US Secretary of State John Kerry, Israeli Foreign Minister Tzipi Livni and Palestinian representative Saeb Erekat sit before a meeting of the Middle East Quartet on the sidelines of the UN General Assembly in New York, Sept. 27, 2013.  (photo by REUTERS/Brendan McDermid)

Eight Points of the US-Quartet Palestinian Economic Program

Author: Al-Ayyam (P.A.) Posted October 6, 2013

"Economic Initiative for Palestine" revealed many projects to stimulate local and foreign investment in Palestine, aimed at promoting Palestinian economic growth and creating job opportunities in the West Bank and the Gaza Strip.

SummaryPrint The Palestinian Economic Initiative, called for by US Secretary of State John Kerry, aims to address the deteriorating economic situation in the Palestinian territories by focusing on eight key sectors.
Author Posted October 6, 2013
Translator(s)Tyler Huffman

The initiative, called for the US Secretary of State John Kerry and prepared by a team of international experts in collaboration with the Office of the Quartet Envoy, includes ideas, proposals and projects for eight sectors: construction and housing (including financing and personal real estate mortgage), agriculture, a comprehensive plan to attract tourism, communications and information technology, energy, water and light industries.

The initiative's authors said, "The overriding objective of the 'Palestinian Economic Initiative' is to catalyze transformative and accelerated change in the Palestinian economy. The initiative aspires to rapidly grow the Palestinian economy spanning the entirety of the West Bank, including Area C and the Gaza Strip, over a three-year period from 2014-2016. It also aims to achieve a significant reduction in joblessness, a substantial increase in average Palestinian household income, a large surge in investment flows — both domestic and foreign — and a significant decline in PA reliance on direct budgetary assistance."

They added, "The initiative also aims to engender, over the medium-term, a substantial shift in the Palestinian economy toward private sector-led development. By focusing on the growth of key private industries, assisted by a mix of enabling factors, the initiative aims to shift the Palestinian economy toward a model of private sector-led development and economic sustainability ahead of eventual Palestinian statehood."

They pointed out that "the Gaza Strip and Area C are important parts of the Palestinian Economic Initiative. The initiative focuses on the development of critical infrastructure in the water and energy sectors in Gaza and in Area C (completing and operating the large sanitation projects in northern and central Gaza, initiating the large impact desalination project, establishing new power plants in the West Bank). It also addresses the expansion of housing, agriculture, and light-manufacturing activity in Gaza and Area C through a combination of easing measures, private investment, and donor financing, including the provision of technical assistance."

According to the Office of the Quartet envoy, "The initiative aims to unlock the economic potential of the Palestinian private sector through a mixture of private sector investments, donor development assistance, Israeli measure necessary for implementation, and expanded PA capacity. It is expected that donor assistance will be used to leverage greater private sector investment in key Palestinian economic sectors and will continue funding critical Palestinian infrastructure in the water and energy sectors. Donor assistance could be provided in different forms including grant financing, concessional loans, political risk insurance and bank guarantees."

"The eight sectors included in the 'Palestinian Economic Initiative' were chosen based on their private sector orientation, relative contribution to GDP and employment figures, and their potential for economic growth. Water and energy are combined and represented as one sector, as are construction and building materials. Current sector contributions indicate the relative significance of the construction and agricultural sectors and it is expected that these sectors will offer the greatest potential for growth and job creation over the medium-term. Other sectors, such as tourism, currently contribute less to overall economic activity and employment, but have vast potential to grow, particularly under conditions of greater peace and stability within the region."

The following is a summary of sectoral strategies provided to Al-Ayyam by the Office of the Quartet Envoy:

Agriculture

"Agriculture makes a relatively large contribution to the GDP, but it could deliver significantly more to the Palestinian economy. Agricultural land currently used for low-input, low-yield, rain-fed crops can be converted to high-yield crops within a single season, in some cases leading to a 20-fold increase in financial return. Enabling the expanded development of the Palestinian agricultural sector requires: greater volumes of water for Palestinian farmers, fertilizer in standard concentrations, advanced seed types, improved farming knowledge, and access to financing mechanisms (e.g. seasonal credit and crop insurance)."

"Fragmentation of land holdings also needs to be overcome, by establishing farmer cooperatives or single farmers leasing land in particular areas. These initiatives could help facilitate the aggregation of extension services by the Ministry of Agriculture and other technical organizations, as well as the transfer of advanced skills to individual farmers in the field. These types of changes could also enable farmers to negotiate better contracts and access higher market values. There are also large areas of marginal land that could be brought into agricultural production by the provision of road access and the rehabilitation of land for cropping."

"In Gaza, farmers use land under cultivation relatively well, producing high-value, high-yield crops on small farm holdings. Land can now be accessed up to 300 meters from the fence. The initiative envisions bringing back into cultivation land that was abandoned due to the 'extended buffer zone' of around one kilometer from the Gaza border fence. There are also abandoned tracts of agricultural land within Gaza that could be cultivated again. Geo-spatial analysis suggests that around 50% of arable land in the Gaza Strip is currently cultivated, and that a further 34% could be brought into production. The water required for the additional irrigation can be supplied, at least in part, by treated wastewater (some treatment plants are already under construction), although additional supplies may be needed. Such changes will require access to standard concentration fertilizers, advanced seed types and farming knowledge. The initiative also envisions the sale of Gazan produce, particularly vegetables, in West Bank and Israeli markets. These markets should be made accessible to Gazan produce using improved bureaucratic and logistic procedures."

Construction

"Expanding construction in housing is a central part of the Palestinian Economic Initiative. Meeting the huge demand for affordable housing would help improve living standards, provide quality homes for people who cannot afford to buy, and create tens of thousands of new jobs. Housing construction is limited by a mismatch in supply and demand. Lack of access to land stemming from problems with ownership, land registration (only about 35% of the West Bank is registered), titling, and general Area C land restrictions drives up the cost of land. This high cost of land renders the average price for a housing unit higher than the available housing budget for 50-80% of the population, mostly the low- and middle-income segments of Palestinian society. Other challenges include tight mortgage lending standards, which limit the mortgage market and home ownership financing (the Palestinian mortgage market is less than 5% of GDP), lengthy permit processes for new construction in East Jerusalem and Area C, and restrictions on imports to Gaza."

"The Palestinian Economic Initiative envisions the construction of different types of housing to address the various demographic and geographic segments across the West Bank and Gaza — including on available land in city centers, around the urban periphery, and in new locations. By building affordably, benefiting from infrastructure, identifying suitable land, using modern building techniques and materials, and developing effective partnership between the public and private sectors, reasonably priced housing should be made accessible to broad segments of the population."

"In Gaza, the focus on the construction effort is on affordable housing, tailored to fit the local income segments. The aspiration is to build 10,000 to 16,000 housing units every year in Gaza, as part of the overall range of 25,000-40,000 housing units in the West Bank and Gaza. These units would be priced at $35,000-50,000 (depending on the availability of land subsidies) and would address a large segment of the Palestinian population."

"For those individuals who cannot afford home ownership, developing a larger, more well functioning rental market would be another option. This development requires the further lifting of restrictions on importing building materials, ensuring access to land (potentially through use of government lands), and securing financing for developers and potential homeowners."

Tourism

"Boosting tourism is vital to long-term Palestinian economic growth. The West Bank, Gaza and East Jerusalem are immensely rich in the full range of historical and ecological attractions, from the historic city of Nablus to the Old City in East Jerusalem and the coastline of Gaza, including 14 approved or nominated world heritage sites. Despite these opportunities, Palestinian tourism remains under- developed due to regional instability, low awareness of existing tourism destination sites and offerings, restrictions on access to land and archaeological sites located in the West Bank, and on the entry of Arab tourists from the region."

"The tourism sector strategy focuses on two tracks, a short-term track concentrating on strategic marketing of the Holy Land in certain target markets and a medium-term track aimed at the development of five tourism hubs within the West Bank and Gaza..."

"...Gaza, in particular, underperforms on key tourism metrics. The Gaza Strip has significant potential as a tourism hub with its Mediterranean coastline and cultural offering. This potential can be realized with improvements in the overall political- security situation, expanded access and movement for individuals, the provision of necessary energy and water to the service tourism infrastructure, and required investment and financing for the tourism sector."

Information and Communication Technology (ICT)

"ICT is a critically-important and growing service sector in the Palestinian economy. It represents an estimated 6% of Palestinian GDP. By allowing the telecommunication sector to expand through greater access to mobile and fixed broadband technology, such as 3G and 4G services, it would experience even further growth and boost economic activity across other sectors of the Palestinian economy."

"Within the area of information technology, the economic initiative seeks to attract both domestic and international investments in specific IT services. These investments will leverage the quality and relative wage competitiveness of the Palestinian labor force. The initiative also aims to create opportunities for multinational corporations to employ mid-skilled developers in software programming and generate specialized business process outsourcing opportunities. Investment in IT incubators and trade promotion agencies is also important as it creates a platform around which start-ups can grow and attract more funds."

"The development of the information and communication technology sector in Gaza is dependent on the entry of telecommunication equipment and the upgrading of existing infrastructure. The growth of the telecommunication sector also requires greater access to the electromagnetic spectrum and to particular geographic markets for rolling-out infrastructure. Developing the IT sector would require the establishment of a full "eco-system" including accelerators for IT start-ups, specialized training for the local workforce, and early-stage financing."

Light manufacturing

"Light manufacturing is an important growth sector for the Palestinian economy. Over the past two decades, countries in the region succeeded in expanding their light manufacturing sectors and export activities. Palestinian light manufacturing, by contrast, registered negligible improvements and was hindered by poor infrastructure, movement and access restrictions, and a low level of investment."

"The predominance of small-scale family businesses has also limited the scalability of Palestinian manufacturing rendering it unable to compete with regional and international competitors."

"The potential for growth in light manufacturing hinges on the competitive wages of a young and educated Palestinian workforce, low operating costs and a positive investment climate. Geographical proximity to Israel and Arab markets, as well as attractive bilateral trade agreements with major global markets, could provide unique incentives for multinational companies to set up competitive production plants in new Palestinian special economic zones."

"The Palestinian Economic Initiative foresees the scaling up of investment in several sub-sectors with high growth potential (e.g. domestic appliances, motor vehicle parts, pharmaceuticals). An important element of the strategy would be to attract multi-national companies and target important export markets in the region. The initiative also focuses on enhancing existing local small and medium enterprises to supply complementary products to multi-national companies and to expand export (and transfers) in certain sub-sectors."

"In Gaza, exports and transfers in this sector have fallen substantially since 2005, but local players retain key advantages and could contribute significantly to Palestinian GDP and employment. If Gazan manufacturers were granted access to Israeli and West Bank markets, Gazan manufacturers would likely retain specific “niche” advantages over competitors in Turkey and China..."

Building materials

"Although building materials are not in themselves a high impact contributor to Palestinian GDP or employment growth, expanding this sector will help unlock the economic potential of other sectors. The economic initiative aims to ensure that necessary building materials are available to meet the planned increase in the construction, tourism, water and energy sectors. Stone and marble has also been identified as a source of increased export revenue. Currently, the Palestinian economy relies heavily on imports, specifically cement, steel and sand. The main issues facing the industry in the present are the lack of modern machinery, deficiency in international market knowledge, and limited access to new quarry land."

"This initiative focuses on increasing domestic production capacity, diversifying import sources and improving capabilities. These improvements are achievable through a combination of steps and measures including: conducting a geological survey to determine potential stone and aggregate reserves, the construction of a cement mill for local Palestinian production, setting up a dedicated cement export terminal for Palestinian use, access to the controlled use of explosives in gravel quarries to boost production, and access to advanced machinery in the stone and marble industry."

Energy

"[Energy] and electricity supplies are critical for all sectors of the Palestinian economy. A larger volume of electricity should be made available in both the West Bank and in Gaza to adequately address current and future demand for electricity as the Palestinian economy and population continue to grow."

"The Palestinian Economic Initiative aspires to increase, over the short-term, the supply of electricity from the Israel Electricity Corporation and from independent power producers. At the same time, capacity for local electricity generation needs to expand through conventional power plants and the development of a robust renewable energy sector. These new sites will need to be fueled by natural gas, which requires finalizing long-term gas supply contracts with either Israeli or Palestinian gas companies. The development of the Palestinian Gaza Marine Gas Field will play an important part in this latter effort to expand the energy sector."

"In Gaza, households, businesses and infrastructure struggle under conditions of uncertain electricity supply. This initiative aspires to enhance power supply by importing more electricity from Israel through new and improved high-voltage transmission lines, upgrading the distribution network, expanding electricity generation in Gaza using renewables such as small to medium scale solar installations, and the scaling up of the current Gaza power plant capacity..."

Water

"To match the ever-growing need for water by Palestinian households and business, major efforts in infrastructure are required to generate new sources of water. This economic initiative aims to secure the volume and quality of water necessary for rapid Palestinian economic growth, particularly in agriculture and industry, as well as for growing household consumption. The focus will be on facilitating the implementation of large infrastructure projects (e.g. a large desalination project in Gaza and sanitation projects in Gaza and the West Bank). The initiative also aims to ensure that aquifer sources remain sustainable and Palestinian water rights are protected."

"The water sector in Gaza remains in deep crisis due to the deterioration of the underground coastal aquifer. The over-pumping of groundwater resources in Gaza has led to salt-water infiltration and a significant decline in the quality of drinking water. The construction of Palestinian desalination facilities in the Gaza Strip (with small scale plants in the short-term and a large plant in the longer term) and increased purchases of water from Israel are important in redressing this worsening situation. Donor financing of the larger desalination plant is contingent upon the successful operation of other critical infrastructure in the water sector particularly the North Gaza Emergency Sewage Treatment Plant (NGEST)."

"The development of wastewater treatment facilities in the West Bank and in Gaza are important not only for health and sanitation - but also to enable the re-use of treated water for agricultural irrigation. The initiative also envisions access to additional water from aquifers by developing springs and wells in locations in the West Bank, including the rehabilitation of existing wells for both domestic and agricultural water purposes, and highlights the potential for developing dam infrastructure to capture rainwater for use in agriculture. These plans require improved coordination on water infrastructure projects between Palestinians and Israelis, as well as improved Palestinian institutional capacity in the water sector."

Read More: http://www.al-monitor.com/pulse/business/2013/10/palestine-economic-initiative-kerry-key-sectors.html

Published Ramallah, Palestine Established 1995
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