Transcript Establishing Israeli-Palestinian economic links and

Establishing Israeli-Palestinian
Economic Links and Creating
Conditions for Private Sector
Development
Dr. Roby Nathanson
United Nations Seminar on Assistance to the Palestinian People
Amman
January 2008
The Paris Protocol
• The Paris Protocol was adopted by the Israeli
Government and the PLO as Protocol IV of the Oslo
agreement.
• The Protocol’s purpose was to regulate and govern
Palestinian-Israeli economic relationships during the
interim period, until a final status agreement was
reached.
• The Protocol became inoperable due to local policies
implemented by Israel since 2000 in response to the
growing terrorist threat.
Policies Affecting the Paris Protocol’s
Implementation
• Division of the West Bank into “cantons” with limited
movement between them.
• Increasing barriers between Israeli and West Bank
markets.
• Restrictions from the Jordan Valley limited economic
benefit from the agriculture there.
• Closed border crossings in Gaza (to Israel and to Egypt)
choked economic activity.
• Isolation of East Jerusalem from the West Bank limited
trade and commerce.
The PA’s Economic Situation
• After the Oslo accords, the Palestinian economy entered
a steady growth path. Palestinian GDP grew at an
average rate of 8% annually between 1995-2000,
reaching US$4,512 million by 1999.
• Palestinian employment also improved. Unemployment
declined to 11.8% in 1999, compared with 23.8% in
1996. The median net wage peaked at US$17.3 daily in
1999, compared with US$11.5 in 1996.
• With the eruption of the Second Intifada (2000) and the
subsequent border closings, the Palestinian economic
situation deteriorated. Election of the Hamas government
in 2006 worsened the situation as direct aid was cut off.
Palestinian Economic Situation
Million Dollar, US...
Estimated GDP: Real and with 8% Growth
9,000.00
8,000.00
7,000.00
6,000.00
5,000.00
4,000.00
3,000.00
2,000.00
1,000.00
0.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Real GDP
Source: PCBS.
GDP at 8% Growth
The PA’s Economic Situation
%
Labour Force Participation and Unemployment Rates
45
40
35
30
25
20
15
10
5
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Labour Force Participation Rate
Source: PCBS.
Unemployment Rate
Israeli-Palestinian Trade
• Before the outbreak of the Second Intifada,
approximately 95% of all Palestinian exports were
exported to Israel. Since then, exports to Israel have
declined drastically.
• Since the 1980s, Israeli imports from Gaza and the West
Bank have declined sharply and continuously, from
2.5%-3.5% of all imports in the first half of the 1980s to
1%-1.5% in the 1990s and 1% in 2000-2005.
• The leading export sectors from Palestine to Israel are:
* Agriculture
* Building materials
* Textile (mainly sub-contracting for Israeli firms).
Two Strategic Decisions
1.
The conflict’s future:
I.
II.
Continuation of the conflict.
Work toward a final status agreement based on a two-state
solution.
2.
The forms of economic separation to be adopted
between Israel and the Palestinian Authority:
I.
Friendly Separation – Two economies linked through a quasicustoms union with agreements that facilitate bilateral trade.
Hostile Separation – Almost complete severance of economic
ties and business relations.
II.
Friendly Separation
•
•
•
•
Palestinians will be enable to achieve a dramatic
change in their basic economic and humanitarian
situation.
The GDP per capita could grow from about US$1,000
currently to US$2,000 within a few years.
Hundreds of thousands of new jobs would be created.
Development of a stable and sustainable exportoriented economy built on four foundations:
* Exports to Israel
* Exports to Arab markets
* Exports to Western markets
* Tourism
Economic Benefits to the PA
Exports to new markets:
•
•
•
With open borders, the PA, as a member of AFTA, can
easily export to other members of the Arab world.
Palestinian exports are expected to increase by some
US$7 billion by 2015.
Historical examples:
The Jordanian-Israeli case - Bilateral trade reached
US$175 million in 2006 after signing the 1993 peace
agreement.
The Israeli-Turkish case - Bilateral trade has grown
from US$0.1 billion to US$2.1 billion in the 15 years
since the political basis for normalized economic
relations was established.
Economic Benefits to the PA
Palestinian and Israeli textile industries:
•
•
•
Prior to the Second Intifada, the value of Palestinian
exports of sewing services and finished textile products
was estimated at US$105-$140 million.
With political stability, the value of sewing services to
Israeli producers can potentially reach US$300-$500
million annually.
20,000-40,000 new Palestinian jobs can potentially be
generated.
Economic Benefits to the PA
Christian “Holy Land” Tourism:
•
•
•
•
Christian tourism constitutes a major share of Israeli
tourism, about 28% (500,000 tourists) of total tourism
in 2006.
Under stable political conditions and Israeli-Palestinian
cooperation in marketing and product development, the
number of Christian tourists can potentially increase to
more than 2 million by 2015 and 4.6 million by 2025.
The average Christian tourist is expected to contribute a
minimum of US$300-$500 to the Palestinian economy.
The tourist trade’s contribution to the Palestinian
economy could rise to about US$0.6-$1 billion a year
by 2015.
Indicative estimates of the economic potential
of Israeli-Palestinian cooperation:
Sector/Activity
Exports
(US$ billion)
Employment
(1000s of jobs)
Agriculture – specific activities
0.6
70
Textile and garments
1.5
80
Construction sector- Stone & other
building materials
0.6
30
Food industry
2.0
40
Other industry & general trade activities
3.0
70
Transportation and logistical services
0.5
10
Information technology
0.2
5
Infrastructure
0.2
10
Tourism
2.0
150
Total
10.6
465
Total contribution to GDP (Value added)
8
Hostile Separation
•
•
•
•
•
An extremely high price will be paid by the
Palestinians.
The Palestinian economy would have to go through a
painful adjustment period.
The economy will lose its sole major export market,
absorbing a 90% share of all exports.
Unemployment rates will climb; the economy will
plunge into even deeper recession.
Further de-stabilization of the Palestinian social and
political systems that could subsequently re-ignite the
violent conflict with Israel.
Practical Proposals
•
•
•
•
The Annapolis Declaration created a new political
momentum that should also benefit PA’s socioeconomic situation.
A Palestinian Israeli Economic Cooperation
Administration (PIECA) should be created to establish
the economic momentum.
PIECA will establish an investment fund financed by
donors to the Paris conference (Dec. 2007).
The fund will invest in joint ventures generated by
Palestinian and Israeli firms. Other partners (e.g., from
Jordan and Egypt) will be welcomed.
Cont’d
Practical Proposals
•
•
•
The fund will provide micro credits and subsidies for
small businesses and the self-employed.
Priority will be given to small- and medium-size firms
active in tourism, textiles, construction and services
(e.g., communication technology) as well as
agriculture.
PIECA will monitor the use and allocation of funds.