The West Bank and Gaza Strip recorded small signs of economic growth in 2009. But Palestinian economic revival still depends on the lifting of all Israeli restrictions, according to the UN agency Unctad.
The annual Report on Assistance to the Palestinian People report, published today by Unctad -- the main UN body dealing with trade, investment and development issues -- argues that the Palestinian economy is still held back by the fallout from Israel's military operations in Gaza in 2008-2009, and by the costs of Israel's closure policy in the West Bank as well as its continued economic blockade of Gaza.
The Palestinian territories recorded an estimated 6.8 per cent increase in GDP in 2009 -- comprising 8.5 per cent in the West Bank, compared to just 1 per cent in Gaza.
"But this is by no means indicative of recovery," the Unctad report warns.
It said such growth spurts should be viewed cautiously in the context of the slow economic growth in previous years, and the continued isolation of the Palestinian economy from regional and global markets.
The past ten years have coincided with a 30 per cent decline in per-capita GDP, the agency noted. "The productive base has eroded, and Palestinians have shrinking access to land, economic and natural resources."
Dependent on external aid
Roughly four million Palestinians live in the Palestinian territories. There are 2.5 million in the West Bank and 1.5 million in Gaza, according to Palestinian figures. Some more recent estimates put Gaza's current population at 1.7 million. Annual population growth in Gaza is estimated at 3.3 per cent, and in the West Bank at 2.7 per cent.
Both economies are heavily dependent on outside aid, mainly from the west and Arab states.
In 2008, gross domestic product in the West Bank stood at US$3.7bn. In Gaza it was $1.11bn.
Annual per capita GDP in the West Bank is $1,718, compared to $774 for Gaza.
Unemployment is a "grave concern"
The economy has continued to perform well below potential, the Unctad report says:
The unemployment rate declined by 1.6 per cent but is still a grave concern, exceeding the pre-intifada level of 1999 by 9 per cent, with at least 30 per cent of the Palestinian workforce unemployed. Joblessness in Gaza exceeds the national average by 14 per cent.
The report calculates that, had the Gaza blockade been lifted and closures elsewhere in the Palestinian territories been relaxed, the economy should have been able to produce between 60,000 and 80,000 more jobs each year.
The Israeli closure policy in the West Bank, along with the war on Gaza and the continuing blockade, pose major obstacles to a sustainable rehabilitation of the Palestinian economy, in Unctad's view.
Meanwhile, problems with food security "remain widespread and are especially severe in Gaza, where they affect 60 per cent of the population", as well as 25 per cent of the population in the West Bank, the UN agency warns.
Economy would soar with peace -- Abbas adviser
Mohammad Mustafa, head of the Palestinian Authority's main investment fund, is optimistic that the Palestinian economy might grow by 20 per cent annually if there was peace with Israel, helping to wean the territories from dependence on international donors.
"If people see serious negotiations, we can improve the business environment and investment opportunity . . . If they see an agreement, the sky is the limit. We'll talk about 15 to 20 per cent growth easily," Mustafa said in an interview with the US financial news agency Bloomberg in Ramallah on 2 August.
The Israeli prime minister, Binyamin Netanyahu, has suggested that Palestinians should work towards an "economic peace" that would eventually lead to an overall peace treaty.
But the Palestinians' president, Mahmoud Abbas, has rejected a separate economic agreement, saying it would delay an overall settlement.
The Palestinian Authority minister of national economy, Hasan Abu Libda, concedes that the development of the Palestinian economy is dependent on donor countries, and its growth follows the political whims of the region.
In 2009 international donors provided some $1.35bn in budgetary support, accounting for 22 per cent of Palestinian GDP, and an additional $400m for development projects.
"The money received from donor countries is the oxygen for the Palestinian economy," Abu Libda told the Palestinian Ma'an Radio station on 1 August. "However, this money is contingent on the political process, so it in effect acts as a sword hanging over our heads."
His views were echoed by Nasser Abdelkarim, of Bir Zeit University's economics department.
"If for some reason foreign aid should suddenly stop or diminish, government spending would slump and the economy would simply go back to zero," Abdelkarim said in remarks quoted by the French news agency AFP in May this year.
Peter Feuilherade is a freelance writer focusing on Middle East and African media industry, defence and economic issues. In March 2010 he took early retirement from the BBC after more than two decades as a reporter, news editor and media analyst.