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TWN Info Service on WTO and Trade Issues (Sept17/16)
28 September 2017
Third World Network

No end in sight to 50 years of Israeli occupation of OPT
Published in SUNS #8538 dated 25 September 2017


Geneva, 22 Sep (Kanaga Raja) - The fiftieth anniversary this year of the Israeli occupation of the Gaza Strip and the West Bank, including East Jerusalem is marked by five decades of de-development, suppressed human potential and denial of the basic human right to development of the Palestinian people, with no end in sight, the UN Conference on Trade and Development (UNCTAD) has said.

In its report on UNCTAD assistance to the Palestinian people, presented to UNCTAD's Trade and Development Board (TDB) on 19 September, UNCTAD said that instead of the hoped-for two-State solution envisaged by the United Nations and the international community, the occupation, the longest in recent history, is currently even more entrenched, while its complex socioeconomic toll has worsened over time.

The TDB is currently holding its regular sixty-fourth session here from 11-22 September.

According to an UNCTAD news release, at the TDB session on 19 September, Palestinian Minister of National Economy Ms Abeer Odeh said: "The consequences of the occupation are more serious than we thought. Israeli occupation has become essentially an act of colonisation ... The occupying state must bear the costs of this occupation."

"Most of the donor support has been used for damage control," said Mr Mahmoud Elkhafif, lead author of the UNCTAD report and Coordinator of the UNCTAD Unit on Assistance to the Palestinian People.

"Falling donor support is a major shock to the Palestinian economy and the international community should assume responsibility to support the Palestinian people," he told the TDB.

The G77 and China expressed alarm at the continuing loss of Palestinian land and resources through settlement building by Israel, while the Arab Group expressed deep concern over Israel's expansionist activities in the Palestinian Territories.

CONTINUED EROSION OF PALESTINIAN ECONOMY

According to the UNCTAD report, despite a 4.1 per cent growth in gross domestic product (GDP) in 2016, the productive capacity of the Palestinian economy continued to erode, economic performance was far below potential and unemployment persisted at levels rarely seen around the world since the Great Depression.

In addition, in 2016, real per capita GDP was roughly at the level in 1999; $1,766 in constant 2004 dollars.

In 2016, 3 per cent GDP growth in the West Bank barely kept up with population growth, and did not have much positive impact on per capita income.

In Gaza, although the economy picked up, with real GDP growth of 7.7 per cent, this growth reflected only reconstruction activities to repair the extensive damage caused by the Israeli military operation in 2014.

Despite this growth, the de-development of Gaza continued unabated, said UNCTAD, noting that since the conclusion of the Oslo Accords in 1995, per capita GDP in Gaza has shrunk by 23 per cent.

As in previous years, in 2016, GDP growth was driven by an unsustainable expansion in domestic demand, in particular private consumption, which accounted for 26 per cent of bank credit to the private sector.

While the relative importance of private consumption in economic growth increased relative to government consumption, investment and exports continued to lag behind.

UNCTAD said the observed GDP growth should not obscure the bleak economic reality of the ongoing erosion of the productive base and continuing loss of land and natural resources to settlements and the annexation of land in the West Bank, as well as fragmentation of the economy into disconnected markets and regions and restrictions by Israel on the importation of essential production inputs, all of which escalate production costs, depress investment and inevitably set the economy onto a distorted path of high unemployment and widespread poverty.

Furthermore, it noted, asymmetric economic relations continue to reinforce the imposed Palestinian economic dependence on Israel. Throughout the decades of occupation, Israel has consistently accounted for the largest segment of Palestinian international trade.

This continued in 2016, with Israel accounting for at least half of Palestinian trade, while the share of the Occupied Palestinian Territory (OPT) in the trade of Israel is around 3 per cent.

In 2016, Palestinian imports from Israel were estimated to exceed exports to Israel by $2.6 billion (19.4 per cent of GDP), at a time when cheaper and more competitive sources for Palestinian imports are available worldwide.

"The massive Palestinian trade deficit is a direct result of the weakness of the tradable goods sector and the inability of agricultural and industrial producers to penetrate export markets, as well as their inability to compete domestically against imports from abroad."

The decline of the productive sectors is illustrated by continued de-agriculturalisation, said the report, noting that the value added of agriculture contracted by 11 per cent in 2016.

Consequently, between 2015 and 2016, the sector's share in GDP fell from 3.4 to 2.9 per cent. The decline of the tradable goods sector continued in 2016, with a 21.3 per cent decline in the value added of mining and quarrying, which more than offset the slight increase in the share of manufacturing in GDP.

The distribution of credit to the private sector presents a similar picture of decline in the productive sectors.

In 2016, the share of agriculture and food processing in credit to the private sector was a mere 2 per cent, or half of that allocated for financing vehicles, while the share of mining and manufacturing was 6 per cent and consumption and real estate accounted for more than half of the credit, at 26 and 25 per cent, respectively, followed by trade, at 20 per cent.

The concentration of credit in consumption and real estate reflects the aversion of banks to the high risk of investment in productive sectors because of the unpredictability and severity of the economic restrictions that Israel unilaterally imposes and adjusts at will.

"De-industrialization and de-agriculturalisation thus stifle economic and technological progress and leave the Palestinian economy further behind in the global supply chain," said UNCTAD.

The low contribution of the agricultural sector is also explained by the fact that only 21 per cent of cultivable land is utilized and a high 93 per cent of cultivated land is not irrigated.

Moreover, restrictions by Israel on the import of suitable fertilizers add $28.6 million to the costs borne by producers and cut one third of land productivity.

Palestinian agricultural producers also face unequal competition with subsidized imports from Israel and settlements - in the range of $500 million per year - while producers in Israel operate under normal cost conditions and benefit from a range of supportive government policies.

Moreover, Area C, which accounts for at least 60 per cent of West Bank area, remains under the control of Israel and is off-limits to Palestinian producers, although it is the only contiguous terrain in the West Bank.

It includes much of the West Bank's natural resources and has great potential for job creation in agriculture, tourism, cosmetics, construction, mining and quarrying.

Another factor inhibiting the productive sectors is the lack of a national currency and Palestinian reliance on the new Israeli shekel. As a result of the monetary and exchange rate policies of Israel, in the last two decades, the inflation rate has been subdued and the real effective exchange rate of the new Israeli shekel has been on an upward trend (appreciation) as its real value has increased by 25 per cent.

"This appreciation acts as a tax on exports and a subsidy on imports, thereby impairing the already weak international competitiveness of the Palestinian economy."

ECONOMIC COSTS OF OCCUPATION AND PLIGHT OF GAZANS

According to the UNCTAD report, the enormity of the economic cost of occupation has been confirmed by various organizations and in various reports and studies.

Most recently, the International Monetary Fund (IMF) suggested that, under the most conservative assumptions, if there had been no occupation, real GDP per capita in the Occupied Palestinian Territory would currently have been nearly 40 per cent higher, while another methodology suggested that real GDP per capita would have been 83 per cent higher.

A further methodology noted that in 1994-2014, per capita output in the Occupied Palestinian Territory grew at an insignificant rate of 0.1 per cent and concluded that had it continued to grow at the 4.4 per cent trend observed in 1968-1987, when borders were more open, current real GDP per capita would have been 130 per cent higher.

UNCTAD has emphasized that for Gaza to be a liveable place in 2020, enormous reconstruction efforts were urgently needed in sectors such as health, education, energy, water and sanitation. However, the humanitarian and economic situation has instead worsened since then.

The Office of the United Nations Special Coordinator for the Middle East Peace Process observed the following with regard to the severity of the protracted, unprecedented level of human suffering in Gaza:

(a) There have been more than 10 years of collective punishment through land, sea and air blockades; (b) 35 per cent of the agricultural land and 85 per cent of the fishing waters of Gaza are not accessible to producers; (c) Exports from Gaza were 65 per cent lower in early 2017 than the level in 2007; (d) Two thirds of the population of Gaza need some form of humanitarian assistance; (e) About half of the population is food insecure, although 80 per cent receive food assistance and other forms of social transfers; (f) Electric power was unavailable for 12-18 hours per day in 2016 and up to 20 hours per day in early 2017. This cripples all economic activities and impedes the delivery of services, especially water supply, sewage treatment and health services; (g) Access to an improved water supply fell from 98 per cent of the population in 2000 to 10 per cent in 2014; and (h) Partially treated sewage is routinely discharged into the sea.

Also, only 51 per cent of the $3.5 billion pledged for Gaza at the Cairo Conference on Palestine - Reconstructing Gaza held in 2014 has been disbursed, and 84 per cent of total recovery needs have yet to be addressed.

In 2016, the Palestinian National Authority (PNA) achieved favourable, but unsustainable, revenue performance, said the report.

The 24 per cent increase in revenue is not sustainable since it was the result of one-time windfalls in two areas, namely receipt of $145 million in telecommunications licensing fees (an additional $73 million in 2017 and 2018) and two payments totalling $300 million made by Israel to compensate PNA for leaked fiscal resources related to health stamps, equalization levies, border exit fees and value added tax.

At the same time, total expenditures grew by 10 per cent compared with expenditures in 2015. Therefore, the success of PNA in reducing the deficit between 2015 and 2016, from 11.3 to 8.1 per cent of GDP, hardly indicates an improved fiscal space, because it was mainly due to these one-time windfalls; without which the deficit would have increased from 11.3 to 11.5 per cent.

"It is worth noting that UNCTAD research and studies were a major factor behind the above-mentioned $300 million in reimbursement from Israel to PNA."

In the past few years, the Palestinian economy has suffered yet another negative external shock, in the form of a 38 per cent drop in donor support in 2014-2016, from $1.23 billion to $757 million, which is projected to further decline by 13 per cent in 2017.

One of the reasons for weakening donor engagement is that occupation has prevented aid from translating into development gains. Damage control, humanitarian interventions and budget support have been taking priority at the expense of development support.

In this sense, said UNCTAD, the increasing belligerence of occupation presents a two-fold challenge, because it denies the Palestinian people access to their natural and economic resources and at the same time discourages donor support by minimizing development gains.

"Occupation has therefore undermined the efficacy of ordinary, traditional development policies and set the Palestinian economy onto a uniquely distorted growth path, whereby donor-funded government spending plays a crucial role in maintaining a minimum level of aggregate demand."

According to UNCTAD, the PNA is running out of less painful options for cutting spending.

"Any further fiscal austerity, under worsening conditions of occupation and negative donor support shocks, could lead to perilous economic, social and political consequences, with undesirable impacts on the provision of critically important public services and the institution-building efforts required for a well-functioning economy in a future sovereign State."

According to the report, there is a significant risk of the emergence of a vicious cycle involving a mutually reinforcing trio of increasingly belligerent occupation, falling aid levels and political discontent.

Termination of the blockade on Gaza, the lifting of restrictions on internal and external Palestinian trade and the ending of the occupation of Area C are necessary conditions to launching sustainable development in the Occupied Palestinian Territory, said UNCTAD.

SETTLEMENT ACTIVITY, DE-DEVELOPMENT, MASS UNEMPLOYMENT

The report noted that in 2017, Israel intensified the expansion of settlements and housing units in the occupied West Bank. In 2016, housing construction in these settlements was 40 per cent higher than in 2015 and at the second highest level since 2001. Further plans have been announced to build more than 5,000 new housing units and for the retroactive legalization of 4,000 units in settlements and outposts.

In recent years, the settler population growth rate has not only surpassed the rate in Israel but also the growth rate of the Palestinian population. The settler population has more than doubled since the Oslo Accords in 1993 and 1995, and currently stands at between 600,000 and 750,000.

"This is encouraged and incentivized by housing, education and tax benefits from Israel to individual settlers and to industries," said UNCTAD.

Also in 2016, more Palestinian structures were demolished in the West Bank than in any other year. The United Nations Office for the Coordination of Humanitarian Affairs reports that in 2016, Israel demolished or seized 1,094 Palestinian structures throughout the West Bank, double the rate in 2015 and the highest since 2009, resulting in the displacement of over 1,600 Palestinians, half of them children.

Moreover, the destruction of donor-funded humanitarian assistance spiked in 2016, with 292 donor-funded structures demolished or seized, 165 per cent more than those demolished in 2015, and affected relief items including shelters, tents, water cisterns, animal barracks and other basic structures necessary for survival and the maintenance of livelihoods.

In addition, Palestinians in the West Bank remain subject to many forms of violence by settlers, including harassment, attacks and damage to property.

For example, in 2016, more than 1,500 Palestinian olive trees were vandalized or uprooted by settlers, on top of 2.5 million productive trees uprooted since 1967.

"Furthermore, there are two parallel legal systems in the occupied West Bank, namely the domestic law of Israel, with more guarantees for defendants, is applied to Israeli settlers, while Palestinians are subject to Israeli military law."

The UNCTAD report pointed out that one of the harshest consequences of occupation is an unemployment rate that is persistently among the highest in the world.

In 2016, unemployment remained extremely high, at 18 per cent in the West Bank, 42 per cent in Gaza and 27 per cent in the Occupied Palestinian Territory; more than twice the regional average.

"A low labour force participation rate of 45 per cent, disproportionately high unemployment among women and youth and extreme dependence on the labour market in Israel add to the toll exacted by joblessness and poverty crises, which are not fully captured in official unemployment statistics."

The employment situation is worsened by the fact that about 10 per cent of the labour force is not employed in the domestic economy but in Israel and settlements.

UNCTAD said with weak growth and high unemployment levels, poverty and food insecurity have deepened. Moreover, the unemployment rate (42 per cent) and poverty rate (39 per cent) in Gaza are more than double the corresponding rates in the West Bank.

The dependency ratio of 7 in Gaza and 5 in the West Bank means that the joblessness of one Palestinian worker impacts, on average, six other Palestinians.

UNCTAD calculations suggest that annual real GDP growth consistently above 5.3 per cent is needed to make a minor dent in unemployment. This is consistent with the IMF finding that above 4 per cent annual GDP growth is required simply to maintain unemployment at current levels and prevent even more precipitous socioeconomic deterioration.

IMF projections suggest that if current trends persist, GDP growth in the mid-term will be around 3.3 per cent in the Occupied Palestinian Territory as a whole and 2.7 and 5.5 per cent in the West Bank and Gaza, respectively.

"Therefore, with the Palestinian population expected to double by 2050, unless current trends are reversed, unemployment will worsen, per capita income will fall and poverty will worsen, adding to the risk of the emergence of a vicious cycle of mutually reinforcing economic decline and political crises," said UNCTAD.

 


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