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