With a gross domestic product of $2,900 per capita, the occupied Palestinian territories present an economic scenario that stands in stark contrast to Israel with a GDP of $28,400.

At the crossroads of Europe, Asia and Africa, with a clement climate and fertile soil, and highly-educated and entrepreneurial population, the occupied Palestinian territory (OPT) has enormous economic potential. Yet neglect of infrastructure, severe restrictions on the movement of people and goods, frequent destructive military operations, and a situation of dependency have been actively encouraged by Israeli occupation.

This phenomenon described as “de-development”, has left the structure of the Palestinian economy stagnant. According to World Bank reports the economic outlook of the OPT remains the same as it was prior to 1967 takeover of Israel.

ECONOMIC CLOSURE

In reference to the economic closure imposed by Israel, the European Commission explains that "recovery of the Palestinian economy will largely depend on whether it can escape its political and financial isolation."  Closure policies have impeded flow of commercial goods within and outside the occupied Palestinian territories – leading to near economic collapse.

Additionally, the Commission also reports,


The Wall has resulted in encircling Palestinian cities and towns in occupied West Bank, thereby isolating them from each other and restricting access to Jerusalem.

The Palestinian Central Bureau of Statistics numbers indicate that living standards of Palestinians have deteriorated substantially. In June 2006, 2.7 million people (roughly two-thirds of the population – 76% in Gaza and 59% in the West Bank) were below the income poverty line, up 50% from the end-2005 level. Over a fifth of the population (22%) are unemployed.

PRIMARY ECONOMIC SECTORS

An expanding service industry comprises 65 percent of the gross domestic product and employment in the OPT. Finances, insurance, engineering, accounting, communications and information have experienced remarkable progress since 1994. According to PCBS estimates, 57% of all establishments in the OPT operate in the field of internal trade. Information and communication technology is another important sector with an average growth of 25 to 30 percent since 2000.

Higher income potential has driven the Palestinian economy towards services, retail trade and construction. While consumption remains relatively robust, both public and private investment have fallen to dangerously low levels. This has resulted in what the World Bank calls the “hollowing out” of the Palestinian economy, - increasingly driven by remittances from abroad and international aid (disbursed, in large part, through public-sector salaries).

Tourism constitutes an important source of income for the different governorates in the occupied territories embedded with ties to Christianity, Islam and Judaism. Despite restricted movement and security concerns, especially during the second Intifada, tourism numbers in 2008 denoted renewed enthusiasm among pilgrim visitors.

In the first quarter of 2008, approximately 86,700 guests visited the occupied territories, a number that matches industry conditions before the outbreak of the al-Aqsa Intifada. Tourism as an industry is expected to grow substantially is the event of a successful peace process.

AGRICULTURE

With  main harvests of fruit, vegetables and olives, revenue from agricultural production and imports constitutes 8 percent of the GDP. According to PCBS statistics the value added to the economy by agricultural production increased by 35.6 percent in 2006, bringing the number to $557 million in 2006 compared to $408 million in 2005. The total value contributed by the agriculture for 2006 is estimated at over $1 billion. This number includes livestock production valued at $464 million.

Although agriculture’s contribution to GDP has fallen slightly, industry’s share remains just under 13 percent, according to the PCBS. By comparison, Jordanzzz*zs share of agriculture has fallen to less than three percent and industry now contributes over 30 percent of GDP.

TRADE WITH ISRAEL

The Paris protocol of 1994 is the primary document that established the norms of trade between Israeli and Palestinian territories and Israel’s leverage over Palestinian economic ties with other states. While the protocol  maintained Israeli imposed customs that had been established in 1967, it also provided for free flow of products from and into the occupied territories and free and equal access to Israeli ports of entry and exit.

However, in practice Israel  has curtailed burgeoning trade in the occupied territories by restricting movement of goods and strictly controlling its borders.

FOREIGN INVESTMENT

Foreign Direct Investment in 2007 stood at only one percent of GDP (compared to around 12 percent for Jordan and Lebanon), according to the International Research and Development Center. Less than a quarter of Palestinian private-sector firms made any investments at all in 2005 and 2006, according to the World Bank investment climate assessment.

ECONOMIC FORECASTS FOR 2010

Palestinian Central Bureau of Statistics (PCBS) in its Economic Forecasts for 2010 states that economic conditions in the Palestinian Territories improved in 2009. In general, the economic indicators improved in the West Bank, while Gaza Strip witnessed a significant decline in all economic indicators as a result of the political and economic siege imposed by Israel since 2007.

Findings indicate that GDP in the Palestinian Territory increased by 6.8% in 2009 compared with 2008. There was a significant increase in the value added of construction by 21.8% in 2009 compared with 2008. Services activity which formed 23.9% of GDP, increased during 2009 by 11.8% compared with 2008, and the percentage of workers in the services activity increased by 3.1% during 2009 compared with 2008. On the other hand, agricultural activity declined during 2009 by 3.1% compared with 2008, which was reflected in the reduction of the percentage of workers employed in agricultural activity by 11.9% during 2009 compared with 2008.

According to the PA’s Ministry of Finance, the government revenues increased during 2009, by 0.2% compared with 2008. The revenues earnings during 2009 were USD 1.7 billion. This coincided with the increased level of income for public expenditures, since public expenditure increased by 9.7% compared with 2008. The numbers concerning unemployment rate decreased in 2009 by 5.8% compared with 2008.

PCBS formulated three scenarios of economic development in the Palestinian Territory in 2010. They are based on a set of internal political and economic assumptions, considering the continuation of the economic situation in the occupied West Bank and Israeli blockade of Gaza Strip.

The Baseline scenario is based on the premise of the same level of economic growth in the West Bank as in 2009, continuing political and economic embargo of Gaza Strip, continuous financial support of donor countries for the PA budget, implementation of the Reform and Development Plan 2008-2010, continuous flow of custom revenues through Israel at the 2009 level, in addition to increasing of value added taxes, and assuming the continuation of Israeli restrictions of movement on persons and goods within the occupied Palestinian territory or oPt and neighboring countries, with no significant change in the number of Palestinians working in Israel.

The Optimistic scenario included the flow of financial assistance for the reconstruction of Gaza Strip, the full transfer of custom revenues by Israel based on the 2010 budget, increase in the number of Palestinian workers in Israel, continuation of the same level of donors’ support of the PA budget for 2010, and the implementation of investment and development projects in the occupied Palestinian territories.

The Pessimistic scenario assumes the continuation of blockade imposed on Gaza Strip, the inability to rebuild the Gaza, deterioration of the political and economic conditions in the city of Jerusalem, including the imposition of restrictions and closures, a decrease of transfers from donor countries, a decrease in the governmentzzz*zs ability to collect the funds of local taxes and fees, a decrease of the numbers of Palestinian workers inside Israel.

The following table details estimated data for 2009 and three mentioned scenarios for 2010:

Table: Scenario Results for Main Economic Indicators at constant price in the Palestinian Territory – 2010

Indicator			2010
	2009*	Baseline scenario	Optimistic scenario	Pessimistic scenario
Total Government Revenues (US$ M)	1,688.0	1,738.6	2,027.0	1,439.0
Total Government Expenditure  (US$ M)	2,673.0	2,814.6	2,828.0	2,275.0
Government Consumption (US$ M)	1,828.9	1,967.7	1,980.8	1,797.0
Population (in thousands)	3,702	3,807	3,807	3,807
Percentage of changes (CPI) (%)	2.8	3.0	3.0	3.0
GDP (US$ M)	5,147.2	5,363.6	5,602.1	4,837.9
GNI (US$ M)	5,584.9	5,803.4	6,072.7	5,266.0
GNDI (US$ M)	8,607.0	9,043.1	9,798.3	7,682.7
Private Consumption (US$ M)	4,416.8	4,484.8	4,787.1	4,022.6
Total Investment (US$ M)	1,393.5	1,453.7	1,483.8	1,354.6
Exports (US$ M)	829.9	858.2	904.6	774.1
Imports (US$ M)	3,369.7	3,448.8	3,602.2	3,110.7
GDP per Capita ($US)	1,390.3	1,408.8	1,471.5	1,270.8
GNI per Capita ($US)	1,508.5	1,524.4	1,595.1	1,383.2
GNDI per Capita ($US)	2,324.8	2,375.3	2,573.7	2,018.0
GDP Growth Rate (%)	6.8	4.2	8.8	- 6.0

* Estimated Data
- Base year: 2004
- Palestinian Territory, excluding occupied East Jerusalem
(Source: PCBS, Palestinian Central Bureau of Statistics)