Afternoons With IPCRI, Summary: Economic and Political Change in Palestine

Economic and Political Change in Palestine: Transition from a Donation-Based Economy and an Independent Economy 17 June, 2013 International aid has long played a crucial role in supporting the Palestinian Authority and the Palestinian economy. Last month, as part of his efforts at furthering peace negotiations, the U.S. Secretary of State John Kerry proposed a $4 billion plan of investment to boost the development of the Palestinian economy.

In light of this development, IPCRI hosted a discussion at Haifa University to discuss the state of Palestine’s economy, its prospects of transitioning away from an aid-based economy, and the challenges toward and implications of such a transition. Present on the panel were Orhan Niksic, Senior Economist from the World Bank for the West Bank and Gaza; Dr. Hisham Awartani, Professor of Economics at An-Najah University; and IPCRI Co-Director Dan Goldenblatt.

Dan Goldenblatt opened the discussion. A country subsidized by international aid for too long, he said, is vulnerable to a weakened economy and slow economic growth.

Most foreign aid, he said, tends to help build up large ventures, and neglects small scale enterprises—though he noted that this is a trend that recent IPCRI projects have been attempting to counter. Palestine, said Goldenblatt, needs to develop a modern, growth-based economy that includes a strong high-tech sector. To stimulate discussion, Goldenblatt also offered up several questions. How can Palestine make the transition from an aid-based economy to a self-sufficient one? Can this be done without a resolution of the political conflict? What are the challenges of such a transition, and what are its implications?

Mr. Niksic spoke next. The road to economic independence in Palestine, he said, will be “curvy, bumpy, and long,” and will require courage, patience, and time. The Palestinian Authority, he said, has shown some meaningful economic progress since Oslo, reducing its budget deficit significantly and providing significantly improved social services.

Still, he noted, the PA remains largely supported by foreign aid, and donors are becoming frustrated with the fact that there is no end in sight to the Palestinian economy’s need for support.

At the heart of the problem, said Niksic, is the fact that the Palestinian economy is not, in fact, constrained by a lack of financing, but rather by a more complicated set of factors that make it difficult for foreign investors to find worthwhile projects in Palestine. Chief among these are the heavy restrictions that Israel imposes upon Palestinian commerce. These include mobility restrictions on goods and labor at internal checkpoints and border crossings, the fact that Palestinian enterprises are forced to rely on high-cost Israeli importers for basic inputs, the ban on economic activity in Area C, and general political insecurity. Any strategy for economic development in Palestine, concluded Niksic, must be based around the removal of these restrictions.

Dr. Awartani, the last to present his comments, agreed with Mr. Niksic’s points and further argued that economic independence is not a reasonable or productive goal for Palestine. Bitterness and failure to cooperate economically, he said, does a disservice both to Palestinians and Israelis. Given that the peace process seems to be failing in the political arena, said Awartani, economic cooperation currently holds the most potential for positive results. Palestine, he said, due to its scarcity of natural resources and its deep economic interconnectedness with Israel, will never have a truly independent economy. As such, he argued, Palestinians should accept that Israel will always be their primary trading partner, and should focus on achieving equitable and mutually beneficial economic relations rather than striving for economic independence.

Dr. Awartani then outlined some of the main issues that he perceived as requiring resolution: (1) restored access to the Jordan River Valley, (2) increased mobility of goods and labor, (3) resumed trade relations and mobility between the West Bank and Gaza, (4) more equitable cross-border trade arrangements with Jordan, (5) increased integration of Palestinian labor into Israeli enterprises, (6) more support for joint Israeli-Palestinian ventures, (7) reduced restrictions on the Palestinian tourism sector, and (8) more responsible aid management that puts less aid money in the hands of foreign administrators and more into the hands of Palestinians. In conclusion, Dr. Awartani remarked that the Palestinian agenda for economic relations with the Israelis is a long one, and that negotiations, when they do occur, will be a demanding process. This process, he emphasized, must be given sufficient time for discussion of all issues, and should be moderated by a neutral third party to prevent Israel from using its power advantages to dictate unsatisfactory terms.

After a short question and answer period, Goldenblatt concluded the discussion.

Though at times economic cooperation can seem like an unattractive prospect given the strong emotions surrounding the conflict, he said, it remains the single best way to improve the lives on Palestinians on the ground in the face of a stalled peace process.

Summing up the viewpoints of both of the other panelists, he observed that IsraeliPalestinian economic relations are in desperate need of a shift from a paradigm of separation to a paradigm of sharing.