What’s the story with Palestine?

Palestine is an interesting economic case, particularly given the ongoing conflict with Israel, its disputed sovereignty and the Gaza-strip barrier at the Egypt/Israel border. Since the Prime Minister of the Palestinian Authority (PA) Salam Fayyad developed the 2007 Economic Strategy, there have been substantial achievements in institutional building, and short-term growth between 2007 and 2010 in the Palestinian Territories (i.e. the Gaza Strip and the West Bank). However, today there are still a number of major issues with the economy relating to dwindling growth levels, unemployment, barriers to trade, reliance on unreliable aid and sectorial inequalities.

Despite initial increases in economic growth, the 2007 strategy could not overcome political obstacles to achieve sustained levels of growth. The overall GDP of the Palestinian territories was down to 6.1% in 2012 from 11% averages in 2010 and 2011. These obstacles include restrictions imposed on the movement of people and goods, reduced access to land, lack of domestic production and import bans. At present, Egypt has “indefinitely” closed the Rafah Crossing to goods and persons movement into or from Palestine. Israel only allows foreigners and the few Palestinians with residency permits from other countries to enter and exit through the Erez Crossing, and often closes the Karni Crossing, which used for cargo traffic, in response to attacks by Palestinian militants. Furthermore, sector inequalities challenge the ability to achieve long-term economic growth, highlighting the need for increased levels of agriculture, pharmaceuticals and tourism.

The unemployment rates and low participation rates among the Palestinian territories are “alarmingly high.” Unemployment in the Gaza Strip remains amongst the highest in the world, and was approximately 32.2% at the end of 2012 (increasing from 30% the previous year), with labor force participation also increasing to 40% in 2012. Although the West Bank paints a brighter picture, the unemployment levels are still among the highest in the world, with an 18.3% unemployment rate and 46.1% labor force participation rate. There is certainly a need for an increase in the availability of work permits for Palestinians. This unemployment problem can be partially traced back to the violence coinciding the Oslo Process in 1993, followed by the Second Intifada in 2000, which ultimately led to the restriction in movement of persons and goods. This restriction meant Israeli employers slowly replaced Palestinian workers with foreign workers, and over this time, the number of work permits for foreigners increased from 4000 in 1992 to 107 000 in 1996 alone.

The Palestinian economy has seen a decline in agriculture and manufacturing sectors, restricting its capacity to export. Exports account for approximately 7% of GDP in 2011, which is down from 10% in 1996, making Palestine’s export component of GDP among the lowest in the world. In 2011, 86% of Palestinian exports went to Israel, while Jordan, Saudi Arabia, UAE, and USA collectively accounted for 9% of exports. Similarly, approximately 73% of total Palestinian imports were from Israel in 2011, and nine countries accounted for 23% of imports. This atypical dependence and “unusual concentration” of imports and exports has remained a problem for Palestine over the years.  Domestic production in Palestine needs to be encouraged, in order to increase exports and thus improve economic welfare.

The heavy reliance on donor aid has also constrained Palestine’s economic growth. The World Bank concludes that the aid provided by the international community has been integral in “mitigating the impact of those restrictions on the quality of life and stability in the Palestinian Territories”. By 2008, current transfers had increased by approximately US$3.4 billion, a 50% increase from 2006.  It is necessary to promote a healthy environment for investment, and to do this, there would need to be an easing of movement restrictions and increased access to finance.

There is a need for an economic plan for Palestine. This is not only because it would bring greater local prosperity, but also perhaps because it could aid the peace process with Israel and foster greater stability in the Middle East region. The Israeli-Palestinian peace process, most notably including the Madrid Conference in 1991, Oslo Process from 1993 and Camp David in 2000, has thus far offered little plans for the Palestinian economy. The 1994 Paris Protocol, as part of the Oslo Process, was arguably the greatest step-forward, as the agreement recognized the need for an economic plan for Palestine in peace negotiations, but its implementation was impeded by economic oversight and violence.

Hopefully the $US4 billion economic plan proposed by John Kerry in May this year will help boost the Palestinian economy. With the specific details of the plan yet to be released, time will tell whether it could really make a difference.



The World Bank. “Fiscal Challenges and Long-Term Economics Costs”. March 19, 2013. Available at:


Ahren, R. “Kerry proposes $4 billion economic plan to boost Palestinians”. May 26, 2013. Available at:


Danin, R & Kanaan, O. & Raad, F. & Muasher, M. “Palestine economic challenges and political implications”. March 27, 2012. Available at: http://carnegieendowment.org/2012/03/27/palestine-economic-challenges-and-political-implications/a35m

Konrad-Adenaeur-Stiftung. “The Paris Protocol – Historical Classification”. Visited on 05.09.2013. Available at: http://www.kas.de/palaestinensische-gebiete/en/pages/11895/