How To Strengthen the Resilience of the Palestinian Economy - The Policy of ImportSubstitution and Diversification

The ability of countries to deal with economic shocks and pressures varies, particularly during major crises, such as the 2008 crisis in the United States and the subsequent crisis in 2012 which primarily affected Europe.

During each crisis, it was evident that its impact on countries like Ireland and Switzerland was milder than the devastation it caused to other European countries, like Greece, Italy, and Spain.

The importance of building the economy's resilience ensuring its flexibility and robustness in the face of external pressures has become the main lesson and the essence of economic policies adopted by some countries during these crises.

The Palestinian economy is quite unique, as Palestine is constantly exposed to various political pressures in addition to the partial economic blockade due to security measures. As a result, Palestine’s economy is unstable and far from sustainable.

To achieve stability and sustainability, the economy needs to strengthen its resilience, enabling it to resist various pressures due to a protracted occupation and a conflict that may extend for generations.

Among these elements are the importance of creating a broad production base based on reliable local sources, building diverse, integrated, and alternative markets that can withstand crises, and developing a flexible and multiskilled human resource base that can move quickly from one sector to another as needed.

In the Palestinian experience, we were unable to effectively invest our local resources, including land, water, and other natural resources, due to external reasons — primarily the occupation — and internal reasons, such as the absence of vision and will.

Furthermore, we were unable to maintain our markets owing to various issues: separation and annexation of Jerusalem to Israel in 1980; the separation and siege of Gaza after 2007; the challenges of subsidizing national products and supporting the local market to withstand the hegemony of Israeli products; and a lack of adequate support for Palestinian exports in their foreign markets.

Moreover, Palestine’s human resources are also an issue, as the population is untrained for the labor market. We have not invested sufficiently in vocational and technical training, which is in high demand in the Palestinian market, and university graduates in Palestine are not prepared for the local market.

All of the above challenges remained unheeded for more than 25 years by successive governments of different political decision-makers, all of whom prioritized political and security policies over economic ones. Economic sustainability was a weak priority in government budgets despite thousands of pages of three- or five-year government plans, presented to donor countries' meetings (the Ad Hoc Liaison Committee).

In this quick analysis of one of the three components of the production economy — namely, foreign trade and its repercussions on building local productive sectors within the framework of the project to replace imports with local products — we rely primarily on the statistics published by the Palestinian Central Bureau of Statistics in a report on foreign trade in goods and services for 2018.

The report indicates that Palestine’s imports in 2018 increased compared to 2017, amounting to $6,340 million, an increase of 11.7%. It is noteworthy in this report that the value of imports for the Gaza Strip amounted to $640 million only. In other words, the per capita share of imports in Gaza is $320 per year, while its value in the West Bank has reached $2000 per capita per year, which reflects a large-scale shift in consumption patterns.

Palestinian imports came from 1- major countries, the most important of which are Israel at $3632 million, Turkey at $658 million, and China at $450 million, while the imports from three Arab countries, including Jordan and Egypt, did not exceed $371 million.

A detailed look at Palestinian imports, however, opens the door to dozens of opportunities and projects that local or Arab investors (as well as the Investment Fund, of course) can invest in after conducting an in-depth examination of their opportunities.

For example, I believe that we need a government policy that aims to reduce our import of electricity from Israel from about $558 million annually to figures that decline annually according to our absorptive capacity by supporting the expansion of the alternative energy sector. We must keep in mind that the speed of achievement in this sector remains slow for a variety of reasons and requires a push from the government based on predetermined goals reviewed on an annual basis.

In the same field, our import of petroleum, gas, mineral oils, and others, worth more than $1,260 million, is a sufficient reason to examine available alternatives and options, including opening the door to import from outside Israel, whether from Arab countries or others, after Israel opened the door to import oil derivatives from various sources.

Cement is a strong commodity candidate for relatively rapid changes, as our imports from it amounted to $193 million. The aim would be not only to replace Israeli cement with other Arab or foreign sources, but to quickly set up a clinker mill in the Palestinian Jordan Valley during the next three years, with a production capacity of about 1 million tons annually.

If government imports, which constitute about a third of Palestinian imports, are excluded, there is significant space for changes in the import structure, substituting hundreds of millions of imports and replacing them with Arab and Islamic sources or local products.

In this quick analysis, it is possible to cite 10 basic materials that already exist or have a potential for production in the Palestinian market.

First: Vegetables and Fruits

Palestine imports approximately $206 million annually in vegetables and fruits, including dates and avocados, at a value of $39 million, apples and pears at $26 million, bananas at $18 million, citrus fruit at $12 million, legumes at $15 million, potatoes at $5 million, and garlic at $5 million.

I believe there is potential for the Palestinian private sector in the agricultural field to work in cooperation with the Ministry of Agriculture and consumer protection committees in order to create alternatives and change consumption patterns or replace them with Palestinian or Arab production that competes in quality and price.

Second: Juice, Soft Drinks, and Mineral Water

Our total imports of carbonated water amount to $84 million, mineral water to $68 million, and juice to $14 million, all of which are large numbers, 
decreasing with the presence of many local factories capable of expanding their investments to cover the local market.

Third: Dairy and Cheese

Our imports of dairy products and cheese, mostly from Israel, amount to $80 million, including butter and sweetened dairy, considering the presence of a leading Palestinian industry in these sectors.

The concerns around juice and soft drink imports also apply here in terms of the need to search for mechanisms to develop and support local products to reduce the local market's dependence on these imported products.

Fourth: Medicines and Medical Accessories

Palestine’s import of medicines amounts to $138 million; medical accessories to $39 million; and vitamins to $10 million, despite the existence of a long-established industry and export factories. Palestine may not be able to replace imports of these materials, but discussions between the Palestinian Ministry of Health, pharmaceutical factories and producers, and the pharmacy and hospital sectors in Palestine is key to finding a way to reduce imports and support the local product of pharmaceutical industries.

Fifth: Candies, Biscuits, and Baked goods

Our imports of these commodities amount to about $170 million, of which about $85 million is for bread, wafers, and biscuits, $7 million for pasta, $43 million for flour, $9 million for cornflakes, and $40 million for sugar. As for chocolate and cocoa, our imports exceeded $96 million. In this sector, it is clear that there is a significant expansion in the consumption market, and it needs a broader orientation in consumer protection associations, in addition to examining the investment options available with companies operating in this sector.

Sixth: Cigarettes and Tobacco

Cigarettes and tobacco imports to Palestine amount to $172 million annually, and this sector is considered one of the most important and risky sectors due to the amount of tax imposed on it. As a result of the significant income generated by this sector for the Palestinian Government, it seems only logical for it to invest in strengthening relations with local producers and Palestinian tobacco farmers.

Seventh: Fodder, Animal Feed, and Grains

Imports of grain and fodder amount to more than $261 million annually. This import suffers from poor storage and manufacturing capacity, as well as the ability of buyers to purchase large commercial quantities at competitive prices. Specifically in this sector, maintaining Palestinian food security is a joint responsibility of the government and the private sector, and it requires a strategic initiative that reduces import prices and ensures large quantities of it are stored for long months, in addition to expanding local production lines.

Eighth: Eggs

The import of eggs amounts to $25 million annually, while chickens amount to $9 million, in light of the presence of investment and development of Palestinian farms. Over the years, this sector has witnessed dumping operations in the local market at subsidized prices for goods from the settlements or through them.

The required partnership between the producers and the Ministry of Agriculture and cooperation with the customs police will guarantee a broader regulation of this sector and reduce dependence on imported and Israeli products.

Ninth: Iron and Iron Products

Our imports of iron and its products amount to $390 million, including rods for construction works, with a value of $100 million, and various pipes, with a value of $60 million. Palestine hardly owns a single iron factory, as it is a large investment that requires a large amount of electrical energy to operate it.

In this regard, I think that what is required is to establish a partnership with one of the Jordanian or Saudi factories to build a factory for smelting and forming iron, after providing the necessary electric power for it.

Tenth: Stone and Marble

Palestine imports $115 million worth of tiles, stone, and porcelain compared with $184 million in Palestinian exports, at a time when there are 1,200 stone and marble factories and operators in Palestine. Organizing this sector to protect the rest of its promising and producing companies, most of which are for export purposes, is a joint responsibility of the Ministry of National Economy and the producers in order to protect the local product and support its exports to global markets.


The selection of the 10 sectors mentioned above may be unfair to other sectors. The figures provided may be completely inaccurate because they are based on customs figures that contain more than one commodity. An objective of this analysis, however, is to direct the investor and the decision-maker to the possibility of expanding local products at the expense of imports and expanding local exports at the expense of re-exported exports.

Of course, some may say that Israeli decisions will always stand in the way of these possibilities. Nonetheless, the experience of many investments and opportunities, including palm cultivation, herbs, and the cement industry, all testify that these possibilities are promising if there is a will on the part of the Palestinian Government and private sector, its regional networks, and the investors of the Palestinian diaspora.

The task of building a Palestinian productive economy and meeting its technical and financial requirements is an essential element in building the resilience of the Palestinian economy and in our ability to expand the labor market and protect our national project from external pressures and shocks that arise in a volatile and difficult political phase, which may continue for decades to come.