compared with 25 percent during the same period in 2009. The unemployment rate declined in the West Bank from 17.7 to 17.3 percent and in the Gaza Strip from 38.4 to 37.9 percent. Still, the rate of unemployment is woefully high and a great strain on the Palestinian people.8

Regarding trade movement in Palestine (the total exports and imports), there was an increase during 2010 in revenues of the value-added tax related to trade exchange with Israel. In 2010, exports increased by 8 percent compared with 2009, and imports increased by 6 percent compared with 2009.9

Prices consumer prices had increased from January to November 2010 by 3.58 percent compared with the same period in 2009 and that resulted in the decline of the purchasing power.10

The year 2010 had witnessed additional government reforms in tax collection in line with the reform and development plan that the government has been implementing since 2007. Local revenues (tax and nontax) accounted for about 38 percent of total revenues and that covered part of current expenditures, thus reducing dependence on foreign support to cover the budget.

Government revenues had increased by 17.3 percent during the first three quarters of 2010 compared with the same period in 2009, whereas government expenditures declined by 2.7 percent. In addition, the deficit in the general budget declined by 22.5 percent during the first three quarters of 2010 compared with the same period in 2009.

The industrial sector had witnessed a decline by 6 percent during the first three quarters of 2010 compared with the same period in 2009. The total number of workers in the industrial sector had increased by 2 percent during the first three quarters of 2010 compared with the same period of 2009 (increase by 2.3% in the West Bank and a decrease by 2.4% in the Gaza Strip). Industrial activity constitutes about 13 percent of total GDP.11

Political Factors

Due to the political situation in Palestine, local companies face severe export restrictions, not only from the international markets where Palestinian products are viewed as being below standard, but also from Israeli restrictions on borders, which are aimed at weakening the overall Palestinian economy by enforcing harsh restrictions and regulations on the export of Palestinian goods. In addition, many Arab countries include

Palestinian products within the list of Israeli products that all Arab countries boycott.

The combined area of the West Bank and Gaza is small—only 6,020 square kilometers. However, Palestine suffers from various political obstacles caused by Israeli restrictions, including a "separation wall," which is frequently closed, and the difficulty of movement for goods and people within the West Bank and the Gaza Strip.12 The total population of the Palestinian Territories at mid-2010 was about 4.05 million, 2.51 million in the West Bank and 1.54 million in Gaza Strip. One out of every fifth of participants in the labor force is unemployed in the first quarter of 2010. Most of the population of Palestine is young, with about 57 percent below the age of 20. Declining fertility rates, however, will reduce the relative size of the youngest section of the population, those under 20 years of age.13

Social Factors

The Palestinian National Authority was formed after the Gaza-Jericho Agreement, signed in Cairo on May 4, 1994, which created a Palestinian nation that would be governed by the Palestinian National Authority, with restrictions over borders and control of resources.

The Palestinian market is dependent on foreign products. Negative perceptions about the quality of locally manufactured products, accompanied by a lack of awareness about product improvements, led to the weak positioning of local products within the local market.

As a result of this perception there was a call for the improvement of quality and standards of the local production through a monitoring of the manufacturing processes and compliance with international standards. In response, the Palestinian Authority used its legal system to address these issues. Furthermore, and in a call for supporting the local products, the Palestinian Ministry of National Economy initiated a campaign in January, 2010, promoting local products; this was in addition to the boycotting of all Israeli products that are manufactured in settlements established on the Palestinian Territories. This campaign had been adopted to a high degree by all the government departments and by the public as well. The launch of this campaign came in response to the Israeli restrictions imposed on Palestinians.14

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