Palestine Liberation Organization
Negotiations Affairs Department
Position Paper: The Economic Costs of the Israeli Occupation
Having successfully completed its two-year state-building plan, the Palestinian National Authority continues to confront the enormous challenges posed by the ongoing Israeli occupation while continuing the momentum towards full sovereignty. Regrettably, Israel, the occupying Power, is attempting to deflect attention from its culpability in the continued deprivation of the Palestinian people’s right to economic prosperity, freedom and independence. The occupying Power has produced a document alleging that the Palestinian economy was unstable despite its certain knowledge that the statement is false and irrelevant.
In fact, this cynical spin of the direct and devastating effects of Israeli occupation on the Palestinian economy is a reflection of Israel’s determination to maintain the status quo. Israel, through deed and rhetoric, works towards indefinitely postponing, if not completely undermining, the Palestinian rightful demand for statehood and independence. It does so by undermining Palestinian institutions and achievements. Israel chose to ignore the international consensus that for Palestine to reach its full economic potential, the Israeli occupation has to end. This is the real reason why the Palestinian economy is still dependent on international aid.
In this regard, it is important to remind that statehood and independence are national, inalienable, and legal rights of the Palestinian people. Economic health was never a criteria upon which statehood was recognized nor a factor considered at the United Nations upon the submission of a state for membership in the organization.
Palestine is recognized as a state by 132 countries. Furthermore, the Palestinian people’s right to self-determination is internationally recognized and long overdue. It is a fundamental right that is not up for negotiations. Nor can its implementation be subject to whims of the occupying Power, Israel, whose actions are consolidating the occupation and making it irreversible.
Various reports produced and endorsed by international parties, such as the EU, the UN, the World Bank and the IMF have concluded that Palestine has achieved the institutional development needed for the state to function, including its economic component. All these reports also concurred that for Palestinian institutions to function to their full potential, the Israeli occupation has to come to an end.
Israel’s 44 year-old occupation means control: control of Palestinian land, airspace, sea and territorial borders. It has also meant control over trade, natural resources, and economic potential, which have been monopolized by Israel, to the detriment of Palestine’s economy. In 2011, the Palestine National Authority produced, for the first time, a study that calculates the quantifiable cost of Israel’s continued military occupation of the Palestinian Territory. The study revealed that in 2010, Israeli occupation cost to the Palestinian economy amounted to 6.897 billion USD, a staggering 93.3% of the total Palestinian GDP that year.
This staggering cost is easily understood in context. Israel continues to maintain exclusive military, civil, and administrative control over 62% of the occupied West Bank, designated as 'Area C’ in the Interim Agreement. Furthermore, approximately 35% of the Palestinian economy is generated in the Metropolitan East Jerusalem area.
Israel’s illegal annexation of occupied East Jerusalem and its separation from the rest of the occupied West Bank also has debilitating economic and social effects. Hence, Israel deprives Palestinians from developing the natural resources of their Territory and tapping into the unfulfilled economic potential of this large area. In addition, Israeli restrictions on Palestinian movement and access in the OPT in addition to its illegal exploitation of Palestinian historic, cultural, and natural resources have severely affected the fledgling tourism industry, which has the potential of being one of the main sources of income in the Palestinian economy. Naturally, these restrictions are detrimental to economic growth.
Israeli movement restrictions reach criminal proportions in the Gaza Strip, whose population has been under an illegal and inhuman siege since 2005. The infrastructure in Gaza requires urgent and massive investments in key sectors such as water and wastewater, electricity, and solid waste. This siege, and despite the slight recovery last year, is highly costly. For example, the extra costs of producing electricity in Gaza under occupation amount to 441 million USD per year.
The occupation also stifles the amount of Palestinian fiscal revenues through the prevention of efficient tax collection and the artificial reduction of the size of the Palestinian economy, causing dependence on foreign aid. The total direct and indirect cost of these restrictions is estimated at over USD 1.96 billion per year.
Israel also maintains an intricate and multilayered web of movement restrictions in the OPT. The UN’s Office for the Coordination of Humanitarian Affairs (OCHA) reports that Israel has placed an average of 520 permanent checkpoints, road obstacles and other restrictions and an estimated monthly average of 420 internal mobile checkpoints. Furthermore, Israel’s illegal settlement and Wall regime, include Israeli-only roads, has fragmented the OPT and exacted a heavy financial price on the movement of Palestinian goods and persons. In fact, Israeli movement restrictions cost the Palestinian economy USD 185 million in 2010 alone.
Recent international reports also confirm that Israeli restrictions on movement of Palestinian goods and people remain a key impediment to private sector investment. According to the most recent IMF assessment, “The [Israeli] restrictions and barriers adversely affect the profitability of investment through their adverse impact on the average level of demand, and by increasing the volatility of demand. Costs are raised through higher transportation costs, difficulties in importing inputs, and through adjustment costs while adapting to fluctuating demand conditions”.
In its latest report, “Stagnation or Revival”, the World Bank examined the various Israeli punitive measures that affect the Palestinian economy. These include Israel’s continued use of the funds transfer of Palestinian revenues as a coercive tool to extract political positions. The report states that the Israeli government “put [the] implementation of the [funds transfer] agreement on hold following the signing of the Palestinian reconciliation”.
The World Bank also pointed out that Israeli authorities penalize Palestinian importers but do not transfer fees to the PNA, noting that Israel has not transferred approximately USD 16 million (NIS60 million), resulting from an increase in the exit fee, to the PNA.
Yet, the Palestinian economy continues to make strides. The 2012 Doing Business report ranks Palestine above several prominent countries in the region in the area of registering property, protecting investors, and enforcing contracts as well as dealing with construction permits and ease of paying taxes.
The World Bank report also noted the effect of Israel’s control over the Occupied Palestinian Territory; “The present situation… severely handicaps Palestinian economic activity in the Jordan Valley... thereby denying Palestinians a potential powerhouse of export-oriented high value-added agriculture”.
The World Bank then concluded that 'Israeli restrictions remain the biggest constraint facing Palestinian private sector growth’
and referred to Israeli restrictions as impeding sustainable economic growth.
The Palestinian economy is indeed ailing from the continued Israeli occupation as well as the illegal actions undertaken by the Israeli government, which threaten to make the occupation permanent. In 2011, there was a 20 percent increase in new construction projects in illegal Israeli settlements in the occupied West Bank while occupied East Jerusalem witnessed the highest number of new construction projects in a decade.
Indeed, Robert Serry, UN Special Coordinator for the Middle East Peace Process (UNSCO), stated in the donor meeting of September 2011, “I am very worried about the disconnect between what the PA has achieved on the ground, and where the political process stands. The reality is that there is only so much that can be done in conditions of prolonged occupation, unresolved final status issues, no serious progress on a two State solution.... Further achievements in state-building require that the politics catch up with the impressive progress on the ground.’
In its report to the March 2012 AHLC, UNSCO states, “Restrictions on Palestinian movement and access continue to compromise economic growth, undermine livelihoods, hinder access to basic services including education, health and water supply, and contribute to conditions whereby a continuation of external aid is required”.
Ibid., Economic Monitoring Report to the Ad Hoc Liaison Committee, March 201232
TheIMF Staff Report to the AHLC, March 2012: “Recent Experience and Prospects of the Economy of the West Bank and Gaza”
The UNSCO report to the AHLC, March 2012:PALESTINIAN STATE-BUILDING: AN ACHIEVEMENT AT INCREASED RISK