World Bank Report on Area C and the Future of the Palestinian Economy

World Bank Report No. AUS2922
October 2, 2013

EXECUTIVE SUMMARY

i. Restrictions on economic activity in Area C of the West Bank have been particularly detrimental to the Palestinian economy. Area C constitutes about 61 percent of the West Bank territory. It is defined by the 1995 Israeli-Palestinian Interim Agreement on the West Bank and the Gaza Strip as “areas of the West Bank outside Areas A and B, which, except for the issues that will be negotiated in the permanent status negotiations, will be gradually transferred to Palestinian jurisdiction in accordance with this Agreement”.1 According to the Interim Agreement, the gradual transfer should have been completed by 1997.2 However, it has not been implemented as envisaged in the Interim Agreement3 and in the meantime, access to this area for most kinds of economic activity has been severely limited. Yet, the potential contribution of Area C to the Palestinian economy is large. Area C is richly endowed with natural resources and it is contiguous, whereas Areas A and B are smaller territorial islands. The manner in which Area C is currently administered virtually precludes Palestinian businesses from investing there.

ii. Mobilizing the Area C potential would help a faltering Palestinian economy. The Palestinian economy has experienced strong growth in recent years, fuelled by large inflows of donor budget support, some easing of the Israeli movement restrictions that intensified during the second intifada, and a PA reform program. By 2012, however, foreign budget support had declined by more than half, and GDP growth has fallen from 9 percent in 2008-11 to 5.9 percent by 2012 and to 1.9 percent in the first half of 2013 (with negative growth of – 0.1 percent in the West Bank).

iii. This slowdown has exposed the distorted nature of the economy and its artificial reliance on donor-financed consumption. For a small open economy, prosperity requires a strong tradable sector with the ability to compete in the global marketplace. The faltering nature of the peace process and the persistence of administrative restrictions as well as others on trade, movement and access have had a dampening effect on private investment and private sector activity. Private investment has averaged a mere 15 percent of GDP over the past seven years, compared with rates of over 25 percent in vigorous middle income countries. The manufacturing sector, usually a key driver of export-led growth, has stagnated since 1994, its share in GDP falling from 19 percent to 10 percent by 2011. Nor has manufacturing been replaced by high value-added service exports like Information Technology (IT) or tourism, as might have been expected. Much of the meager investment has been channeled into internal trade and real estate development, neither of which generates significant employment. Consequently, unemployment rates have remained very high in the Palestinian territories and are currently about 22 percent – with almost a quarter of the workforce employed by the Palestinian Authority, an unhealthy proportion that reflects the lack of dynamism in the private sector. While the unsettled political environment and internal Palestinian political divisions have contributed to investor aversion to the Palestinian territories, Israeli restrictions on trade, movement and access have been seen as the dominant deterrent.

iv. Area C is key to future Palestinian economic development. The decisive negative economic impact of Israeli restrictions has been analyzed in many reports produced by the World Bank and other development agencies over the past decade, and Israel’s rationale for them – that they are necessary to protect Israeli citizens – is also well-known. Within this setting, Area C is particularly important because it is either off limits for Palestinian economic activity, or only accessible with considerable difficulty and often at prohibitive cost. Since Area C is where the majority of the West Bank’s natural resources lie, the impact of these restrictions on the Palestinian economy has been considerable. Thus, the key to Palestinian prosperity continues to lie in the removal of these restrictions with due regard for Israel’s security. As this report shows, rolling back the restrictions would bring substantial benefits to the Palestinian economy and could usher in a new period of increasing Palestinian GDP and substantially improved prospects for sustained growth.

v. This report examines the economic benefits of lifting the restrictions on movement and access as well as other administrative obstacles to Palestinian investment and economic activity in Area C. It focuses on the economic potential of Area C and does not prejudge the status of any territory which may be subject to negotiations between Palestinians and Israelis. We examine potential direct, sector-specific benefits, but also indirect benefits related to improvements in physical and institutional infrastructure, as well as spillover effects to other sectors of the Palestinian economy. The sectors we examine are agriculture, Dead Sea minerals exploitation, stone mining and quarrying, construction, tourism, telecommunications and cosmetics. To do so, we have assumed that the various physical, legal, regulatory and bureaucratic constraints that currently prevent investors from obtaining construction permits, and accessing land and water resources are lifted, as envisaged under the Interim Agreement. We then estimate potential production and value added, using deliberately conservative assumptions – and avoid quantification where data are inadequate (as with cosmetics, for example, or for tourism other than that of Dead Sea resorts). It is understood that realizing the full potential of such investments requires other changes as well – first, the rolling back of the movement and access restrictions in force outside Area C, which prevent the easy export of Palestinian products and inhibit tourists and investors from accessing Area C; and second, further reforms by the Palestinian Authority to better enable potential investors to register businesses, enforce contracts, and acquire finance.


1 The 1995 Israeli-Palestinian Interim Agreement on the West Bank and Gaza Strip, Article XI, Para 3(c). 2 See Interim Agreement Article XI, para 2(d) according to which the redeployment of the Israeli military forces from the West Bank and Gaza, except for issues that will be negotiated in the permanent status negotiations, should have been completed within 18 months from the date of the inauguration of the Palestinian Legislative Council which took place on 7 March, 1996. 3 The Wye River Memorandum signed between the Palestinian Liberation Organization and the Government of Israel on October 23, 1998 included further arrangements regarding Israeli redeployment from Area C. However, the implementation of the Memorandum was very limited and only 2 percent of Area C was transferred to the status of Area B.
2 See Interim Agreement Article XI, para 2(d) according to which the redeployment of the Israeli military forces from the West Bank and Gaza, except for issues that will be negotiated in the permanent status negotiations, should have been completed within 18 months from the date of the inauguration of the Palestinian Legislative Council which took place on 7 March, 1996.
3 The Wye River Memorandum signed between the Palestinian Liberation Organization and the Government of Israel on October 23, 1998 included further arrangements regarding Israeli redeployment from Area C. However, the implementation of the Memorandum was very limited and only 2 percent of Area C was transferred to the status of Area B.

VOICES OF CONSCIENCE: DELEGATION to THE GAZA STRIP

Interfaith Peace-Builders, November 5, 2012

November 5, 2012 – Interfaith Peace-Builders (IFPB) is pleased to announce that our 21 member delegation to the Gaza Strip passed safely through the Rafah Crossing Monday morning and is now safely in the Gaza Strip.

Interfaith Peace-Builders has sent more than 44 delegations to Palestine/Israel since 2001. This is the first IFPB delegation to enter the Gaza Strip since 2003. Like other IFPB delegations, its purpose is to educate North Americans about the region and deepen their understanding of its conflicts.

On the eve of the Presidential Election in the United States, the US-brokered peace process continues to show few results and US military aid to the region continues to flow unabated.

This delegation focuses on the realities of Palestinian life in the Gaza Strip. Participants have the unique opportunity to hear directly from Palestinians throughout the territory regarding their hopes for peace and the role of the United States, the US government, and other international actors, in promoting a resolution to the conflict.

The Interfaith Peace-Builders delegation to the Gaza Strip is led by Michael Brown and Cindy Corrie. Michael Brown worked off and on in the Gaza Strip between 1993 and 2000 for the Gaza Community Mental Health Programme and the Palestinian Centre for Human Rights. A former IFPB board member, Michael continues to work today on the media and Palestine. Michael led an IFPB delegation in 2008. Cindy Corrie is the mother of human rights activist and observer Rachel Corrie who on March 16, 2003, was killed by an Israeli military Caterpillar bulldozer in the Gaza Strip.  Motivated by her daughter’s work and sacrifice, Cindy Corrie has dedicated herself to the pursuit of justice and peace in the Middle East and has visited Israel, the West Bank, and Gaza on numerous occasions. She is also president of the board of the Rachel Corrie Foundation for Peace and Justice, inspired by her daughter.

del44gaza
a photo of the delegation in Gaza City

The delegation includes the following people:

Diane Adkin – Camas, Washington
Michele Bahl – Madison, Wisconsin
Carol Barr – Madison, Wisconsin

Michael Brown – Asheville, North Carolina
Marsha Carlton – Davis, California
Craig and Cindy Corrie – Olympia, Washington
Gary Doupe – Bainbridge, New York
Rich Forer – Yardley, Pennsylvania
Joyce Guinn – Germantown, Wisconsin
Maya Harris – Olympia, Washington
Wendy Hartley – Nevada City, California
Darlene Jones-Owens – Carrollton, Georgia
Declan Keogh – Decatur, Georgia
Ralph and Emily McCoy – Boone, North Carolina
Donna Nassor – Moonachie, New Jersey
Karen Peterson – Horseheads, New York
Cathy Sultan – Eau Claire, Wisconsin
Colleen Toomey – North Andover, Massachusetts
Sonja Wentz – Olympia, Washington

Reports and Photos from IFPB’s November 2012 Delegation to the Gaza Strip:
Photos
Report 1: Greetings from Gaza, Palestine
Report 2: Occupation is "An Ongoing Terror"
Report 3: Bringing Gaza With Us
Follow-Up: Delegates in Action!

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Israeli Wall to Ruin Palestinian Economy

Al Jazeera, August 26, 2005

The Palestinian economy has deteriorated sharply since the start of the
uprising in 2000, and Israel’s separation barrier in the West Bank will
depress it further, a United Nations agency said.

The economy shrank 1% in 2004, one in three Palestinian workers was jobless
at the end of last year and 61% of households had income below the poverty
line of $350 per month, the UN Conference on Trade and Development said in
its annual report on the occupied territories on Thursday.

“Put simply, in the wake of the past four years of Israeli occupation and
war, the Palestinian economy invests and produces less and therefore
consumes more imports, especially those from Israel,” the report said.

Palestinian net imports from Israel represent two-thirds of the total trade
deficit of $2.6 billion, it said. Some 80,000 workers formerly employed in
Israel must also be absorbed.

The Palestinian Authority must now focus on reducing widespread poverty and
boosting production to revive its war-torn economy, the UNCTAD report said.

Ability to Produce

But the barrier or wall Israel is building inside the West Bank will further
erode the fragmented Palestinian production base and resources and “people’s
ability to feed themselves,” it said.

Israel says the wall is a security measure and is intended to keep out
bombers.

Earlier this week Israel finished evacuating all 21 Jewish settlements in
Gaza and four of 120 in the West Bank, part of its plan to withdraw
completely from Gaza, where some 8500 Israeli settlers lived close to 1.4
million Palestinians.

The Palestinian intifada, or uprising, against Israel’s occupation of the
West Bank and Gaza, broke out in 2000 when peace talks stalled. Israel had
occupied both territories since the 1967 Middle East war.

Occupation-related Distortions

“The top priority at this stage of the Palestinian economy’s development is
to focus on poverty reduction while nurturing productive capacity,
eliminating occupation-related distortions and laying the ground for
sustainable economic recovery,” the UNCTAD report said.

The estimated opportunity cost to the economy over the past five years,
representing the value of goods and services that were not produced because
of conflict between Israel and the Palestinians, is estimated at 6.4
billion, while capital stock losses are estimated at $3.5 billion during the
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The Gaza Evacuations

Disengagement or Tactical Military Redeployment?

SHAMAI K. LEIBOWITZ and KATERINA HELLER, CounterPunch, August 24, 2005

The imminent handover of the Gaza Strip to the Palestinian Authority and the evacuation of a small portion of the West Bank from Israeli settlers has been billed by the international media as a turning point in the violent history of Israeli-Palestinian conflict. Through well-planned media strategies, which included inviting the world media to capture images of Israelis dragging men, women and children out of their homes in the illegal settlements they occupied for thirty-eight years, the Israeli government has succeeded in marketing the Unilateral Disengagement Plan as a great “concession” on Israel’s part and a revival of the “peace process.”

But the Unilateral Disengagement Plan will turn out to be no such thing as it is no more than a tactical military redeployment of Israel’s Occupation Forces. This is evident from Israel’s decision to retain military control over the would-be evacuated areas in the West Bank and control over airspace, coastline and border crossings of the Gaza Strip, as well as Israel’s decision to continue with the building of the West Bank Wall deep inside the West Bank.

In a December 2004 report, the World Bank predicted that by continuing to control the flow of people and goods into and out of the Gaza Strip, rather than offering Gaza inhabitants economic progress, the Disengagement will worsen the already dire economic situation of the Gaza Strip.

Effectively, the Disengagement Plan will turn Gaza into the world’s largest open-air prison with 1.3 million Palestinian inmates. The result will be a continuation, if not an increase, of the bloodshed and violence. Similarly, the removal of 4 out of 130 Jewish-only settlements in the Occupied West Bank while building and expanding others, at the expense of 2 million Palestinians who continue to live without human or civil rights, does not signal an end to the Israeli Occupation but, rather, its perpetuation.

Despite its severe flaws, can the Disengagement be beneficial toward peace? Yes, if the international community would demand from Israel a complete withdrawal from the West Bank and East Jerusalem, and in the mean time, deploy an international peacekeeping force to serve as a buffer between Israel and the Palestinians.

In 1999, when East Timor began its transition from Indonesian occupation toward independence, the UN deployed an International Force for East Timor (INTERFET) consisting of 8,000 peacekeeping troops to quell the violence in the region. They successfully maintained the peace and served as a buffer between Indonesia and the East Timorese, allowing the latter to develop their independence peacefully.

Based on this precedent, the UN Security Council should issue a similar resolution to deploy “INTERFIP- International Forces in Israel/Palestine”, which would be stationed in the West Bank and Gaza, monitor Gaza’s border crossings, airports and coastline, while serving as a buffer between Israel and the Palestinians. These forces would terminate the system of closures, curfews and arbitrary restrictions imposed by the Israeli army on Palestinian movement which have devastated the Palestinian economy. This would allow for economic growth and progress in the West Bank and Gaza, and foster a peacebuilding environment on both sides.

UN Secretary General Kofi Annan, as well as the World Bank and the European Union, have publicly supported international intervention, whether in the form of a UN-based force or a NATO force. The Palestinian Authority has welcomed this idea. There remains a “small” problem: The Israeli government has objected to it.

Israel should learn from its past mistakes. The deterioration and eventual collapse of the Oslo Accords have been attributed mainly to the absence of international armed peacekeeping forces to enforce the agreements and prevent human rights abuses. To prevent the same mistake from happening twice, the international community must economically pressure Israel to agree to the deployment of a neutral armed peacekeeping force. This has the power to transform Disengagement into a peacebuilding operation, leading the way to the implementation of the “Road Map to Peace” – the plan, sponsored by the U.S., Russia, the European Union and the U.N., to establish an independent, democratic, and viable Palestinian state by 2005.

As Israelis, we are proud of our country’s decision to start complying with international law, but we are terribly worried this will not bring peace and security to our people. We urgently need the support of the international community – by deploying peacekeeping troops now.

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Praying with Their Eyes Closed

Reflections on the Disengagement from Gaza

Sara Roy, MIFTAH, August 20, 2005

Israel’s disengagement plan is widely hailed by the international community, led by the United States, as a first step toward the final resolution of the Israeli-Palestinian conflict and the establishment of a viable Palestinian state. This essay is a refutation of that view. After presenting the current situation of Gaza as the result of deliberate Israeli policies of economic integration, deinstitutionalization, and closure, the author demonstrates how provisions of the plan itself preclude the establishment of a viable economy in the Strip. Examining the plan’s implications for the West Bank, the author argues that the occupation, far from ending, will actually be consolidated. She concludes with a look at the disengagement within the context of previous agreements, particularly Oslo—all shaped by Israel’s overwhelming power—and the steadily shrinking possibilities offered to the Palestinians.

When the missionaries came to Africa, they had the Bible and we had the land. They taught us to pray with our eyes closed. When we opened them, we had the Bible in our hand, and they had the land.
—Jomo Kenyatta, first president of Kenya

On 9 June 2005, the last legal hurdle to implementing Israeli prime minister Ariel Sharon’s disengagement from Gaza was cleared when the Israeli High Court approved the plan and its removal of all the Jewish settlements there. The settlers, though angered by the decision, were not surprised and vowed to oppose their coerced departure with all means possible. Considerable media attention in the United States has been devoted to the suffering of the Jewish settlers and the personal costs for them of the disengagement. This attention has served to thaw and then humanize the often violent and zealous settler population, and in so doing, to illustrate and amplify the sacrifices Israel is making for peace.

By now a great deal has been written about the disengagement plan by both supporters and opponents. Many of the arguments in favor focus on the redeployment as an opportunity to break the near five-year-old political impasse between Palestinians and Israelis and usher in a new era of stability and peace. In April 2005, for example, President Bush stated that Israel’s withdrawal will allow the establishment of “a democratic state in the Gaza” and open the door for democracy in the Middle East. Tom Friedman was more explicit, arguing that “[t]he issue for Palestinians is no longer about how they resist the Israeli occupation in Gaza, but whether they build a decent mini-state there—a Dubai on the Mediterranean. Because if they do, it will fundamentally reshape the Israeli debate about whether the Palestinians can be handed most of the West Bank.”

Embedded in both statements are a set of assumptions: that Palestinians will be free to build their own democracy, that Israel will eventually cede the West Bank (or even consider the possibility), that Israel’s “withdrawal” will strengthen the Palestinian position in negotiations over the West Bank, that the occupation will end or become increasingly irrelevant, that the gross asymmetries between the two protagonists will be redressed. Hence, the Gaza disengagement plan—if implemented “properly”—will provide a real (perhaps the only) opportunity for resolving the conflict and creating a Palestinian state. It follows that Palestinians will be responsible for their success, and that if they fail to build a “democratic” or “decent mini-state” in Gaza, the fault will be theirs and theirs alone.

Dubai on the Mediterranean?

It would be useful to consider what the Palestinians in Gaza have to work with to achieve success.

Today, there are over 1.4 million Palestinians living in the Strip. By 2010 this number will reach close to two million. The Gaza Strip has the highest level of fertility in the region—5.5–6.0 children per woman—and the population grows at a very high rate of 3–5 percent annually. Fifty years ago, 80 percent of the population had not yet been born. Fifty percent of Gazans are 15 years old or younger, with rapidly declining access to health care and education. The half of the territory in which the population is concentrated has one of the highest population densities in the world. In the Jabalya refugee camp alone, there are 74,000 persons per square kilometer, compared with 25,000 persons per square kilometer in Manhattan.

Palestinians are currently experiencing the worst economic depression in modern history, according to the World Bank, primarily caused by long-standing Israeli restrictions (especially closure) that have dramatically reduced Gaza’s trade levels (especially exports) and virtually cut off Gaza’s labor force from their jobs inside Israel. This has resulted in unprecedented levels of unemployment ranging from 35 to 40 percent. Some 65 to 75 percent of Gazans are impoverished (compared to 30 percent in 2000), and many are hungry.

In 2004, a Harvard study concluded that the increase in Gaza’s population by 2010 will require the “creation of some 250,000 new jobs . . . to maintain current employment rates at 60 percent and the establishment of an additional 2,000 classrooms and 100 primary healthcare clinics annually to bring access to education and public health services at par with the West Bank.” Yet, the disengagement plan states that Israel will further reduce and eventually bar Palestinians from working in Israel. Researchers on the same Harvard study also stated that in a few years, Gaza’s labor force will be “entirely unskilled and increasingly illiterate.” As for educational services, between 1997 and 2004, student-teacher ratios declined by 30 percent, with 80 students per class in government schools and 40 per class in UNRWA schools. Test scores for Palestinian children are well below passing, currently under 50 percent, and the majority of 4th graders fail to advance to the next grade.

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Amira Hass: Khan Yunis / No Compensation for Arabs Losing Their Jobs in Katif

Amira Hass, Haaretz, 14 Aug 2005

Today is Omar’s last day of work for his employer in one of the religious settlements of Gush Katif. He will finish what he began a week ago: packing up the contents of the house and dismantling whatever can be dismantled. “I asked my boss if he would give me something from his house, as a gift,” the 29-year-old says without embarrassment. As someone who has to support his wife and two children, along with the households of his unemployed brothers and as someone who almost daily crossed over from crowded Khan Yunis, with its dowdy concrete houses pockmarked by shelling and bullets to the spacious settlement surrounded by greenery, he is not ashamed to expect a present from the man he has worked for since 1996.

Some employers, he says, gave their workmen a gift: a refrigerator, a fan, or NIS 150-200. But his boss told him he cannot give gifts and is selling whatever he cannot take to his new home.

Bidding farewell to his boss is not difficult for Omar; they had not forged a particularly affectionate tie and Omar says the same is true for most Palestinian laborers in the settlements. He does lament the loss of income and the reality of almost certain unemployment.

Some 3,200 Palestinians worked in Gaza Strip settlements in July, but neither the state nor their employers is compensating them for losing their jobs. The Evacuation Compensation Law passed by the Knesset provides two benefits for people whose job is terminated by the evacuation: a monthly adjustment payment for a former employee or business owner, and the right to quit yet be eligible for severence pay. But the new law specifically grants these benefits to Israelis only.

Asked his opinion of the discriminatory law, Omar laughed. “We never received our basic rights as workers. Not minimum wage, not vacation, not sick leave. So should we be surprised that the Israeli Knesset did not pass a law that would compensate us too?” he says during a meeting in Gaza with him and two other laborers from Khan Yunis at the Palestinian Center for Democracy and Workers’ Rights.

Omar began working for his boss nine years ago for NIS 32 a day. In July 2005 his daily wages were NIS 50. His friend Khaled makes NIS 45 for an eight-hour day’s work. The hourly minimum wage in Israel is NIS 17.93, or almost NIS 145 per day. Omar, who is active in an independent workers committee that was founded in the Gaza Strip this year, says the maximum paid to Palestinian workers there was NIS 60 per day. An Israeli who spent a lot of time in Gush Katif in recent months heard from employers that the daily wage is between NIS 40-80.

K., a secular Gush Katif farmer, employed in his greenhouses some 20 Palestinians, four Nepalese and three Israelis who lived outside Gush Katif. A week ago, as the conversation with him was taking place, the Palestinian laborers were dismantling his house and greenhouses. The veterans among them had been in his employ 14 years. Asked whether he would give his workers severence pay, he said: “I’m supposed to compensate the workers, but who is supposed to compensate me? We’re not really compensated for what we’re losing. I didn’t fire them, the state fired them, let the state pay them. Why didn’t it think about that?”

K. insists his Palestinian workmen made NIS 2,800 a month, and up to NIS 3,200 with overtime. Informed that this was much more than other Gush Katif employers pay, he replied: “Minimum wage doesn’t apply here. Palestinians in the Strip have no work rights. I pay more because I have long-standing laborers.” (Omar said in response that he has never heard of a Palestinian earning a basic salary of NIS 2,800 in Gush Katif).

Yossi Tzarfati, who heads the Agricultural Committee of Gush Katif, could not say whether employers are giving or will give their Palestinian laborers dismissal letters – so they can receive severence pay. He also did not know how much Palestinians earn because that is “an individual matter between employers and workers.” He did say that the Palestinians “are not part of the minimum wage.”

But the minimum wage requirement does apply to Israeli employers in the occupied territories with Palestinian workers. Back in 1982, a GOC Command order was issued in the territories stipulating that “a person employed in a community [an Israeli settlement – A.H.] is entitled to receive wages from his employer that do not fall short of the minimum wage and will also be entitled to cost of living adjustment, all as updated in Israel from time to time.” The Civil Administration is supposed to oversee and enforce that order, but the office of the Government Coordinator in the Territories (to which the Civil Administration is subordinate) stated that “so far, we know of no complaints filed about the lack of enforcement of this order.”

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