Palestinian Economic Sectors
A major reason for this is the political situation, particularly after the Paris economic agreement signed in 1994 between Israel and the Palestinian National Authority (PNA). The agreement, also called the Paris Protocol, is ‘a contractual protocol’ and an economic supplement to the Oslo Accords that regulates economic relations between the Palestinian and Israeli sides. Because of the Paris Protocol, the Palestinian economy has become dependent on Israel, as the Palestinians can import or export goods only through Israeli intermediaries. The agreement has also prevented the Palestinians from becoming involved in international partnerships and harmed the so-called “customs envelope,” that is, the free movement of goods between the Palestinians and Israel, which is not mutual but flows one way only, from Israel to the Palestinian territories. The Paris Protocol also prevented Palestinians from forging a national currency and encouraged Israel to evade the payment of monthly tax benefits that it collects on behalf of the Palestinian government. The agreement was supposed to be amended five years after signature, in line with the new circumstances, but this has not happened so far, because the Israeli government has insisted on keeping the Palestinian economy dependent on Israel so as to be able to control it politically.
The tables above and below illustrate the most important indices of local and national products, the contributions of production sectors, and per capita and total consumption as reported by the PCBS at the end of 2014.
Agriculture covers about 1.854 million acres or 31% of the total area of the West Bank and the Gaza Strip, 91% of which is in the West Bank and 9% in the Gaza Strip. Some 62.9% of the agricultural land is located in Area C, which is under Israel’s administrative and security control. The agricultural sector’s role is not limited to economic and social aspects; it is also a key player in protecting the land from confiscation and settlement activities and guaranteeing the protection and the legal right to the use of water. The agricultural sector is also a major source of jobs, accounting for about 15.2% of the workforce, with a large percentage of workers, especially females, working in this sector unofficially.
The agricultural sector in Palestine faces many problems and obstacles, including those caused by the Israeli occupation and related to natural resources and administrative laws. Obstacles related to
Israeli practices include the construction of the Separation Wall and the resulting isolation and confiscation of land in order to build settlements, the conversion of large areas of Palestinian land into nature reserves and areas used as Israeli military training grounds, the construction of bypass roads, the destruction of Palestinian water wells in agricultural areas, and the reduction of the Palestinian share of water. Other practices include curbs on the freedom to export crops and import raw materials, and the prohibition of fishing further than six nautical miles off the Gaza Strip coast, out of the 20 nautical miles provided in the Paris Protocol.
Other challenges related to natural and environmental resources include limited water resources and agricultural land, improper use of chemicals, the lack of revenue from agriculture, and the high risk of crops being burnt by settlers, which has led many people to hesitate to work in that sector, given the absence of an agricultural insurance system that compensates farmers. A study prepared by the Palestine Economic Policy Research Institute (MAS) in Ramallah concluded that Palestinian farmers face legal, administrative, and technical issues, including agricultural land registration, high prices of agricultural land, urban expansion, and the distribution of land to heirs because such small plots of agricultural land are economically unworkable. This overview shows the magnitude of the suffering of Palestinian farmers in their effort to survive, especially considering that land is at the core of the Israeli-Palestinian conflict.
The extractive industry that involves the use of quarries for cutting marble and other stones mainly in the cities of Nablus, Ramallah, and Hebron. The mountains of Palestine contain limestone and layers of other, varicoloured stone, which are exported to several countries around the world. Statistics show that the marble and other stone industries contribute 12% to the total industrial output of Palestine. Also, minerals such as phosphates, asphalt, and mud are extracted from the western shores of the Dead Sea; glass sand is extracted in Hebron, Ramallah, and Nablus; and Sulphur is extracted in the Gaza Strip.
Handicrafts are the largest industrial sector and include trades such as textiles, footwear, ceramics, pottery, olive wood, seashells, coloured glass, soap, leather tanning, embroidery, and manufacturing bamboo products.
The food and agricultural industry is the largest and most important processing industrial sector related to processing. It includes the production of confectionery, dairy products, processed meats, beverages, pasta, cereals, canned food, oils, and animal feed. The food sector constitutes about 24% of the total industrial sector, amounting to about 400 million US dollars and employs about 16.8% of the total Palestinian workforce.
The PNA developed a strategy for manufacturing and industrial development in order to achieve a range of goals, including equitable growth and balance between the agricultural and industrial sectors, and between satisfying domestic demand and encouraging the export of goods. As a result infrastructure, including a transportation network, has been developed, and industrial zones have been established in most Palestinian cities, including Jericho, Jenin, Ramallah, Nablus, Bethlehem, Hebron, and Gaza, among others. In order to create a healthy investment environment in Palestine, a legal system has been established to attract Palestinian expatriates and foreign investors by providing tariff and tax exemptions for new investors for up to five years, under the Investment Promotion Law.
Like the agricultural sector, the industrial sector suffers from a wide variety of challenges, including the Israeli obstacles mentioned above. The competitiveness of Palestinian industries is modest, compared to regional and international markets, and heritage-focused handicraft industries prosper only where tourism is active in Palestinian areas; the lack of stability caused by the volatile political situation has affected the situation for more than a decade.
The construction sector constitutes one of the key Palestinian economic activities, in terms of contribution to GDP and employment and in term of its direct impact on many other economic activities. Most economic reports indicate a significant growth in the construction and real-estate investment sectors in Palestine. This clearly shows in the construction of new residential suburbs around several Palestinian cities. This is not surprising, as the construction sector in the field of infrastructure and housing has been growing since the establishment of the PNA, which has sought to create a solid infrastructure for a future Palestinian state and provide sufficient housing for its citizens. The Palestinian Investment Fund and some banks operating in the Palestinian territories provide financing to Palestinian citizens to enable them to own their own houses and repay their loans in monthly instalments.
Data published by the PCBS indicate that the housing sector remains one of the most important resources for development in Palestine, with the ratio of investment in housing to GDP since the establishment of the PNA amounting to about 21% in 1994, and 26% in 1999. This percentage did, however, drop significantly after the outbreak of the Second Intifada in 2000, to about 16.6% and continued to decline in subsequent years, to 13.8% at the end of 2007. The percentage did rise to 15.4% at the end of 2013.
The construction sector also contributes to Palestinian employment, increasing the number of workers from 34,600 in 1993 to 88,300 at the end of 1998. Since the establishment of the PNA, which began to build its institutions and rehabilitate Palestinian infrastructure, employment in the housing and construction sectors has increased by several times. However, employment dropped significantly during the years of the Second Intifada, although there was a noticeable improvement in employment in housing construction during the relative calm from 2003 to 2005. Data presented by the PCBS showed a rise in spending on the construction of new buildings in 2013 to about 913 million US dollars (711.5 million in the West Bank and 201.6 in the Gaza Strip). Moreover, the value of spending on maintenance and capital improvements to existing buildings rose slightly over the previous year, amounting to more than 650 million US dollars.
The significant rise in the construction sector in Palestine, especially in the Gaza Strip, is due to the destruction wrought by Israel during past wars. Media reports show that the Israeli attacks on the Gaza Strip between 2008 and 2014 resulted in the complete destruction of more than 10,000 residential and service buildings and that more than 34,000 other buildings were seriously damaged. Residential buildings and industrial and agricultural facilities were not the only targets of Israeli attacks. Infrastructure, including road networks, wastewater and water-supply systems, electricity distribution networks, power stations, and bridges were targeted during the three wars. The Gaza Airport was destroyed in 2002, and Israel did not allow it to be rebuilt.
The conference on the reconstruction of the Gaza Strip held in Cairo on 12 October 2014 pledged to provide financial assistance to the Strip amounting to 5.4 billion US dollars. Construction is largely dependent on the supply of construction materials, particularly cement and steel, deliveries of which into the Gaza Strip have been delayed by Israel. The delay in the reconstruction of the Gaza Strip has many causes, including the Israeli siege and the mechanism established by UN Envoy Robert Serry to monitor the influx of construction materials, a mechanism that will fail: statistics show that the UN proposal would require more than ten years for the reconstruction of the Gaza Strip.
Unemployment and Poverty
In the Gaza Strip, unemployment before the Israeli attacks on Gaza in July 2014 increased at an unprecedented rate. According to the PCBS data for the second quarter of 2014, the unemployment rate in the Strip reached 45% and the number of unemployed workers exceeded 200,000; these workers are responsible for more than 700,000 family members, or more than one-third of the population of the Gaza Strip. As a result, the poverty rate in the Strip rose to more than 50% by the end of 2014. Because of the continued siege and the faulty reconstruction plan, economic conditions continued to deteriorate, and the unemployment rate rose again to 55%, with the total number of unemployed rising to 230,000 and 65% of the population living in the most extreme poverty conditions. Consequently, the number of recipients of UNRWA food assistance rose to nearly a million, or 60% of the total population of the Gaza Strip.
One important reason for the rising unemployment and poverty rates in the Gaza Strip is the crisis in the salaries of government employees. After the formation of the national unity government and the resignation of the “de facto government” in Gaza, the Palestinian government, led by Rami Hamdallah, did not recognise government employees hired in recent years in Gaza and refused to pay their salaries. Therefore, more than 40,000 employees in Gaza have been receiving only 50% of their salaries since June 2014. This has caused recession and weakened purchasing power in the Gaza Strip, as unemployment and poverty rates increased enormously, causing further deterioration that may bring about the collapse of the entire economic system in the Strip.
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