Although the Palestinian economy is far from being a developed
industrial economy, it has experienced significant growth in the
service sector. This growth, however, has not followed the
classical pattern experienced by service industries of the
developed countries. Where the latter have experienced progressive
growth together with an increase in productivity, the industrial
sector of the Palestinian economy has remained stagnant and
traditional. Small-scale handicraft production contributed less
than eight percent to the Gross Domestic Product (GDP) in 1987; and
productivity in most sectors has fallen.
Whereas growth of income in developed economies is generated
internally, growth of income in Palestine has been induced by
external factors, primarily the demand for Palestinian labor in the
Gulf States, before the Gulf War, and in Israel.
Restrictions on internal development, in particular industrial
development, have contributed to the growth of distributive
services in the Palestinian economy. A large segment of the
Palestinian labor force, has moved directly from the primary sector
to the service sector, and service sector development has been
affected by the heavy reliance on the export of labor services. The
wages of Palestinians working in Israel have accounted for about 25
percent of the Gross National Product (GNP) of the West Bank since
the early 1970s, more than 30 percent of the GDP. In the Gaza
Strip, almost half of the employed population works in Israel. Thus
the level of income in the Occupied Territories does not reflect
the true level of development, it exaggerates it. The GNP per
capita is not a good measure or indication of the level of
development of these areas.
Furthermore, the only available data is provided by the Israeli
authorities, through the Central Bureau of Statistics. The fact
that the Israeli authorities are the adversary in the struggle over
sovereignty of the Palestinian territories reduces the credibility
of the data. In addition, the fact that the bureau treats the West
Bank and Gaza Strip as independent units, yet is unable to monitor
the daily economic interaction over the Green Line, has led even
Israeli researchers to question the statistics.
Transportation
Like every other sector in the Palestinian economy, the development
of transport services has been blocked by occupation. The only
means of transportation has been the inadequate road network, which
was established before 1967. It facilitated the movement of people
and goods within Palestine and from there to neighboring countries.
Since 1967, all new roads have been constructed in conformity with
Israeli strategic considerations, mainly on East-West axes, linking
Israeli settlements in the Territories with metropolitan areas in
Israel. This means that they are of little use to Palestinian
residents or to the needs of developing Palestinian tourism
infrastructures. The existing road system serving the Palestinian
population has not been expanded. Road maintenance is at minimal
levels, and repairs are effected only when roads deteriorate
drastically.
Palestinians have been prohibited sea and air transport since 1967.
The West Bank, being landlocked, must rely on Israel and Israeli
agents for sea transport. The only airport in the West Bank,
located on the outskirts of Jerusalem, has been closed to
Palestinian use since 1967. Thus, since 1967, air transport for the
West Bank population has been available only through Ben-Gurion
Airport, or through Amman Airport for passenger travel only.
Buses and taxis which are owned and operated by private enterprises
and individuals are the only official public transportation. Bus
services between the main urban centers and smaller towns and
villages are often supplemented by a shared-taxi service. The
increasing demand for public transportation, especially in the
remote rural areas and the densely populated urban centers, is
sometimes met by private cars, vans, and pick¬ups, which
operate without a permit.
If peace is achieved in the near future, the demand for
transportation will increase substantially, due to the removal of
the restrictions on economic development in general, and on the
freedom of movement and travel in particular, which have been
imposed by the occupation. Therefore priorities should be
established for developing a Palestinian transportation system, and
plans should be prepared accordingly to achieve the required
development. The plans should include:
* Upgrading the feeder roads in
Palestinian towns and villages which have been totally
neglected.
* Constructing a main road corridor to
connect the West Bank and the Gaza Strip.
Constructing a deep-water port in Gaza, which would be a major
asset for the Palestinians, facilitating exports of agricultural or
industrial products to the Arab world or other countries. Also, it
would attract many vacationers, especially if recreational
facilities were developed along the shore of the coastal region.
This would have both a social and a political impact.
* Upgrading the present airport in East
Jerusalem, Kalandia Airport, for commercial use and tourism, which
would have great repercussions on the local economy.
* Reconstructing the bridges at the
border crossing stations along the Jordan River and upgrading the
roads serving these bridges.
* Providing financial assistance to
local bus companies for the replacement of old buses.
The Palestinian transportation system and, in general, the whole
economy is dependant upon the Israeli systems of transportation and
communications. A cooperation treaty should be worked out to avoid
any serious breakdown or interruption of activities in this sector.
Cooperation in the area of transportation could be the use of
Israeli courier trucks to offset the insufficiency of these in the
Territories.
Since the Palestinian economy does not have sufficient human
resources, and it will take a long time to establish the necessary
institutional structure, considerable external assistance will be
needed in expertise as well as finance.
Tourism
Tourism and related services have traditionally constituted a major
source of income in the West Bank and Gaza. In 1966 income from
tourism and related services reached about seven million Jordanian
Dinars, which accounted for about 13 percent of the domestic
product of the West Bank. Hotels and other tourism-related
businesses generated some 6,000 jobs. About 9S percent of all
tourist activities were in and around Jerusalem.
After the Israeli occupation in 1967, the Palestinian tourism
sector in general, and the hotel industry in particular, suffered a
significant decline in the volume and quality of business. There
was increasing competition from the Israeli tourism industry, and
physical, institutional, and financial restrictions were imposed on
Palestinian tourism which severely constrained its development and
growth. Although most of the tourist sites and attractions,
especially those with religious and historical significance, are
located in the West Bank and East Jerusalem, it is estimated that
only about 10 percent of all tourists now stay in Palestinian
hotels. This is due to restrictions on movement and travel, the
instability of the political and economic situation, the imposition
of excessive municipal and government taxes, the absence of
official support, international neglect, lack of promotional
support from official agencies, the intentional Israeli policy of
preventing the development of new Arab tourist projects and hotel
construction, and high operating costs.
All in all, the tourism industry has suffered greatly since the
occupation and has remained underdeveloped. Strong pressures and
profound changes have resulted in the effective separation of
Israeli and Palestinian tourism sectors and the marginalization of
Palestinian facilities. At the same time Palestinian tourist
attractions have been merged with a single unified marketing
package to promote tourism to Israel.
At least 15 military orders and regulations related to tourism have
been issued since 1967 by the Israeli military authorities, who
have assumed responsibility for tourism in the Territories. These
orders raised the level of requirements for licensing and
functioning of tourist institutions, without availing those
institutions of the means necessary for the required improvements.
As a result of having quality standards raised, but access to
funding sources denied, many tourism firms were confronted with
serious problems, such as the often insurmountable challenge of
unequal competition with Israeli firms, or demotion to lower
tourist grades.
Israeli tourism enterprises are offered long-term loans at
concessional interest rates, sometimes with part of the loan being
turned into a grant. New Israeli tourism enterprises are eligible
for tax exemptions or reductions, especially when they face
unexpected troubles. Vigorous government support for Israeli
enterprises active, in both Israel and the Territories, has proved
to be a major impediment to fair and equitable competition with the
Palestinian enterprises, which are totally deprived of such
subsidies and assistance.
The problems confronting the Palestinian tourism sector can be
summed up as follows:
* Lack of infrastructure, finance,
investment, and marketing opportunities, condemning the local
industry to its current state. The paucity of credit and lending
facilities works as a disincentive for entrepreneurship.
* Inadequate human resources. There are
not enough graduates, who have specialized in tourism development.
The tourism courses at Bethlehem University and the Notre Dame
Center should be upgraded to meet the standards of developed
countries. A 1986 survey of the educational level of workers in
East Jerusalem tourism enterprises, nearly a third of whom were
employed in the hotel sector, revealed that 11 percent were
illiterate, 26 percent had only elementary school education, 26
percent had intermediate education levels or higher.
An insufficient number of licensed tour guides. There were 202
licensed tour guides in the West Bank prior to 1967 of whom 157
were in East Jerusalem. At present there are only 87 registered
licensed guides, a decrease of 55 percent since 1967; but there are
4,300 Israeli licensed guides, of whom some 3,000 are active. The
Israeli government has imposed many obstacles due to fear of
Palestinian guides as a possible source of unfavourable
information. The Israeli government has granted only three new
licenses since the occupation. The existing Palestinian tour guides
have little access to training opportunities, such as guiding
techniques, presentation skills, communications, or first
aid.
Local Palestinian sources estimate the number of operational hotels
in the West Bank outside East Jerusalem at only six in 1990. With
East Jerusalem, the total was 40, well below the total of 59 prior
to occupation. Six hotels were operating in the Gaza Strip in the
first years of the occupation; but by 1990 only two hotels
remained, catering to occasional journalists, United Nations
personnel, and others visiting the Gaza Strip for professional
purposes.
Developmental strategies should address the immediate need to
protect this sector from further deterioration and provide a plan
for future dynamic performance. Some of the immediate needs
are:
* Providing adequate financial
facilities to the various branches of tourism and, in particular,
handicraft industries, hotels and restaurants, transportation
enterprises, and tour operators, all of which require substantial
additional funding to renovate their premises.
* Initiating vigorous promotional
activities aimed at international tourists, such as pilgrims. These
could be facilitated by specialized Palestinian promotional
institutions rather than individual tour companies. A Palestinian
Tourism Public Information Agency should also be established.
Promotional campaigns could include use of leaflets and brochures
prepared for each section of the tourist market, Christian, Moslem,
and Jewish pilgrims, cultural tourists, leisure tourists, business
and conference tourists. In addition, leaflets could provide
step-by-step instruction on how and when to organize tours to the
Holy Land, sample letters to be sent to travel agents, sample
itineraries, lists of travel agents, lists of hotels, etc.
Upgrading the quality of services provided by existing hotels,
international standards, in order to enhance their capacity to meet
the sudden increase in required services.
If tourism is really to flourish and revenues are to be maximized
after the transition period, cooperation between the various
branches in both Palestine and Israel will be of crucial
importance. This will entail:
* Freedom for foreign tourists to move
between countries with a minimum of bureaucratic formalities.
* Care that the tourism of one country
not interfere with the policy of the other, specifically in the
areas of travel taxes and other taxes.
* Freedom of movement for tourist
guides.
* Preparation of a joint regional
transportation and communication scheme to ease travel arrangements
by road, rail, air, and sea, geared to creating an impetus for
local, regional, and international tourism.
* Preparation and marketing of joint
programs to promote tourism in the area.
Participation in joint programs, seminars, and conferences in the
area of training.
Financial Services
One of the first acts of the Israeli authorities after the 1967 war
was to close all banks and lending establishments. Between 1967 and
1983 a total of 122 military orders governing monetary activities
was issued, subjecting financial activities in the West Bank and
Gaza Strip to Israeli rules and regulations.
The only exception to this was the permission granted to the
Cairo¬-Amman Bank to reopen its branches in the West Bank in
1985/86, and to the Bank of Palestine in Gaza in 1991. However, the
only currency the Bank of Palestine is allowed to deal in is the
New Israeli Shekel (NIS) and, due to the high inflation rate in
Israel the bank has been unable to attract significant shekel
deposits, or to make loans to importers. The Bank of Palestine was
allowed to open its headquarters in Gaza City and not its branches
in Khan Yunis and Rafah. As a result the bank has remained small,
with a low ratio of deposits to capital, only 2.56 as compared to
accepted ratios in the U.S. of between 25 and 30; a low lending
ratio to its total assets, 36 in 1984; and with cash holdings
unusually large, 48 percent compared with 15.5 percent for Bank
Hapoalim and other Israeli banks. The Cairo-Amman Bank operates
under similar restrictions except for one difference: it can deal
in Jordanian Dinars as well as Shekels. It is based in Jordan and
its operation in the West Bank is governed by the Bank of Israel as
well as by military regulations. Like the Bank of Palestine, the
Cairo-Amman Bank has not provided the important service of
intermediation between savers and investors.
However, shortly after the start of occupation the Israeli military
authorities permitted the opening of branches of Israeli banks in
the Territories. In 1986 there were 23 branches of four Israeli
banks. These branches banks are not widely used by Palestinians
because of a lack of confidence, and because assets held in Israeli
banks may be seized by the military authorities. Therefore
Palestinians have preferred to use the banking system in
Amman.
The tremendous expansion of Israel's financial markets since the
occupation has had little effect on the West Bank economy as a
whole, and no effect on its industrial sector. As an example of
this, there are no West Bank and Gaza Strip firms registered on the
Tel-Aviv stock exchange.
Israeli banks do provide Palestinians with two important services,
which account for the bulk of their activities in the Territories:
they transfer funds and clear cheques for Palestinians employed in
Israel, and/ or those who are paid in Shekels; and they provide
facilities such as guarantees and letters of credit for Palestinian
importers and exporters. These two functions are highly related to
the growth of Palestinian employment in Israel and trade between
the Territories and Israel.
It is hard to imagine how any structural transformation in the
Territories can be effected without the setting up of a Palestinian
banking system. The absence of a banking system deprives businesses
of a major means of investment and credit. An effective banking
system would include these elements:
* Establishment of a Palestinian
monetary system.
* Creation of separate banking
institutions for the agricultural, industrial, housing, and
construction sectors. This would be costly and difficult, but it is
an appropriate way of financing the Territories' businesses, which
tend to be small and privately owned.
* Assistance given to borrowers to
develop a spaced schedule of repayment from their earnings.
* Establishment of statistical
departments or offices and central banks, or a financial authority
to handle some of the problems in the area of information on
production and trade in the services. At present such information
is inadequate for economic analysis and policy formulation.
Technical expertise in the field of bank borrowing and lending is
not sufficiently available in the Territories. Palestinians can
meet this deficiency by the use of technical assistance services
available from neighboring countries such as Israel and Jordan, to
train existing staff. It is important to develop an adequate
technical cadre, capable of designing feasible programs for the
mobilization, allocation, and management of financial
resources.
Construction and Engineering
During the first five years of occupation the construction sector
in the Territories was stagnant, due mainly to the political
uncertainty and unsettled economic conditions that the aftermath of
war causes. Construction activity recovered after 1973. A field
survey conducted in 1985 showed that 55.7 percent of all
construction since 1967 had been financed from abroad. Of this over
62 percent carne from private individual remittances and the rest
from the Joint Palestinian-Jordanian Steadfastness Committee and
other sources. A significant proportion of the remaining 44 percent
of financing came from employment in Israel. By 1985, over 30
percent of the West Bank and 50 percent of the Gaza Strip labor
force were employed there.
However, finance is not the only hurdle; a building license must be
obtained from the authorities before construction may
commence.
The supply of qualified engineers is not a problem, for there is a
surplus of engineers in the Occupied Territories, as evidenced by
the high rate of unemployment among qualified engineers, about 28
percent in 1990. It is estimated that there is a total of 1,764
engineers located throughout the West Bank. Although there are 170
engineering firms in the West Bank, a majority of engineers are
self-employed because of the difficulty of obtaining jobs, and
because of the low salary offered, about 210 Jordanian Dinars a
month (U.S.$300). As a result many engineers leave the Territories
in search of better job opportunities, mainly in the Gulf States.
In 1991 there were 680 engineers in the Gaza Strip. However there
is a tight market for their services due to high unemployment and
low income levels. It is estimated that an average of 65 engineers
a year are graduating from local and overseas universities.
Housing banks should be established to mobilize funds, either as
grants or guaranteed loans, needed for the implementation of
proposed housing programs. The present housing committee should be
transferred to such housing banks, which should be encouraged to
reach out to the low-income groups in urban and rural areas. In
addition, it is important to encourage people to increase their
spending on home improvement and construction.
A rural development strategy should be adopted to provide adequate
water supply, sanitation, electricity, roads, housing, and the
development of larger rural settlements, which would be capable of
performing market and service functions through investments in
infrastructure, such as wholesale markets, public transportation
terminals, storage facilities, and slaughterhouses. This would help
to maintain a balanced regional distribution of population, and
prevent overcrowding in the cities.
Vocational training schools should be encouraged to upgrade and
diversify their curricula to emphasize the construction-related
training that will provide the economy with skilled labor. Finally,
a serious plan should be implemented to rebuild the Palestinian
refugee camps.
Professional Services
Medical: The ratio of doctors to population in the West Bank
and Gaza has improved in recent years; but the number of hospital
beds has declined. In the Gaza Strip particularly there is a severe
shortage of hospitals. Dental services in the Territories are
inadequate and there are no specialized services for the local
population. Insurance: Insurance services are limited in the West Bank
and Gaza.
Most insurance agents represent Israeli firms, except for two
companies, The Arab Insurance Establishment and The Jerusalem
Insurance Agency. Automobile insurance accounts for more than 80
percent of all insurance in the Territories, and all premiums are
invested in Israel. Accountancy: These services increased during the 1970s, due
to the stepping up of Israeli tax collection. By 1990, there were
23 accounting offices in the Territories licensed by the Israeli
authorities, and many others that were not. Other: Other categories of business services such as
management consultancy, product design, marketing, and advertising
services are not available in the Territories, with the exception
of Birzeit University Consultation Technical Unit. Another
exception, a newly established firm in Ramallah, is offering
services in product design, packaging, and marketing. This firm
employs 10 specialists. All in all, this area of business services
is very limited in the Territories.
Public Administration
Legal System: The local law in the West Bank is based on
Ottoman, British Mandatory, and Jordanian legislation, and when
these laws (\re not sufficient to meet the needs and aims of the
occupation, military orders are introduced to augment them. In the
Gaza Strip, the same is true except that Egyptian legislation
applies instead of Jordanian. Chambers of Commerce: Chambers of commerce in the West Bank
were established prior to 1967 and continue to function, although
their activities have been curtailed by military restrictions.
There are chambers of commerce in all of the major towns of the
West Bank, as well as in East Jerusalem. In the Gaza Strip, the
chamber of commerce was established in 1954 according to Egyptian
rules, and by 1967, the other major towns in the Gaza Strip had
established chambers of commerce.
Since 1967, the role and functions of chambers of commerce have
been reduced significantly and are now confined to local
administrative and clerical tasks. West Bank chambers of commerce
have been empowered by the relevant Jordanian authorities to
perform preliminary services related to passport and identity card
procurement procedures. The chambers are also empowered by the
Jordanian authorities with the crucial responsibility of issuance
of certificates of origin for industrial goods destined for export
to or through Jordan. Their authority in this respect has been
recently reconfirmed as a result of the decision of the European
Community to accept chambers of commerce as qualified bodies for
issuing certificates of origin and ensuring the necessary
administrative arrangements for exports to the Community.
Gaza Strip chambers of commerce perform similar functions, though
primarily with regard to relations with Egypt. They issue and renew
refugee travel documents and identity papers on behalf of the
Egyptian authorities and are an accepted authority for the issuance
of certificates of origin for agricultural exports. However, the
potential role of Gaza Strip chambers of commerce has been largely
ignored by the occupation authorities, which restrict the chambers'
activity and have not allowed expansion of membership. The chambers
face serious difficulties in financing their limited activities,
with clerical fees as their only source of income.
Municipalities
The West Bank contains 25 towns, but the fact of a town's municipal
status does not necessarily indicate its size. There are 25
municipalities and a number of village councils in the larger
villages of the West Bank. In the Gaza Strip smaller villages
organize themselves around committees made up of representatives of
the various clans in each village. But since 1967, municipal
councils have been appointed in the major population centers,
including Khan Yunis, Deir el-Balah, and Rafah. Eight village
councils have also been appointed in the Territories' smaller
communities. In addition, local committees have been formed in
three Gaza Strip refugee camps.
Conclusion (Future Perspectives)
A key component of the overall infrastructure of a country is
adequate services in such areas as transportation, movement of
goods, communication, finance, trade, insurance, and public
administration. Unfortunately, these services are underdeveloped in
the Palestinian economy. A future Palestinian central authority
will have to implement a major transformation of these
services.
Palestinians should concentrate on the four main categories of
traded services that are important for boosting the Palestinian
economy and are non-existent at present. They are:
* Services which may be provided across
national frontiers by 'residents' to 'non-residents' through direct
export and import such as air and sea transportation, passenger
transportation, international reinsurance, communications and
consultancy, and engineering services.
* Services which are provided within
national boundaries, but to non¬residents, of which tourism,
the provision of airport, seaport services, internal transportation
of foreign passengers by local airlines, and expenditures abroad by
diplomatic missions and military personnel, are among the more
prominent examples.
* Services which are provided through
contractual relations. These may take the form of partnership
arrangements, or license or franchise relationships, and may
involve the use of a particular company's name or trade mark, and
result in a sharing of earnings generated by these firms, or an
obligation in the form of royalties, fees or some other
remuneration.
* Services which are provided through
foreign affiliates. This is the case with services, which by their
nature are either not transportable and/ or face trade-restricting
measures, and have, therefore, to be provided in lieu of their
consumption, such as most aspects of commercial banking, and
equipment leasing services. Included also are services provided
through local agencies, established in support of export
opportunities, such as press agencies, supervising offices of
construction and engineering firms, and representative offices of
branches.