Towards Economic Sustainability of a Future Palestinian State: Promoting Private Sector-Led Growth

Promoting Economic Growth through Trade and Integration.
 
High-value production requires highly skilled workers.

Only a dynamic and rapidly growing private sector will be able to provide the jobs needed by the expanding Palestinian population and generate the revenues required to fund essential government services.

 According to a World Bank report released today, Towards Economic Sustainability of a Future Palestinian State: Promoting Private Sector-Led Growth, the removal of Israeli restrictions on access to markets and to natural resources continues to be a prerequisite for the expansion of the Palestinian private sector. However the report argues that there is much that can be done now to improve the business environment in order to support a future Palestinian state.

 “The Palestinian Authority has made steady progress in many areas towards establishing the institutions required by a future state but the economy is currently not strong enough to support such a state,” said John Nasir, Lead Economist and Lead Author of the study. “Economic sustainability cannot be based on foreign aid so it is critical for the Palestinian Authority (PA) to increase trade and spur private sector growth.

 The report asserts that future growth of the Palestinian economy will depend upon how well it can integrate into the world economy and take advantage of its main riches: its well educated and entrepreneurial population and its location as a gateway between the Arab World and Europe.  A Palestinian state could seek to emulate the outward-looking models of the East Asian countries, with trade as the main driver of future growth.  High value-added services are particularly promising given the high levels of education and good infrastructure in West Bank and Gaza.

The report explains that to increase trade the PA will need to improve its trade infrastructure to lower costs and increase efficiency.  The first step is for the PA to decide what kind of trade regime would work for a future state. This will allow it to plan and develop its trade infrastructure, including the legal environment. Commending ongoing work, the report urges the PA to continue efforts to improve the legal and regulatory environment by passing new legislation and developing the ability to regulate markets. Developing and improving customs operations will also help facilitate trade.

The report celebrates the Palestinian economy’s main resource, its people, who are highly educated and entrepreneurial. That said, for the Palestinian economy to improve its competitiveness and move towards higher value-added products, particularly services, investment in the education system is key to better link learned skills to the needs of the private sector.

 “While Israeli restrictions remain the biggest impediment to investing, and most growth comes from donor-funded government spending, there are still positive actions that the  PA can take now that will both lay the ground work for a sustainable economy and contribute to growth today and in the future,” said Mariam Sherman, World Bank Country Director.

Click here to download the Full Report:

West Bank and Gaza || Towards Economic Sustainability of a Future Palestinian State: Promoting Private Sector-Led Growth   (181 page, 7.28 MB )

Click here to download the Presentaion:

Presentaion || Growth in a Future Palestinian State   (14 page, 4.22 MB )

Peering through a hole in the wall: A vision of a future Palestinian economy
Submitted by John Nasir.

Driving through the Wall that hems in the Palestinian city of Ramallah I am always struck by the number of high-rise buildings under construction, the numerous expensive cars and latest cafes.  To the eye it appears that Ramallah is a rapidly growing capital of a booming middle-income country.

However, I know that this is a mirage.  It masks the dire poverty in Gaza, in the rural areas of the West Bank and in the refugee camps that dot the countryside. The minute one passes through the checkpoint into Gaza – something few people get to do – the expensive cars are gone, replaced by donkey carts, piles of trash and the misery of a captive population.

Working with the Palestinian Authority (PA), I can’t help but be impressed by the dedication of its employees and the progress that they have made to build the institutions of a future state.  But no state can be successful without a sustainable, private sector-led economy and this is simply not achievable under the heavy restrictions that the Government of Israel imposes on movement and access to resources such as land, water and the electro-magnetic spectrum required for modern telecommunications. 

The growth that we see in Ramallah and elsewhere in the West Bank is driven primarily by donor-funded government spending and transfers supporting consumption.  While there has been considerable investment by local entrepreneurs in real estate and trade, there is little indication of investment in manufacturing, agriculture or other tradable activities. The new buildings are commercial real estate and housing, not factories or power plants.  Though it is clear that the private sector will not be able to take off under the current level of restrictions, there is still much that the PA can do to both improve the current situation and set the stage for when a peace deal might bring about an independent state. 

West Bank and Gaza is a small open economy and its best chance for prosperity and growth is to integrate into the world market and increase trade.   Think of its location, it’s right next to Europe and has access to the Mediterranean. But it’s also a gateway to the Arab world, west to Egypt and south and east to the Gulf. 

To take advantage of this geostrategic position, work can begin now, even before it controls its own borders, to build its trade infrastructure.  But to use that future infrastructure to the full, the Palestinian private sector needs to become more competitive and poised for trade opportunities.  And to call forth the massive investment needed to increase productivity and raise competitiveness, the business environment needs to be improved.  It is not enough to have a good business environment.  To overcome the perceptions of risk created by years of conflict, the PA knows it needs to be one of the best business environments in the world.  A tall order under current circumstances, but this is something the PA is attempting.

I’ve worked in the World Bank here in Jerusalem for many years and if you ask me to name the best asset, the best resource here,   it’s the people: impressive, highly educated and entrepreneurial. The Palestinian population has a very high level of educational attainment but unfortunately there are few jobs to absorb the many new graduates every year.  Mostly – and the argument always inevitably circles back – this is due to the repressed economy. But it is also a concern that many graduates lack the skills actually needed by the private sector.  Thus increasing competitiveness and increasing export of higher-value added goods also requires a significant improvement in the quality of education.   

Only a sustainable private sector will be able to provide the jobs needed by the rapidly expanding population. And only a sustainable private sector will generate the revenues required to provide basic services.  Despite the current situation, the Palestinian private sector continues to function, though its growth is highly restricted.  But until a political solution can be found and the restrictions lifted, the high rises in Ramallah will be nothing more than a vision of what might be possible across West Bank and Gaza. But what a possibility that could be. I want to bring my son back to see that someday.
 
 

Click here to download the Full Report:

West Bank and Gaza || Towards Economic Sustainability of a Future Palestinian State: Promoting Private Sector-Led Growth   (181 page, 7.28 MB )

Click here to download the Presentaion:

Presentaion || Growth in a Future Palestinian State   (14 page, 4.22 MB )

Source: The World Bank, 26/7/2012