PALESTINIAN ECONOMY
COUNTRY : LAND, PEOPLE AND GOVERNMENT

Geography and population

The occupied Palestinian territory is composed of the West Bank (including east Jerusalem) and the Gaza Strip, which are located on the western edge of the Asian continent and the eastern extremity of the Mediterranean Sea. Its area covers 6,170 square kilometres, constituting 23 per cent of the area of the pre-1948 British Mandate Palestine, and about one third of the area of the adjoining State of Israel.

The West Bank is 5,800 sq. km. in area, and 130 km long and ranges from 40 to 65 km in width; it lies between Israel to the west and Jordan to the east. The Gaza Strip is 365 sq. km. in area, 45 km long and between 5 and 12 km wide; it borders Israel to the north and east, the Egyptian Sinai peninsula to the south, and the Mediterranean Sea to the west. 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 of around 400 sq. km, while the Eastern Slopes overlooking the Valley are a rocky, semi-arid area of 1,500 sq. km, leading down to the Dead Sea. The Central Highlands constitute the largest zone, of 3,500 sq. km, rising 1,000 metres above sea level in places; while the semi-coastal zone consists of 400 sq. km. in the west and north-west.

The West Bank is divided into three main districts with eight sub-districts, each of which is named after one of the main cities. The northern region comprises the sub-districts of Jenin, Tulkarem and Nablus, while the central region comprises Jerusalem, Jericho, Ramallah and Bethlehem and the southern region consists of Hebron. The Gaza Strip is divided into three districts: Northern Gaza, Central Gaza and Southern Gaza.

The population of the West Bank and Gaza Strip is estimated by the Palestinian Central Bureau of Statistics (PCBS) to have reached 3.15 million in 2000, approximately 36 per cent of whom live in the Gaza Strip. The population density differs markedly between the two areas. In the West Bank it is 342 persons per sq. km, whereas in the Gaza Strip the comparable figure is 2,933. Almost 40 per cent of the resident population are registered as refugees from the wars of 1948 and 1967 (26 per cent of the West Bank population and 65 per cent of the Gaza Strip population).

The annual rate of population growth is estimated to have reached 4.5 per cent in 2000; however, present health indicators suggest that it is likely to decline to 2.2 per cent by 2025. These include the fertility rate, which stood at 5.93 in 1999 (5.52 in the West Bank and 6.81 in Gaza); the infant mortality rate, estimated at 25.5 per 1,000 (24.4 in the West Bank and 27.3 in Gaza); the under-5 mortality rate of 28.7 per 1,000 (27.2 in the West Bank and 31.2 in Gaza); and life expectancy at birth, estimated at 69.9 years for males and 73 years for females in 1997.

Young people represent the largest percentage of the population with, 47 per cent below the age of 15 in 1999. The age group (0-4) constitutes the second largest proportion (19 per cent), while the age group (60 and above) constitutes 3.4 per cent of the population only.

Interim self-government arrangements

Peace accords between Palestine (the Palestine Liberation Organization (PLO), representing the Palestinian people) and the Government of Israel from 1993 onwards were aimed at creating the basis for ending long years of conflict and military occupation. The accords envisaged a five-year "interim" period that would set the stage for gradual extension of Palestinian Authority (PA) jurisdiction over the Palestinian population and territory, postponing until 1999 a permanent status agreement on the issues of borders, Jerusalem, refugees, water resources and Israeli settlements.

Under a series of transitional agreements, Israeli military forces withdrew from some parts of the Palestinian territory, and the PA assumed the tasks of government in these areas, including the judiciary and legislative and executive functions. The agreements empower Palestine to conduct foreign relations and sign agreements on behalf of the PA.

The PA assumed control over some areas in the West Bank and Gaza in May 1994 in accordance with the Gaza-Jericho Agreement signed earlier that month, when the Israeli military forces withdrew from 80 per cent of the Gaza Strip and the West Bank town of Jericho. This PA jurisdiction was extended to additional West Bank areas and in Gaza the following year after the signing of the Israeli-Palestinian Interim Agreement on the West Bank and Gaza Strip in September 1995. The agreement divided the rest of the Palestinian territory into three areas, defined as Zones A, B and C. Zone A includes the major populated cities of the West Bank areas but constitutes no more than 3 per cent of those areas; Zone B encompasses 450 Palestinian towns and villages representing 27 per cent of the West Bank; and Zone C constitutes the rest of the West Bank and the Gaza Strip, including agricultural land, the Jordan Valley, natural reserves, areas with lower population density, Israeli settlements and military areas. In addition, the two sides agreed to work out special arrangements for the West Bank city of Hebron, which would be followed by Israeli redeployment from the city.

It was further agreed that "in order to maintain the territorial integrity of the West Bank and the Gaza Strip as a single territorial unit, and to promote their economic growth and the demographic and geographical links between them", the parties would protect the normal and smooth movement of people, vehicles and goods within the West Bank, and between the West Bank and the Gaza Strip through the establishment of a "safe passage" between the two areas. This agreement was implemented in December 1995, when Israel withdrew from the cities of Tulkarem, Qalqilya, Jenin, Nablus, Ramallah and Bethlehem, which together constitute Zone A. In 2001, the areas under the civil and security jurisdiction of the PA comprise 80 per cent of the Gaza Strip and 3 per cent of the West Bank. They are separated, however, pending the reopening of the safe passage connecting the West Bank and Gaza Strip in conformity with the Protocol Concerning Safe Passage between the West Bank and the Gaza Strip, signed in October 1999 but suspended a year later.

The international community has welcomed Palestine's participation in a number of international and regional organizations. Palestine is a full member of the Asian Group of the United Nations, the Global System of Trade Preferences among Developing Countries (GSTP), the Group of 77 and China, the League of Arab States (LAS), the Non-Aligned Movement (NAM), the Organization of African Unity (OAU), the Organization of the Islamic Conference (OIC) and the United Nations Economic and Social Commission for Western Asia (UNESCWA). Moreover, Palestine has maintained observer status with the United Nations and all specialized agencies, in accordance with General Assembly resolutions since 1974.

Resource endowments

• Land and water
  
  The agreements signed have granted the Palestinians limited areas of land and water resources. It was agreed that there would be no change in sovereignty over land, water and settlements during the transitional period. These issues were referred to the permanent status negotiations that were due to begin in mid-1996. Consequently, the restrictions on Palestinian control over land and water remain in place, notwithstanding a transitional agreement to increase water quotas allocated to the areas under the PA.
  
  Only one quarter of Palestinian land is under cultivation - about 1,861sq. km in 1997/1998, of which 89.6 per cent is in the West Bank. According to some studies, the cultivated area of the West Bank could be increased to 2,000 sq. km (through land reclamation) at a reasonable cost, and could be increased further at higher cost.
  
  Rainfall in the West Bank and Gaza Strip is quite substantial relative to that in neighbouring countries. It is estimated that 68 per cent of the land surface receives an average annual precipitation of over 300 millimetres. However, the amount of rain varies considerably between seasons and regions. The bulk of the rain (75 per cent) falls during just four months (November-February), its intensity declining from its highest level in the northern mountain areas to its lowest level in the Jordan Valley and the southern part of the Gaza Strip. Of greater importance is the variability of rainfall from one year to the next, which renders the long-run average misleading. In some recent bad years, rainfall did not exceed 25 per cent of the average, whereas it can be as high as 160 per cent of the average in good years.
  
  As a result of these fluctuations, farmers cannot depend on collecting and storing water for irrigation purposes. Instead, they must depend on groundwater sources for irrigation. The annually renewable water that is available as ground and spring water is estimated at around 600-800 million cubic metres (MCM) in the West Bank, and 50-70 MCM in the Gaza Strip. Use of water by Palestinians in the two regions is estimated at about 200 to 230 MCM annually.
  
• Human resources
  
  It is widely considered that the most impressive asset of the Palestinian economy is its human resources. Palestinians are considered to be relatively well-educated, as measured by literacy rates, years of schooling completed and enrolment rates. This achievement, however, is more of a potential asset for future economic development than a real resource already optimally allocated. The restrictive economic environment since 1967 subjected the development of the Palestinian labour force to many constraints on growth and productivity. During the last decade, the natural growth of the labour force significantly outpaced the growth of employment opportunities. This compelled many to seek work outside the territory, forced others into prolonged unemployment or underemployment and prompted some to leave the labour market altogether.
  
  The labour force situation improved considerably following the signing of the peace accords, as both the domestic economy and the Israeli labour market were able to absorb the Palestinian labour surplus. The overall labour force participation rate (the proportion of the labour force to the total population above the age of 15) stood at 41.5 per cent in 2000. According to the PCBS labour force survey for the third quarter of 2000, 77 per cent of the labour force was employed in the West Bank and Gaza Strip, as opposed to 23 per cent in Israel and the Israeli settlements. However, the survey shows that the percentage of the population aged 15 and over outside the labour force was 56.5 per cent (57.7 per cent in the West Bank and 59.9 in the Gaza Strip).
  
  Two other important features of the labour force stand out. First, the survey shows a remarkable increase in the average number of years of schooling: the percentage of those who have completed 13 years of schooling or more has increased from 21.2 per cent in 1998 to 31 per cent, while the percentage of those who have never attended school has decreased from 3.8 per cent to 1.2 per cent, with a consequent increase in the participation rate. Second, around one third of the labour force is still employed in the agricultural sector and in unskilled occupations, while the percentage of workers in jobs requiring high technical skills is still limited.
  
  Another important aspect of the labour force, which has been adversely affected by the lack of an enabling economic environment, is its productivity. It is obvious that the productivity of labour depends mainly on the quantity and quality of the available capital, as well as on a support system offering vocational and technical training. In the Palestinian case, both of these factors have been inadequate over the last two decades, particularly because of the sluggish rate of growth of both private and public investment, which has led to stagnation in productivity growth, especially in industry.
  
  
• Capital
  
  During the 1970s and 1980s, the Palestinian economy witnessed a relatively large movement of capital inflows, namely incomes of Palestinian workers in Israel, remittances from migrant Palestinian workers in the Gulf States, and Arab and foreign financial assistance. Capital outflows constituted a transfer of savings from the territory to neighbouring economies and abroad, as their productive utilization was inhibited owing to poor financial intermediation in the economy and the uncertain, turbulent, policy environment. The net capital inflow in the 1970s was higher than the average for neighbouring countries. This has continued to be the case following the establishment of the PA, but with a marked change in the composition of the flow.
  
  The incomes of workers in the Gulf region have declined significantly since 1990, owing to the dramatic drop in the number of Palestinians working in those major markets. In contrast, remittances from workers in Israel have assumed a significant importance, constituting nearly 30 per cent of gross national product in 2000. Foreign assistance, which has increased with the establishment of the PA, represents another important source of capital. Meanwhile, the rapid growth of modern Palestinian banking services since 1994 has slowed the outflow of savings and attracted the accumulated capital of Palestinians abroad. But the potential role of domestic capital and financial institutions has yet to be realized, given the high degree of uncertainty generated by political strife. While the prospects for future capital movements are not clear, inextricably linked as they are to future political developments, net factor income and remittances are unlikely to regain the peaks of recent years, while official aid faces an uncertain outlook as well. The main source of capital inflow in the future could well be accumulated Palestinian savings abroad and foreign direct investment (FDI) from Arab and non-Arab sources.