September 2014

PALESTINIAN ECONOMY CONTINUES TO LOSE GROUND UNDER OCCUPATION

With the recent attacks on Gaza, the socioeconomic situation in Palestine is expected to deteriorate further.  

By Kanaga Raja

Third World Network Features

            Under the impact of yet another year of prolonged occupation, the Palestinian economy witnessed one more year of lost development in 2013, the United Nations Conference on Trade and Development (UNCTAD) has said.

            In its report on UNCTAD assistance to the Palestinian people, prepared for the upcoming sixty-first session of the Trade and Development Board, UNCTAD said that economic growth in the Occupied Palestinian Territory (OPT) declined from an average of about 11% in 2010 and 2011 to a mere 1.5% in 2013, the lowest rate of growth since 2006, well below that of population growth.

            According to UNCTAD, its report was completed before the outbreak of hostilities in Gaza in July and therefore does not take into account the economic impact of this most recent conflict.

            However, an UNCTAD press release accompanying the report said that the most recent Israeli military operation in Gaza has compounded the dire socioeconomic conditions and accelerated "de-development" in the OPT.

            According to the press release, in addition to the deaths and mass displacement of thousands of Palestinian civilians, the military operation inflicted massive damage on Gaza's physical infrastructure.

            Citing the latest UN estimates, it said that more than 40,000 housing units, 141 schools, 29 hospitals, dozens of factories and vast areas of cultivated agricultural land, as well as Gaza's only power plant, were destroyed or damaged, with the cost of reconstruction and rehabilitation running in the billions of dollars.

            According to the UNCTAD report, real GDP growth was particularly weak in the West Bank, where it fell from 5.6% in 2012 to just 0.4% in 2013. Growth in the West Bank contracted by 0.6% in early 2013, mainly as a result of the economic disruption caused by Israel's withholding of clearance revenue, but it picked up again with the resumption of clearance revenue transfer.

            In Gaza, despite the prolonged Israeli economic siege, growth was strong in the first half of 2013, mainly driven by the implementation of donor-funded projects. However, performance was reversed later in the year mostly due to the scarcity of inputs caused by the crackdown on the tunnel economy on the border with Egypt.

            Consequently, Gaza's growth fell from an average of 26% in 2010 and 2011, to 4.5% in 2013. Real GDP per capita in Gaza in 2013 was 20% below its level in 1994.

            Palestinian official data indicate that the overall rate of unemployment in the OPT remained high in 2013 at 27%, in Gaza at 36% and the West Bank at 22 per cent.

            "The unemployment crisis is particularly severe in Gaza due to the persistence of the Israeli blockade and the shutdown of the tunnel economy, which virtually brought the construction and transportation sectors to a halt."

            According to UNCTAD, prior to the blockade of Gaza, the local economy in the Gaza Strip was largely export-oriented.

            However, exports to Israel have been banned, and trade with the West Bank has been severely restricted since 2007. These measures have wiped out the exports of Gaza almost completely. In 2013, only 182 truckloads of agricultural produce were exported, a substantial drop from the over 15,000 trucks recorded in 2000.

            Despite sluggish GDP growth, declining per capita income and below-expectation aid, the Palestinian National Authority remained committed to fiscal reforms, pursuing fiscal sustainability, controlling the budget deficit and mitigating the structural dependence on aid.

            Moreover, said UNCTAD, the Palestinian National Authority was successful in enhancing revenue performance, while controlling expenditure, and thereby reduced the recurrent budget deficit on a commitment basis from 30% of GDP in 2009 to 14.5% in 2012 and 11.7% in 2013.

            Nonetheless, UNCTAD added, the fiscal situation is much worse than suggested by official statistics, which should be viewed in the context of prolonged occupation.

            Furthermore, the fiscal reform efforts of the Palestinian National Authority were outweighed by the recent decline in foreign aid. The $1.3 billion of aid disbursements in 2013 were $500 million below the 2008 level. The reduction in aid pushed the Palestinian National Authority to resort to arrears accumulation to finance the deficit, adding $490 million to its arrears in 2013, two thirds of which are owed to the pension fund.

            "Accumulation of arrears beyond a certain point is unsustainable and may be fiscally counterproductive if it limits the expansion of the tax base by undermining private investment," said UNCTAD, stressing that it is therefore imperative that donors increase their support to the Palestinian National Authority to avoid the onset of socioeconomic and governance crises.

            The UNCTAD report further found that with deteriorating economic conditions, rising unemployment and declining real wages in 2013, poverty and food insecurity have deepened in the OPT.

            The latest available statistics show that the percentage of Palestinian households classified as food insecure rose from 27% to 34% between 2011 and 2012. In the latter year, 26% were considered to be marginally food secure and 16%, vulnerable to food insecurity. This means that only one in four households in the OPT is classified as food secure, it said.

            "The precarious socioeconomic conditions could have been worse, had it not been for the Palestinian National Cash Transfer Programme covering 104,030 households, 54% of which are located in Gaza."

            The report said that the humanitarian conditions in Gaza deteriorated further. From a dire state in 2011, socio-economic conditions worsened in 2012, as 57% of households were classified as food insecure, four out of five people depended on humanitarian aid and one third of households reduced the number of daily meals.

            The Israeli constraints in general and restrictions on the mobility of Palestinian workers in particular, have had a disproportionately high impact on Palestinian women because they are more vulnerable not only to all the measures enforced at the checkpoints, but also to settler violence and prolonged commutes to work locations.

            "Therefore, Palestinian women suffer higher unemployment rates, and their participation in the labour force is very low, even by regional standards."

            One main focus of the report was on the impact of the continued occupation of Area C, which covers more than 61% of the West Bank and includes the most fertile agricultural areas and the bulk of Palestinian land reserves for development activities, but is under full Israeli control.

            UNCTAD underscored that the occupation of Area C renders more than 61% of Palestinian land in the West Bank and its natural resources out of reach for Palestinian development and breaks the geographical contiguity of the whole West Bank.

            "This simply preempts Palestinian development not only in Area C but in the entire Occupied Palestinian Territory by blocking any meaningful infrastructure or private sector development projects within and between Palestinian cities and villages, thereby further diminishing the economic viability of the two-State solution."

            Actions taken by Israel to alter the conditions on the ground in Area C are also worrisome. These include the displacement of the Palestinian population, demolition of residential structures, restrictions on movement, access and economic activities, discriminatory regional planning and zoning systems, construction of the separation barrier and settlements, and the growing number of Israeli settlers.

            "These measures are in contradiction with international law; as such Israel is in violation of its international obligation as the occupying power," said the report.

            Despite unequivocal objections by the international community, voiced, for example, in General Assembly resolution 68/82 of 16 December 2013, Israel stepped up the construction of settlements, and more than doubled the rate of expansion compared with 2012, thereby redefining the landscape in the West Bank, including East Jerusalem.

            Settlements and related infrastructure now cover 42% of the land in the West Bank, and the settler population has tripled since the Oslo Accords to about 500,000-650,000.

            The UNCTAD report further said that the establishment of new Israeli settlements and expansion of existing ones has become common in the entire West Bank, not only in Area C.

            Settlements have altered the West Bank's landscape to an archipelago of disconnected islands, and settler violence against the Palestinian people exacts a serious economic toll. Such violence includes the takeover of, and damage to, private property; obstruction of access to grazing or agricultural land and water resources; and attacks on livestock, agricultural land and holy places, as well as uprooting and vandalizing of trees and damage to other agricultural property.

            In 2013, 10,142 trees were reported burned, uprooted, or otherwise vandalized, including in areas adjacent to settlements, compared with 8,259 trees in 2012. These factors create relentless pressures on the Palestinian communities to leave their ancestral land and relocate.

            It is estimated that 300,000 Palestinians in Area C live in 532 residential communities. Citing OCHA (Office for the Coordination of Humanitarian Affairs) figures, UNCTAD said that 62% of the occupied West Bank area is not accessible to Palestinians. This means that the Government of Israel has designated 39% (more than twice that of area A) for settlements and their future expansion, 20% for closed Israeli military areas (including firing zones), and 13% for natural reserves.

            "Consequently, Israel bans all Palestinian construction in 70% of Area C, allowing a meagre 1% for Palestinian spatial development, while heavily restricting construction in the remaining 29 per cent."

            While Palestinians are forcefully displaced, the Israeli settler population in Area C rose from 800 in 1972 to more than 360,000 in 2012. The annual growth rate of settlers - 5 per cent – is three times that of the population growth of Israel. Settlers in Area C live in at least 125 settlements and 100 outposts, with areas for future expansion nine times larger than their present built-up areas.

            According to UNCTAD, two thirds of the farmland of the OPT, including the most fertile and best grazing land, is located in Area C, where Palestinian agriculture is under siege by an array of overlapping restrictions blocking Palestinian private and public sector access to their arable land.

            It cited the Land Research Centre as estimating that Palestinians cannot access half a million dunums (one dunum equals 1,000 square metres) – 14% of Area C - of arable land because it is either occupied or cultivated by settlers (187,000 dunums), or because of lack of water. Additionally, Palestinians are denied access to about one million dunums (27% of Area C) that could be used for grazing or forestry.

            As for the economic costs of the occupation of Area C, UNCTAD cited a recent World Bank report that estimated that Palestinian GDP could increase by 7% ($704 million in 2011) with free access to 326,400 dunums of arable land, hundreds of thousands of dunums of range-land and forests, and access to irrigation water in Area C.

            Allowing Palestinian investors access to the large, cheap and easily exploitable deposits of potash and bromine of the Dead Sea could increase Palestinian GDP by 9% ($918 million in 2011).

            Moreover, free access to 20,000 dunums of land that can be quarried could double the size of the Palestinian stone mining and quarrying industry, the OPT's largest export industry, and could add 2% ($241 million) to GDP. The latter could further increase by 3.5% ($413 million) if Israeli restrictions on the construction, tourism and telecommunication sectors in Area C were lifted.

            According to UNCTAD, the sum of the direct increase in output from the sectors evaluated in the (World Bank) report amounts to 23% of GDP ($2.2 billion in 2011). However, once the direct benefits are obtained and injected into the economy, additional indirect benefits would be generated as a result of the economic forward and backward linkages. This would have sizeable multiplier effects on the demand for output of other sectors.

            At the fiscal level, if the improvement in GDP were to take place, the 2011 tax revenues of the Palestinian National Authority would rise by some $800 million, which would cut the fiscal deficit by half and significantly lower its dependence on aid.

            Also, if the 35% increase in output were to materialize, employment would rise by 35 per cent.

            "There is an urgent need for action by the Palestinian National Authority, Israel and the international community to ensure that Palestinians have unhampered access to their productive assets in Area C, without which economic development and the two-State solution are inconceivable," said UNCTAD. – Third World Network Features.

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About the author: Kanaga Raja is the Editor of the South-North Development Monitor (SUNS) in Geneva.

The above article is reproduced from SUNS #7869. 5 September 2014.

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