Bringing the Palestinian economy out of recession

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Bringing the Palestinian economy out of recession

BETHLEHEM (Ma'an) -- The potential for the Palestinian economy to rise out of the recession caused by the outbreak of the Second Intifada and a dramatic increase in per capita GDP are deeply entrenched in the success of talks.

"Economy is related to politics. There is no way one can sustain complete economic growth without complete stability in politics," says Jawad Sayyed Al-Herbawi, the adviser to the mayor of Hebron and a business development expert.

According to a UN report issued in August, Palestine recorded marginal economic growth in 2009, with the per capita GDP remaining 30 percent lower than a decade ago, while 30 percent of the Palestinian work force remains unemployed.

The Palestinian economy, says Al-Herbawi, saw rapid growth between 1994 and 2000, before the outbreak of the Second Intifada. Growing at a rate of six percent, the Palestinian GDP increased from $3.3 million to $5 million. "If the Palestinian economy had kept growing at that rate, the GDP would have reached 8.8 million," he said, citing International Monetary Fund statistics on the West Bank.

With the failure of Camp David summit in 2000 and the ensuing violence, Israel increased restrictions across the West Bank and Gaza, plunging the Palestinian economy into a recession from which it has yet to emerge. The success of talks would have a "long-term, high-level impact" on the Palestinian economy "with a complete reflection in the per capita of each and every person," which was recorded at nearly $1,600 in 1998, but stood at just under $1,000 in 2008 and has yet to rise.

"Everyone should be aware that Palestine has a competitive advantage ... having ratified several free trade agreements with the EU and US, giving Palestinians direct access to these markets without extra cost," says Al-Herbawi.

But the economy's success remains deeply routed in the outcome of a final status agreement as internal movement restrictions and settlement expansion stunt its potential for growth.

An economy driven by foreign investment

One significant impact the failure of talks could have on the economy, says Al-Herbawi, is the drop in foreign investment. Several reports indicate that the Palestinian economy is driven by such investment, which is needed for the revival of the private sector.

While several initiatives have been launched, including the Palestine Investment Conference, to attract foreign investment, the failure to reach an agreement that would remove several Israeli restrictions and end potential political instability will see "hesitation from investors," joint ventures could flop and local investment would decrease.

"Removing checkpoints, improving accessibility in the West Bank and Gaza," would naturally contribute to the dramatic increase in GDP, he states.

A recent report published by the IMF said the Palestinian economy grew by nine percent in the West Bank and 16 percent in Gaza during the first half of 2010, due to the easing of Israeli restrictions, donor aid and aggressive financial-sector overhauls by the PA.

However, the IMF warned that sustainable growth could not be achieved without further lifting of Israeli restrictions, expecting growth rates to slow significantly by the end of the year.

Hebron: The core of commercial activity

The southern West Bank district of Hebron contributes to a third of the Palestinian economy, an estimated 65 percent of Palestinian commercial activity. The potential for the district to play a significant role in the growth and development of the economy, Al-Herbawi said, is unmatched.

Hosting nearly 60 percent of Palestine's national reserves in marble, with a 40 to 45 percent production capacity, and between 50 to 60 percent of the country's goldsmith industry, Hebron is also home to nearly 40 percent of Israel's military installations.

Settlements and checkpoints in and around the Old City of Hebron, completely bar Palestinian access and have turned it into a "ghost town," Al-Herbawi said, while they have "severed economic communication" throughout the district. This, he explains, has prevented the growth of "untapped markets."

Al-Herbawi said, however, that many initiatives in Hebron require "political will" to ensure their success. Citing as an example plans for an industrial park in Tarqumiya which were quickly disregarded, when Israel brought up security concerns over a planned road providing access to the area.

Al-Herbawi also notes that other sectors are tipped for development and expansion in the district, including housing with Hebron's birth rate among the highest across the occupied Palestinian territories.

Moreover, Hebron's university is matriculating a number of students in the field of information technology, which Al-Herbawi says could be fierce competitors with rival markets such as India.

As Palestinian and Israeli leaders arrive in Egypt ahead of the second round of direct negotiations, with the PLO threatening to withdraw over illegal settlement expansion and reports that further construction will follow Israel's moratorium, the Palestinian economy may yet have a long way to go.