By Majd Zghyer
Many people would argue that any discussions of the post-war Palestinian economy, let alone the potential for attracting investments in Palestine, seem unrealistic given the ongoing tragedy in Gaza. Indeed, the Israeli war on Gaza that started on October 7, 2023, is considered the most brutal in modern Palestinian history as the forced displacement and killing of innocent civilians have reached unprecedented levels. At the time of writing, almost 85 percent of Gaza’s 2.3 million residents have been forcibly displaced from their homes, while at least 24,000 civilians have been killed, most of whom are women and children. Enormous damages have also been inflicted upon Gaza’s critical infrastructure and productive capacity, putting the lives of Gazans at a higher risk of absolute poverty, food deprivation, and infectious diseases. Moreover, at least 300 Palestinians have been killed in the West Bank and East Jerusalem since October 7 as a result of daily incursions by the Israeli military amid a significant rise in violence perpetrated by illegal Israeli settlers.i
In addition to the tragic loss in human life and the massive destruction of physical infrastructure, economic activity in the Gaza Strip suffered a total collapse during the fourth quarter of 2023, as Gaza’s real gross domestic product (GDP) is estimated to have declined by more than 80 percent, year-over-year (y-o-y), according to latest estimates by the Palestinian Central Bureau of Statistics (PCBS).ii In the West Bank, economic activity has experienced a y-o-y decline by 22 percent during the fourth quarter of 2023. Consequently, the total collapse in Gaza and the sharp decline in the West Bank have resulted in a contraction of 33 percent in the Palestinian GDP during the fourth quarter of 2023 and a decline of 6 percent for the full year 2023. In terms of economic losses, the decline in GDP during 2023 is estimated at a value of at least US$1 billion compared to 2022. In addition, the unemployment rate in Palestine is estimated to have increased from 25.5 percent in 2022 to 30.7 percent in 2023 (18 percent in the West Bank and 53 percent in Gaza). Unfortunately, as long as Israeli aggression is allowed to continue, the Palestinian economy is expected to witness further decline in 2024 – and the socioeconomic implications are far worse than what can be captured by any single quantitative indicator.
While the impact of the ongoing war on the Palestinian economy is clearly visible, it should be acknowledged that the genuine potential of the Palestinian economy has always been restricted by the draconian measures taken by the Israeli occupation throughout the past decades, long before the events of October 7, 2023. For example, a recent report by the United Nations Conference on Trade and Development (UNCTAD) estimates that, between 2000 and 2020, the cumulative economic losses due to the Israeli restrictions on economic activities in Area C, which constitutes 60 percent of the total area of the West Bank, amounted to US$50 billion (or US$2.5 billion per year).iii Similarly, another UNCTAD report estimates the cumulative real economic cost of Israel’s blockade and military operations in Gaza between 2007 and 2018 at US$16.7 billion, which is equivalent to 5.7 times the GDP of Gaza in 2018.iv More importantly, rather than supporting Palestinian economic development, the creation of a unified customs and monetary union between Israel and the Palestinian Authority (PA), as per the Paris Protocol on Economic Relations (1994), has created more dependencies on the Israeli economy. It has also undermined the capacity of the Palestinian government to effectively plan its fiscal policy as consecutive Israeli governments have made the unlawful decision to withhold the clearance revenues they collected on behalf of the PA. Frankly, since the beginning of the Oslo so-called peace process, the gap between the Palestinian and Israeli economies has continued to widen. In 2022, real GDP per capita in Israel was estimated at US$42,711, whereas the real GDP per capita in Palestine was estimated at US$3,096. Of course, the inhumane blockade of Gaza since 2007 has led to further deterioration in living conditions, as its real GDP per capita was estimated at only US$1,257 in 2022.v
After nearly three decades of failed peace talks, the catastrophic events unfolding in Gaza since October 7, 2023, have revived the idea of establishing an independent Palestinian state in the West Bank, East Jerusalem, and Gaza as the only realistic solution that could potentially end the Israeli occupation of Palestinian lands. Ironically, it has finally become evident to the international community, including the US administration and the European Union, that the pre-war status quo of denying the legitimate national, political, and economic rights of the Palestinians can never be sustained. Indeed, no one can predict when the war on Gaza will end and how genuine the possibility of establishing an independent Palestinian state can be this time. Nonetheless, going forward, the Palestinians can capitalize on this momentum and seek to complement any future discussions on Palestinian statehood with a clear vision for creating a viable, resilient, and self-sustaining economy that can reduce dependence on the Israeli economy, support the steadfastness of the Palestinians on their ancestral homeland, and turn challenges into opportunities.
Short-term needs vs. long-term potential
In the short term, once a ceasefire is reached, the top priority must be given to addressing the humanitarian crisis in Gaza in a way that respects the dignity of Gaza’s population and provides immediate access to basic services, including food, water, medical support, and housing. Of course, responding to the severe humanitarian crisis that is unfolding in Gaza requires mobilizing financial support from international donors, including Arab and Islamic countries, in order to channel urgent development financing toward the immediate humanitarian needs and prevent further collapse in Gaza’s socioeconomic situation. In parallel to efforts aimed at addressing the humanitarian crisis, an effective mechanism for the reconstruction of Gaza should be put in place with support from various local, regional, and global stakeholders. Without a doubt, rebuilding Gaza will require enormous financial and technical resources, taking into account that more than 70 percent of the total housing units in Gaza have been destroyed and the immense damages that have been inflicted upon Gaza’s infrastructure, including hospitals, educational facilities, and water, energy, and communication infrastructure.
However, while foreign aid flows will be needed as a short-term crisis-management mechanism, building a viable and competitive economy not only in Gaza but also in the West Bank and East Jerusalem over the medium to long term requires navigating alternative sources of funding that enable a more inclusive and sustainable process of economic growth. Therefore, once the humanitarian crisis in Gaza is addressed and reconstruction efforts are underway, there will be a strategic need to formulate a new economic vision that aims to revitalize the Palestinian economy and improve its resilience to future shocks. Strictly speaking, it is believed that such a vision should include a clear roadmap for investing in Palestine’s future based on three fundamental pillars: physical infrastructure, human capital, and national industries.
To begin with, in order to reintegrate Gaza with the West Bank and connect the Palestinian economy to regional and global markets, huge investments in building an advanced physical infrastructure will be required. In fact, Palestine’s infrastructural needs are endless, including an airport, seaport, transportation networks, energy generation, water networks, and telecommunications systems. In addition to connecting the Palestinian economy to the world, investing in transformative large-scale infrastructure projects can also help in reducing dependence on Israel when it comes to the provision of essential services such as water and energy. For example, the total value of registered electricity imports into Palestine amounted to US$708 million in 2022, with the vast majority of such imports coming from Israel.vi
Hence, investing in the local energy generation capacity from both renewable and nonrenewable sources would not only enable the Palestinians to achieve greater energy security and independence but also provide much-needed input for other productive sectors. The same rationale can be applied to other areas where Palestinians have a huge reliance on Israel, including water and health.
Secondly, investing in the foundations of a knowledge-based economy can play a significant role in harnessing Palestine’s most valuable resource, namely its human capital, which refers to the talent, skills, and ingenuity of its people, including youth. Unfortunately, even before taking into account the impact of the ongoing war, youth unemployment rates in Palestine stood at 34.8 percent during the third quarter of 2023. In Gaza, the figure was much higher and exceeded 59 percent. Hence, given these high youth unemployment rates,vii it is imperative to invest in new and emerging industries that have the potential to create jobs for Palestine’s talented workforce and reduce the possibility of a brain drain. Specifically, while supporting research and development would be critical to harness the Palestinian human capital, nurturing Palestine’s nascent entrepreneurial ecosystem and investing in its tech-enabled startups can provide transformative opportunities to create sustainable impact through technology and innovation.
Thirdly, supporting prominent Palestine-based companies within strategic industries by expanding their operations and capabilities can have positive spillover effects on the economy by driving competitiveness, increasing exports, and spurring job creation. In fact, the layoff of more than 90 percent of the almost 200,000 Palestinian workers in Israel since October 7 has exposed the degree of reliance on the Israeli labor market and the adverse impact it has on domestic consumption and economic activity in the West Bank and Gaza. Therefore, by investing in and supporting national economic champions that can become leaders in their respective industries, competitive and attractive job opportunities can be created for thousands of Palestinian workers within sectors of strategic importance, including manufacturing, agriculture, healthcare, and tourism.
Finally, if given the chance to be implemented, investing in these fundamental pillars would not only diversify the Palestinian economy, it would also enable the Palestinian government to broaden its tax revenue base and raise much-needed fiscal resources. However, it is crucial to acknowledge that any economic vision for the post-war Palestinian economy should be formulated within a broader national and political strategy that has the support of diverse segments of the Palestinian people. More importantly, in order to unlock the genuine economic potential of Palestine, it is critical that greater pressure be placed on Israel to remove its restrictions on Palestinian access to Area C and allow Palestinians to have greater sovereignty over their natural resources, including the right to economically develop the gas field off the coast of Gaza that contains 1.1 trillion cubic feet of natural gas.viii
Realistically speaking, Palestine has never been the natural destination for investors who seek guaranteed profits and outsized market returns. This is evident by the unsteady and low foreign direct investment (FDI) levels that flow into the Palestinian economy.ix In 2022, net FDI inflows represented a mere 1.2 percent of nominal GDP. However, the ongoing war not only strengthens global solidarity with Palestine, it can also provide greater incentives for regional and global players to view future investments into the Palestinian economy through a different perspective that is based on strategic interests, alignment of values, and long-term potential. While it is still early to speak of attracting investments to Palestine, the list can actually be too long, ranging from the Palestinian diaspora community to Arab business leaders, sovereign wealth funds, and international impact-driven investors. Amid all these changes, the only thing that remains constant is the existence of Palestinians on their land as well as their outstanding resilience in the face of insurmountable tragedies and their strong desire to rebuild their lives and livelihoods.
i OCHA, “Reported Impact since 7 October 2023,” accessed January 20, 2023.
ii “Joint Press Release by the Palestinian Central Bureau of Statistics (PCBS) and the Palestine Monetary Authority (PMA) on The Performance of the Palestinian Economy for 2023, and Economic Forecasts for 2024,” PCBS, December 30, 2023.
iii “Economic Restrictions in the West Bank Exact $50 billion Toll between 2000 and 2020,” UNCTAD, November 22, 2020.
iv “The Economic Cost of the Israeli Occupation for the Palestinian People: The Impoverishment of Gaza under Blockade,” UNCTAD, December 15, 2020.
v GDP per capita data for Palestine and Israel is obtained from the World Bank: see https://data.worldbank.org/indicator/NY.GDP.PCAP.KD?locations=PS-IL. Segregated data for the West Bank and Gaza is obtained from PCBS: see https://www.pcbs.gov.ps/statisticsIndicatorsTables.aspx?lang=en&table_id=2244.
vi Foreign Trade Statistics, PCBS. For further information, see https://www.pcbs.gov.ps/site/lang__en/712/default.aspx.
vii Labor Force Survey (LFS), Q3 2023, PCBS. For further information, see https://www.pcbs.gov.ps/post.aspx?lang=en&ItemID=4622.
viii Ambassador Hesham Youssef, “How a Gaza Marine Deal Could Benefit Palestinians, Israelis, and the Region,” United States Institute of Peace, August 2, 2023.
ix Balance of Payments (BOP) data, Palestine Monetary Authority. For further details, see https://www.pma.ps/en/Statistics/TimeSeriesData.