Palestine

In the wake of the war that followed the creation of the Israeli state in 1948, the former British mandate of Palestine was partitioned between Israel, Trans-Jordan and Egypt. This led to hundreds of thousands of Palestinians being displaced from their ancestral homeland in what is termed the ‘nakhba’ (“catastrophe”). Today, Palestinians live in the West Bank, the Gaza Strip and East Jerusalem with the aim of one day creating an independent national state. At the moment the West Bank and Gaza Strip are physically separate, although they could be linked by road in future. There are approximately 4.3 million Palestinians living in the Territories (approximately 2.6 million in the West Bank and East Jerusalem, and 1.7 million in Gaza). It is estimated that the overall Palestinian population included refugees exceeds 10 million.

Disagreements with Israel (which have not infrequently spilled over into violence), shifting levels of support from the European Union, United States and United Nations and divisions within the Palestinian community itself and its Arab neighbours over the size and nature of such an entity have hampered progress on this front. The politics of present day Palestine are complex; however the dominant political groups are Fatah and Hamas. Fatah favours a more secular model of governance whereas Hamas advocates a style of governance that wishes society to be governed by Islamic norms. The West Bank the dominant political authority is Fatah (established in 1994 under the Oslo accords) and Hamas runs the Gaza Strip after waging a violent campaign for control against Fatah in 2007 and subsequently winning the 2009 elections. The Palestinian president, elected by all Palestinian people, is Mahmoud Abbas and in June 2013 Rami Hamdallah replaced Salam Fayyad as prime minister. There is a legislative council and local authorities, and ministries of finance, health, education, transport, agriculture, interior, justice and labour. It should be noted that the West Bank and Gaza operate separate security forces and judicial systems.

The location of the Palestinian Territories is geographically excellent, forming an economic and cultural platform and point of contact between three continents – Europe, Asia and Africa. The combined area of the West Bank and the Gaza Strip (WBGS) is 6,020 km², which constitutes 23% of the area of pre-1948 Palestine under the British Mandate and is about one third the size of the State of Israel. The West Bank covers 5,655 km², is 130 km long and ranges between 40 and 65 km in width. The land area of the Gaza Strip is equal to 365 km², and is 40 km long and 5-12 km wide. The Gaza Strip is mainly coastal plain and sand dunes, while the West Bank is more diverse, featuring four topographic zones. The Jordan River Valley is a fertile plain, offering excellent conditions for agricultural production, while the Eastern Slopes overlooking the Valley are a rocky, semi-arid area, leading down to the Dead Sea. The Central Highlands constitute the largest zone, rising 1,000 meters above sea level in places, and a semi-coastal zone is found in the west and north-west. As a Mediterranean country, the climate in the Palestinian Territories is hot and dry in summer, but wet and mild in winter.

The Palestinian Territories were formerly under British Mandate (1923-1948) and UK products still enjoy a very good reputation since the end of the British Mandate to Palestine and there are numerous opportunities for UK companies to be engaged in the process of development and aid. Britain supported the revision of the European Union-Palestinian Authority Association Agreement which will help boost the Palestinian economy by enabling the West Bank and Gaza to export farm and fisheries products directly to the EU from early 2012. The UK Government strongly supports this revision to the EU-Palestinian Association Agreement, which would remove essentially all tariffs and quotas for Palestinian agricultural and fishery products exported to the EU and reduce duties on EU agricultural exports to the Palestinian Territories. Britain started to implement this agreement as of 1 Jan 2012.

The Palestinian business community is entrepreneurial; local businesses aspire to a high level of professionalism and product quality. Large enterprises are internationally connected, with partnerships extending to Europe, the Gulf, and North America. The labour force is highly educated, multilingual, and well versed in the technologies and practices conducive to doing business on a global level. Donor-funded credit guarantee facilities and political risk insurance schemes exist to mitigate the political risks. Despite being a relatively small and challenging market, UK exports to the Palestinian Territories increased by 57% in 2012 compared to 2011.

In addition to future growth, the Palestinian Territories already boasts a multitude of promising economic sectors ready for investment. In particular, opportunities exist around ICT, which is the least affected sector by political barriers and the most endowed given the presence of highly educated work force and entrepreneurial Palestinians. Other promising sectors are retail, agriculture, tourism and financial services. The construction, manufacturing and mining, and chemical industries sectors are also thriving and promise fruitful investment opportunities. UK Trade & Investment in Jerusalem sees a window of opportunities where British SMEs can benefit as a result of the demand for goods and services that will be generated out of this programme. The Palestinian Territories’ location at the crossroads of Europe, Asia and Africa make it excellently placed for trade. Products made in the Palestinian Territories benefit from preferential trade agreements with the European Union, the United States of America, Canada, Russia, Turkey and 19 Arab countries

Strengths of the market

The Palestinian Territories is a market-based economy with tremendous investment potential. Though the Palestinian economy faces clear challenges, especially since 2000, it also has many advantages, including:

• A forward-thinking, entrepreneurial, and talented private sector,
• A rapidly growing and well-educated, multilingual labour force.
• Large enterprises are internationally connected, with partnerships extending to Europe, the Gulf, and North America.
• With a very young population, the work force is expected to expand significantly over the next several decades.
• The diversification of the Palestinian economy and the improvement of the investment climate, which already attracts important business leaders from across the globe, are testaments to the resourcefulness and creativity of the Palestinian people.

Challenges

Recent political and security developments in the Palestinian Territories may give the impression that doing business with the markets is relatively difficult however Palestinian businesses have shown great strength in adapting new styles and methods to bypass such obstacles. More advice may be obtained from the Middle East Association, UKTI (Jerusalem) and PALTRADE (http://www.paltrade.org/en/).

The West Bank and Gaza remain heavily dependent on inflows of aid and whilst the West Bank continues to export (mainly to Israel) the funding for Hamas controlled Gaza Strip is opaque. The European Union contributes approximately US$700m a year to the Palestinian Territories, and the United States US$600m. The Palestinian economy continues to remain at the mercy of Israel’s ad hoc closure policies which damage trade flows, labour migrations and industrial capacity. Import and export restrictions and the high cost of infrastructure development due to the inability of Palestinians to access land and resources in areas controlled by Israel act as barriers to growth and trade. Inflows of donor aid helped the Palestinian economy grow by an average growth rate of 7.7% increase in GDP between 2007 and 2011. Between 2010 and 2011, growth averaged approximately 11%.  In a March 2013 report by the IMF, the latest available data showed a decline in growth to 6% in the first 9 months of 2012.