Promoting Economic Growth Through Trade and Integration
Only a dynamic and rapidly growing private sector will be able to provide the jobs needed by the expanding Palestinian population and generate the revenues required to fund essential government services.
According to a World Bank report, Towards Economic Sustainability of a Future Palestinian State: Promoting Private Sector-Led Growth, the removal of Israeli restrictions on access to markets and to natural resources continues to be a prerequisite for the expansion of the Palestinian private sector. However the report argues that there is much that can be done now to improve the business environment in order to support a future Palestinian state.
“The Palestinian Authority has made steady progress in many areas towards establishing the institutions required by a future state but the economy is currently not strong enough to support such a state,” said John Nasir, Lead Economist and Lead Author of the study. “Economic sustainability cannot be based on foreign aid so it is critical for the Palestinian Authority (PA) to increase trade and spur private sector growth.
The report asserts that future growth of the Palestinian economy will depend upon how well it can integrate into the world economy and take advantage of its main riches: its well educated and entrepreneurial population and its location as a gateway between the Arab World and Europe.
A Palestinian state could seek to emulate the outward-looking models of the East Asian countries, with trade as the main driver of future growth. High value-added services are particularly promising given the high levels of education and good infrastructure in West Bank and Gaza.
The report explains that to increase trade the PA will need to improve its trade infrastructure to lower costs and increase efficiency. The first step is for the PA to decide what kind of trade regime would work for a future state. This will allow it to plan and develop its trade infrastructure, including the legal environment.
Commending ongoing work, the report urges the PA to continue efforts to improve the legal and regulatory environment by passing new legislation and developing the ability to regulate markets. Developing and improving customs operations will also help facilitate trade.
The report celebrates the Palestinian economy’s main resource, its people, who are highly educated and entrepreneurial. That said, for the Palestinian economy to improve its competitiveness and move towards higher value-added products, particularly services, investment in the education system is key to better link learned skills to the needs of the private sector.
“While Israeli restrictions remain the biggest impediment to investing, and most growth comes from donor-funded government spending, there are still positive actions that the PA can take now that will both lay the ground work for a sustainable economy and contribute to growth today and in the future,” said Mariam Sherman, World Bank Country Director.