For One Day Only: $1=$4, Thanks to Matching from BIG Donors
Over the last year Palestinian authorities have spent a great deal of time calling for a unilateral declaration of a Palestinian state while refusing to resume peace negotiations with Israel. Although they garnered political support for this in the UN General Assembly in September 2011, a new report from the World Bank, from April 2012, and made public in July 2012, indicates that the efforts of the Palestinians and their supporters would have been more usefully employed in thinking about the economic viability of such a future state.
The conclusion of this sobering report, which contradicts the more optimistic picture of the Palestinian economy presented by the IMF in 2011, is that although the Palestinian Authority [PA], the official representative group established in 1994, has made steady progress in many areas towards establishing the institutions required by a future state, the economy is currently not strong enough to support such a country. The report is a bitter commentary on the the Palestinian economy — especially compared to the economies of Israel and even Jordan — currently in a self-inflicted decline induced by the violence it brought on itself by launching the Second Intifada in September 2000.
The crucial problem according to the report is that the Palestinian economy has become increasingly dependent on foreign aid to drive its growth, a means of generating income that is insufficient for economic sustainability. Foreign aid has given the Palestinians billions of dollars — by 2008 about 56% of GDP. This led to a GDP growth of 7.7% between 2007 and 2011; in some years its growth even reached 9% a year.
But that growth is artificial and is not sustainable for three reasons. Foreign donations have funded government expenditures and been largely in the area of government services, real estate, and other non-tradable sectors. The productive sectors have declined in importance: there has been a decrease in manufacturing, down from 13% to 10%, and in agriculture from 9% to 6%.
The inflow of foreign aid in 2007 led to some improvement in GDP in the West Bank. Gaza experienced growth because of the foreign aid and the expansion of trade through tunnels from Egypt. However, the Palestinians now face a crisis because important donor countries have so far not sent aid or have sent less aid in 2012. The PA now has a deficit of $1.5 billion in its budget of about $4 billion, and a cash shortfall of $500 million. It has been promised $100 million from Saudi Arabia which is insufficient to end the crisis.
Those who admired the second Intifada, heralded by Yasser Arafat but which generated violence for over two years and halted progress to peace negotiations, will now realize that it was a disaster, a severe blow to the Palestinian economy. The violence only resulted in the West Bank and Gaza suffering a severe economic contraction. Between 1999 and 2002, real GDP fell by 27%. In 2007 real per capita GDP was 23% below the 1999 level. Industry, agriculture, tourism, and some other services declined. Public administration, defense, and public services such as health and education grew from 20% of GDP to more than 27%.
The report argues that the PA must increase private sector growth, must improve its trade infrastructure to lower costs and increase efficiency, must improve the investment climate and must improve the quality of the workforce. Sustained economic growth entails a strong dynamic private sector that can generate jobs both to employ a rapidly growing population and to provide resources for government to provide services.
This necessary dynamism is lacking. The Palestinian private sector is overwhelmingly dominated by small family-owned businesses. The high cost of doing business lowers competitiveness. The Palestinian businesses mostly focus on the local market. In addition, relatively high wages, compared to other countries such as Turkey and India, high transportation costs, and low level of innovation also reduce competitiveness.
Yet, even with significant growth, it is unlikely that the PA can support an administration of its current size. It must reduce costs, raise revenues, and move to fiscal sustainability. Politically, the report recognizes that investment would be increased if a peace agreement were reached between the Palestinians and Israel.
The Palestinian economy over the last decade has been characterized by high levels of unemployment and underemployment, some of the highest rates in the world. These have varied between 20% and 30%. Those rates are accompanied by low levels of labor force participation, about 41%. Even more troubling has been the decline in youth employment and economic participation, and the extremely low level of female labor participation. In 2010 youth unemployment in general was about 34%, and 53% in Gaza. During the last decade, the rate for women participating in the labor force was below 16%. The result of this high unemployment and the decline in private sector wages relative to government wages, has led to high levels of poverty: in 2009 it was 22% in the West Bank and 33% in Gaza.
About the Author: Michael Curtis is Distinguished Professor Emeritus of Political Science at Rutgers University, and author of the forthcoming book, Should Israel Exist? A sovereign nation under assault by the international community.
If you don't see your comment after publishing it, refresh the page.
Comments are closed.
When words lose meaning, the world becomes an Orwellian dystopia; a veritable Tower of Babel
Israel, like the non-radical Islamic world. will be happy see the ISIS beheaded for once.
Kids shouldn’t have “uninstructed” Internet access, better to train them how to use it responsibly
Rambam writes the verse’s double term refers to 2 messiahs: first King David; 2nd the final Mashiach
The Gaza flotilla has been rightfully and legally blocked by Israel’s Navy, with greetings from Bibi
The president described the attack as “an act that drew on a long history of bombs and arson and shots fired at churches, not random, but as a means of control, a way to terrorize and oppress…”
“The only [candidate] that’s going to give real support to Israel is me,” said the 69-year-old Trump.
And whereas at the outset the plan was that Iran would have to surrender most of its centrifuges, it will now be able to retain several thousand.
Now oil independent, US no longer needs its former strategic alliances with Gulf States-or Israel
In addition to the palace’s tremendous size it was home to the “hanging gardens,” which were counted among the seven wonders of the ancient world.
Rather than asserting Jewish rights on Temple Mount or protecting Jewish lives Israel chooses soccer
Nothing in the NEW Paris Proposal differs much from what was offered by Olmert and rejected by Abbas
Boko Haram enforces a patriarchal oriented society in which women are treated as “sexual slaves.”
With the Syrian government refusing to allow UN inspectors into the country it is difficult to see how indisputable proof of use of chemical weapons can be found
Sweden is now a country where orthodox Jews are afraid to wear a skullcap.
Since June 2005, the EU has given more than $48 million to over 90 NGOs based in Israel, who are regarded as critical of Israel.
The EU has yet to appreciate the reality that the conflict continues because of the refusal of the Palestinians to accept the right of the State of Israel to exist.
Today, fewer than 4,500 Jews remain in Arab countries. Israel absorbed and integrated 600,000 of the more than 850,000 who left.
The Palestinians have asked the World Heritage Committee (WHC) of UNESCO to recognize Battir, a village about 5 miles west of Bethlehem, as a World Heritage Site and add it to the 936 sites already maintained by UNESCO. The city’s original name was Betar, the last fortress of Bar Kochba and the name of Jabotinsky’s Zionist youth movement.
Printed from: http://www.jewishpress.com/indepth/analysis/is-a-palestinian-state-today-economically-viable/2012/08/08/
Scan this QR code to visit this page online: