Israeli restrictions and Palestinian inequality work together to make the economic outlook bleak for the Palestinians. A boost following the peace agreements with Israel in the 1990s has been transformed into isolation and aid dependency.
Almost the entire budget consists of foreign aid and the customs and VAT revenues that Israel administers. Budget support is crucial for the Palestinian Authority’s ability to meet its obligations and pay its employees. Both the United States and Arab countries use aid restrictions as a means of pressure or to mark political dissatisfaction.
Israel controls all imports and exports from the West Bank and Gaza. In times of concern, Israel has simply closed the borders for both Palestinian trade and Palestinians working in Israel. Even the barrier construction that will prevent suicide bombers from entering Israel, other barriers and bureaucratic obstacles has seriously hampered the Palestinian economy, as have the recurring wars between Israel and radical groups in Gaza.
The service sector, ie various forms of services and trade, dominates.
Trade with the outside world goes by a large deficit. The cost of imports exceeds the income from exports several times. 80 percent of Palestinian exports go to Israel, a state located in Asia continent defined by ehistorylib. The rest goes to Arab countries – mainly Jordan, the United Arab Emirates and Egypt – but also to the Netherlands and Germany some goods are sold.
The Palestinians’ need to import basic commodities as food is great, as is the need for construction products, especially for reconstruction in the Gaza Strip, which has been blocked by Israel since the Hamas local takeover of the Islamic State in 2006-2007. “Tunnel economy” has become one of the consequences: smuggling everything from supplies to weapons through illegal tunnels to Egypt, dug under the border. Both the Israeli and Egyptian authorities have intervened to block and demolish the tunnels.
Israel’s blockade against Gaza is also hampering operations for businesses in the area, not least by reducing the purchasing power of consumers.
Agriculture has traditionally been an important industry. Important crops are tomatoes, olives and citrus fruits. Sheep meat and goat cheese come from the livestock breeding. Both cultivation land and bait as well as fishing water have been reduced by Israel taking possession of Arab-owned land, either for direct own use (such as Jewish settlements) or for military purposes, such as the construction of a security barrier on the West Bank and delimitation of the sea off the Gaza coast. In Beit Jala near Bethlehem, for example, the Jewish settlement of Gilo is largely built by forcing Palestinian-owned olive groves.
Palestinian agriculture is also limited by the fact that Israel mainly controls water resources (see Natural Resources, Energy and Environment). Only a small part of the crops are irrigated.
Fishing is carried out in the sea off the Gaza Strip, but is limited by the fact that Israel from time to time reduces the offshore zone on the Mediterranean Sea in which Palestinian boats are allowed to fish.
The industry is underdeveloped. Agricultural products, soaps, clothes and furniture are manufactured on a small scale, usually in family businesses. The city of Hebron (al-Khalil) is known for small industries of various kinds, including glass and textiles. The soap from Nablus is famous and has a very long tradition. The production is based on the fact that the district produces high quality olive oil.
Business cooperation between Israel and Palestine has occurred, in recent years, among other things in the IT field. A handful of Israeli IT companies cooperate with Palestinian companies. Israeli shortage of engineers could be of benefit to well-educated Palestinians, according to Ynet news site. In 2018, approximately 3,000 engineers graduated from Palestinian universities. One obstacle for them is that investors who are aware of risk avoid investing directly in the Palestinian territories.
The fact that Israel has much higher revenues from tourism is not least due to the seaside resorts of the Mediterranean and the Red Sea – but it is also about the fact that Palestinian attractions also generate income that stays in Israel. Most visitors fly in via Israel which thus gets landing fees, hotel nights, travel company revenue and shopping. Some of the main sights are in the old city of Jerusalem, which Israel has annexed. The standard is lower in the Palestinian tourism industry, which also indicates that the difference in revenue exists.
Difficulties for Palestinians to travel between the West Bank and the Gaza Strip, over Israeli soil, have sharpened the division of the undeveloped state of Palestine. Israeli border controls and military roadblocks hamper travel and transport between the Palestinian enclaves on the West Bank, as well as exports and imports of goods.
The enclave division was formalized through the Oslo process, which gradually gave the Palestinians local autonomy, especially around cities. Three-fifths of the West Bank has remained under full Israeli control; there, in what is called Area C, is a road network that was not created for the needs of the Palestinians, but to link Jewish settlements with Israel and with each other, and to facilitate the Israeli army’s movements. The roads are guarded with roadblocks and “flying inspections”. The road network for settlers is undergoing further development, largely on compulsory Palestinian land. The Israeli human rights organization B’Tselem publishes lists of roadblocks and roads that are forbidden to Palestinians.
As for Gaza, Israel controls the borders at sea and in the air, mostly on the ground as well. Goods deliveries and passenger transport into Gaza from Israel are channeled through single border crossings. Via the Rafah border crossing, people can travel to and from Egypt, but Egyptian authorities apply restrictions, including countless opening hours. Egyptian warehouses must pass the Kerem Shalom border station, operated by an Israeli authority.
Due to the blockade, Palestinians in Gaza only have access to the part of the Mediterranean that is closest to the beach. Israel also intervenes against vessels from other countries trying to reach Palestinian port.
Following the Oslo process, an airport was built in the Gaza Strip in the 1990s, which became the Palestinians’ only connection to the outside world that was not controlled by Israel or Egypt. But air travel was scarce and made more difficult by the fact that technical equipment remained in the Israeli port of Ashdod for a long time. It was one of many disputes between Israelis and Palestinians that led to the fruits of the peace treaties not being expected. Only daylight flights between Gaza and Jordan and Egypt could be performed. Radar and runway were destroyed by Israel a few years later. After Hamas’s takeover of the Gaza Strip in 2007 and the Islamic Movement’s recurring conflict with Israel, with Israeli bombings, the airport has been unusable.
The entire West Bank’s border with Jordan is controlled by Israelis. A Palestinian who wants to enter from Jordan to the West Bank across the Jordan River must pass an Israeli border check at the Allenby Bridge. For Israelis and tourists there are more permissible passages.
Need for action
Continued war risk and reduced aid from the outside world mean that the World Bank describes the situation of the Palestinian economy as worrying. In a report published in the fall of 2019, the World Bank predicted that gross domestic product in the Palestinian territories would increase by 1.3 percent during the year, but that the economy is likely to shrink during both 2020 and 2021. The difficult conditions prevailing in the Gaza Strip drag down results.
The World Bank has previously emphasized that measures are needed for the private sector to create jobs. The bank, which regularly evaluates the conditions, wants Israel
- improves border crossing procedures that make trade more expensive and more difficult for Palestinian companies than for Israeli ones
- lifted restrictions restricting Palestinians’ access to Area C (the majority of land on the West Bank where Israel has full control)
- lifts the blockade against Gaza
- clarifies the list of products that have both civil and military use and are therefore prohibited or require special permits.
The Palestinian Authority, for its part, has been given the advice, among other things, to reform the regulations for businesses and streamline tax collection.