area c and the future of the palestinian economy orhan niksic, senior economist the world bank
Post on 23-Dec-2015
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The Palestinian Economy
19992000
20012002
20032004
20052006
20072008
20092010
20112012
2013*
-30
-20
-10
0
10
20
30
Palestinian territories WB Gaza
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.0
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0
6,000.0
7,000.0
8,000.0
9,000.0
10,000.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0Investment (USD million)Consumption (USD million)GDP growth (%)
Growth: a roller coaster ride Consumption has been the main driver of growth
19981999
20002001
20022003
20042005
20062007
20082009
20102011
20122013*
0%
5%
10%
15%
20%
25%
30%
35%
40%35%
22%
Youth Unemployment Unemployment
Unemployment remains very highLow share of exports in the economy
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110
10
20
30
40
50
60
70
80
90
59.1
15.4
importsexports
What is Area CThe Interim Agreement between the PLO and the GoI divided the West Bank into three areas under different jurisdictions: Areas A, B and C.
• Area A: 18 percent of West Bank, full Palestinian security and civil control, urban centers.
• Area B: 21 percent of West Bank, Palestinian civil control and Israeli security control, peri-urban areas and small towns.
• Area C: 61 percent of West Bank and defined by the Interim Agreement as "areas of the West Bank outside Areas A and B, which, except for the issues that will be negotiated in the permanent status negotiations, will be gradually transferred to Palestinian jurisdiction .“
What is the report about?
• Area C = 61% of West Bank, but negligible economic activity there & wider impacts!
REASON: Restrictions
• OUR OBJECTIVES:– Understand the mechanisms
– Estimate macroeconomic impact and potential
Why does Area C matter?
• Sheer size? NO
• Contiguity? YES– Connectivity
• Infrastructure• Costs
• Resources? YES– Land– Other natural resources
How is the problem manifested?
• Very difficult to:– Develop communications and other public
infrastructure
– Build any permanent structures commercial and residential. • (1.6% of permit applications approved)
– Enforce property rights.
Effects on economic activity
How we measured direct effects on Palestinian economy?
• (1) Identified sectors evidently and significantly affected by restrictions:– Agriculture,– Dead Sea minerals-based industries,– Stone & Marble,– Construction– Tourism,– Telecommunications.
• (2) Constructed counterfactuals assuming:
NO RESTRICTIONS AND ATTRACTIVE BUSINESS CLIMATE
Potential: Agriculture
• Assessed incremental production: – Mostly through irrigation– No productivity growth!– Excluding land used by settlements
• Estimated as much as $700 million potential in incremental value added (7% of GDP).
Dead Sea Resources• Dead Sea is home to vast deposits of valuable and relatively rare minerals.
• Investment in potash & bromine industries: $920 million in incremental value added or 9% of Palestinian GDP.
Stone Mining & Quarrying
• Majority of stone deposits lie in Area C
• Current operations threatened.
• New quarries in Area C $240 million IVA
Construction Sector
Scarce landHigher
Construction Costs
Higher unit price
(24%)
Less units produced
Forgone value added$240 million
Tourism
• Tourism has a huge potential in Palestine
• Home to 3,110 archeological sites
• And Dead Sea
• Potential: $126 million
Telecommunications• Key problems related to Area C restrictions:
• Infrastructure development (fixed and mobile)
• Lack of effective Law enforcement in Area C
• Illegal competition & no access to 3G frequencies
$50 million in forgone VA …and a much larger potential threat from illegal competition!
Indirect effects
Growth
Physical infrastructure
Sector B Output
Sector B Input
Sector A output
Institutional infrastructure
Multiplier effect 1.5 x
Restriction Removal could increase Palestinian GDP by 35 percent
Current GDP Potential GDP0
2000
4000
6000
8000
10000
12000
14000 Potential increase in value added:
USD 3.4 billion
Spillover multiplier effect (1.5)
Incremental tourism
Incremental telecommunications
Incremental construction
Incremental Dead Sea mineral processing
Incremental stone mining, quarrying and processing
Incremental agriculture
Other sectors and activities
Tourism
Information and communication
Construction
Manufacturing
Mining and quarrying
Agriculture, forestry and fishing
USD
mil
lion
The associated benefits would be large
• Large growth in employment and drop in unemployment rate
• Lower poverty and improved living standards
…and at least 50% lower fiscal deficit
Status Quo Potential
-2000.0
-1000.0
0.0
1000.0
2000.0
3000.0
4000.0
56% reduction in defict
PA revenuesPA expendituresPA deficit
USD
mil
lion
And what will it take for this to happen?
• Removal of restrictions on movement and
access in Area C.
• Removal of broader movement
and trade restrictions.
• Overall improvement in risk environment
…and last but certainly not least: reforms to improve business climate
Doing Business 2013 Rank Doing Business 2012 Rank Change in Rank
135 135 0
Topic Rankings DB 2013 Rank DB 2012 Rank
Starting a Business 179 177
Dealing with Construction Permits 130 128
Getting Electricity 85 84
Registering Property 78 80
Getting Credit 159 165
Protecting Investors 49 46
Paying Taxes 55 55
Trading Across Borders 114 116
Enforcing Contracts 93 94
Resolving Insolvency 185 185
Summary of Findings
• Development in several sectors crucially depends on access to Area C.
• Area C critical to infrastructure development.
• Access to Area C is essential for sustainability of the Palestinian economy.
• Broad removal of restrictions is necessary.
• Reforms by PA are also necessary.
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