Economic Development Agenda for the Gaza Strip

A Private Sector Perspective

Prepared by
Palestine Economic Policy Research Institute - M A S

In Cooperation with
The Palestinian Business Committee for Peace and Reform
(PBCPR)

June 2004

DC Representative: Randa Fahmy Hudome - President, Fahmy Hudome International, LLC

815 Connecticut Ave NW Suite 1200 • Washington, DC 20006 • 202-429-5566
ECONOMIC DEVELOPMENT AGENDA FOR THE GAZA STRIP
(A PRIVATE SECTOR PERSPECTIVE)

TABLE OF CONTENTS

01. Introduction

02. Political Environment

03. Overview on Gaza Strip Economic Conditions

04. Gaza Physical Infrastructure

05. Gaza Economic Structure

06. The Disengagement Plan (Scenaria)

07. Economical Enabling Business Environment

08. Funding Requirements

09. Private Sector Perspective

10. Implementation Plan

11. Conclusion

12. Appendix/Annexes

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 Economic Development Agenda for the Gaza Strip
A Private Sector Perspective

01. Introduction

In April 2004, the Israeli Prime Minister Ariel Sharon announced the so
called Disengagement Proposal, which includes an Israeli “withdrawal”
from the Gaza Strip (GS), and the evacuation of the Israeli settlements and
military installations there. (Appendix Item D). The proposal also states
that Israel will keep its control over Gaza land and sea boarders, and will
maintain control over its air space.

Sharon’s plan was rejected from both the PNA and his own Likud party,
each from a different position. The PNA, while welcoming any Israeli
withdrawal from any part of the Palestinian territory, believes that
unilateral uncoordinated Sharon’s plan does not include real withdrawal,
but aims at turning the GS into a large prison or “isolated canton" that
lessens the political and economic cost of occupation to Israel. The
majority in the Likud party rejected the plan because it is intended to
evacuate the 18 settlements and its 7000 settlers from the GS, which
represents an unprecedented action in the history of the Israeli
occupation.

On the other hand, the Palestinians, Arab countries, the Israeli Peace
camp, and the international community, are trying to improve Sharon's
plan towards a real withdrawal from the Gaza Strip, and integrate it into
the Road Map provisions, President’s Bush vision to end the Israeli
occupation and the establishment of the Palestinian state in 2005.

This changing political environment calls for conducting serious research

and discussion on the economic and social implication of the possible
changes in the political reality in the GS. This paper is trying to identify
the main challenges and opportunities, which will result from the
envisaged change, and will try to propose an economic development
agenda from a Palestinian private sector perspective.

02. Political Environment

The Gaza Disengagement Plan cannot succeed without having the

right political environment that leads to a true ceasefire.

3
The Palestinian Authority has to accelerate its reform process at all
fronts, Security, Financial, Public Administration, Civil Service &
Society and Judiciary & Rule of Law. (Appendix Item K).

Israel has to stop its daily incursions into Gaza and the expansion of
the settlements at the West Bank as well stop as the construction of the
separation wall at the West Bank on its proposed route that is
confiscating 22% of the West Bank land. (Appendix Item E).

The USA and the Quartet have to ensure that the Gaza Disengagement
Plan, as part of the Road Map, should put pressure for a timetable for
the other phases.

We have identified the following key factors for the success of the
Gaza Disengagement Plan:

01. Re-organization of the Palestinian Internal House by

establishing further dialogue with all functions to reach a
common vision.

02. Accelerate the Palestinian reforms on all fronts; Political,

Administrative, Economic and Judicial and target elections at all
levels, Municipal, Legislative and Presidential in 2005.

03. Unify all Palestinian Security Forces under the Prime Minister.

04. Upgrade the PNA capabilities to cope with the next phase, both
Security and Financial.

05. Involve the neighboring Arab countries, Egypt and Jordan, to

provide political cover against local extremist groups that might
work in creating instability and provide border control.

06. The withdrawal, although not “agreed” with the PNA, must be
coordinated with the PNA so it does not lead to chaos.

07. The withdrawal has to be under the political umbrella of the

Road Map, therefore it has to be accompanied by partial
withdrawal from the West Bank.

08. Although, initially, it could be partial withdrawal from Gaza, it

must, in the long run, become full withdrawal from Gaza with
Palestinian Sovereignty over land, sea and airspace.

4
 09. Israel must refrain from incursions and assassinations in order
to create an environment of tranquility and political hope for
the Palestinians.

10. All evacuated settlements must be put under the PNA Security
Forces as a Restricted Area, until a plan is made for them, in
order not to allow chaos, looting and confiscation of assets.

11. The PNA should plan from now for the withdrawal in all
aspects, Political, Economic and Social as well as Security,
allowing for all possible withdrawal scenaria which should be
included in a National Development Plan.

12. The Donor Community should prepare the finds needed for the
rehabilitation of Gaza, in excess of US$ 3 Billion. Certain
projects and activities should commence immediately (e.g.
Airports, Harbors, Crossings, Free Zones etc.), and should be
coordinated with the PNA and various Palestinian Civil
Societies.

03. Overview on Gaza Strip Economic Conditions

Area and Climate

The Gaza Strip area is 365 km square, which has a quadrate shape with a
45 km length and 6 to 11 km width. It is located at the eastern coast of the
Mediterranean Sea. GS area represents 6% of the West Bank and Gaza
Strip (WBGS) area. It is bordered by Israel from the north and the east,
Egypt from the south, and the Mediterranean Sea from the west. It has a
mild Mediterranean weather, with an average 20ْ centigrade. The average
rain falls varies from around 400 mm. in the north to 200 mm. in the south.

The Population
The population of Gaza Strip was estimated at 1.364 million by the end of
2003, which represents 37% of the Palestinian population in the WBGS.
The population growth rate in Gaza is more than 5%1, one of the highest
growth rates in the world. As a result, 50.4% of the population is under
the age of 15, and the dependency rate is over seven persons. These
characteristics, while indicating a very young society, are creating an
enormous pressure on the limited natural and economic resources, and
negatively impacting the quality of life for the whole population.

The literacy rate in the GS was more than 90% in 2002. In the age group of
15 years or above, 6.7% only have university education, 28.7% have

1
According to the Palestinian Bureau of Statistics, the population growth rate in 2002 was 5.5%.

5
 secondary and community college education, and 31.1% have 7-9 years of
basic education. These indicators show the good potential for the GS labor
force to engage in modern industries and services.

The Build up Area

The Gaza Strip is considered one of the most populated areas in the world.
The density of the population -the majority of which are refugees- is
around 3736 person per km square2. The population of the GS are
distributed among four large cities: Gaza city, Khan Younis, Deralbalah,
and Rafah, and in 10 towns and villages: Beit Hanon, Beit Lahia, Jabalia,
Al-Nazla, Al-Zawaideh, Al-Qarara, Bani Suhailah, Absan Al-Kubra,
Absan Al-Sughra, and Al-Khza’a, and in 8 refugee camps: Jabalia, Alshate,
Al-Nuseirat, Al-Breij, Al Maghazi, Direlbalah, Khan Younis, and Rafah
refugee camp.

Labor Force Characteristics

In 2003, the annual average of the Gaza labor force number amounted to
254 thousand workers, compared to 219 thousand in 2002, and 200
thousand in 2001. The participation rate equals to 37.6% of the total
population aging 15 and above. The rate of participation for both male
and female labor force was 65.4% and 9.2% respectively.

The recent labor force survey showed that the percentage of Gaza Strip
employed workers who had completed 13 years or more of schooling was
25.7% in 2002, while the ratio of those who had completed 10-12 years of
schooling was 30.7% , 7-9 years 22.4%, 1-6 years 19.1%, and those who did
not attend school was 2.2% in the same year .
The structure of the Gaza Strip labor force according to type of occupation
showed that 1.7% are legislators or senior officials and managers, 29.1%
are professionals, 23.4% work in services, retail and markets, 13.8% are
skilled agricultural workers, 12.8% are craft and machine operators, and
related trade workers, 6.0% are machine operators, and the ratio of those
in elementary occupation is 13.3%.

The number of employed persons in Gaza Strip decreased from 163,000 in

the third quarter of 2000 to 111,000 (lowest level) in the third quarter of
2002, then increased to 180,000 in the third quarter of 2003 (the highest
level) and slightly decreased to 173,000 in the first quarter of 2004 as a
result of the increased political tension in the fourth quarter of 2003. A
large number of the newly created jobs were in agriculture, which created
17,000 new jobs in Gaza. This might be rather affected by seasonal factors.
The Gaza Strip construction sector created 11,000 jobs, while commerce

2
The density will be greater if we subtract the area of settlements and military closed zones.

6
 created 11,000 jobs in Gaza, services created 14,000 jobs, and the industrial
sector created 4,000 jobs.

Employed persons aging 15 years and above distributed by economic activities

The first quarter of 20043
Economic activity %
Agriculture 14.8
Industry 11.0
Construction 9.3
Commerce 14.6
Transportation 4.7
Services & other branches 45.6
Total 100

Data on labor force distribution according to sector in the first quarter of 2004 showed that
agriculture employs 14.8%, industry employs 11%, construction employs 9.3%, commerce
employs 14,6%, transportation employs 4.7%, and the public and other services sector employs
45.6%. This structure gives an idea on the structure of the Palestinian economy.

Palestinian Employed Persons in Gaza Strip

By Economic Activity in 1st-Q 20044

3
PCBS. Press release labor force survey results, first quarter 2004. Ramallah, Palestine. 2004.

4
PCBS. Press release labor force survey results, first quarter 2004. Ramallah, Palestine. 2004.

7
The number of Gaza workers employed in Israel totaled 26.77 thousand in
1999, decreased to 2 thousand in 2001, and leveled off at roughly 6
thousand in 2003.

The remarkable increase in the number of newly created jobs in the local
market reduced the unemployment rate in Gaza Strip from 34.2% in 2002
to 29.2% in 2003. In the fourth quarter of 2003, the unemployment rate
stood at 31.9%, slightly higher than it was at the beginning of the year,
which reflects the deterioration in the political stability.

Education
Palestinian families highly value and allocate a relatively large portion of
their income to education. This positive attitude maintained a relatively
large human capital, with high quality labor force, despite the frequent
disruption in access to schools and universities due to the Israeli invasions
and closure policies. Students in basic education levels in the Gaza Strip
(0-12 years) for the academic year of 2003/2004 numbered 419,510
students, divided almost equally between males and females. Students in
basic educational levels represent 31% of Gaza Strip overall population.
The governmental sector has 304 schools, and 218,867 students. UNRWA
is the second main services provider for 193,528 students in 177 schools.
However, the private sector schools still have limited capacity (7115
students in 24 schools).

The number of university level students in the three universities in the

Gaza Strip amounted to 30,156 students in the academic year of
2002/2003. The female students outnumbered male students, and thus
represented 51.7% of the total. The distribution of students among various
fields was as follows: Science students 16%; pharmacy and medical fields
6%; business schools 16%; engineering 7%; literature and education 43%;
religion studies 6%; information Technology 1%. The university level
students' distribution should be reoriented towards engineering and
technology branches to assure compatibility with the modern economy
market needs.

Gaza Strip Community College level students in the academic year of

2002/2003 had numbered 4473 students, 54% males and 46% females.
Enrollment in engineering faculties represented 8.9%, 23.4% in computer
science, 33.5%business faculties, and 15.5% in medical and
pharmaceuticals fields. Community colleges still lag behind local market
demand and the levels of enrollment in neighboring countries.

Health Sector

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 The Palestinian health sector has fairly high costs and represents 8-10% of
the GDP. In absolute numbers, it amounts to US $220-270 million.
Approximately, US $90-100 million has been spent annually through the
PNA budget since 1995 while the remaining cost was shared by UNRWA,
donor organizations, and Palestinian non-governmental organizations
(NGOs).
According to the Palestinian Central Bureau of Statistics data and the
Ministry of Health records for 2002, Gaza Strip has18 hospitals, which
have 2043 beds, a ratio of 1.6 beds per 1,000 inhabitants. The number of
health care clinics numbered 47 governmental clinics, 40 non-
governmental clinics and 17 other clinics run by the UNRWA. The ratio of
doctors to inhabitants in 2002 was 216.4 doctors to every 10,000
inhabitants. This ration is higher than Jordan (158 doctors), Egypt (202
doctors), and Lebanon (191 doctors), and much higher than in the West
Bank (98 doctors per 10,000 inhabitants), but much less than in Israel (459
doctors per 10,000 inhabitants).

04. Gaza Physical Infrastructure

The Gaza Strip infrastructure, similar to the West Bank infrastructure, had
been suffering from under-investment (less than 1% of GDP) and poor
maintenance for more than 3 decades prior to the Oslo Accords of 1993.
The PNA, UNRWA, and donors developmental efforts during the period
of 1993-2000 actually focused on infrastructure development. But these
efforts have been frequently interrupted by the Israeli procedures and
closure policies when they came to a freeze as of the third quarter of 2000,
and most of their efforts were re-shifted towards job creation, food
security and other relief activities.

The previous efforts were focused on road network rehabilitation and

environmental sectors, mainly water, sanitation, and solid waste projects.
The size of public investment in these sectors reached an annual average
of US$ 300 Million in both the West Bank and the Gaza Strip during 1995-
2000. The Gaza Strip portion, according to PECDAR’s sources, was
around 60-65% of the total investment. Part of the newly-established
infrastructure was damaged by Israeli military actions since the beginning
of the Israeli invasion in October 2000.

Since the implementation of Oslo Accords in 1994, the Palestinian private

sector was encouraged to contribute to infrastructural development. In
fact, it invested in telecommunications, electricity generation, and
industrial estates. The following paragraphs provide brief information on

9
the status of the infrastructure in Gaza, including the private sector which
helped in infrastructural development.

Road Networks
The paved road network in the GS is 540.7 km length, and consists of 58.4
km main roads, 7.8 regional roads, 424.1 km access and local roads, and
50.4 km bypass roads. The average length for 1000 population is around
0.369 km, which is one of the lowest rates in the world. This low rate is
affected by the small size of the GS area, the high density of population,
and the long period of disinvestment.

Electricity and Energy

The average monthly household consumption of electricity in GS was 263
KW (37 KW monthly per capita), which is one of the lowest rates in the
region; 13 liters of gas, and 21 kg. of natural gas. Industrial consumption
of energy in 2002 was 97,734 MW per hour for the electricity, 4,282
thousands liter of gas, 16,901 thousand liter of diesel, and 3,245 metric ton
of natural gas.

GS is dependent on the Israeli suppliers, which were the single suppliers

of all types of energy until 2002, when the Palestine Electricity Company
(PEC) started its production of electricity. The PEC was established as a
public shareholding company in 1999. The public underwriting in its
shares was launched by local banks in 2000. Its first generation dual
turbine, a 140 megawatt plant started operating in Gaza in 2002, ending
more than 35 years of Israeli monopoly over the power supply. However,
this plant is still dependent on the expensive Israeli supply of diesel and
butane, which is greatly affecting its efficiency and competitiveness. The
PEC has to postpone its plans to build the second plant that is expected to
double its capacity and help decrease GS dependency on the Israeli
sources of electricity, which proved to be expensive and unreliable.
Furthermore, it should rehabilitate the electricity outdated network to
resolve the problems of frequent disruption, weak voltage, and high
leakage and loss.

Water Sector
Renewable water resources in the Gaza Strip are estimated at 55 million
cubic meters per year, where the production amounted to 150 million
cubic meters in 2003. The allocation of water according to the data of the
Palestinian Water Authority (PWA) was 63 million cubic meter for
household and industrial use, and the rest (85-90 million cubic meter) was
allocated for agricultural use. The majority of these amounts are produced

10
from 4230 ground water wells, 112 of which are for household use and the
rest is for agricultural use. The actual consumption by households and
industries was 40 million cubic meters, which indicates a 37% leakage and
loss. However, the amount of water bought from the Israeli company
Mekorot was estimated at 3.2 -3.6 million cubic meters per annum in
which the daily per capita consumption amounted to 90 liters only, that is
below the World Health Organization standard level of human need. In
addition, the entire Gaza Strip is still suffering from the inferior quality of
supply, resulting from both seawater penetration and the exhaustion of
ground aquifers. Thus, the water issue is expected to be one of the main
challenges which require special attention and urgent investments.

Telecommunications
In 1995, the Palestine Telecommunications Company (PALTEL) was
established as a public shareholding company. PALTEL has increased the
number of fixed-line telephones considerably and played a major role in
preparing the Palestinian communications infrastructure for integration
into global networks in accordance with international standards.
The number of fixed lines in the GS was more than 84 thousand in the
year 2000, then the number declined to about 77 thousand in 2002. The
ratio of fixed lines per 100 persons amounted to around 6 lines. This ratio
is still lagging behind the international standards. However, we have to
take into consideration that the fixed line network was developed only in
the last 8 years, at the time when the cellular phone technology was
introduced, which might affected the fixed line network expansion.
Pal-Cell, the cellular phone operator was established as a limited
shareholding company in 1998. Since then, it expanded rapidly and was
able to overcome stiff competition from Israeli companies. The number of
subscribers increased to 122,866 persons in 2002. Over the past two years,
the Israeli authorities have withheld Pal-Cell imported electronics
equipment in Israeli ports for many months, which hampered the ability
of the company to maintain the quality of services, or expand its services.

The Gaza International Airport:

The Gaza International Airport was established and became operational in
1998 after a long delay due to Israeli objections. The airport operated
limited routes to Amman, Larnaca, Dubai, Jeddah, Doha and Cairo. The
number of flights in the 2000 reached 1354, which carried 53457
passengers. Following the outbreak of confrontation in September 2000,
the Israeli army closed the airport, damaged the few planes owned by the
Palestinian Airlines, and flattened the airport’s runway. Nevertheless, the
airport could be repaired and become fully operational within a few
months of an Israeli withdrawal and end of restrictions on the airport.

11
 However, it still needs to be equipped with cargo facilities in order to
utilize it for exports and imports.

The Gaza Deepwater Seaport

The Israeli policy towards the establishment of the Gaza seaport was very
similar. After a very long delay, the PNA started the establishment of the
seaport south of Gaza City with the financial aid of three EU member
countries: France, Italy, and the Netherlands. The seaport is designed to
handle large vessels of 50 to 70 thousand deadweight tons, which would
enable the port to be a major trans-shipment facility. Construction work
started in November 1999, with plans to conclude the first phase in 2001,
but since September 2000 construction work has come to a complete halt
and the Israeli authorities have not permitted work to resume.

05. Economic Structure

The Gaza Strip economy is still dominated by traditional sectors. The
contribution of the economic sectors to the Palestinian GDP is as follows:
agriculture employs 11.6% of the labor force and produces 10.8% in 2001;
mining and manufacturing employs 8.9% and produces 8.4%; the
construction sector used to employ 4.3% of the labor force and its
contribution to GDP was 3.4%; the wholesale, restaurants and hotels
sector employ 16.7%, the services sector employs 53.5%; and the
transportation sector employs 5%.
The following paragraphs provide brief data on the most important
economic sectors:
Agriculture5

The agricultural statistics show that the value added by the agricultural
sector was US $458 million in 2001/2002 with the West Bank contributing
64.2% and the Gaza Strip 35.8%. The area under cultivation in the GS is
about 177,311 dunums. Fruit cultivation occupies (43%) of the cultivated
area, while vegetables and field crops cultivation occupy 27%, and 30%
respectively. Irrigated areas, on the other hand, make up 71.5% of the total
cultivated area in the Gaza Strip.

The value of GS agricultural output in 2000/2001 reached US $215 million

in which fruit and vegetables contributed to 72% while animal production
contributed to 28 %. Contribution of fruits was 23%, vegetables 63% and
field crops 14% of the total value of fruit, vegetables, and field crops.

5
All data on agriculture are based on the Agricultural Statistics 2001/2002, PCBS, and August 2003.

12
 The number of livestock in GS in 2001/2002 numbered 5438 cows, 48366
sheep and goats, while poultry, mainly chicken, numbered 12,420
thousand. Gaza has a chronic shortage of animal products, especially eggs
and white meat. Although the Gaza Strip produced around 2627 tons of
fish in 2001/2002, this fell short of full capacity since fishing was restricted
by the Israeli authorities.

The Industrial Sector

The GS industrial sector is dominated by traditional industries. Food,
beverages, and tobacco industry employ 10.8% of the industrial
employment and produces 17.7% of the industrial added value. The textile
and wearing apparel industry employs 44.8% of industrial employment
and produces 28.2 % of the industrial added value, the non-metallic
products industry employs 12.2% and produces 16.1%, the basic metal,
metal products and metal equipments industry employs 11.8% and
produces 11%, furniture industry employs 9% and produces 9.2%. These
numbers indicate high productivity of labor in the food and beverages
industry, as well as the non-metallic industries and low labor productivity
in the textile industry. However, the productivity of labor in other
industries is around the over-all productivity average.
Employment and Value Added in Manufacturing Industry / Year 2000
Persons Engaged Value Added
Industrial Branch
No. % 000 US $ %
Manufacture of food and beverages, tobacco products 2,301.0 10.8 21,547.0 17.7
Manufacture of textiles, wearing apparel 9,511.0 44.8 34,278.0 28.2
Manufacture of non-metallic products 2,594.0 12.2 19,574.0 16.1
Manufacture of basic metals, metal products, machinery
2,510.0 13,431.7
and equipment 11.8 11

The Construction Sector

The area of building began to decrease from 352 thousand meter square in
1999 to 232.4 meter square in 2000 and to 140.5 meter square in 2001, then
increased to 268.2 meter square in 2003. Despite the mild recovery in 2003,
the construction sector is still operating in very low capacity.
Tourism
The tourism sector in the GS especially leisure tourism has great potential
due to the mild weather and the 45 km long sea front with natural beach
and swimming area, which need to be preserved and developed to attract
Arab and international tourism. However, tourism is the most sensitive
sector to political instability and as a result, this sector’s contribution to
GDP was insignificant prior to the Oslo Accords in 1993. After that, the
tourism sector dramatically increased. In fact, the number of hotels in the
GS increased from one hotel with less than 50 rooms in 1992 to 15 hotels

13
with 492 rooms in 2003. However, the occupancy rate remained very low
(less than 5%) since September 2000.

Nevertheless, tourism remains one of the most promising sectors and has
the potential to be a major job generation sector in the Palestinian
economy once political conditions were improved.
The Banking Sector
The banking and insurance sectors achieved high growth over the period
of 1993 to 2000, and stagnated since then. The number of banks operating
in the WBGS increased from two banks with 13 branches in 1993 to 21
banks with 120 branches in 2000 spread in all cities and towns of the
WBGS. Private deposits have gradually grown from less than US $150
million prior to 1993 to US $1501 million in December 1996 and to US
$3.506 billion in September 2000. Since then, there have been slight ups
and downs affected by political instability, where total deposits totaled US
$3.7 billion in June 2002.
Deposits in GS banks have increased gradually and reached one billion US
dollars in December 2000. Since then, the total deposits had a declining
trend until the first half of 2002, when the total deposits showed slight
recovery, and reached US $795 million in June 2002.
The level of deposits in the banking sector indicates a relatively high
liquidity, which is looking for better investment climate to be channeled to
finance the private sector. It is expected that if political stability was
realized, there is a potential for dramatic increase in credit growth.
Channeling the existing financial resources, most likely short term
deposits, to the private sector as long term investments will only succeed
when the proper financial instruments are in place, such as subordinate
credit market and inter-bank market. However, the Palestinian Monetary
Authority can be a lender of last resort.
Insurance Sector
The number of insurance companies rose from one company before 1993
to nine companies in year 2000. Four of these companies are newly
established Palestinian companies, two Arab, and the others are foreign
companies which opened branches in the WBGS. These companies now
employ 718 employees and with an added value of US $15 million. The
insurance business has a great potential, especially if the area witnesses
growing business.
The Information Technology Sector
One of the encouraging features of the Palestinian economy is the
emergence of the information technology sector. This sector grew strongly
during the last ten years, and especially after the privatization and
development of the telecommunications sector. The numbers of IT

14
 companies increased from 25 in 1994 to 75 in 2004, 20 of them are in Gaza.
They are mainly involved in software application production, data
processing, and sale and maintenance of hardware. Very few are engaged
in research and hardware development in cooperation with international
companies.
The potential of the IT sector will be very much improved by the new
initiatives aimed at developing IT human resources in Palestinian
universities and professional IT training centers, and IT incubators.
Foreign Trade
Foreign trade represents a life line for the small poor natural resource
Palestinian economy in general and GS in particular. This fact should be
taken into consideration in any effort to deal with the GS future economic
development. The value of the Gaza imports of goods and services
decreased from US $ 863.3 million in 1998 to US $ 400 million in 2002.
Gaza exports which increased from US $66.5 million in 1998 to US $108.5
in 2000, decreased to US $57.7 million in 20026. The recent data of the year
2003 indicate further deterioration in foreign trade7.
These data indicate that the potential for GS foreign trade within the
existing structure will result in a huge and unaffordable trade deficit.
Given the new reality where the Israeli job market is neither open for GS
laborers, nor reliable or sustainable, the GS economy, if continues with the
same developmental trend, will at the end of the day remain hostage to
unpredictable external factors. This requires rethinking the development
strategy in the GS, in a way where the comparative advantages of the GS
are properly utilized.

Future Gaza Economy

It is our belief that after the full withdrawal of the Israeli forces from Gaza,
and assuming there is free movement of goods, people and capital in and
out of Gaza, the Gaza economy should focus on creating added value
rather than selling cheap labour services to neighboring countries.

For its growth, Gaza’s economy should depend on Light Manufacturing,

Services (e.g. IT and Banking), Agriculture and Tourism with an aim to
reaching out for markets beyond Israel, Egypt and Jordan. We should
target the European markets, the Arab Gulf States and the USA.

The recovery of Gaza’s economy should be heavily dependent on private

Palestinian businessmen and their partnerships with both foreign partners
as well as the Public Sector. In the mid 90’s, following the Oslo
6
PCBS,
7
World Bank Group, West Bank and Gaza Strip Update, March 2004, pp. 22-23 ( the report states that the
Palestinian foreign trade declined during 2003, but it do not provide separate data for GS foreign trade)

15
 Agreement, the Private Sector was the main engine that drove the
economy in the West Bank and Gaza and we are confident that with the
help of the World Donor Community, they can do the same for Gaza
now.

06. The Disengagement Plan

Possible Scenaria

As mentioned earlier, the predicted political environment might vary between

two extremes; the implementation of Sharon's disengagement plan as is, and the
end of Israeli military occupation in which Palestinians will be allowed to
exercise their sovereignty over the whole GS area, its boarders, air space, and
seawater as per international law. Between these two extremes, there might be a
variety of possible scenarios, which will be based on a combination of conditions
from both. However, our analysis will focus only on the two extreme scenarios
at this stage.

A. The First Scenario: The implementation of Sharon Plan as is

Under this scenario, Israel will retain its control over the GS, including the
boarders with Egypt and exclusive control over the GS airspace. It will continue
to carry out military operations in the GS territorial sea water. Israel will also
proceed with its preemptive military operations inside the GS. In other words,
the GS will remain under full Israeli military occupation, and thus there will be
limited chances for improving the business and investment climate. Hence, the
economic strategy under this scenario will be an extension of the survival
strategy, which was being implemented by all development partners in the
WBGS. The main positive change might be putting an end for the vicious circle
of bloodshed and military confrontation in the GS. Nonetheless, the plan returns
valuable land and water resources, and removes the Israeli obstacles on mobility
of people and trade inside the GS. Furthermore, it creates the conditions for the
PNA to exercise its authority and carry out its duties including facing the
following challenges:

1. Enforcement of law and order as well as ensuring the rule of law and
personal security;
2. Combat of poverty and unemployment with the support of adequate
international parties;
3. Rehabilitation and development of the infrastructure;
4. Reopening of the industrial estates at boarders with Israel,
5. Revitalization of the private sector, especially locally oriented industries;
6. Find the solution for the integration of the evacuated settlements into the
GS economy in a rational manner. In fact, this evacuation resulting from

16
 the disengagement plan will create an extremely new challenge for the
PNA, the Palestinian private sector, and the civil society.

Dealing with the above mentioned challenges ensued from the Israeli
disengagement plan has come following more than three years of military
invasion and reoccupation, which resulted in a devastated impact on all aspects
of life especially the business environment and economic performance. Even
though there will be no substantial changes in the business and investment
environment, the type of challenges the GS is going to face is very serious. Some
of these challenges are of "make or break" ones, such as the enforcement of law
and order, and find the right mechanism for the integration of the Israeli
settlements into the economy.

Furthermore, the evacuation of the Israeli settlements should be looked at as an

important opportunity to reintegrate and rationally utilize their assets into the
GS economy. Rational utilization of the settlements' assets should not only lead
to preserve the value of these assets, but also maximize privatization revenues,
and encourage the operation of factories, farms, and hotels for the benefit of the
GS economy.

The settlement, after evacuation, creates a necessity to study various options

available to the Palestinian Authority and to the Private Sector, such options
being the creation of a new Gaza Commercial District, tourist development and
the creation of special Industrial Zones with special Rules and Regulations.
Further studies must be done before further action is taken.

The following matrix illustrates an agenda of actions and recommendations to

successfully overcome the envisaged challenges. We have tried to put down
approximate costs for these actions in millions of US Dollars:

Issue/ Actions to be done Responsibility

Challenge
I. Enforcement of law and order (US$ 80M)
- Assumption of the PNA's role and responsibilities as the PNA with
single political and legitimate authority through establishing Donor
the rule of law and public order as per the PNA basic law, with Assistance
respect to political freedom and human rights.
- Restructuring and training of the Palestinian police force
under the umbrella of one, strong, and professional body,
- Formulation of a new law to define the mandate of the police
force, including its accountability to the Cabinet.
- Reform of the salary scale of the police force.
- Rehabilitation of the police offices and facilities

II. Safeguard of the basic law, enforcement of contracts and Protection of

17
 Issue/ Actions to be done Responsibility
Challenge
human rights (US$ 30M)
- development of the independent judicial body PNA with
- development of court systems, Donor
- recruitment and training of judges and public prosecutors Assistance
and other court system staff

III. Combating mass unemployment and poverty (US$ 250M)

- Job creation programs in public works at all levels, especially - Ministry of
at the local government level according to Job Creation labor;
Strategy; - Local
- Integration of job creation programs with short term government
developmental projects, such as rehabilitation of schools, - PECDAR
roads, partially damaged houses, public parks, cleaning of - World Bank &
cities centers…etc Donors
- Training of new and existing public staff at all levels to
integrate in profitable work for sustainable growth
- Food distribution for disadvantaged groups; - PNA
- efficient management of Arab and international food - UNRWA
assistance; - Foreign and
- Support of UNRWA budget; local NGOs

IV. Rehabilitation of Infrastructure (US$ 400M)

- Rebuilding demolished houses, and housing of displaced - PNA

population. - Donors
- UNRWA
($80M)
- Planning emergency rehabilitation programs for rehabilitation - World Bank,
of the GS roads: main, access, and local roads. - Donors;
- Municipalities
Cost Estimation:
($150M)
- Putting forward and implementation of emergency - World Bank
rehabilitation programs for rehabilitation of water and - Donors;
sanitation. - Municipalities
- Improvement of the water resources management. Cost Estimation:
($100M)
- Putting forward and implementation of emergency - World Bank
rehabilitation programs for rehabilitation of electricity - Donors;
networks, - Municipalities
Cost Estimation:
($70M)

18
 Issue/ Actions to be done Responsibility
Challenge
V. Revitalization of Private Sector (US$ 150M)
- Reopening and operation of the industrial estates at Erez, - PNA
Carni, and others; - Donors
- Financing the replacement and modernization of local - Private banks
industries;
- Reclamation and rehabilitation of damaged farms and
irrigation and agricultural facilities,
- Resumption of exports and imports through the existing
routes.
- Capacity building for the Private Sector Institutions (e.g.
PALTRADE, PFI, Chamber of Commerce & Industry, etc.)
- Tax holiday for the private companies
VI. Reintegration of the evacuated settlements and
installations with the Gaza economy. The settlements' area
occupies 14% of GS area, and 40% of the beachfront (US$
300M)
- Putting forward a clear vision and plan for the integration of - World Bank
settlements in the economy. - PNA;
- Contracting with capable international firms to conduct - Private sector,
inventory of all settlement assets; - Mortgage
- Establishment of a capacity within the Palestinian Investment company;
fund to privatize or lease houses, factories, farms, hotels, leisure - Banks
facilities, and other assets; - Individuals
- Preparation of transparent mechanisms and modalities for
privatization,
- Preparation of a practical financing scheme by the Palestinian
Mortgage Corporation and banks. Financing instruments are
essential for the successful transfer of properties,
- Sale and transfer of houses and apartments to individuals on
commercial basis;
- Use of accrued revenues to finance the housing projects for
low income citizens,
- Rehabilitation of the infrastructure of the settlements to satisfy
the new Palestinian needs

Under this limited withdrawal scenaria, we believe there will be only short-term
measures and actions for reconstruction, modernization and rehabilitation of the
Gaza economy. This will only be a temporary remedy and not the solution for
generating and creating a sustainable economical growth in the Gaza Strip.

The Private Sector and the International Investment Committee, including the
Arab investors shall all shy away from taking part in the revitalization of the
economy. The World Donor Community would only provide the necessary

19
funding to keep the economy and the Palestinian National Authority at flout, but
we do not expect any major involvement.

B. The Second Scenario

End of the Israeli Occupation
Should Israel withdraws from the Gaza Strip, the GS will witness a qualitatively
new business and development environment. Such withdrawal will be based on
the following conditions:
1. All Israeli military forces will withdraw from the GS, and all military
installations will be removed. No Israeli presence remains in the boarders
with Egypt, or in the Palestinian sea water.
2. The Palestinian people will exercise their sovereignty over land, air space
and sea in the GS. The PNA, as the legitimate authority will assume all
powers and responsibility to enforce law and order.
3. All settlements including houses, factories, farms, and industrial parks
will be evacuated, and settlers will leave the GS to the Israeli territory. All
settlements' assets will remain in good conditions.
4. Boarders with Egypt will be under joint Egyptian and Palestinian
jurisdiction.
5. The Palestinians will be able to plan and develop their infrastructure,
integrate the settlements in their economic plans, and develop their means
and facilities to integrate the GS with both the WB economy and the world
economy. The main projects will include the construction of an elevated
highway with the WB, rehabilitation and expansion of the Gaza
International Airport, and construction of the deep water sea port.

In brief, the new conditions will open up the way to rethink and redefine the GS
economic structure and development strategy given the main points of strength
in the GS economic structure; i.e. The human resources and geographical
location. GS human resources are characterized with young and well educated
labor force, who can engage in high value products and services. The salary level
is also proportionate with the high productivity. As for the geographical location,
GS is in the proximity of main international markets in Europe, and at the
crossroads to the Middle East, Africa, and Asia.

Any successful development strategy should focus on the maximum and rightful
utilization of these two main assets of GS, which represent the key catalysts for
its economic takeoff. The successful utilization of both assets will not only help to
combat unemployment and poverty, but it will also put the GS on the right track
of economic growth and sustainable development.

20
Since its creation, the Palestinian National Authority has helped draft Laws and
Regulations that encourage private sector investments in the Palestinian
economy. Some of these laws are the Palestinian Investment Laws which
provide tax incentive for investments in the Gaza Strip and the West Bank.
(Appendix Item G). They are also of recognizable strength for Gaza.

In addition, there are several laws for the Industrial Zones which allow easy
movement of goods and people into the Zones, with tax and customs
advantages, in order to encourage Palestinian and foreign investors to invest in
the Territories. (Appendix Item H). A good example is the Free Trade
Agreement with the USA which can create reasonable conditions for foreign
investors to come and do business in the GS.

The successful and rational utilization of these assets depends greatly on our
capability to attract foreign direct investments from abroad especially from the
EU, USA, Japan, and the Arab countries. The previous efforts focused on
attracting the Israeli companies, mainly in the boarder industrial estates, with
emphasis on labor intensive industries to utilize the GS cheap labor. Our concept
here aims at attracting international companies to bring their knowledge- based
industries, assembly lines and financial and business services to utilize the GS
skilled labor. The new strategic direction does not call for a complete departure
from the old approach of boarder industrial estates. On the contrary, both
approaches complement each other in the short and medium run and the scene
for foreign direct investment should remain diverse and open for all investors,
including the Israeli companies.

The alternative to this new strategic direction is to keep the Gaza Strip on the
same path of development, which means keeping the GS as a pool of reserve for
cheap labor for the Israeli economy. This alternative proved to be unsustainable
in the short run, and did not help to address the GS long term economic and
social development. Therefore, the success of our proposed strategy needs a
coordinated and well articulated effort of all concerned partners: The PNA,
private sector, civil society, and donors. Based on this strategy, the development
agenda should of course include the main challenges as stated in the first
scenario: Law and order, unemployment and poverty, rehabilitation of
infrastructure, revitalization of the private sector, and the reintegration of the
settlements in the GS economy. Under the second scenario, the developmental
agenda should go beyond dealing with urgent challenges and short term
development objectives. This scenario should create the preconditions needed to
set the foundation for the new GS economy.

The development agenda in this case, should include the following long term
goals:

Objectives Responsibility Cost in US$

21
 million
1. Development of Legal and Regulatory
Environment (US$ 30M)
- New advanced companies law; PNA 30
- Off shore investment law; World Bank
- Free processing zones law; technical
- One-stop- shop for international investors; assistance
- Foreign Off – Shore Banking law.
2. Development of the Local physical
Infrastructure (US$ 30M)
- Conduct a Master Plan for land-use for the PNA and
whole GS to guide the establishment of Donors 30
needed road network, new housing
compounds and neighborhoods, electricity,
sewage, water networks, and industrial
estates.

3. On the basis of the master land-use plan, PNA & donors 100
GS needs the following medium and long
term projects (US$ 155M)
- A new 40 km long highway from the north
to the south to improve mobility between the Private sector & 20
main cities and towns, and to integrate the PNA
settlements with the national road network
and the GS economy.
- An electricity high voltage network to Private sector 15
connect the power generation plant to main
consumption centers with the needed
transmission equipment.
- Develop the city center of Gaza city aiming 20
at constructing high quality office buildings
to attract international companies.
4. Local social infrastructure development
(US$ 93M)
- Build new and advanced private and public PNA & private 50
schools for basic education; sector
- Establish high standard private and public Private sector 15
science and technology universities and
community colleges affiliated with it.

- Develop Information technology training Private sector 8

centers and IT incubators for emerging and donor
business. assistance
- Develop high quality tertiary health Private sector 20

22
services
5. Launch the work on the needed key major projects, which need foreign
direct investment and strategic partnership (US$ 780M)
These projects include the following:
-Rehabilitate, expand, and operate the Gaza PNA or private 25
International Airport for passengers and sector
foreign trade;
-Resume the construction of the Gaza PNA, Donors, 80
deepwater seaport; and private
sector
- Connect the GS with the railways networks PNA and
in Egypt, Jordan, and Israel; private sector
- Constructing the Gaza – West Bank PNA, Donors, 350
elevated highway, 4 lanes, 45 km length, Private sector,
connecting both parts of the Palestinian multinationals
territory, not only for trade and people, but
also for electricity, telecommunication, and
water pipeline.

-Develop an international boarder passage PNA; 15

with Egypt, with a capacity for 10 thousand Donors,
passengers a day, and a Terminal for trade
with a capacity to handle GS trade with
Egypt and with the rest of the world.
- Establish a gas pipeline to supply Gaza's Private sector 50
PEC generation plant with natural gas from
Egypt;
- Market the Gaza natural gas, launch its Private sector, 80
production and connect it with the joint gas PNA
pipelines networks which include Jordan,
Egypt and Syria and Israel

- Rehabilitate historical sites, collect PNA & private 30

archaeological findings and create museums sector
in Gaza to attract tourism.
- Promote Gaza as part of regional packages
with the West Bank, Israel, Jordan and
Egypt.

6. Key Private Sector Projects (US$ 1020M)

- Develop the sea front for tourism; A PNA & private 25
detailed architectural plans with detailed sector
regulation on seafront development will be
needed.

23
 - Establish export companies for agricultural Private sector 5
and industrial production of the SMEs;
- Establish a 2 free processing zones in the FDI & Private 30
vicinities of the airport and the sea port; sector
- Establish a sea water desalination plant to Private sector 100
supply Gaza with additional 60 thousand
cubic meter of fresh water a day
- Expand the PEC generation capacity by Private sector 200
additional 560 MWH to meet the local
demand.
- Introduce new cellular phone companies to FDI & Private 50
improve the quality of telecommunication sector
services;
- Encourage international business hotels FDI & private 150
construction and management. (Build 2 new sector
hotels)
- Establish a Civilian Airline Travel & Cargo Private sector 100
company. (Three more planes)
- Establish a Port Operation Company and a Private sector 20
sea transportation company as private
shareholding companies
- Develop Offshore Gaza gas field by British Private sector 300
Gas- A US $ billion annual revenues.
- Establish Industrial Parks in Gaza for Private sector 40
export of spare parts for the automobile
industry, and the manufacturing industry, in
Europe and the USA.

Although scenario 2 will require more capital, we believe its advantages, such as
the economical stability, the political vision and the support of the World
Community would make it a more economically viable option.

7. Economical Enabling Business Environment

Dealing with the above-mentioned challenges and opportunities, which

will result from the predicted Israeli withdrawal (enforcement of law and
order, unemployment and poverty elimination, rehabilitation of
infrastructure, integration of the settlements in the GS economy, in the
first scenario, and the private sector led modernization and development
of the GS under the second scenario), should be accompanied by a major
effort from the PNA and the GS neighbors to create the badly needed
enabling business and investment environment.

24
The PNA has to expedite its reform drive towards good governance in all
aspects and at all levels, and the GS neighbors should allow for the full
utilization of economic cooperation with the GS in trade and investment,
and abolish all non-tariff impediment to the Palestinian trade with the rest
of the world. This needs to establish a viable economic arrangement
between the Palestinian Government and Israel, Jordan and Egypt. These
arrangements should include the trade, labour and investment
agreements.

Trade

The Gaza Strip is a very populated, small and natural-resource poor area.
Thus its foreign trade in goods and services will play the main source in
its economic growth. Given the relatively good human resources base of
the GS, and its perfect location for international trade, the rest of elements
for success are in the hands of the concerned parties.

The most beneficial trade regime for the GS, and supposedly for its
neighbors in the long term, is a free trade regime, consistent with World
Trade Organization protocols. An FTA between the GS and Israel would
open access to the Israeli market, which is a huge market, and at the same
time it will allow the Palestinian Government to diversify its trade
relations with its Arab neighbors and all trade partners at large, and
implement trade policies conducive to economic growth and prosperity.

Establishing the right trade arrangements between the GS and its

neighbors will encourage the establishment of free processing zones on
the borders with Egypt and Israel and on the vicinity of the airport and
the seaport. It will also allow for opening up for offshore status to
international banking, software development houses, consulting firms,
insurance, transportation and other types of businesses.

Labor

The new political reality might open up the Israeli market for the GS
labour, which was and will continue to be market driven. In the initial
stages of the economic transition, the Israeli labour market is crucial to
absorb part of the GS unemployed labor force. At the initial stage, the GS
economy will not be able to open tens of thousands of jobs. There must be
mutually agreed arrangements to facilitate labor movement and relations.
We should learn from previous experience in order to avoid any kind of
abuse of labour movement from any party, when it comes to these
arrangements.

25
In the long term, as the GS economy grows, the majority of the Palestinian
labor force would remain in the GS working in factories, agriculture and
services.

Proper training of both the private and public sectors workforce is a major
task for the Palestinian economy to succeed. We believe a major re-
training effort is needed with the help of the World Donor Community.

Fiscal Policy

Under the FTR; each country would run an independent international

customs policy, but would not impose duties on goods originating in
Israel and/or the Palestinian Territories.

The Palestinian Government should work together with Egypt, Israel and
Jordan to minimize smuggling, coordinate Indirect Tax Policy (e.g. VAT),
establish Bilateral Agreement for Double Taxation Policies and minimize
purchase taxes in order to encourage the free movement of goods between
the GS and its neighbours as well as help grow exports from Gaza to the
outside world.

In the short-term, Israel should expedite the transfer of withheld VAT and
TAX due to the PNA, as these funds are needed to re-energize the Gaza
economy.

Investment

The utilization of the Gaza Strip economic potential needs the proper flow
of Foreign Direct Investment from both the Arab World, multinational
corporations and from Israel as well.

A Bilateral Agreement should be concluded between the Palestinian

Authority and its neighbours to provide suitable facilitation and
assurances for foreign investments. All privileges given to neighboring
countries should be extended to the European Union as well as to US
companies, to encourage the flow of foreign investments. Such
agreement might inter alia include the following:

• Full and Free Repatriation of Revenues and Capital

• Agreements on the avoidance of Double Taxation
• Regulation for Dispute Resolution
• Deregulated Flow of Capital

The World Community and Donors can also contribute to cross-border

investment by establishing funds that can be used to build equity

26
 positions in Palestinian firms and to create joint ventures with Palestinian
partners as well as to improve the already granted facility from the MIGA
to insure against political risk in order to encourage the FDI.

8. Funding Requirements for the Gaza Strip

Success in facing the envisaged challenges and using the opportunities

resulting of the change in the political reality require a multinational
articulated political effort and material assistance. While the political
effort aims at achieving political stability and establishing law and order,
these objectives will be sustained if the economic challenges and
opportunities are properly dealt with. Under any of the two
Disengagement Scenaria for the economic revitalization of the GS
economy, funding is critical for the success thereof. Economic growth is
contingent upon the timely acquisition and the efficient use of funding to
respond to economy priority and to lay the foundation of the modern and
of the Gaza Strip economy. The required funding to provide for the
implementation of the political, economic and social agendas is estimated
as follows:

Scenario A

Under Scenario A “Implementation of the Sharon Plan as is” our best

estimate of the financial requirements is as follows (M$):
M$
1. Enforcement of Law and Order 80
2. Laws, Human Rights 30
3. Combating Unemployment and Poverty 250
4. Rehabilitation of Infrastructure 400
5. Revitalization of Private Sector 150
6. Rehabilitation of Settlement 300
Total Scenario A 1210

The financing of this plan would be heavily dependent on the

International Donor Community, the World Bank, Arab countries and the
Palestinian National Authority. As this scenario is not going to end the
Israeli occupation, the political risk will remain a major hindrance for a
meaningful private sector recovery. Furthermore, we cannot expect any
flow of FDI.

Scenario B

Under Scenario B, which assumes the end of the Israeli occupation in the
Gaza Strip, there will be a real positive political change, which will result
in a totally new investment and business climate. When accompanied by

27
 a rigorous public sector reform and consistent commitment for good
governance, the GS will witness a qualitatively new era in the GS
development and modernization. This new era will stimulate all parties
to contribute in the development and modernization effort, and will allow
for the introduction of the long-awaited private sector led growth. The
new conditions will open all avenues for FDI, which will play a major role
in the key infrastructural and strategic projects.

In order to put all forces to work towards the establishment of private

sector led growth in the modern GS economy, the Donor Community
would also have to be more generous in their financial support. In
addition to the very much required US$ 1,210M for the political and social
stabilization programme, under Scenario A, additional funds are needed
to establish the foundation for the privately-led and the modern GS
economy. The estimated financial needs can be summarized as follows:

M$
1. Legal and Regulatory Environment 30
2. Master Plan Development 30
3. Medium and Long Term Projects 155
4. Social Infrastructure Development 93
5. Major Infrastructure Projects 780
6. Key Private Sector Projects 1020
Total Scenario B 2108

The total funding requirement for Scenario B shall be then in excess of 3.3
billion US Dollars, 31% of which will be from private sector sources. We
believe that with a political solution in place, the World Community,
including the Arab countries, will be eager to help finance/fund some of
these financial requirements.

In order not to repeat the mistakes of the previous funding efforts, which
occurred in the past eight years, we call upon the Donor Community to
develop coordination mechanisms among themselves, so they can
properly respond to development priorities and avoid duplication of
efforts and funding in certain sectors or in specific geographical areas. In
addition, we believe that more serious, professional and participatory
efforts are needed in the identification of the development priorities. The
PNA has to encourage the involvement of the private sector and the civil
society in the coordination of the channeling of these funds. As the PNA
is committed to market economy and believes in the role of the private
sector, as the engine of growth, the private sector should be a full partner
in the decision-making for economic and social development.

9. Private Sector Perspective

28
Since the signing of the Oslo Accord in the mid 90’s, the Palestinian
Private Sector has invested heavily in both the West Bank and the Gaza
Strip hoping the peace process would generate financial dividends. (It is
estimated that an excess sum of 2 Billion US dollars has been invested by
the Palestinian Private Sector alone in the past eight years). However, in
the last three years of confrontation and unstable political situation, no
new investments were made in the WB/GS. Investors, many of them
burdened with heavy losses since September 2000, are now maintaining
their previous businesses. They are waiting and looking forward to a new
time, a time free of political risk. The private sector will only move, when
it feels the political stability is not only very well established, but also
irreversible.

Given this background, the Palestinian Private Sector would be skeptical

about getting any future investment in the Gaza Strip, under Scenario A.
This scenario does not bring any real change in the investment and
business environment, and has no clear direction. Thus, it does not
provide any signal or prove that the political situation will be stable, and
they have no reason to worry about military action and closer and siege
procedures. By the same token, international investors will never
consider investing in the GS, and donors would also be very reluctant to
support real development effort in the Gaza Strip.

Based on these facts, we believe that Scenario A is not a good start to a

viable solution. It might not either be a temporary remedy to cool things
down. In order to further elaborate on this main point, here are some of
the key reasons why we believe Scenario A is not a start and will not
create economic growth in the Gaza Strip:

• Scenario A does not lead to political stability, and without any political
stability there cannot be investment and economic growth. Without
full withdrawal there will remain the justification of fighting against
occupation and thus the circle of violence will never end.

• Without full withdrawal there cannot be full utilization and

optimization of the settlements.

• Without full withdrawal, both Egypt and Jordan would be very

reluctant to engage, economically and politically, into the Gaza Strip.

• Without Palestinian Sovereignty, the Arab world will not invest in the
GS.

29
 • Scenario A does not allow for free movement of goods and people
from the GS to the WB and to trade partners, and without free
movement of goods and people, no trade can success.

• Scenario A does not keep the Israeli control over aerospace and GS
seawater, and without Airport/Port, trade with the outside world
becomes very expensive.

• Scenario A will not help going ahead with the public sector reform and
in furthering the effort to establish good, efficient and responsive
governance, which should have a clear economic policy and
regulations. All these elements are pre-conditions for the private
sector’s active and leading role in the economy. If these elements are
not in place the private sector cannot play its leading role.

• Without the private sector leading, international investors will shy

away from investing.

As a result of all the above reasons, we call on the entire World

Community to do everything in their power to encourage and convince
the Israeli Government to end its occupation of the GS and to commit
itself to full withdrawal, which will allow the Palestinian population in
the GS to re-build their country and economy. Anything short of full
withdrawal and the full sovereignty of the Palestinian people over land,
seawater and aerospace, will definitely fail on all fronts, be it Security,
Political or Economical.

We, at the Palestinian Private Sector, are optimistic that the withdrawal
from Gaza will happen in the next 12-18 months and, based on that, we
have selected some Private Sector and NGO projects that we are
promoting in Gaza - list attached in Appendix Item L – and are confident
that some of these projects shall be launched in the next few weeks.

10. Implementation Plan

We believe we need to start putting the Gaza Economic Development Plan

into action immediately and not wait for the political situation to improve
as it may be too late then and certain actions must be taken immediately.

We suggest that a task force is set-up in Gaza, as a true partnership

between the Palestinian Public and Private Sectors, with an aim to
developing the short-term priorities of the Economic Development Plan.

30
 The Palestinian Business Committee for Peace & Reform can provide
some of the experts, with the help of certain Private Partner Businesses
and Partner NGO’s, while we suggest that the Palestinian Ministry of
Planning provides some of their specialists as well. The World Bank can
also provide some experts.

With everyone’s help we can come up with a detailed plan of action for
implementation within a period of 6-8 weeks.

11. Conclusion

The full withdrawal of the Israeli forces from the Gaza Strip and the
evacuation of all settlements is the only guaranteed option for a
sustainable economic growth in the GS. Any half-withdrawal solution is
simply a non-starter and would only be a temporary solution for a time-
bomb that would, sooner or later explode into another period of non-
ending violence.

In addition to the full withdrawal there has to be a ceasefire established

and a stable political environment to allow for the economic growth in
Gaza. One of the main prerequisites of that is the free movement of
people, goods and capital. This has to be provided for any viable
economic activities in Gaza.

The Palestinian Private Sector can and will play a leading role in the re-
energizing of the economy in Gaza, if full withdrawal occurs, and it will
work to affect other Arab and international investors to generate work
opportunities and growth in all aspects of the Gaza economy, be it
Manufacturing, Light Industry, Agriculture and Services.

The Gaza Economy has to be re-energized through a true partnership

between the Palestinian Private and Public Sectors and with the help of
the Donor Community. We, at the Palestinian Private Sector, shall start
our planning and actions on the ground immediately, in the hope that
others will follow.

We are determined to make the Gaza withdrawal a success, in order to

follow suit with the end of the occupation in the West Bank as well, as any
agreement that does not include the West Bank is destined to fail and we
are confident that both the USA and the Quartet will follow with a
detailed timetable for the implementation of the Road map.

31