West Bank and Gaza update: Moving beyond the “access and movement” approach – World Bank publication

West Bank and Gaza Update:

Moving Beyond the Access and Movement Approach

October 2008

In This Issue:

1. Economic Restrictions: Moving Beyond the “Movement and Access” Approach /3

2. The Economic Effects of Restricted Access to Land in the West Bank/4

3. Palestinian Trade: West Bank Routes /7

4. Palestinian Reform and Development Plan – Quarterly Review /10

5. Economic Monitoring Note /12

6. World Bank Operations /21

8. West Bank and Gaza Portfolio /25

9. Second Emergency Municipal Services and Rehabilitation Project /26

10. Food Price Crisis – World Bank Response /27

11. Technical Assistance on Student Loan Scheme /28

Economic restrictions

moving beyond the

“movement and access”

approach

On September 22, the Ad Hoc Liaison Committee (AHLC) convened in New York for the third time since the establishment of the PA Caretaker Government in June 2007.  As in the previous two meetings, the World Bank presented an Economic Monitoring Report assessing progress on the three parallel conditions required for Palestinian economic revival: (1) Palestinian Authority (PA) reforms; (2) donor aid; and (3) Israeli resolution of movement and access restrictions. The analysis provided in this latest report, however, expanded its scope, examining, for the first time, economic restrictions as a comprehensive set of barriers — not only physical, but also institutional and administrative — that combine to prevent Palestinian realization of the full economic potential of the West Bank and Gaza, in both domestic and international spheres.

The current approach prevalent in the international community reflects a consensus on the paralytic effects of movement and access restrictions. However, this view currently extends only to the network of physical barriers riddling the West Bank, and partitioning the West Bank from Gaza, Israel and the rest of the world. In reality, these restrictions go beyond concrete and earth-mounds, and extend to a system of physical, institutional and administrative restrictions that form an impermeable barrier against the realization of Palestinian economic potential. Thus, tackling checkpoints alone, while potentially having a massive impact on economic revival, must be complemented with a broader address of the institutional and administrative barriers retarding Palestinian economic growth.

The economic restrictions identified through this comprehensive analytical approach fall into three broad categories.

1.  Access to economies of scale. Palestinian businesses are unable to achieve sufficient ‘economies of scale’ to warrant additional investment, business growth and/or additional entrants into the market. This is why over 95% of businesses are 10 employees or less. Capital intensive industries are also few and far between, and occupy the bulk of the market space. This is due to Israeli restrictions that have fragmented the West Bank’s Palestinian population  into economically isolated pockets, increasing the costs of trading with each other. The West Bank and Gaza are now almost completely delinked, with Gaza in stark transformation from a potential trade route to a walled hub of humanitarian donations.   These restrictions, furthermore, prevent full trade with Israel, and with the rest of the world. More importantly, the restrictions against movement in and through East Jerusalem preclude a main economic hub for Palestinian businesses.

2. Access to natural resources. This covers a number of resources essential to the exploitation of Palestinian economic potential. Key among them is access to land, water, cultural heritage and telecommunications frequency.

3.  Access to an investment horizon. Beyond the physical impediments affecting access to inputs, supply chains, and markets, investors in a Palestinian economy face an unclear horizon with which to measure and mitigate their risks. This is linked, first and foremost, to the uncertain political horizon, and the resulting unpredictability in the investment horizon. In addition, the system of permits and visas makes it difficult for foreign investors and creates uncertainty for local investors.

Adoption of the economic restrictions approach is an important step in the ongoing effort to restore the virtuous cycle of economic growth required for the establishment of a viable and prosperous Palestinian state and it will remain a central component of the Bank’s analytical work and advocacy.

Full report: