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State of Palestine

Ministry of National Economy

Sectoral Strategy for the Development of the National

Economy

2017 - 2022

Executive Summary

February 2017

Forward

The Ministry of National Economy is well aware of the challenges that face the Palestinian economy sector, which mainly come from the Israeli Occupation that continuously and systematically works on undermining the economic development in Palestine. The occupation controls and confiscates resources in favor of the settlements and the apartheid wall, and it continues to impose siege on the Gaza Strip while trying to isolate East Jerusalem from its Palestinian and Arab surroundings. In addition, the occupation imposes arbitrary restrictions on the movement of both goods and people.

All these practices aim to keep the Palestinian market a consumer for the Israeli products in a flagrant violation of all international norms and conventions.

The Ministry of National Economy is making efforts to aim at and achieve economic independence. It strives to improve the business environment and encourage investments in Palestine by working on (re)forming a legislative and regulatory environment in addition to encouraging young people to lead and innovate in order to create jobs and improve the standards of living. The ministry also works hard to develop a competitive industry, improve access and integrate with international markets in order to achieve economies of scale and reduce cost, eventually leading the industry to build an independent economy.

The following Sectoral Strategy for the Development of the National Economy (2017- 2022), has been prepared in a joint effort between the Ministry of Economy and its partners from the government institutions, the non-governmental organizations, the private sector and the relevant economic institutions, in addition to the ministry’s international partners. For that end, a series of meetings and discussions were held for the national team. The strategy was based on the national policy agenda and the agenda of the objectives of sustainable development, integrated with other sectoral strategies. It is worth mentioning that the strategy focuses on exploiting opportunities in the Palestinian economy and accentuating the strength points of its various economic sectors.

We are pleased to present the Sectoral Strategy for the Development of the National Economy, which includes a realistic analysis of the economic sector in Palestine, the challenges it faces, and the strategic objectives the Ministry of National Economy seeks to implement in partnership with the partner institutions through a myriad of executive work plans.

Abeer Odeh

Minister of National Economy

Table of Contents

Page Item Section

2 Foreword

4 Introduction

6 About the Economic Indictors First

7 Economic Situation- Facts and Challenges Second

16 Policies of the Economic Sector Third

23 Economic Sector Vision and Strategic Objectives Forth

29 Linking with the Agendas of the National Policies Fifth

32 Financial Resources Envelopes Sixth

The Strategic Objectives and Outcomes of the Economic Sector Seventh

52 The Statement of the Program Policy Eight

55 Action Plan Ninth

57 Economic Sector Management Plan Tenth

60 Linking Strategic Objectives to Sustainable Development Goals Eleventh

62 Appendix (1): Members of the Planning and Budgeting Group

Appendices

63 Appendix (2) Members of the National Team for Sectoral Strategy for the Development of the National Economy 2017-2022

65 Appendix (3) The entities interviewed during the preparation of the sectoral strategy for the development of the national economy 2017-2022

69 Appendix (4): Identifications and calculations of the cost for the objectives and outputs of the sectoral strategy

79 Appendix (5): Performance Indicators, Follow-up and Evaluation Mechanism

92 Appendix (6): Programs and projects of the Ministry of National Economy

Introduction

The Ministry of National Economy, in accordance with the powers granted to it by the Council of Ministers Decision No. 229 of 2004, manages the economic affairs in Palestine through the development of economic policies that are in line with the government's plans. The ministry aims to build an independent economy that is capable of creating jobs and reducing unemployment and poverty, in addition to the development of the economic sector and contribution to improve the situation of the Palestinian people. The ministry operates in coordination with other ministries, government bodies and related institutions, and through the formation of committees and consultative bodies with the private sector.

The Ministry organizes its work in accordance with the provisions of the laws and regulations enforced in the State of Palestine. The organizational structure of the ministry consists of general directorates, departments and units, including industry and trade, protection of industrial property, international relations, studies, competition, consumer protection, etc. In addition, the Minister of National Economy is the Chairman of the Board of Directors of the Palestinian Investment Promotion Authority (hereinafter PIPA), the Palestinian Standards Institute (PSI), the Palestinian Industrial Estates and Free Zones Authority (PIEFZA), and a member of the Board of Directors of the Palestinian Capital Market Authority (PCMA).

In the process of preparing the sectoral strategy (2017-2022) that includes the agendas of the national and sectoral policies and strategies, a team has been formed. It consists of the ministers, and the directors of boards including the related official organizations, civil society institutes and universities, and experts. They work on preparing 18 sectoral strategies and 3 inter-sectoral strategies. The report of the sectoral strategy for the development of the national economy includes this introduction, which touches on the methodology and the economic indicators. The report also describes the general context of the sector, the sub-sectors and the obstacles to performance in the economic sector affecting economic development. It provides a brief explanation of the policies of the economic sector. It also offers the vision of the strategic sector and the four main strategic objectives and their intersections alongside the desired results during the next six years to reach the strategic objectives. Furthermore, the report discusses the relationship between the sectoral strategy and the sustainable-developmental objectives from one part, and the agendas of the national policies, program policy statement that contributes to the fulfillment of these objectives from the other part. The report also presents the plan of action describing the initiatives to be submitted to the Council of Ministers and the sectoral strategy management measures. The final section of the report shows the financial envelopes and funding gaps.

Methodology of preparing economic strategy

The strategic planning process for the development of the national economy was based on the preparation of the sectoral strategy 2017-2022 issued by the General Directorate of Budget in the Ministry of Finance and Planning and the instructions and a comprehensive overview of the methodology of the sectoral strategy preparation. It also adopted a series of circulars and related correspondences in the time and financial considerations of the process, particularly those related to the review of sector strategy 2014-2016 and the program policy statement.

The institutional arrangements for the management of sectoral strategies are based on the administrative arrangements of the planning and budget management groups.

Specifically, the process was carried out by:

- The formation of the national team for the preparation of the sectoral strategy for the development of the national economy for the years 2017-2022 by the decision of the Minister of National Economy. This is to guide and follow up the implementation of the preparation of the strategy, including the crystallization of strategic objectives, policies, programs and financial framework and coordination of efforts to harmonize the strategies and plans of institutions operating in the economic sector.

- Appointing a consultant to assist the Ministry of National Economy in consultation with representatives of the private sector (in the West Bank, including East Jerusalem and the Gaza Strip) and representative donors.

- Holding a workshop for representatives of donors and the private sector to present the general framework of the sectoral strategy for the development of the national economy.

- Holding meetings of the Planning and Budget Management Group to review the draft strategy, which includes the initial proposal for vision, policies, strategic objectives and sectoral outcomes under partner consultations.

- Meetings of the National Strategy Group to discuss the results of the initial consultations and to define the methodology and activities of the consultations in the second phase of the planning.

- The preparation of a revised draft after consultation strategy.

- Planning and Budget Management Group meeting to review the second draft and compare it in light of the program policy statement.

- Meeting with the national team to approve the strategy in its final version.

- Submitting the report to the Ministry of Finance and Planning for follow-up by the Council of Ministers.

First Section

About the Economic Indictors

Preliminary estimates indicate that the gross domestic product (GDP) in Palestine increased by 3.9% during 2016 compared to 2015, with a growth rate of 3.5% in GDP.

This resulted in an increase of 1.0% per capita in GDP during the year 2016 compared to 2015.

The rise in 2016 was mainly in the main economic activities with a relatively higher contribution to GDP, including construction activity, where initial estimates showed a rise of 4.7% and the total number of employees rose by 12.3%. It was followed by industrial activity, and a rise in the added value during 2016 by 4.2% compared to 2015, and the total number of employees increased by 5.3%. The Palestinian Central Bureau of Statistics (PCBS) data for 2015 regarding the contribution of economic activities in the GDP shows that the contribution of the services sector amounts to 20.5% of the GDP, followed by wholesale and retail trade and repair of vehicles and motorcycles by 19.1%. These are followed with the activity of public administration and defense by 15.3%, whereas mining and manufacturing industries, water and electricity follows by 13% (manufacturing industries contributes with 10.6%), construction activities by 5.8%, agriculture, forestry and fishing contributes 3.6%, and information and communication activities contributes with 4.1%, while the contribution of transportation activities and storage is only 1.7%.

Regarding investment, the value private investment has reached 80% in residential and commercial construction, while investment in productive activities was very low, with investment in capital goods accounting for about 5% of GDP. This decline led to limiting employment opportunities for the growing population, where the unemployment rate has increased from 25.9% in 2015 to 26.9% in 2016. Unemployment rate in Gaza reached 41.7% and in the West Bank it was 18.2%. On the gender level, the unemployment rate was 22.2% for males, compared to 44.7% for females. The highest unemployment rates for the 20-24 age group were also recorded, reaching 43.2% in 2016.

As for the foreign trade movement in Palestine, which is represented by total exports and imports, the statistics indicate that the value of exports increased by 6.3% and the value of imports increased by 7.3% compared to 2015.

Statistics indicate that the value of total merchandised imports reached $ 5.225.5 million in 2015, falling by 8.1% compared to 2014, while Palestinian merchandised exports increased by 1.5% compared with 2014 to reach US $ 957.8 million. The trade balance deficit for the year 2015 declined by 10% compared to 2014 to $ 4.267.7 million. The volume of trade exchange also decreased by 6.7% compared with 2014 and reached $

6.183.3 million.

Preliminary estimates for 2016 are based on the available data for the first three quarters of the year, as well as the available indicators for the fourth quarter 2016. These data are subject to revision and will be revised after completion of data from their sources 2http://www.pcbs.gov.ps/Downloads/book2235.pdf 3http://www.pcbs.gov.ps/Downloads/book2216.pd http://www.pcbs.gov.ps/Downloads/book2235.pdf

Second Section

Economic situation - Facts and Challenges

The Palestinian economy faces many challenges, mainly the Israeli occupation, where Israeli restrictions impede access to economies of scale, access to resources (land, water, electricity, knowledge, cultural heritage, telecommunications, etc.) and access to investment opportunities. It is imposing an unjust siege on the Gaza Strip, isolating East Jerusalem from its surroundings, cutting off the land by continuing its settlement policy.

The Palestinian economy relies heavily on Israel in terms of monetary policy, mainly in providing sources of Palestinian inputs and as an export market. These constraints have led to distortions in the Palestinian economic structure and associated weaknesses in productive sectors, including industrialization and the dominance of the service sector. Adding to this, Israel has control over border crossings, customs revenues, and trade flows.

Despite these challenges, Palestine seeks alternatives to building economies of scale by taking advantage of international opportunities, overcoming limited natural resources through optimal and productive use of innovation, and mitigating the impact of political instability through efficient marketing of market opportunities. The Ministry of Economy seeks to take advantage of the opportunities available and reinforce the strengths systematically according to the Palestinian development plan. It also aims to benefit from the integration of the Palestinian economy with the Arab the regional surroundings to achieve its economic independence.

The Ministry of National Economy, in cooperation with its partners and the Palestinian Investment Promotion Authority, is working on developing the investment map, which aims to determine the competitive advantage of each Palestinian governorate to benefit from the strengths in each region. This will turn points of weakness into strengths to reduce economic disparities between governorates. This also requires directing the developmental projects item in these governorates to exploit the competitive advantage they enjoy in order to benefit from them in directing and gearing the investment process.

Based on the estimates indicated by the Palestinian Central Bureau of Statistics (PCBS) of the increase in the gross domestic product in Palestine by 3.9% during 2016 compared with 2015, resulting in an increase of 1.0% in GDP per capita during 2016 compared with the year 2015. This does not provide a real scenario for the rate of growth of the Palestinian economy. This might be seen not enough due to the increase in population growth faster than economic growth. In addition, this growth is viewed to be volatile due to social and political instability, which greatly affects economic performance.

In view of the increase in population growth, growth in GDP has not been able to improve living standards and has not been linked to reducing unemployment. Above all, poverty is expected to continue to increase as a quarter of the population lives below the poverty line (PCBS, 2011). International and social assistance has contributed to the alleviation of 17% of the national poverty rate, so the cessation of aid will contribute to the increase of poverty, especially in the Gaza Strip.

Employment

According to Labor Force Survey 2016 issued by the Palestinian Central Bureau of Statistics (PCBS), the rate of participation in the labor force in Palestine remained at the same level for 2015 by 71.6% for males and 19.3% for females. The percentage of women with more than 13 years of education and out of the labor market is 53.9%, compared to 25.4% for males. The percentage of unemployed women with 13 years of education reaches to 80% compared to 24.4% for males.

35.5% of the workforce are serving in the service sector with its various branches. This sector employs 65.4% of women. On the other hand, 20.9% work in the trade, hotels and restaurants sector, which employs 12% from women. In addition, the construction sector employs 16.5% of the workforce. The public sector also plays a role in the employment of workers where the percentage of workers reaches to 21.6% in Palestine. In the Gaza Strip, this percentage hits up to 36.4%, and in the West Bank, it is 15.4%. Furthermore, the proportion of workers in the private sector gets to 66.4% in Palestine; the percentage in Gaza is 63.6%, and in the West is 67.7%.

The Palestinian community is characterized as a young society. The percentage of individuals under the age of 15 in the middle of 2015 is estimated at 39.4%. The proportion of individuals (15-29) is 30% of the total population in Palestine. The gender ratio among young people is 104.2 males per 100 females. The workforce is also young, with most wage earners in the 25-40 age bracket. The Palestinian people are the most educated in the Middle East, and English is widely used. However, graduates do not necessarily work in their professional fields. As a result, the unemployment rate reached 26.9% in 2016. Unemployment in Gaza reached 41.7% and in the West Bank 18.2%. On the gender level, the unemployment rate was 22.2% for males, compared to 44.7% for females. The highest unemployment rate was recorded in the age group 15- 24 years, reaching 41.7% in 2016. According to 2016 statistics, Bethlehem Governorate recorded the highest rate of unemployment in the West Bank at 21.3%, followed by Hebron with 21.1%. Jericho Governorate recorded the lowest Unemployment rate with 10.9%. In the Gaza Strip, Khan Younis Governorate recorded the highest rate of unemployment (48.2%) followed by Deir Al Balah (44.3%).

The Labor Market Organization (ILO) Survey for Young Women and Men in Palestine has found that the level of skills required by the local labor market is not very high and that young people are better educated for long periods because of the few vacancies available. Young graduates are facing longer periods of time and further difficulties in finding work. Nonetheless, there are indications of gains from education in terms of higher wages and higher quality jobs.

Economic Theory states that there is a vital role of education and skills in the process of growth and economic development. From this perspective, there was an assessment of the skills gap between the requirements of the labor market and the skills possessed by workers in the labor market, as well as the skills of graduates of educational institutions.

According to a study conducted by Care International in the West Bank and Gaza Strip in 2015 on the skills gap, the most important results indicated:

http://www.pcbs.gov.ps/Downloads/book1789.pdf 7Skills and Development Gap in the Occupied Palestinian Territory, 2015 http://www.pcbs.gov.ps/Downloads/book1789.pdf

• There is a shortage of labor with the necessary technical and personal skills, and graduates find it difficult to find work suited to the technical skills they possess.

• The report points out that private sector companies in East Jerusalem suffer from the highest difficulty in the filling of vacancies, followed by the Gaza Strip and the West Bank. Graduates of C Areas and East Jerusalem face the greatest difficulties in finding suitable jobs.

• The highest rates of discrimination against women and youth are found in C Areas and in the Gaza Strip, while discrimination against persons with disabilities is the highest in the West Bank.

• The importance of supporting entrepreneurship, highlighting the fact that the lowest activities related to entrepreneurship (in terms of intention and starting a business) are in C Areas and East Jerusalem.

• Weakness in the role of government in terms of providing national strategies and policies that help determine market demand for skills, or anticipate the type of skills that may become necessary in the future.

• Limited role of the private sector in skills development in coordination with educational institutions.

• The importance of identifying skills for competitiveness of the private sector and the added value in the coming years.

Most graduates in Palestine receive degrees in education, economics, political science, business, law, engineering, medicine and other disciplines. Graduates do not necessarily work in their professional field. Many young people in Palestine do not benefit from the education system. More than half of the Palestinian youth have not completed their secondary education. As a result, many competent people seek Israel, which facilitates work permits for highly skilled Palestinian workers and earns almost three times higher wages than their counterparts in Palestine. The data show that the percentage of Palestinian workers in Israel is up to 12% of the total workforce.

This case contributed to the expansion of the informal sector (Grey Economy) considerably. According to a study on the informal sector (Al-Falah, 2014); the average daily wage of workers in the formal sector is 27% less than in the formal sector.

Establishments in the informal sector accounted for 36.3% of the total private sector workforce. Women accounted for 40% of the total informal sector workforce, compared to 19% in the formal sector.

Establishments in the agriculture, hunting and fishing sector account for 23% of all establishments in the informal sector, followed by the internal trade sector, while their share in the formal sector is about 2%. The result shows that 95% of the agricultural establishments in the informal sector. The construction sector also accounts for 10% of the informal sector, compared with 3% in the formal sector, and the irregular construction enterprises account for 80% of the total number of establishments.

Trade / Commerce

The deficit in the trade balance of goods and services in Palestine declined by 0.6 percent in the year 2016 to $ 5.17 billion. According to the Palestinian Monetary Authority, the value of Palestinian exports of goods and services during the year 2016 amounted to 2.432 billion US dollars, compared with 2.3 in 2015. Imports of goods and services during the year 2016 amounted to 7.6 billion US dollars, compared with 7.5 billion dollars in the previous year. According to the Palestinian Central Bureau of Statistics, Israel is the main destination for Palestinian exports of goods and services as well as for the imports. The Palestinian trade deficit with Israel rose to 9.7 percent annually in the first quarter of 2017 compared to the same period in 2016.

According to external trade data, released by the Palestinian Central Bureau of Statistics (PCBS), the trade deficit with Israel reached $ 487.6 million in the first quarter of 2017. The value of Palestinian imports from Israel in the first three months of 2017 was $ 703 million compared to $ 630 million Dollars in the same period of 2016. The value of Palestinian exports to Israel has increased to reach 215.4 million dollars, compared with 185.5 million dollars in the same period of 2016.

The main features of trade performance are structural imbalances in commodity trade.

There is a high market concentration for exports at the product level, where Palestinian exports are concentrated on a limited number of products. The average rate for these products in the last three years is 1084. In 2015, for example, five major export products account for 26% of the total Palestinian exports to the world; while the top 20 export products account for about 55% of the total exports. In terms of Palestinian imports, they are more diversified, with 3022 products imported from 113 commercial partner.

Despite that fact that the data showed that dependence on trade with Israel tended to decline, both in exports and imports, the Palestinian economy still depends heavily on bilateral trade with Israel. In the case of exports, more than 80% of the total Palestinian exports are destined for Israel, while imports from Israel accounted for about 60% of the total Palestinian imports. The decline in the share of imports from Israel was evident in 2015 due to lower energy prices. Israeli exports to Palestine in indirect trade (goods originating from a third country) are imported into Israel and then exported to Palestine as Israeli products. Indirect trade accounts for 39% and 35% of total Israeli exports to Palestine.

Moreover, Israel effectively monopolizes Palestinian energy imports, with fuel and electricity representing 42.7% of total Israeli exports to Palestine in the period between 2011 and 2014. The sharp fall in fuel prices signifies a contraction of 900 million US dollars in the value of Israeli exports to Palestine in 2015, compared to the value recorded in 2014. Taking into account the indirect trade, Israel's export of energy originating in Israel to Palestine represents 24.3% from total Palestinian Imports in 2014. The Doing Business Report by the World Bank - 2016, states that the time spent in Palestinian exports is 125 days to conform to the necessary documentation and border control in Israel. Currently, Palestinian goods are traded through either Jordan or Israel, though about 90% of Palestinian trade is through Israel.

http://www.mas.ps/files/server/20142110144414.pdf http://www.mas.ps/files/server/20142110144414.pdf

Several trade accords have been signed with the aim of opening up new markets and granting preferential treatment to Palestinian goods and services. The Palestinian trade with the rest of the world has shown more dynamism in terms of exports and imports than those with Israel. Above all, the data have showed that the annual growth rate of the Palestinian trade is doubled with countries with which Israel has agreements and arrangements. In 2015, exports to the rest of the world represented 16% of the total Palestinian exports. With regard to exports, it is necessary to confirm that almost all Palestinian exports to the rest of the world, 98% of these exports, are covered by preferential trade agreements and arrangements.

In the case of imports, the dynamics of imports from the rest of the world were higher, which means a gradual increase in their share. This represents an average of 30% of total imports during the period 2011-2014. It was also noted that the compound annual growth rate from other countries, which Palestine is associated with trade agreements, were higher. As a result, the share of non-preferential imports (which are not connected to Palestine by agreements) has increased from the rest of the world, accounting for 36% of the total imports.

Finally, data from the Central Bureau of Statistics indicate that the most important countries exported to Palestine during the past years are Israel, Jordan, the UAE, Saudi Arabia, the United States of America and the Netherlands. It is also worthy to mention that Israel, Turkey, China, Germany and Jordan are among the main countries from which Palestine is imported.

Components of Palestinian Trade

Palestinian trade consists mainly of consuming goods. In the case of exports, two-thirds of the total exports are consumer goods. Raw material exports mainly reflect trade in stone and marble products. While in the case of imports, more than half of the total is consumer goods, and imports of fuel and electricity represent the main bulk of imports of intermediate goods. The decline in imports of capital goods, machinery and equipment reflects the low investment rate in productive activities in Palestine. Where investment in factories and machinery in Palestine is 5% of GDP, it is less than the value of replacement, and increasingly declining.

Table (1): Palestinian exports in the real value of the shekel between the years 2000-2014

Year Exports in US Dollar

Shekel to USD

Exports in Shekel

Price Index

Exports in the real value of shekel

400,857 4.086 1637901.7 100.00 1637901.7

2001 290,349 4.208 1221788.6 101.30 1206109.2

2002 240,867 4.742 1142191.3 107.00 1067468.5

2003 279,680 4.550 1272544.0 111.70 1139251.6

2004 312,688 4.477 1399904.2 115.07 1216567.5

2005 335,443 4.482 1503455.5 119.80 1254971.2

2006 366,709 4.454 1633321.9 124.40 1312959.7

2007 512,979 4.110 2108343.7 126.72 1663781.3

2008 558,446 3.587 2003145.8 139.25 1438524.8

2009 518,355 3.929 2036616.8 143.08 1423411.2

2010 575,513 3.739 2151843.1 148.44 1449638.3

2011 745,661 3.578 2667975.1 152.71 1747086.0

2012 782,369 3.850 3012120.7 156.96 1919037.1

2013 900,618 3.611 3252131.6 159.66 2036910.7

2014 943,717 3.577 3375675.7 162.43 2078234.1

Annual compound growth rate

6.31 5.30 1.71

The table shows the value of Palestinian exports for the period 2000-2014 in real shekels. This is a very important indicator because it represents the real income received by the exporters. Therefore, as shown in the table, the real compound annual growth rate for exports during the period is only 1.71%, which is much lower than that expressed in the US dollar value of 6.31% (Abu Ghattas, 2016).

The occupation plays a key role in undermining trade. This is mainly a violation of the provisions of the Paris Economic Protocol, which was supposed to last only five years.

These violations include continued control over border crossings, piracy of customs revenues and direct and indirect restrictions that undermine the chances of increasing international trade. This is due to that fact that it does not recognize the agreements signed between Palestine and other countries. Adding to the violations is the restriction of movement of goods and people, especially to East Jerusalem, continuing to separate the Gaza Strip from the West Bank and isolating East Jerusalem, and imposing an unjust siege on the Gaza Strip as well as on the import and export of materials for reconstruction projects and the provision of population services. These restrictions have led to higher transaction costs, negatively affecting the exporting, as well as to restrictions on inputs to import (such as the dual list).

The World Bank (2016) estimates that 75% of the exporting companies in Palestine need external inputs. Therefore, the restrictions are detrimental to the current productivity and affect any future developments. Because of these restrictions, they have affected the investment in commercial goods and reduced the proportion of investment in productive activities, in addition to direct restrictions on productive activities imposed by Israeli actions.

On the other hand, the exchange rate plays a direct role. Money Transfers in Palestine, especially commercial ones, depend mainly on the shekel (local currency). Trade data, both exports and imports, are expressed in the US dollar, which is affected by the exchange rate movement. This results in a distortion of the actual trading dynamics, as the data reflects an increase in the value of the exchange rate or depreciation of the exchange rate rather than as a real trading dynamic.

Trade in Services

The services sector accounts for 5.20% of the Palestinian real GDP during the year 2015 with a value of USD 1.538 billion. The services sector is the largest labor force with 31.8% in the West Bank and 58.4% in the Gaza Strip. These figures confirm the fact that the Palestinian economy is a service economy and that the services sector will continue to play a leading role in the development of the Palestinian economy in the coming years. Competitiveness must therefore be developed at the national and international levels.

In general, the service sector does not suffer from the physical restrictions imposed by the occupation, unlike the other productive sectors. However, it suffers from restrictions on the four ways of providing the service as follows:

- Provision (1) Cross-Border Services: Internet bandwidth is low, and data download and upload is limited. This, in return, limits the ability to conduct business properly with international contractors. In addition, there are limitations in the provision of mobile ICT applications and others.

- Provision (2) Consumption Abroad: Restrictions imposed by the occupation on foreigners crossing the border to Palestine limit access to local services as well as Palestinians who travel abroad to visit contractors and participate in trade fairs.

- Provision (3) Commercial Presence: Local companies are considered costly and difficult to set up overseas. They are difficult to obtain and take capital from Palestine for purposes of investing abroad. However, these companies may sign an agreement with foreign parties to open branch offices from them abroad.

- Provision (4) Normality in people's everyday life: Not all Palestinians can travel from / to home as desired. Any trip for them is hugely linked to cumbersome procedures to obtain permits. There is discriminatory treatment by the occupation at the crossings and checkpoints.

It is also worthy to mention that services in Palestine are characterized by their ability to emerge and develop in unstable and complex environments. The services sector relies mainly on communications and connectivity infrastructure, computers, energy and skilled human resources (computer programming, legal consulting, management consulting, engineering, architecture, etc.). Least skill-needed jobs could (sales and retail sales, hotels, official employees, construction workers, catering, drivers, etc.).

Given the high proportion of learners, the service sector has a high competitive advantage. The following is a summary of some examples form the service sectors:

ICT sector

This sector is a pillar for many other sectors, including industry, agriculture, transport, health, education, trade, banking and tourism. Thus, different dimensions of development can be promoted and strengthened. Moreover, it is evident that there is a strong direct correlation between direct investments in ICT and job creation. The Portland Trust Bulletin of August 2012 showed that the development of ICT in Palestine has the effect of trebling job creation by 1 to 3 as creating a new ICT function creates three jobs in other sectors.

The ICT industry in Palestine has witnessed rapid growth since 1994. The sector currently employs about 8,500 people in 987 companies. It is estimated that the total volume of the sector's production is about US $ 900 million, which is 4.1% of the Palestinian GDP. Besides, it is growing rapidly.

In addition, Palestinian universities in the ICT departments enroll a total of more than 8,000 students and graduate 2500 students annually. According to the Central Statistical Organization in the Statistical Yearbook 2015, 63% of households have computers, 48% of them have Internet access.

It is also estimated that Israeli companies take over 20-40% of the telecommunications market in Palestine. This is due to the loss of Palestinian ICT companies by about $ 60 million annually. Despite its obligations under the International Law, Israel keeps hindering the development of the ICT sector in Palestine.

Tourism

Despite the abundance of tourism resources and the great potential enjoyed by Palestine as a religiously, historically and culturally touristic destination, the contribution of tourism to economic activities in Palestine is minimal. In 2014, total revenues amounted to 326 million US dollars, which constitutes 4% of total GDP in Palestine.

In terms of establishments, the Central Bureau of Statistics of the Tourist Activity Survey (2012) shows that there is a presence of 6593 tourist establishments, constituting 4% of the total establishments. Restaurants and beverage companies constitute 68% of these establishments and employ about 60% of the total employment. About 23 thousand (6%) of the total labor force in Palestine. This is less than the neighboring countries such as Syria and Egypt. The decline in contribution for this sector could be attributed to the restrictions imposed by the Israeli occupation on the development of the tourism by virtue of its control of the ports and border crossings and attractions of the touristic and religious sites.

Industry

Manufacturing in Palestine is the key to economic and social development. The sector has achieved success despite unstable economic conditions. It has strong back-to-back links with the Israeli economy as the manufacturing sector is largely dependent on imported raw materials (mainly from Israel), which poses a threat to its development.

The contribution of industrial activities in GDP is 13% and in employment is 13% according to the Palestinian Central Bureau of Statistics in 2015. There are more than 18 thousand companies and establishments, most of which are micro and small enterprises run by their owners. While 74.9% of these micro-businesses employ less than five workers (per establishment), and only 0.5% of establishments employ more than 50 workers. Furthermore, the industrial sector employs 9904.86 workers. The manufacturing sector contributes 10.6% (in real terms) to GDP.

According to research conducted by the Palestinian Economic Policy Research Institute, the cost of production in the Palestinian industrial sector is generally distributed as follows: capital cost (6.7%), fees and taxes (8%), wages and salaries (21.5%), non-merchandise inputs (6.6%), and production inputs (57.3%). Production of goods in the Palestinian industrial sector is distributed among raw materials (79.8%), fuel (6.2%), water (0.7%), and electricity (3.6%).

The main industrial sectors in Palestine are listed as follows:

Shoe and Leather Manufacturing Sector

There are 454 establishments operating in this sector. They constitute 2.5% of the industrial market. This sector is characterized by being intensively labor-recruiting where 3643 workers are employed in this sector . In addition, despite its small contribution to the total industrial output, it is one of the most competitive sectors in Palestine due to high quality products. A good example could be the Shoe Industry in Hebron, which is accompanied by hand-made operations, with a production capacity of about 13 million pairs a year.

Wood and Furniture Sector

The furniture industry is the oldest in Palestine. This industry accounts for 14.5% of total employment in manufacturing, 17% of all industrial establishments. There are approximately 800 factories in woodwork and 3000 furniture factories in Palestine. The value added of this sector contributes to the industry total output with 39.3% and 41.1% for the timber and furniture sector, respectively. It is considered one of the most important activities in the Gaza Strip with 600 factories, employing more than 5 thousand people. Electricity, water and fuel accounts for about 20% of the total cost of this manufacturing in Palestine, equivalent to wages and salaries

Textile and Clothing Sector

There are more than 2,000 companies, working in this sector, employing more than 12,000 people and making up a large part of the workforce. The sector suffered more as the value of the shekel increased, increasing the cost of the labor unit and making Palestinian products less competitive. Most of the production is carried out through subcontracts. It is also estimated that 70% of the production is sold domestically while the remainder is exported mainly to Israel. Unfair competition with cheaper imports is the sector's main problem.

Nonferrous Metal Sector

The sector of stone and marble is the largest sub-sector in Palestine in the number of companies, and the volume of sales, employment and investment. Other non-metallic mineral products occupy 18.6% of the workforce, and 12.6% of all its establishments. It is estimated that more than 18000 people work in more than 2400 companies. In recent years, the sector has begun to go to commercial banks to obtain loan facilities. In addition, this sector is distinguished by its competitive advantage, which is characterized by the abundance of local raw materials, the unique color and the distinctive texture, and the high quality used in selecting and cutting the plates as well as preparing the final product according to the high levels of manufacturing practices.

This, in return, is another competitive advantage of this sector in Palestine.

Food & Beverage Sector

The food processing industry has experienced significant growth in recent years with an estimated 2,300 companies operating in this sector. Food products occupy 15.5% of the workforce and 12.6% of all its establishments. It employs more than 14,000 people. The food basket accounts for 42% of household expenditures. The market share varies from 90% for meat products to 45% for dairy products. Olive oil is the greatest success in the food industry. According to the Palestinian Central Bureau of Statistics (PCBS), there are 272 olive oil presses operating in Palestine with revenues exceeding US $ 10 million.

Moreover, dairy products face the highest domestic and international competition.

Bakeries are the majority of companies. The accumulated experience in this sector has enabled it to increase its competitiveness. It has the most integrated supply chain in Palestine and has links with many other sub-sectors such as chemicals, plastics, packaging and printing. The production lines are very flexible and easily adaptable to produce and develop new and different products. The products are also of good quality, as many companies have acquired international certificates such as ISO 22000, and

HACCP.

Pharmaceutical Industries

The pharmaceutical industry is considered one of the leading industries in Palestine in terms of its scientific and technological level. The importance of the pharmaceutical industry as a strategic option for achieving Palestinian medical security has come a long way in abiding to the international standards. Despite its small contribution to GDP, some companies have managed to obtain the Palestinian Certificate of Good Manufacturing, which is granted according to the specifications of the World Health Organization. Furthermore, some companies have acquired the European Certificate of Good Manufacturing. The industry plays a key role in covering the needs of the local market of medicine by (50-55) percentage of the domestic consumption of medicines. In addition, there has been a remarkable development in the percentage of pharmaceutical exports to Arab and regional markets. Finally, the sector employs 1,300 people and is one of the highest productive sectors in terms of the worker whose production reaches the value of up to US 42,000.

Plastic and Rubber Sector

The industry employs more than 2,000 people and is an important industry for many other sub-sectors. A wide range of products is manufactured in Palestine such as pipes and fittings, plastic bags, containers, water bottles, kitchenware, polystyrene and rubber products. Quality is mainly applied to products suitable for the construction industry and food packaging materials.

Agriculture

Agriculture has an important economic, social and cultural role in the lives of Palestinians. It expresses the identity and the connection of the Palestinians to their land. The area currently cultivated is estimated at 1.627 million dunams, which has been reduced by about six times because of the occupation policy and land confiscation since 1967, 90% of which is in the West Bank and 10% is in the Gaza Strip. Agriculture contributes 3.6% of GDP in 2015 and employs 8.7% of the total labor force.

Palestine is considered as a source of a few vegetables, olives and citrus, and as an importer of field crops, fruits and most vegetables. These products are produced at less than required quantities and are not available during certain periods of the year. Two thirds of the cultivated land in Palestine is used for olive production, most of which are located in the West Bank (about 900,000 dunams). The olive oil industry represents a quarter of the agricultural GDP in Palestine and employs more than 100,000 households. A survey conducted in (2012) revealed that agricultural production in Palestine includes 64% of fruits (olives, dates, raisins, citrus and bananas), 24% of field crops (maize, wheat and barley) and 12% of vegetables (including herbs). According to the Central Statistical Organization in the Statistical Yearbook 2015, there are 32 thousand heads of livestock and mixed holdings in Palestine. These holdings produce 95 tons of meat, 194 thousand tons of milk, 390 million eggs and 216 tons of honey.

Input costs play a key role in determining the quantity produced and directly affect the profitability of farmers. A survey conducted by the Ministry of Agriculture showed that fertilizers account for 21% of the total input cost, followed by pesticides (20%) and employment (18%). Agricultural inputs, including seeds, seedlings, fertilizers and pesticides, have been restricted by the occupation. These restrictions on the importation have resulted in the loss of 20-33% of the agricultural productivity. Due to the high cost, the total agricultural production in Palestine is insufficient to meet consumption. Every year, the Palestinian market is flooded with about $ 500 million in agricultural products from the settlements.

World Bank reports indicate that in 2014, Israeli policies (including wars and military attacks on Gaza) and land grabs resulted in losses of between $ 250 million and $ 450 million in agricultural production in Palestine. More than 445 hectares of agricultural land were affected by these policies, resulting in the land destruction, including the destruction of 64 agricultural wells. In addition, Israel unilaterally imposes a law from the times of the Ottoman Empire, which states that all land that is not cultivated for three consecutive years is considered abandoned and taken over by the state (Israeli occupation). On April 15, Israel's Supreme Court affirmed the application of the

Absentee Property Law, which allows confiscating the properties and assets of the Palestinian absentees in East Jerusalem.

Farmers are unable to access their land and water resources located in the seam zone in the West Bank and are subject to special permits. Adding to this, there is the issue of the buffer zone along the Gaza Strip border, which prevents farmers from using their land, which is 300-1000 meters. The successive wars on the Gaza Strip have caused damage, removal and destruction of soil, making it unfertilized. In addition, air quality has deteriorated, and lead (Pb) contamination and saturation are higher than WHO considers acceptable, according to the report of the UN Economic and Social Council in 2016.

Approximately 63% of the agricultural land in Palestine is located in the C Area. Most of which are located in the Jordan Valley, which is controlled by Israel. While 18.8% are in B Area and 18.3% are in A Area, which is within Palestinian control. C Area constitutes around 61% of the West Bank and comprises two-thirds of the total agricultural resources, and it is fully controlled by Israel. This area is considered the most fertile and crucial for the agricultural as well as national economic development.

Palestinians are entitled to build on 1.5% of C Area, as opposed to 20% of the same area approved for Israeli settlement plans. In this regard, it is also worthy to mention that only 1.5% of the permit applications submitted by Palestinian are approved by Israelis. In East Jerusalem, only 13% of the municipal area is allowed to be built, while 35% of the land is expropriated for settlements (according to the UN Economic and Social Council's 2016 report). The World Bank estimates that Israeli restrictions on this area cost the Palestinian economy $ 3.4 billion a year. Besides, economic activities could generate $ 800 million in tax revenues, half the debt of the Palestinian Government.

Fishing

Fishing has been an important economic activity in Gaza. However, the Israeli restrictions on sea miles (20 miles for Palestinian Authority according to Oslo accords) have reduced the number of fishermen by two thirds to have currently around 3,000 fishermen. Annual income from fishing in Gaza has dropped from $ 10 million to less than half that amount. Restrictions on fishing rights have also led to overfishing in shallow coastal waters, resulting in the depletion of the breeding areas.

Water

Israel restricts the use of water, exploits Palestinian water resources since the occupation began, and deprives the Palestinians of their right to access water resources from the Jordan River and the Yarmouk River. Despite the fact that, about 11% of the Jordan River is located in the West Bank, the river was declared military zones by Israel. Currently, more than 85% of the Palestinian water from the West Bank's aquifers is stolen by Israel, accounting for 25.3% of its water needs.

According to a World Bank report, irrigation shortages resulted in the loss of 11,000 jobs and 10% of GDP. Only 6.8% of the total cultivated land in the West Bank is irrigated, while 70% of the area cultivated by Israeli settlers is irrigated.

According to the UN Economic and Social Council's 2016 report, the average water use in Gaza is 79 liters per day, well below the 100 liters recommended by the World Health Organization. Furthermore, coastal aquifers are polluted. Indeed, 96 % of water is unfit for human consumption; 23% of Gaza is not connected to the sewage system. Gazans must purchase water ten times the price of public water. While the rate of use in the West Bank is 40%, in the areas designated as (c) drops to 20%. About 70% of these areas are not connected to a water network. On the other hand, Israeli settlers consume 183 liters per day.