High unemployment blights Palestinian lives, despite economic growth – UN

The economy of the occupied Palestinian territory (oPt) grew by 9.3 per cent last year, but that expansion was not enough to reduce the area's 30 per cent unemployment rate, the United Nations trade and development arm said in a new report released today.

Gaza saw a 15 per cent growth, while the West Bank's economy expanded by 7.6 per cent, the UN Conference of Trade and Development (UNCTAD) said in its annual report on assistance to the Palestinian people. The Palestinian per capita gross domestic product (GDP) last year was still seven per cent below the levels of 1999, according to the study.

The report stresses that there is considerable fiscal “leakage” as a result of substantial levels of indirect imports. Palestinian imports from Israel are not taxed, but a significant portion of such imports is made up of goods produced in the rest of the world and re-exported to the oPt, with import revenues accruing to the Israeli Treasury, the report notes.

A recent study by the Bank of Israel indicated that about 58 per cent of what is officially reported as Israeli exports to oPt actually comes from abroad through Israel's trade sector. Customs revenue from those imports is captured by the Israeli authorities and not transferred to the Palestinian Authority (PA). The loss to the Palestinian treasury is estimated to be in the range of $480 million per year, or 25 per cent of Palestinian public revenue.

The UNCTAD assessment of the economic and employment cost of the fiscal leakage suggests that were these funds available as fiscal stimulant, the Palestinian GDP could expand by an additional 10 per cent ($500 million per year) and employment could increase by 4 per cent or 30,000 to 40,000 jobs per year.

The loss to the Palestinians highlights the urgency of reconsidering the revenue clearance arrangement between the PA and Israel, and the need for measures to remedy the negative impacts of information “asymmetry” between the two sides, according to UNCTAD. The new evidence on Palestinian imports confirms that much of Palestinian trade is actually with the rest of the world rather than with Israel.

The report also contends that the growth recorded in 2010 is not a sign of sustainable recovery, but rather reflects an economy rebounding from a low base.

It shows that the growth has come after a decade-long economic regression and continuing de-industrialization. Concerns about the sustainability of growth arise from observed technological regression and the fact that the 2010 growth relied on substantial donor aid and public expenditure.

Private-sector revival is still constrained by the construction of the separation barrier, movement and access restrictions, limited access to external markets for the export of goods or the import of production inputs, and a much reduced productive and natural resource base.

The movement of Palestinian people and goods in the West Bank last year was obstructed by more than 500 obstacles and checkpoints. Palestinian exports to Israel, which account for about 90 per cent of total oPt exports, fell by an alarming 30 per cent during the 2008-2009 period and are yet to recover.

Restrictions on the movement of people and goods to, from or within the West Bank and Gaza have fostered small-scale cost inefficiencies and technological decline and have blocked the emergence of an export sector capable of substantial contributions to economic development, the report notes. Prohibitive transaction costs, long waiting periods, and damage to goods at crossing points undermine existing Palestinian businesses and discourage potential investment, it adds.

Despite massive destruction of private and public property during the 24-day military confrontation in the Gaza Strip in December 2008, importation of construction material into Gaza is still banned, with exception of imports by international organizations. However, in 2010 a modest relaxation of the Israeli blockade resulted in some improvement in economic activity in Gaza, though humanitarian conditions are still dire, according to the report.

Prolonged periods of high unemployment and interruption of production activities carry the risk of a loss of skills for Palestinian workers and long-term damage to human capital.

An estimated 26 per cent of Palestinians in the oPt live in poverty. In Gaza, poverty levels are as high as 38 per cent, while in the West Bank they are at 18 per cent. Half of all households were food insecure or vulnerable to food insecurity last year, the UNCTAD study shows.

Another significant constraint on the Palestinian economy is the growing physical and demographic separation of East Jerusalem from the rest of oPt, the report notes.