The report details the adverse impact of prolonged occupation on Palestinian economic growth, employment, poverty, trade and finance, which has intensified in the past three years. By 2003, the pace of decline had put the territory in the same class as many other economies ravaged by civil strife and war. The small enterprise sector was especially hard hit, while agriculture and informal services became the "sectors of last resort" for an impoverished population.
The important role of the private sector as a main source of new investments, jobs and income is highlighted by the report. Even under conditions of uncertainty, the Palestinian Authority (PA) will have to develop integrated trade and labour policies based on an economic and development vision with quantifiable, time-bound, achievable and sectorally focused objectives. Setting clear sectoral priorities will help the PA to attain synergies capable of bridging relief efforts to development objectives.
The report suggests that the State of Palestine as envisioned in Security Council resolution 1397 (2002) should ensure that its relief and development policies do not repeat mistakes made elsewhere in dealing with the burdens imposed by the economic legacy of war. Future policies should be based on a clear understanding of the structural distortions and imbalances that in this case have been long ignored by policy makers.
According to UNCTAD, the impact of the conflict since 2000 has seriously curtailed the supply capacity of the productive sectors. These losses were associated with profound changes in the economy, leading to greater reliance on informal and subsistence activities. Some key developments:
Economic collapse since 2000 has demonstrated the deep economic dependency on Israel engendered by decades of occupation. For example, 55% of Palestinian private consumption last year was imported from Israel, while Israel accounted for 71% of the total Palestinian trade deficit. In terms of GDP, this implies that 45% of every dollar produced in the West Bank and Gaza was channelled into the Israeli economy through imports. Over two thirds of Palestinian foreign borrowing in 2002 (which comprised mainly donor support funds) apparently financed the lopsided merchandise bilateral trade with Israel.
"The implications of this excessive imposed leakage of economic resources to Israel for the development prospects of the Palestinian economy are significant", UNCTAD says. The leakage implies that donor funds would not necessarily generate the desired income multiplier effect in the Palestinian territory. On the contrary, that effect would be felt more in Israel. At the same time, the Palestinian share of total Israeli trade is shrinking. In 2002, Palestinian goods and services trade with Israel represented less than 2% of total Israeli external trade, compared to over 5% 10 years ago.
"The coming phase of economic rehabilitation and reconstruction cannot simply take as its goal the return to the pre-2000 situation", UNCTAD stresses. Rather, development efforts will have to be qualitatively different from those that accompanied previous recoveries from shocks and upheavals. This will involve reassessing the imperatives for Israeli-Palestinian economic integration.
Of equal importance is to carefully evaluate the speed and sequencing of trade reform within an overall strategy that seeks to create synergies between relief and long-term development objectives and target the enterprise sector. UNCTAD calls for increased donor support to this sector, in particular its SME component, and highlights the need for an industrial policy to guide the rehabilitation and development of the devastated Palestinian enterprise sector. Such a policy should be supplemented by the appropriate labour upgrading, investment incentives and institutional infrastructure programmes, targeting the specific sector/s capable of assuming the role of the "engine of the economy" as well as strategically important sector/s, such as agriculture.
UNCTAD assistance to the Palestinian people
To help the PA re-orient its economic and trade policy, UNCTAD is providing policy makers with "fast-response" advisory services aimed at highlighting the implications of possible alternative trade policy arrangements consistent with the present economic conditions. UNCTAD has helped launch the PA´s National Task Force for Economic Development, established by the PA Council of Ministers. It is also preparing a new technical assistance project in close cooperation with the International Labour Office (ILO) that will help the PA to develop quantitative analysis techniques. These new capacities will be used to design integrated national trade, labour and macroeconomic policies.
Despite a turbulent year, UNCTAD and its PA partners have achieved concrete results in customs administration (ASYCUDA) and debt management (DMFAS) projects. A Palestinian ASYCUDA prototype system will be installed at PA Customs Headquarters in Ramallah and at two pilot border sites in 2004. The DMFAS system is now fully operational, while a Public Debt Bill is being drafted along with a comprehensive study on debt strategies and policies to guide the PA efforts. Meanwhile, UNCTAD´s private sector counterparts, the Palestinian Banking Corporation and Paltrade, are assuming operational control of the UNCTAD SME development (Empretec) and Trade Point Palestine Ramallah projects.
The Report on UNCTAD´s Assistance to the Palestinian People (TD/B/50/4) will be reviewed at the 50th session of the Trade and Development Board in Geneva on 10 October 2003. The report may be downloaded from the UNCTAD website (http://www.unctad.org/en/docs/tb50d4_en.pdf).