Israel/Palestine

34. Since the onset of occupation in 1967, the Occupied Palestinian Territory has lost access to more than 60 per cent of West Bank land and more than two thirds of grazing land. In Gaza, half of the cultivable area and 85 per cent of fishery resources are inaccessible to Palestinian producers. Furthermore, Israel has been extracting water above the level determined in article 40 of appendix I of the Oslo II Accord, signed on 28 September 1995 (see http://www.mfa.gov.il/mfa/foreignpolicy/peace/guide/pages/the%20israeli-palestinian%20interim%20agreement%20-%20annex%20iii.aspx), and confiscates 82 per cent of Palestinian groundwater for use inside its borders or in its settlements, while Palestinians must import from Israel over 50 per cent of their water (UNCTAD, 2015a). The World Bank (2009) has noted that only 35 per cent of irrigable Palestinian land is actually irrigated, costing the economy 110,000 jobs and 10 per cent of GDP. Agricultural activities have therefore become less viable, and many farmers have
been forced to abandon cultivation.

35. In the industrial sector, occupation and related uncertainty, and the restrictions on movement and access, have stifled investment and limited the Palestinian private sector to small-scale operations with low capital intensity and efficiency. The World Bank (2014) has indicated that microenterprises and small enterprises dominate Palestinian business, with 90 per cent of firms employing fewer than 20 workers. The small size of firms is correlated with capital intensity and low labour productivity. Labour productivity in small firms, at $10,000, is only one third of that of large firms. In 1994–2010, the economy of the Occupied Palestinian Territory experienced a steady technological regression, with a 0.5 per cent annual decline in total factor productivity. Had the pre-Oslo Accords growth trend continued, real GDP per capita in 2010 might have been 88 per cent higher (International Monetary Fund, 2011). In 2013–2015, the industrial sector witnessed further deterioration, indicated by a 9 per cent drop in the PCBS industrial production index.

36. The impact of occupation on productivity is illustrated by comparing the productivity levels of Palestinian firms in the West Bank, Gaza Strip and East Jerusalem. Productivity is highest in East Jerusalem as, under an effective annexation, its firms face comparatively lower levels of restrictions on access to markets and have a better supply of electricity and other inputs. Productivity per worker of the median Palestinian firm is $23,000 in East Jerusalem, $10,000 in the West Bank and $6,800 in Gaza (World Bank, 2014). Save for the blockade and the systematic destruction of its infrastructure, there is no other plausible reason for firms in Gaza to be one third less productive than firms in East Jerusalem. The same reasoning applies to the productivity of firms in the West Bank, which is less than half of firms in East Jerusalem.

37. Palestinian economic indicators have deteriorated in the last two decades, with serious ramifications for the welfare of the Palestinian people. In 1995–2014, the population grew by 3.6 per cent annually, while real GDP per capita grew by only 1 per cent (table 2). In addition, productivity failed to grow and unemployment increased by 9 percentage points to 27 per cent. The trade deficit, at 40 per cent of GDP, continued to be extremely high, while economic dependence on Israel increased, as reflected in the greater share of Israel in the Palestinian trade deficit, which increased from 49 per cent in 1995 to 58 per cent in 2014 (see table 1). Despite efforts by PNA to reduce expenditure and undertake serious fiscal reforms, the budget deficit has not improved in the last 20 years. Reliance on donor support continued to be heavy, as reflected by the high level of current transfers, which currently hover around 10 per cent of GDP.