| Official Name | Palestine |
|---|---|
| Head of State | Yassir Arafat |
| Legal system | Traditional Islamic, Ottoman, British Mandate, Pre-1967 Jordanian, New Palestinian Law, and Israeli Military Orders |
| Language | Arabic, English often used for Business |
| Time Zone | 7 hours ahead of Eastern Standard Time |
| Population (1995) | 3.5 Million |
| Currency | Jordanian Dinar (JD) and New Israeli Shekel (NIS) |
| Real GDP Growth (1995) | 3.5% |
| Gross Domestic Product (1995 Per Capita) | $1,192 |
| Consumer Price Inflation (1995) | 11.1% |
| External Debt (1995) | N/A |
| Principle Growth Sectors | Housing Construction, Manufacturing, Agriculture, Services |
| Total Country Exports (1995 Estimated) | $318 million |
| Total Country Imports (1994 Estimated) | $ 1.6 billion |
| U.S. exports to Palestine (1995) | $372,000 |
| U.S. Imports from Palestine (1995) | $54,000 |
With the successful presidential and legislative elections in January 1996, came the first locally elected Palestinian government by Palestinians residing in the West Bank, Gaza Strip, and East Jerusalem. Yassir Arafat was elected president of the Palestinian people and a new 88-member legislative body was created. The majority of the Palestinian Legislative Council is represented by the Fatah party and Fatah-affiliated independents who captured 70 seats. Of the remaining seats, Islamist-affiliated independents won five, non-affiliated independents won nine, Popular Front for the Liberation of Palestine (PFLP) candidates won two, and the National Democratic Coalition and Fida each took one. The nascent political system will develop further should the peace process continue to evolve. Since the election of Israeli Prime Minister Benjamin Netanyahu in May 1996, the continuation of peace process has been stalled. The judicial system has three levels of courts: the Magistrates Courts, District Courts and the High Court of Appeals in Gaza and in Ramallah.
The recently revised Tripartite Action Plan embodies the long-term economic policy of the PNA. It calls for reductions in government spending, fewer border restrictions for Palestinians working in Israel and the restoration of the Palestinian share of value-added tax collected by Israel. A $1.32 billion Public Investment Program and a $500 million fund from foreign donors will provide capital for investment projects in various sectors of the West Bank and Gaza economies. The projects are an effort by the PNA to centralize economic planning in a single ministry. They expect this effort to yield higher efficiency and to strengthen ties between the government and private sector investors. The PNA hopes to diversify export markets, to favor the private sector in establishing regulatory frameworks, and to assist the transport of goods and the movement of workers throughout Palestine.
Despite concerns about the future of the land-for-peace arrangement with Israel, analysts expect the Palestinian economy to expand as the new government gains control over more land and resources. The Economist Intelligence Unit (EIU) predicted that real GDP would grow by 5% in 1996, up 1.5% over 1995. The EIU considers this statistic solid due to the strength of the olive harvest, the acceleration of industrialization, and the expansion of tourism. However, this forecast is predicated on the absence of border closures.
Finalization of expanded U.S.-Palestinian trade initiatives were taken in late 1996. The new trade measures have been taken in order to help spark Palestine's economy which has deteriorated dramatically in the past two years. Border closing have been a significant factor behind the deterioration and have contributed to the loss of jobs. The Palestinian Ministry of Economy and Trade reports that Israeli restrictions on the West Bank and Gaza Strip have raised Palestinian losses to about $10 million a day. United Nations officials estimate that unemployment and under-employment in the Occupied Territories stands at 65%. With 90% of imports coming from Israel, an increase in prices in Israel has had dramatic effects on prices in the territories. The average per capita income has dropped from $1800 to $800 in the West Bank and $1200 to $700 in Gaza in 1996. Also, the Palestinian territories suffer from a lack of qualified teachers, poor mental health facilities, and the lack of non-governmental organization funding have further paralyzed the Palestinian economy.
Israeli closure of the territories has also had negative effects on tourism. Palestinian tourism officials estimate that tourism revenue, typically averaging about $170 million a year, has suffered dramatically. In Bethlehem, the biggest tourism-drawing town under Palestinian self-rule, closure has forced many tourist groups to cancel hotel reservations and has not allowed tourists to visit from Israel. Souvenir shops, restaurants, and hotels have suffered losses. In October of 1996, the losses were further magnified by the fact that Bethlehem's peak tourism season begins in October.
The single most important factor affecting the expansion of the Palestinian economy is the development of the infrastructure. The PNA relies on foreign aid to cover the massive costs this project incurs. Both multilateral development assistance organizations like the World Bank and foreign donors like the U.S., the E.U., and Japan have been forthcoming in pledging financial assistance.
Many infrastructure projects are either already underway or soon to be commenced in the region. One project, financed with foreign aid, involves the construction of industrial parks in the Karni area of Gaza, the Khadouri area of Tulkarm and the Muqeibleh area of Jenin. Another involves a $600 million investment from Palestinian expatriates in housing. The U.S. Palestinian Fuels Company hopes to build an $80 million, 30,000 barrel-per-day oil refinery once feasibility studies are completed. The Japanese will build a $250 million raised highway connecting the Hebron area and northern Gaza. In conjunction with the Egyptians and Israelis, a new railroad between Egypt and Ashdod, Israel will link the Gaza Strip to international trade between Egypt and Israel. Finally, the $60 million Gaza port is set for completion in mid-1997. This port will reduce Palestinian dependency on transport through Israeli borders while at the same time expanding the potential of Palestinian trade. The first phase of the construction of a $36 million international airport in Gaza has been made possible because of a loan from the Al Ahli Bank of Egypt.
Livestock husbandry accounts for more than one-third of agricultural output in the territories as a whole, 50% in the West Bank and nearly 30% in the Gaza Strip. Prior to 1979, the fishing industry was an important element of Gaza's economy. However, production fell due to restrictions placed on the length of coastline from which Palestinians were allowed to fish. Following Palestinian self-rule, unrestricted access to the sea was regained, but the fishing industry needs improvements in boat building, handling and processing and maintenance for the industry to develop. Excellent fishing is found for sardines, mullet, codfish, flounder, and shrimp off the coast of Gaza.
The economic protocol initiated between Israel and the Palestinian National Authority carries provisions for free trade with Israel and access for Palestinian goods to outside markets. However, frequent border closures have curtailed many efforts to export. To enhance industrial development, international investment is a priority. These capital inflows are not likely to occur until further progress is made on the peace progress.
Palestine is the site of one of the world's newest stock markets. Called the Palestinian Securities Exchange (PSE), this nascent bourse will have the most modern communications equipment and technology. The new Palestinian exchange is a joint venture project by the Samed Establishment and the Palestinian Development and Investment Company (PADICO). The Palestinian bourse will act as the cornerstone of the embryonic Palestinian capital markets. Feasibility studies made by PADICO, the Palestinian Ministry of Finance, and the World Bank estimate that 60 corporations operating in Palestine have sold company shares upon opening and have a combined market capitalization of over $700 million. Officials also believe that the PSE will lure some of the personal wealth of Palestinians dispersed abroad and bring much needed long-term capital to the Palestinian economy. Over $5 billion in assets is estimated to belong to Palestinians in the Arab world, North and South America, and Europe. To assure potential investors, bourse officials state that modern technology, transparency, and strict monitoring of regulations will be put in place to enable investors to monitor their investments from anywhere in the world.
It is estimated that the stock market will create 500 much-needed new jobs in the emerging securities sector and is anticipated that the new bourse will function as a self-regulating organization enforcing its own rules and regulations. To facilitate investment, a multi-currency trading system will be established permitting companies capitalized in different currencies to be listed. Investors will be free to transfer profits abroad. A blueprint of a new securities law that will govern the monitoring of the PSE and formulated with the help of international legal experts, must be approved by the Palestinian Legislative Council before stock market operations begin.
The Law on the Encouragement of Investment stipulates that projects with a paid capital of more than $500,000 or employ more than 25 Palestinians and will be in business for a minimum of 10 years will be exempt from income taxes for 5 years. Those projects with capital between $150,000 and $500,000 or employ 15 Palestinians and that plan to be in business for 6 years or more have a 3 year hiatus from taxes and duties. And those with capital between $100,000 and $150,000 or employing more than 10 Palestinians and that expect five years of business will have a two-year exemption. The law grants special exemptions to projects that are deemed to be particularly beneficial to the Palestinian economy, to those export companies for which export is more than 25% of the total output and for agricultural products exporters.
Although intellectual property rights do not meet World Trade Organization (WTO) standards, the PNA seeks to achieve satisfactory protection of trademarks, copyrights and patents in the near future. Other obstacles to investment in Palestine include high labor costs (the result of the assimilation of Palestinian workers into the Israeli labor market) and high land costs, due to land restrictions on development in the West Bank and to land scarcity in Gaza. Foreign businesses are advised to work with local clearing agents to expedite goods through the customs clearing process.
Despite the goodwill that had been generated by the new trade agreement between Israel and the Palestinian National Authority, many involved in commercial endeavors in the West Bank and Gaza Strip remain skeptical that this latest initiative will change the reality on the ground. Business people say the free flow of goods is not always assured in spite of the new agreements. For example, the problem in Gaza is that one cannot get goods out directly but must go through Israel. Border closures are definitely a problem, however, even when the border is open Palestinian goods are still not able to travel freely. Palestinian products are subject to arbitrary inspections by Israeli authorities at the border and many goods, legal under trade agreements, are not allowed to cross. Moreover, the type of products that are allowed, changes from day to day. If new phases of the Oslo Agreement are implemented, it remains to be seen if these obstacles to business will be lifted.
The power sector requires massive expansion to meet the needs of the Palestinians, and American independent power producers are the top choice, according to a report by the U.S. Trade and Development Agency. Most ventures in this sector will involve the transformation and renovation of electrical distribution systems and the establishment of a 400 MW installation in the Gaza Strip and an installation of 300 MW in the West Bank. These systems would use a combination of coal, oil and natural gas.
The largest investor in Palestine is the foreign-based Palestine Development and Investment Company. This company will invest over $200 million in development projects in the telecommunications, tourism, real estate, housing and industrial park sectors.