Strengthening the Palestinian Economy to Keep a Two-State Solution Viable

8/18/2019 Strengthening the Palestinian Economy to Keep a Two-State Solution Viable

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Strengthening the Palestinian Economy

to Keep a Two-State Solution ViableBy Hardin Lang and Rudy deLeon April 13, 2016

WWW.AMERICANPROGRESS.O


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Strengthening the PalestinianEconomy to Keep a Two-StateSolution Viable

By Hardin Lang and Rudy deLeon April 13, 2016


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1 Introduction and summary

4 Overview of the Palestinian economy

6 Challenges facing the Palestinian economy

6 Lack of control over revenue from imported goods

7 Barriers to exports and imports

7 Situation at the Allenby Bridge

8 Restrictions on freedom of movement

9 Restrictions on employment in Israel

10 Access to finance

10 Access to and management of the land

13 Most economic sectors are vulnerable to restrictions

14 Legitimacy and transparency of the Palestinian Authority

15 Recommendations

15 Priorities for U.S.-Israel-Palestinian diplomacy

19 Priorities for direct bilateral and multilateral economic engagement

with the Palestinians

21 Conclusion

22 About the authors and acknowledgments

23 Endnotes

Contents


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1 Center for American Progress | Strengthening the Palestinian Economy to Keep a Two-State Solution Viable

Introduction and summary

I has been more han wo decades since he signing o he firs Oslo Accord, which

se ino moion a process ha was designed o achieve a lasing peace based on

a wo-sae soluion. Subsequen rounds o diplomacy have ailed o realize ha

vision. Growing numbers o Israelis and Palesinians have begun o quesion he

“land or peace” bargain.1 Ye he sraegic logic o a wo-sae soluion, wih an

independen sae o Palesine alongside he sae o Israel, remains srong. Wihou

wo saesboh viable, hriving, secure, and reeIsrael aces a difficul dilemma

in reconciling is ideniy as a Jewish sae wih is radiion o democracy.

Te salled peace negoiaions have lef Palesinians looking or oher opions o

achieve greaer conrol over heir own affairs. Former Palesinian Auhoriy Prime

Miniser Salam Fayyad has called or a long-erm naion-building projec indepen-

den o negoiaions wih Israel o se he oundaions or an evenual Palesinian

sae.2 Bu various crises coninue o chip away a he legiimacy o he Palesinian

Auhoriy, or PA.3 Plans or a Palesinian poliical ransiion also remain opaque.4

As one observer in he Wes Bank own o Ramallah pu i, “Tere is no longer a

sory ha Palesinians can ell hemselves abou how our lives ge beter.”5

In recen years, some Palesinians have shifed heir rheoric oward he pursui o

ull economic and poliical righs as par o a so-called one-sae soluion.6 For his

par, Palesinian Presiden Mahmoud Abbas has sough o increase inernaional

pressure on Israel o orce recogniion o Palesinian saehood. Tis sraegy

hinges on a campaign o leverage inernaional boycots, divesmen, and sanc-

ionsor BDSagains Israel. Bu some BDS leaders have conflaed opposi-

ion o Israeli policy in he Wes Bank wih a challenge o he “legiimacy o he

concep o Israel as a democraic and Jewish Sae”7a sance a direc odds wih

he objecive o a wo-sae soluion.

Te nex U.S. presiden will ener office acing an unresolved Israeli-Palesinian

conflic. Te new adminisraion will need o ake seps o susain a wo-sae

soluion unil a resumpion o alks becomes poliically easible. As he Cener


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or American Progress has previously argued, he window on a wo-sae soluion

is rapidly closing.8 Key securiy, insiuional, and economic challenges mus be

addressed o keep ha window open.9 Tis repor looks a he se o economic

challenges ha mus be ackled in order o mainain a viable Palesinian poliy

capable o anchoring a uure Palesinian sae.

Specifically, his repor will ideniy pracical measures o improve he lives

o ordinary Palesinians and o creae an increasingly sel-relian Palesinian

parnerboh essenial ingrediens o a wo-sae soluion.10 Ta Palesinian

parner’s economy will need o creae jobs and offer some measure o relie and

growh o is people in order o keep a wo-sae soluion rom slipping ou o

reach. An agenda o srenghen he Palesinian economy, however, is no a sub-

siue or poliical progress. Te goal mus be o give Palesinians he angible

opporuniy o ake charge o heir own livelihoods and hereby susain heir

aspiraions o saehood.

Few elemens o his agenda or growh are new. Since Oslo, here have been

repeaed and serious atemps by muliple U.S. adminisraions, European donors,

and mulilaeral bodies o srenghen he Palesinian economy. Some plans have

been implemened. Ohers have been symied or exended periods. Te Office

o he Quarea body suppored by he Unied Saes, he European Union,

Russia, and he Unied Naionsis currenly engaged in is own effors o bolser

he Palesinian economy. Going orward, any renewed American atemp o

engage on a ocused se o economic prioriies should ake ino accoun he les-

sons learned over he course o pas and presen effors.

o beter undersand he challenges acing he Palesinian economy, a eam rom

CAP recenly raveled o he Middle Eas and inerviewed dozens o Palesinian

enrepreneurs, bankers, and invesors in he Wes Bank and he wider region. Te

field research made clear ha any plan o economically empower Palesinians

will require progress on wo rons. Firs, he Unied Saes will need o reengage

diplomaically wih Israel and he Palesinian Auhoriy and push or he removal

o specific barriers o Palesinian economic growh. Second, he Unied Saes and

oher donors will need o ake pracical seps direcly wih he Palesinians o os-

er ha growh. Specifically, he Unied Saes should pursue an agenda designedo achieve he ollowing:


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Priorities for U.S.-Israel-Palestinian Authority diplomacy that include:

• Insulaing he paymen o clearance revenues rom he poliics o Palesinian-

Israeli relaions• Easing resricions on Palesinian employmen in Israel, as recommended by

Israeli securiy insiuions• Improving he Allenby Bridge border crossinga key rade and

ransporaion roue• Raionalizing he sysem or processing dual-use goods• Reducing movemen resricions inside he Wes Bank • Improving access o land in all areas o he Wes Bank

Priorities for direct bilateral and multilateral Palestinian economic

engagement that include:

• Improving domesic access o finance or Palesinians• Promoing secors ha show promise under curren condiions• Improving ransparency and reducing corrupion inside he Palesinian

Auhoriy • Supporing a Palesinian Auhoriy local public works program

I should be noed a he ouse ha his repor will concenrae on he Wes Bank.

Te CAP eam did no ravel o Gaza. A comprehensive examinaion o Gaza’s

economy is beyond he scope o his research. Bu he pressing humaniarian and

reconsrucion needs o Gaza’s populaion would appear o ake prioriy over

effors o aciliae privae secor growh. (see ex box) Any plan or Gaza mus

also ake accoun o he poliical challenges and securiy hreas posed by he

coninued misrule o Hamas.

Progress on any agenda or growh will likely be incremenal and will require

paience and deerminaion. In he absence o a final saus agreemen, he nex

adminisraion will need o seer a pragmaic course wih a greaer ocus on wha

is achievable economically. Relaions beween he paries do no lend hemselves

o quick successes or major breakhroughs. Bu an agenda o smaller, concree

seps could achieve meaningul improvemens in condiions or Palesinians andsusain hope or a wo-sae soluionas well as peace, securiy, and prosperiy

or Israelis and Palesinians alike.


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Overview of the

Palestinian economy

Over he pas decade, he Palesinian economy has seen episodic growh puncu-

aed by shor-erm conracions due in par o poliical ension and armed conflic.

Annual Palesinian gross domesic produc, or GDP, growh declined rom a high

o 12.2 percen in 2011 o minus 0.4 percen in 2014.11 Overall, he Palesinian

economy remains small and dependen on oreign markes. Long-erm consrains

on growh include resricions imposed by Israel on boh he Wes Bank and Gaza,

as well as poor governance by he Palesinian auhoriies.12

Tere are roughly 2.8 million Palesinians living in he Wes Bank,13 including

more han 370,000 who live in Eas Jerusalem.14 Almos 1.9 million Palesinians

live in he Gaza Srip in a geographical area less han one-enh he size o he

Wes Bank.15 Te Palesinian workorce is generally skilled and educaed. Te

overall unemploymen rae or Palesinians is 26 percen, bu ha figure rises o

more han 45 percen or younger Palesinians ages 20 o 24.16 Te Palesinian

populaion is young, wih some 47 percen under he age o 18. In oher words,

he Palesinian labor orce is se o expand dramaically a a ime when here are

already more workers han available jobs.

Te public secor is he single larges employer o Palesinians. In 2014, he public

secor employed 23 percen o he Palesinian workorce, which amouned o 16.5

percen o workers in he Wes Bank and almos 40 percen in he Gaza Srip.17

Boh jobs and economic growh in Palesine are heavily dependen on oreign

assisance, including direc budge suppor o he Palesinian Auhoriy.

Te Palesinian privae secor is characerized by moderae produciviy and lim-

ied compeiion. Invesmen is relaively low bu has risen in he pas when pros-

pecs or peace have been more avorable. All in all, privae-secor aciviy remainslow, concenraed mainly in low produciviy subsecors wih weak employmen

growh and hindered by coninued resricions on movemen, access, and rade, as

well as inadequae laws and regulaions.18


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Real economic opporuniy or Palesinians will involve a shif away rom he

public secor as he main engine o employmen and oward an invigoraed privae

secor. Repeaed rounds o conflic wars and ongoing Hamas rule have decimaed

he privae secor in Gaza. As one prominen invesor rom Gaza pu i, “Tere

is no much people like me can do o help he siuaion in Gaza righ now.”19 In

he inerim, he Wes Bank represens he bes opporuniy o creae a robusPalesinian privae secor.

The state of the Gaza economy

The 2014 fighting had a severe impact on Gaza’s economy

and its residents’ lives and livelihoods. The conflict created a

humanitarian crisis on top of preexisting development and

governance challenges, including misrule by Hamas. According

to the World Bank, damage to Gaza’s economy from the 2014

conflict ran as high as $460 million. This includes about 12,000

destroyed or damaged houses. Infrastructure also suffered

significant damage, including to Gaza’s only power plant as well

as its electricity network and water and sanitation facilities. The

access to and quality of basic services is rapidly deteriorating.20

Gaza has a higher youth unemployment rate than any other

economy in the Middle East.21

A recent United Nations report indicates that Gaza could be

“uninhabitable” in less than five years if current economic

trends continue.22 The Israel Defense Forces, or IDF, Military In-

telligence Directorate reportedly concurs with this assessment

and notes that the pace of reconstruction in Gaza has been too

slow.23 There are two main priorities that require both urgent

and long-term attention: power and water.

Gaza has suffered from a shortage of power for years. Less thanhalf of the demand for electricity in the Gaza Strip is currently

being met. In 2015, power blackouts in areas of high popula-

tion density were lasting 12 hours to 16 hours per day. Ga

power plant has been running at 50 percent of its capacit

less due to fuel shortages. The economic and humanitaria

pact is significant.24 The construction of a natural gas pipe

from Israel to the Gaza power plant is a critical element of

long-term solution to Gaza’s power shortage. The Quartet

the Dutch government are supporting a feasibility study f

pipeline, but the project still faces significant hurdles. Urg

short-term measures are needed to bridge the gap, includ

financial assistance to help cover the costs of diesel fuel fo

power plant.25

The lack of power accentuates the acute water crisis in Ga

Gaza residents face major shortages in drinking water and

ter for bathing. Gaza relies almost completely on a coasta

fer for freshwater. But more than 90 percent of the water f

that aquifer is no longer safe for drinking.26 Donors includ

the U.S. Agency for International Development, or USAID,

the European Investment Bank point to building a desalin

plant in Gaza as the best long-term solution.27 Multilatera

ers from the World Bank, the Islamic Development Bank, a

the European Commission are supporting technical prepations for the project, and at least one donor conference is

held to raise funds for a Gaza desalination plant.28


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Challenges facing

the Palestinian economy

Te main obsacles o privae secor growh or he Palesinians are well known.

Mos are linked o a series o Israeli resricions on he movemen o goods, peo-

ple, and money. Tese measures and heir effecs have been he subjec o a num-

ber o repors by he Quare, he World Bank, and oher mulilaeral and bilaeral

donors. Tese policies have also been he arge o inernaional diplomacy. Boh

secondary sources and field research make clear ha real progress will need o be

made on some o hese resricions in order o promoe economic growh.

Lack of control over revenue from imported goods

Te Palesinian Auhoriy relies heavily on axes and ariffs charged on impored

goodsofen reerred o as clearance revenue. Under he Paris Proocol o 1994,

Israel collecs axes on impors ino he Wes Bank and Gaza on behal o he PA.

Israel hen ransers hese axes o he PA afer levying a 3 percen collecion and

processing ee.29 Clearance revenue accouned or 70 percen o he PA’s oal

revenue in 2014.30 However, when clearance revenues are wihheld or delayed, he

PA mus urn o oreign aid and bank loans o cover expendiures. Ineres on he

later increases he PA’s financial burden.

Israel has chosen o delay or wihhold clearance revenue rom he Palesinian

Auhoriy in imes o conflic or deerioraing relaions. In 2015, or example,

Israel wihheld clearance revenue o proes he Palesinian applicaion or mem-

bership in he Inernaional Criminal Cour.31 Te move plunged he PA ino a

budge crisis. In he firs quarer o 2015 alone, he PA was only able o pay 60

percen o Palesinian public-secor wages.32 In March 2016, Israel’s Minisry o

Finance released approximaely hal a billion Israeli shekelsroughly $130 mil-lionin clearance revenue o ward off he PA’s financial collapse.33 Bu his sum

will provide only limied relie, and i is unclear wheher addiional ranches are

orhcoming and how long his revenue sream will coninue.34


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Fuure wihholdings o clearance revenue could orce he PA o reduce wage pay-

mens and public services. Tis would urher undermine he PA’s legiimacy. For

many in he Palesinian privae secor, he coninued wihholding o PA clear-

ance revenue represens one o he bigges hreas o sabiliy in he Wes Bank.

According o a senior represenaive o a large Palesinian invesmen company,

“Te Palesinian Auhoriy is owed $30 o $40 million a any one ime.”35

PAemployees have borrowed rom Palesinian banks agains heir salaries in order o

finance a variey o major purchases.36 I he PA is unable o pay salaries, i could

lead o significan negaive ripple effecs across he economy.

Barriers to exports and imports

A variey o Israeli policies resric Palesinian expor growh, ranging rom

nonariff rade barriers o licensing resricions on Palesinian producers. Tese

policies make i more expensive or Palesinian firms o expor heir goods hanor heir regional counerpars. For insance, i akes 23 days and coss $1,750, on

average, or a Palesinian firm o expor a conainer. By conras, i akes only 10

days and coss only $620 or an Israeli firm o expor a similar conainer.37

A similar siuaion exiss or impors. Consrains such as border conrols and

dual-use resricions on goods ha could have boh commercial and miliary

applicaions cos he Palesinian economy up o 5 percen, or $500 million, in

orgone growh.38 Te impac o hese resricions on he Wes Bank is spread

across boh indusry and agriculure. One o he mos challenging aspecs o he

resricions on dual-use goods or Palesinian businesses and oreign invesors is

wha ofen appears o be he arbirary naure o heir enorcemen.39 Maters are

likely significanly worse in Gaza, where he U.N. Office or he Coordinaion o

Humaniarian Affairs, or OCHA, repors ha Gaza-specific impor resricions

have reduced he use o manuacuring capaciy more han 50 percen. Tese

resricions have also resuled in a significan shorage in housing supply.40

Situation at the Allenby Bridge

Overland passage hrough Jordan represens a poenial oule or Palesinian

expors and a pahway o link he Wes Bank o he regional and inernaional

rade. A presen, he Allenby Bridge over he Jordan River is he only inerna-

ional crossing poin beween he Wes Bank and Jordan ha serves boh pas-


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In addiion, a variey o barriers make i difficul or oreign naionals o ravel in he

Wes Bank and Gaza. Tese resricions have clear implicaions or ourism, an indus-

ry ha is an imporan source o jobs and revenue or Palesinians. In and around

he ciy o Behlehem and oher ceners o hisorical and religious significance, our-

ism is a pillar o he local economyone ha has been hi hard by recen securiy

incidens, operaions, and resricions.53

Some esimaes indicae ha due o di-ficul enry and exi processes or ouriss, ourism in he Palesinian areas has been

reduced by 20 percen o 60 percen.54 Addiionally, based on general economeric

models o he impac o visa resricions, i is esimaed ha hese ypes o impedi-

mens on ravel reduce rade and oreign direc invesmen by up o 25 percen.55

Te negaive consequences o hese resricions can be seen in he experience o a

Jordan-based pharmaceuical chain run by a member o he Palesinian diaspora.

His business has experienced exraordinary growh in Jordan and has expanded

o Saudi Arabia and even Iraq. Bu when he ried o bring wha he ermed “my

version o CVS” o he Wes Bank, he could no bring saff o Jordan or rainingor send rainers o he Wes Bank. Movemen resricions, he said, creaed a much

more challenging business environmen even han in Iraq.56 A banker rom one o

he larges banks in Palesine echoed his complain. He observed ha he growh

o he financial secor had been hindered by an inabiliy o hire members o he

Palesinian diaspora wih experience in finance, as heir ravel o Ramallah was

exremely difficul o arrange.57

Restrictions on employment in Israel

Despie he limied supply o work permis available o Palesinians, employmen

opporuniies in Israel remain criical o he Palesinian economy. Beore he sar

o he firs iniada in 1987, some 40 percen o he Palesinian labor orce worked

in Israel. According o Leila Farsakh o he Universiy o Massachusets Boson,

he number o Palesinians legally working in Israel “dropped rom … 115,600

in 1992 o less han 36,000 in May 1996.”58 During ha period, per capia gross

naional produc, or GNP, in he Wes Bank and Gaza ell 15 percen, and unem-

ploymen rose o more han 28 percen.59

Te number o Palesinians employed in Israel rose o more han 140,000 during

he las hal o he 1990s, alling dramaically again wih he sar o he second

iniada in 2000.60 Had he second iniada no happened and had he relaive

share o Palesinians in he Israeli workorce remained consan, he Palesinian

economy could have grown more han $500 million on an annual basis.61


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In recen years, he number o work permis or Palesinians has been capped a

around 50,000.62 Te precise number can flucuae in response o he dynamic

securiy siuaion. A poenial Palesinian worker mus mee a number o condi-

ions o receive a work permi. For example, ha worker mus be older, married,

and pass an IDF securiy screening.63

Access to finance

Many Palesinians who were inerviewed or his sudy idenified he lack o access

o finance as a major impedimen o economic growh. As a member o one o

he larges independen Palesinian invesmen companies observed, “financing is

he key o growh in Palesine.”64 Over he pas 15 years, he Palesinian economy

has suffered rom a seady decline in invesmen. Invesmen in inrasrucure and

equipmen has more han halved, as a share o GDP.65 Palesinian banks have he

capaciy o lend, bu 32 percen o heir asses are invesed abroadhree imeshe level o oher economies.66 As one significan Palesinian diaspora invesor

remarked, “I have ens o millions o dollars invesed in Palesine, bu I made he

decision five years ago o sop.”67 More worryingly, one o he larges limied hold-

ing companies wih sraegic invesmens in he Palesinian economy has decided

o sop new invesmens in Palesine or he nex ew years.68

Small- and medium-sized enerprises, or SMEs, represen he majoriy o

Palesinian businesses and are paricularly vulnerable o shorages o credi.

SMEs also happen o be he bigges employers o women and provide livelihood

opporuniies o some o he mos economically vulnerable populaions in he

Palesinian erriories.69 Palesinian SMEs ideniy access o credi as he number

one consrain on growh.70 Some progress has been made, however. A leas 7

o he 16 main Palesinian banks have special lending aciliies, or “windows,” or

SMEs. Quds Bank, one o larges in Ramallah, repors ha i has len more han

$120 million o SMEs over he pas ew years.71 Neverheless, many SMEs sill

find lending erms prohibiive.72

Access to and management of the land

Access o land in he Wes Bank remains as poliically sensiive as i is economi-

cally imporan or he Palesinian economy. In accordance wih he Israeli-

Palesinian agreemens o he 1990s, he Wes Bank is divided ino hree erriories


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known as Areas A, B, and C. Te PA conrols mos governmen uncions in Area

A, while Israel reains securiy conrol over Area B. Israel reains almos complee

conrol over Area C, which consiues more han 60 percen o he Wes Bank.

Palesinians’ access o Area C is severely limied, and hey are largely prevened

rom developing i economically. Area C separaes he geography o Areas A and

B, complicaing he abiliy o Palesinians o move reely across he later.

FIGURE 1

The West Bank under the Oslo II Accord

Source: Source: CAP adaptation of U.N. Office for the Coordination of Humanitarian Affairs, “West Bank: Oslo Agreement & BarrierProjection – 20 Feb 2005” (2005), available at http://www.ochaopt.org/documents/wb_oslogov&barrier_july05.pdf.

Area A

Area B

Area C

Nature Reserve


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Te World Bank has esimaed ha resricions on Area C cos he Palesinian

economy more han $2 billion each year.73 In he agriculural secor alone, he

opporuniy cos o he resricions on access run as high as $700 million74 per

year by prevening he developmen o higher-value irrigaed crops. Loss o

revenue rom oregone resource exracionsuch as mineral exracion rom he

Dead Seacould exceed $900 million.75

Te resricions on access o Area Calso limi real esae opporuniies or Palesinians and hereby inflae he price o

housing by up o $240 million per year.76

O all he obsacles o growh, hose inerviewed or his sudy el ha movemen

on access o Area C would have he greaes posiive impac on Palesinian-Israeli

relaions. Senior diplomaic officials close o he peace alks underscore ha access

o Area C is he only sep ha will give Palesinians a angible reason o hink ha

a wo-sae soluion is sill viable.77 Bu all o hose inerviewed were deeply skepi-

cal ha he curren Israeli governmen would be willing o make any significan

concessions on Area C. Indeed, he composiion o he curren governmen inIsrael makes movemen on Area C exremely difficul, even i Prime Miniser

Benjamin Neanyahu were disposed o do so.78 Te prime miniser has a “razor-

hin majoriy in one o he mos righ-wing Knesses in Israeli hisory.”79

Tose Palesinians who successully invesed in projecs in Area C did no work

hrough governmen channels bu insead quiely parnered wih he Israeli

privae secor o move projecs orward. When problems arose wih he Israeli

governmen, hese silen Israeli parners proved effecive in navigaing he Israeli

legal sysem o arbirae he issue. Tis model has shown proo o concep in he

agriculure secor, which, as a senior Palesinian invesor observed, he “Israelis

considered less hreaening as we didn’ have o build anyhing.”80

However, even in he areas where he PA exercises parial or ull conrolAreas

A and Bi has ailed o maximize he value o he land. Te PA lacks efficien

land managemen processes o he exen ha only 35 percen o land in Areas A

and B is ormally regisered. Moreover, here are no ile deeds o he unregisered

land. Wihou ile deeds, i is impossible or landowners o use land as collaeral

o access finance. Te inadequae level o land regisraion also resuls in los PA

revenue rom uncolleced land ees and axes. I has been esimaed ha ull WesBank land regisraion could raise he PA’s revenues rom around $25 million

annually o $75 million per year.


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Most economic sectors are vulnerable to restrictions

wo recen reporsone by Te Porland rus and he oher by he Quare

idenified he Palesinian economic secors wih he greaes poenial or growh

and jobs: agriculure; inormaion and communicaions echnology, or IC;

ourism; consrucion; and energy.81

Palesinian businessmen and invesors inerviewed or his repor were less sanguine abou he energy and ourism secors.

For insance, hey saw a uure in energy ied o resources off he coas o he Gaza

Srip ha are currenly subjec o Israeli policy. When i comes o ourism, lead-

ers in his secor were quick o poin ou is vulnerabiliy, ied as i is o he sae

o he securiy environmen. In Behlehem, or example, he leading hoels were

significanly underbooked or he 2015–2016 holiday season as a resul o ongoing

clashes beween Palesinian youh and he Israeli securiy orces. Some hoel own-

ers were even concerned ha hey would need o begin layoffs.82

However, he business leaders inerviewed or his repor repeaedly reerencedagriculuremore specifically, agribusinessand IC as secors wih he

greaes growh poenial, especially in ligh o he curren poliical and securiy

environmens. Agribusiness is considered o have he poenial o creae jobs,

albei a limied number, hrough he inroducion o high-value vegeable crops

and hrough allowing or greaer revenue capure by building local value chains.83

More imporanly, growh could be driven by domesic consumpion inside he

Wes Bank and Gaza hrough impor subsiuion.84

In addiion, many inerviewees considered IC o be he mos dynamic secor. By

is very naure, he IC secor is relaively insulaed rom he many o he chal-

lenges and resricions imposed by he occupaion. Indeed, here have already

been some success sories: One sarup, Gaza Sky Geeks, raised $250,000 in seed

capial hrough crowdsource unding. One successul regional ech enrepreneur

recouned how Gaza Sky Geeks managed o say online and deliver on a Silicon

Valley conrac during he 2014 war in Gaza.85

Opporuniies or IC secor growh exis, wih he inroducion o e-governmen

services, business process ousourcing by inernaional firms o Palesinian firms,

sofware developmen, and call ceners.86

Eigh years ago, Cisco Sysems Inc. madea “sraegic invesmen” o $10 million in business service ousourcing in Wes

Bank. Since hen, he secor has reporedly grown rom 1 percen o beween 5

percen and 6 percen o he Palesinian economy.87 However, obsacles o he


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developmen o a Palesinian IC ecosysem remain. Alhough Palesinian youh

educaion levels are relaively high by regional sandards, young Palesinians lack

key skills and exposure o he echnologies required or sarups.88

Legitimacy and transparency of the Palestinian Authority

Te Palesinian Auhoriy currenly suffers rom a crisis o legiimacy in he eyes

o is own people. As a long-ime champion o a negoiaed setlemen wih Israel,

Presiden Abbas’ sanding has been damaged in recen years. Te ailure o U.S.

Secreary o Sae John Kerry’s iniiaive in 2014 srenghened hose criics who

charge ha Abbas was naïve o inves so much o his credibiliy in he diplomaic

process. Bu he legiimacy o he Palesinian Auhoriy has also begun o suffer

because o ailures in governance. Palesinians appear o be increasingly losing

rus in he Palesinian Auhoriy under is curren leadership. Some 80 percen o

Palesinians believe ha heir governmen is corrup.89

None o he Palesinian enrepreneurs or invesors who were inerviewed or

his repor considered he PA o be a parner in economic growh. In heir view,

he mos imporan and concree economic uncion i perormed was ha o

employer. Alhough he privae secor would benefi rom a more effecive public

secor, some in he privae secor go o grea lenghs o avoid he PA ou o concern

ha is inervenion in business maters would be eiher incompeen or predaory.

As one Palesinian invesor pu i, “You have o be very low profile. Oherwise he

big poliicos will exor you.”90 A a macro level, he World Bank has ound ha he

general ease o doing business in he Wes Bank and Gaza has deerioraed in recen

years, including in areas ha are under he purview o he PA.


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Recommendations

Te challenges o he Palesinian economy are well known. In he more han wo

decades since he Oslo Accords, here have been repeaed and susained effors

by donors and diplomas o make progress on hese challenges. Tere has been

some limied success bu ew major or lasing breakhroughs. Despie his his-

ory, he nex U.S. adminisraion will need o redouble is effors o improve he

Palesinian economy as par o a broader plan o susain a wo-sae soluion. Te

ollowing recommendaions or an agenda or growh are se ou in wo caegories.

Te firs caegory lays ou prioriies or U.S.-Israel-Palesinian dialogue, which aredesigned o minimize urher economic deerioraion and offer pahways or lim-

ied privae-secor growh in he Wes Bank. Te second se oulines prioriies or

direc engagemen beween he Unied Saes, oher donors, and he Palesinian

Auhoriy o promoe privae-secor growh and resiliency in he Wes Bank.

Priorities for U.S.-Israel-Palestinian diplomacy

Insulate the payment of clearance revenue from the politics of Palestinian-

Israeli relations.

Te Palesinian Auhoriy having regular and predicable access

o clearance revenue is key o avering economic collapse. Te paymen o clear-

ance revenue has a direc impac on he abiliy o he PA o pay is bills. As he

larges employer in he Wes Bank, however, he PA’s paymen o salaries has a sig-

nifican muliplier effec across he wider Palesinian economy. Te Unied Saes

and European donors should encourage Israeli auhoriies o reurn o regular and

comprehensive clearance revenue ransers in he uure. Te decision by Israel’s

finance miniser o release a ranche o clearance revenue in March signals ha

progress is possible. Te nex U.S. adminisraion should prioriize an agreemen

beween Israel and he PA o ormulae a predicable calendar o revenue ransersha is insulaed rom poliical disagreemens. Tis agreemen and he schedule

o paymens could be ormalized in a commimen o a hird pary, preerably he

Unied Saes. I he agreemen does no rise o he level o a ormal diplomaic

agreemen, i should a leas ensure ha he Palesinian economy does no suffer


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rom he volailiy o relaions beween he PA and Israel. Over he longer erm, i

may be necessary o revisi he 1994 Paris Proocol, which oulined he financial

relaionship beween Israel and he Palesinian Auhoriy. Te Paris Proocol was

only inended o las or five years, and some o is elemens could be updaed in

line wih curren economic realiies.91

Ease restrictions on employment in Israel. Israel should be encouraged o ollow

up on he recen proposal by Israeli Deense Miniser Moshe Ya’alon and Maj.

Gen. Yoav Mordechai, coordinaor o governmen aciviy in he Palesinian er-

riories, o increase he number o work permis issued o Palesinians.92 I should

also explore opions o increase Palesinian employmen quoas across Israeli

indusries. Te recen deerioraion o he securiy siuaion could complicae

such a move. However, senior Israeli securiy officials are seeking o increase he

quoa o work permis or Palesinians by up o 30,000, specifically in order o

help sabilize he securiy siuaion in he Wes Bank.93 In addiion, i may be pos-

sible o lower age resricions or drop requiremens ha successul applicans bemarried or have a child in order o provide greaer opporuniy or Palesinians

paricularly younger Palesinianso work in Israel.

Improve the Allenby Bridge border crossing. Building rade linkages beween

Palesine and Jordan, he Gul, and Asia will be criical o long-erm growh. Te

firs sep is o improve he choke poin a he Allenby Bridge border crossing. As

he Quare argued in May 2015, “Conainerizaion o border crossings, increasing

he permited heigh or palles o 1.7 meers, and exended, reliable hours a bor-

der crossings” would help reduce coss or Palesinian businesses.94 Jordanian rad-

ers invesing in he Wes Bank underscored he imporance o his projec. Tere

has been significan progress made on his goal in recen monhs. New inerim

measures are anicipaed by he end o 2016.95 Jordan, Israel, and he Palesinian

Auhoriy should ranslae heir curren diplomaic and echnical engagemen ino

long-erm planning o ensure ha conainerizaion expands beyond he require-

mens o curren demand.

Rationalize the system for processing dual-use goods. Te lack o ransparency

and he unpredicabiliy o he processes or approval o dual-use goods were

flagged repeaedly across secors as principle obsacles o commerce.96

As a firssep, he lis o dual-use goods should be refined o exclude iems ha are already

easily available in he Wes Bank and Gaza, such as office equipmen, personal

compuers, and GPS devices. Definiions should be made more precise so as no


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o include innocuous iems. Once he dual-use goods lis is refined, he process-

ing o approvals or dual-use goods should be sreamlined and made more rans-

paren. Tis new sysem should also recognize so-called known radershose

enrepreneurs and businesses ha have esablished and secure rading hisories.

I should also address he unique challenges o large-scale, muli-year projecs

ha canno be held hosage o unpredicable changes o or implemenaion odual-use resricions.

Reduce movement restrictions inside the West Bank. Israel should seek o

reduce he number o surprise, or flying, checkpoins i erecs in he Wes Bank.

Te number o hese checkpoins rose rom 65 during a seven-monh period

exending rom 2008 ino 2009 o 361 in April 2015 alone.97 Tese checkpoins

help undermine he gains ha have resuled rom he removal o oher Wes Bank

checkpoins and creae unpredicabiliy or Palesinian businesses and workers.

Israel should also work o end he pracice o prohibiing Palesinians rom even

crossing Israeli-only roads, which keeps Palesinians rom using oherwise avail-able roads. Tis pracice is no enshrined in ormal Israeli policy, and he ongoing

robus securiy cooperaion beween Israel and he PA should reduce he risks o

Israeli securiy.

Improve access to land in all areas of the West Bank. Allowing access o Area C

could have a major posiive impac on he Palesinian economy. I is also one o

he mos poliically sensiive and challenging issues on any agenda or growh. In

he absence o a broader poliical agreemen ha gives Palesinians access o Area

C, negoiaions should ocus on increasing and acceleraing pracical suppor

or he developmen o specific Palesinian high-impac projecs and inrasruc-

ure in Area C. In addiion o is economic benefis, such concessions would be

considered a “game changer” or many Palesinians. As one senior Palesinian

enrepreneur remarked in respec o easing ensions and improving relaions,

“Wih no horizon on he poliical ron, we need somehing big like progress

in Area C o calm hings down.”98 Beyond Area C, he Unied Saes and oher

donors could work wih he Palesinian Auhoriy o improve he later’s capabil-

iy o manage land in Areas A and B o he Wes Bank. Specifically, addiional

echnical assisance could arge he Palesinian Land Auhoriy and accelerae

land regisraion.99


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Destination Bethlehem

Imbedded in the tile floor of the St. George Church in

Madaba, Jordan, is one of the most historic maps of

the Middle East. The mosaic laid in this early Byzan-

tine church is positioned east to west like a compass,bounded by the Nile River to the south and by Leba-

non to the north.

From Madaba pointing due west, across the Dead Sea

and the Jordan Valley—in earlier times referenced as

the Valley of the Moab—is Jerusalem. Southwest on

the mosaic is Bethlehem, an international destination

for thousands of years. But today, unlike neighbor-

ing Jerusalem, Bethlehem is isolated by the complex

politics, diplomacy, and security of the West Bank.

With its significant tourism potential, Bethlehem rep-

resents an important catalyst for economic develop-

ment in the West Bank. The city is also an important

educational center for thousands of young Palestin-

ians studying at Bethlehem University, an institution

devoted to developing those youth to play an active

and positive role in their society.

Whether the destination is Manger Square and the

Church of the Nativity, Bethlehem University, or neigh-

boring towns and villages, as the Mayor of Bethlehem

notes, “Bethlehem is a global city, and change must

come soon or it will never happen. Losing hope is

most dangerous because young people all want to

leave.”

100

Unemployment is high, and movement ishard and unpredictable.

While diplomacy and security concerns remain central

to the region’s dilemma, 2015 marked the third year of

operation for the Bethlehem Development Founda-

tion. The purpose of the foundation is to regenerate

and revitalize the Bethlehem community as a vibrant

international tourist destination.

Development in Bethlehem—supported by a wide

range of grants from institutions including the U.S.

Agency for International Development, or USAID;

international charities; the Russian government; and

others—is comprised of three tracks: private-sector

investments, public infrastructure projects, and phil-

anthropic activities. All three are aimed at establishing

a pipeline of sustainable projects that will spur further

economic growth, development, and prosperity.

The challenge remains to restore Bethlehem to its role

as a peaceful beacon and unique spiritual center for

both pilgrims and citizens of this historic destination.


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Priorities for direct bilateral and multilateral economic

engagement with the Palestinians

Improve domestic access to finance. Bilaeral and mulilaeral donors should

make a sronger effor o expand Palesinian domesic lending aciviies and o

mach users o providers o capial, paricularly in he small- and medium-sizedenerprises markeplace. Te Inernaional Finance Corporaion, or IFC, has par-

nered wih Quds Bank and oher Palesinian financial insiuions o enhance heir

capaciy o lend o small- and medium-sized enerprises.101 Bu more could be

done o ake hese programs o scale. More broadly, inernaional financial insiu-

ions, or IFIs, should help o map he gaps ha exis in he marke and use heir

convening auhoriy o culivae inernaional and Palesinian-diaspora invesors.

Te IFIs and oher donors should work o ideniy businesses wih he poenial

or growh and provide hem wih he echnical assisance required o develop he

business expansion plans ha hey need o secure loans and invesmens.

Promote growth in sectors that show promise under current conditions.

Te Unied Saes, European donors, and IFIs should inves in secors o he

Palesinian economy ha show promise o delivering eiher jobs or growh despie

Israeli resricions. Inormaion and communicaions echnology, or insance, can

move around radiional barriers o commerce o link he Palesinian economy

o he regional and inernaional marke place. Building a Palesinian IC sec-

or would require invesmen in Palesine’s secondary educaion insiuions and

universiies o develop he necessary experise.102 Essenial venure capial could

be aciliaed hrough seed unds or maching grans.103 Modes invesmens in

inrasrucure would be required o provide physical locaions or would-be IC

enrepreneurs o gaher. Finally, programs o bring delegaions o IC enrepre-

neurs o echnology hubs around he region and in he Wes would be essenial or

generaing new conacs and opporuniies.104

Improve transparency and reduce corruption inside the Palestinian Authority.

Percepions o corrupion inside he Palesinian Auhoriy have led o a dysunc-

ional relaionship beween he PA and he Palesinian privae secor. Predaory

behavior has shifed Palesinian percepions o he PA. For some, he PA is now

an obsacleno a parnero growh. Increased ransparency and ani-cor-rupion measures could help build a healhier relaionship beween Palesinians

and heir governing auhoriy. In paricular, he Unied Saes and oher donor

naions should help he PA bolser is financial managemen and reporing


23/29


capabiliies and hold i accounable or greaer ransparency. Whaever specific

mehod is chosen, public reporing o PA finances should be used o veriy ha

local governmen unis are using PA and donor unding o deliver necessary

public services.

In addiion, he Unied Saes and oher ineresed parners should ake sepso ensure ha imporan economic insiuions such as he Palesine Moneary

Auhoriy remain insulaed rom poliical pressure. Te Unied Saes can make

clear ha atemps o poliicize hese insiuions will lead o negaive conse-

quences or bilaeral relaions beween Washingon and Ramallah. Te Unied

Saes should also work o increase inernaional assisance o hese insiuions,

making hem more capable o carrying ou heir uncions and more able o resis

poliical meddling.

Support a Palestinian Authority local public works program. In andem wih

measures o srenghen ransparency and lessen corrupion, he Unied Saesand oher donors should consider supporing a local public works program in he

Wes Bank. Te program could be adminisered hrough he Palesinian Auhoriy

and arge inrasrucure needs a he communiy level ha would help unlock

he poenial o local enrepreneurs and SMEs. Projecs should be idenified in

conjuncion wih local officials o ensure ha hey reflec communiy prioriies

and would need o be careully ailored o work around Israeli resricions. For

example, where waer is needed o expand opporuniies or agriculure and agri-

business, he program would increase oupu o exising wells, oregoing licens-

ing requiremens or new consrucion. Wih proper execuion and communiy

consulaion, a local public works program could boh grow local economies and

help resore he credibiliy o he PA.


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Conclusion

Te nex U.S. presiden will ener office a a ime when a resoluion o he Israeli-

Palesinian conflic remains elusive. Te poliical landscape and popular senimen

in Israel and amongs he Palesinians are unlikely o avor a diplomaic setle-

men. Prime Miniser Neanyahu and Presiden Abbas do no rus each oher.

Neiher leader has an appeie o reurn o he able. None o his undercus he

sraegic logic o a wo-sae soluion. Bu he easibiliy o ha soluion is increas-

ingly under hrea. For a Palesinian sae o be viable, i will require a healhy

economy ha can provide jobs and growh o is people. Te lack o economicopporuniy already conribues o he difficulies o daily lie in he Wes Bank

and Gaza and helps o uel he recen unres.

In he absence o a final saus agreemen, he nex adminisraion will need o

seer a pragmaic course wih a greaer ocus on wha is achievable economically.

Te Unied Saes mus be clear-eyed in is expecaions. Progress down his pah

will likely be incremenal and will require paience and deerminaion. Relaions

beween he paries do no lend hemselves o quick wins or major breakhroughs.

Bu an agenda o smaller, concree seps can achieve meaningul improvemens in

condiions or Palesinians and susain hope or a wo-sae soluion.


25/29


About the authors

Hardin Lang is a Senior Fellow a he Cener or American Progress, where he

ocuses on U.S. naional securiy, mulilaeral affairs, and Middle Eas policy. He

has wo decades o experience in peacekeeping, peacebuilding, and sabilizaion,

including a 12-year career wih he Unied Naions. Beore coming o CAP, Lang was a senior ellow a he Cener or Sraegic and Inernaional Sudies. During

his 12 years a he Unied Naions, he served as head o office or ormer Presiden

Bill Clinon in his role as U.N. special envoy or Haii afer he 2010 earhquake

and helped launch U.N. sabilizaion in Mali. Oher overseas posings included

Aghanisan, he Balkans, Cenral America, and Iraq.

Rudy deLeon is a Senior Fellow wih he Naional Securiy and Inernaional

Policy eam a he Cener. He has worked a he organizaion since 2007 and

ocuses on U.S. naional securiy issues. His 25-year governmen career con-

cluded in 2001 afer his enure as depuy secreary o deense, during whichime he served as he chie operaing officer a he Penagon, a member o he

Depuies Commitee o he Naional Securiy Council, and a member o he U.S.

Deparmen o Veerans Affairs Naional Parnership Council on labor-manage-

men issues. In earlier Penagon assignmens, deLeon served as undersecreary o

deense or personnel and readiness rom 1997 o 2000 and as undersecreary o

he Air Force rom 1994 o 1997.

Acknowledgments

Te auhors would like o hank CAP Senior Fellow Brian Kaulis and CAP Senior

Fellow John Craig or heir suppor and guidance on his repor. Te auhors

would also like o hank an impressive eam o CAP inernsAyla Bimouni,

Sangia Kanumalla, Shaun Kleber, and Rober Sephensor heir research in

suppor o his sudy. Tis repor would no have been possible wihou heir help.


26/29


Endnotes

1 Eliana Rudee, “ Analysis of New Palestinian PollShows Fertile Ground for Escalation of Violence,” TheAlgemeiner, January 5, 2016, available at http://www.algemeiner.com/2016/01/05/poll-shows-palestinians-support-violence-not-diplomacy/; Gil Hoffman, “Pollfinds nearly half Israelis feel two-state solution is dead,”The Jerusalem Post , October, 14, 2015, available athttp://www.jpost.com/printarticle.aspx?id=424970.

2 Salam Fayad, “Farewell to Victimhood,” Atlantic Council,January 15, 2016, available at http://www.atlanticcoun-cil.org/publications/articles/farewell-to-victimhood.

3 Einat Wilf and Ghaith al-Omari, “Roundtable: Preservinga Path to a Two-State Solution,” Washington Institutefor Near East Policy, December 23, 2015, available athttps://www.washingtoninstitute.org/policy-analysis/view/preserving-a-path-to-a-two-state-solution.

4 David Pollock, “New Palestinian Poll Shows HardlineViews, But Some Pragmatism Too,” Washington Institutefor Near East Policy, June 25, 2014, available at http://www.washingtoninstitute.org/policy-analysis/view/new-palestinian-poll-shows-hardline-views-but-some-pragmatism-too.

5 Palestinian Welfare Association, interview with authors,Ramallah, West Bank, October 24–26, 2015.

6 Authors’ interviews with Palestinian nongovernmentalorganizations, Ramallah, West Bank, October 24–26,2015.

7 Eric Schwartz, “Student group’s demand to divest fromIsrael goes too far,” The Third Narrative, March 1, 2016,available at http://thirdnarrative.org/bds-does-not-equal-peace-articles/student-groups-demand-to-divest-from-israel-goes-too-far/.

8 Brian Katulis, Marc Lynch, and Robert C. Adler, “Windowof Opportunity for a Two-State Solution: Policy Recom-mendations to the Obama Administration on theIsraeli-Palestinian Front” (Washington: Center for Ameri-can Progress, 2009), available at https://www.american-progress.org/issues/security/report/2009/07/15/6412/

window-of-opportunity-for-a-two-state-solution/.

9 Office of the Quartet, “Quartet Principals’ Statement,”October 1, 2015, available at http://www.quartetrep.org/page.php?id=5dc909y6146313Y5dc909.

10 Peter Juul, “Don’t Cut Aid to the Palestinian Authority:U.N. Membership Bid Could Have Serious Consequenc-es,” Center for American Progress, September 26, 2011,available at https://www.americanprogress.org/issues/security/news/2011/09/26/10264/dont-cut-aid-to-the-palestinian-authority/.

11 Karim Nashashibi, Yitzhak Gal, and Bader Rock,“Palestinian-Israeli Economic Relations: Trade andEconomic Regime” (Stockholm and Jerusalem: PalestineInternational Business Forum, International Council ofSwedish Industry, and Office of the Quartet Represen-tative, 2015), available at http://www.quartetrep.org/

files/image/report.pdf .

12 Former Palestinian economic official, interview withauthors, Washington, D.C., March 20, 2016.

13 Central Intelligence Agency, “The World Factbook: WestBank,” available at https://www.cia.gov/library/publica-tions/the-world-factbook/geos/we.html (last accessedApril 2016).

14 Association for Civil Rights in Israel, “East Jerusalem – Bythe Numbers,” May 7, 2013, available at https://www.acri.org.il/en/2013/05/07/ej-figures/.

15 Central Intelligence Agency, “The World Factbook: GazaStrip,” available at https://www.cia.gov/library/publica-tions/the-world-factbook/geos/gz.html (last accessedApril 2016).

16 U.S. Department of State, West Bank and Gaza Invest-ment Climate Statement 2015 (2015), available at http://www.state.gov/documents/organization/242007.pdf .

17 Ibid.

18 World Bank staff, interviews with authors, Washington,D.C., December 10, 2015.

19 Chairman of large Palestinian real estate company, in-terview with authors, Amman, Jordan, October 17–22,2015.

20 World Bank, “Economic Monitoring Report to the AdHoc Liaison Committee” (2015), available at http://www-wds.worldbank.org/external/default/WDSCon-tentServer/WDSP/IB/2015/05/27/090224b082eccb31/5_0/Rendered/PDF/Economic0monit0oc0liaison-0committee.pdf.

21 World Bank, “Gaza Economy on the Verge of Col-lapse, Youth Unemployment Highest in the Regionat 60 Percent,” Press release, May 21, 2015, availableat http://www.worldbank.org/en/news/press-release/2015/05/21/gaza-economy-on-the-verge-of-collapse.

22 Associated Press, “Gaza Could Become ‘Uninhabitable’by 2020, UN Report Warns,” Haaretz, September 2, 2015,available at http://www.haaretz.com/middle-east-news/1.674064.

23 Moran Azulay and Itamar Eichner, “Military Intel-ligence chief: Deterioration in Gaza endangers Israel,”Ynetnews, February 24, 2016, available at http://www.ynetnews.com/articles/0,7340,L-4770471,00.html.

24 U.N. Office for the Coordination of Humanitarian Affairs,“The Humanitarian Impact of Gaza’s Electricity andFuel Crisis” (2015), available at http://gaza.ochaopt.org/2015/07/the-humanitarian-impact-of-gazas-elec-tricity-and-fuel-crisis/.

25 Office of the Quartet, “Gaza recovery and beyond:Reliable infrastructure: Energy,” available at http://www.quartetrep.org/page.php?id=5d7398y6124440Y5d7398(last accessed February 2016).

26 United Nations Conference on Trade and Develop-ment, “Report on UNCTAD assistance to the Palestinianpeople: Developments in the economy of the OccupiedPalestinian Territory” (2015), available at http://unctad.org/en/PublicationsLibrary/tdb62d3_en.pdf .

27 Office of the Quartet, “Gaza recovery and beyond:

Reliable infrastructure: Water,” available at http://www.quartetrep.org/page.php?id=5d774fy6125391Y5d774f (last accessed April 2016).

28 Ibid; Senior U.S. government official, interview withauthors, Washington, D.C., April 1, 2016.

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27/29


29 A. Bennett and others, “West Bank and Gaza: EconomicPerformance and Reform under Conflict Conditions”(Washington: International Monetary Fund, 2003),available at https://www.imf.org/external/pubs/ft/med/2003/eng/wbg/wbg.pdf .

30 World Bank, “Economic Monitoring Report to the AdHoc Liaison Committee.”

31 Khaled Abu Toameh, Tovah Lazaroff , and Lahav Harkov,“Israel freezes Palestinian tax revenues in response toICC membership” The Jerusalem Post , January 3, 2015,

available at http://www.jpost.com/Israel-News/Politics-And-Diplomacy/Israel-freezes-Palestinian-tax-revenues-in-response-to-ICC-membership-386556.

32 World Bank, “Economic Monitoring Report to the AdHoc Liaison Committee.”

33 Adam Eliyahu Berkowitz, “Israel to ImplementEconomic Aid to PA as Solution to Violence,” BreakingIsrael News, February 26, 2016, available at http://www.breakingisraelnews.com/62328/finance-minister-proposes-economic-solution-to-violence-

jerusalem/#JztXXl6km9hjU2du.99.

34 Israeli official, interview with authors, Washington, D.C.,March 17, 2016.

35 Senior representative of a Palestinian investment com-pany, interview with authors, Amman, Jordan, October

17–22, 2015.

36 Palestinian Welfare Association, interview with authors.

37 Office of the Quartet, “Strategy and Priorities 2015-16:‘Building the State, Empowering the Economy’” (2015),available at http://www.quartetrep.org/files/server/OQ%20Strategy%20and%20Priorities%202015-2016.pdf ; World Bank, “Economic Monitoring Report to theAd Hoc Liaison Committee.”

38 U.K. Department for International Development,“Support to the work of the Office of the QuartetRepresentative (OQR) in the Occupied Palestinian

Territories,” available at http://iati.dfid.gov.uk/iati_docu-ments/3717418.odt (last accessed March 2016).

39 Senior representative of the Arab Palestinian Invest-ment Corporation, interview with authors, Amman,

Jordan, October 17–22, 2015.

40 Office of the Quartet, “Strategy and Priorities 2015-16”;World Bank, “Economic Monitoring Report to the AdHoc Liaison Committee.”

41 Office of the Quartet, “Movement and trade: Contain-erization at Allenby Bridge,” available at http://www.quartetrep.org/page.php?id=5d6fe1y6123489Y5d6fe1 (last accessed April 2016).

42 Ibid.

43 Office of the Quartet, “Report for the Meeting of theAd-Hoc Liaison Committee on Action in Support ofPalestinian State-Building” (2015), available at https://unispal.un.org/DPA/DPR/unispal.nsf/3d14c9e5cdaa296d85256cbf005aa3eb/c364aaf8dafd150985257ece0067e527?OpenDocument.

44 Office of the Quartet, “Movement and trade: Container-ization at Allenby Bridge.”

45 Jordanian Business Council, interview with authors,Amman, Jordan, October 17–22, 2015.

46 Office of the Quartet, “Report for the Meeting of theAd-Hoc Liaison Committee on Action in Support ofPalestinian State-Building.”

47 Ibid.

48 Office of the U.N. High Commissioner for Human Rights,“Freedom of Movement: Human Rights Situation inthe Occupied Palestinian Territory, Including EastJerusalem” (2016), available at http://www.ohchr.org/Documents/Countries/PS/SG_Report_FoM_Feb2016.pdf ; C. Ross Anthony and others, “The Costs of theIsraeli-Palestinian Conflict” (Santa Monica, CA: RANDCorporation, 2015), available at http://www.rand.org/content/dam/rand/pubs/research_reports/RR700/RR740-1/RAND_RR740-1.pdf .

49 Office of the U.N. High Commissioner for HumanRights, “Freedom of Movement.”

50 Massimiliano Calì and Sami H. Miaari, “The Labor Mar-ket Impact of Mobility Restrictions: Evidence from theWest Bank” (Washington: World Bank, 2013), availableat http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/05/22/000158349_20130522112115/Rendered/PDF/WPS6457.pdf .

51 Ibid.

52 Office of the U.N. High Commissioner on Human Rights,“Freedom of Movement.”

53 Palestinian hotel and business owners in the tourismsector, interviews with authors, Bethlehem, West Bank,October 24–26, 2015.

54 Anthony and others, “The Costs of the Israeli-PalestinianConflict.”

55 Eric Neumayer, “On the detrimental impact of visarestrictions on bilateral trade and foreign directinvestment,” Applied Geography 31 (3) (2011): 901–907,available at http://eprints.lse.ac.uk/37226/.

56 CEO of one the largest pharmaceutical retail chainsin Jordan, interview with authors, Amman, Jordan,October 17–22, 2015.

57 Chairman of one of the largest Palestinian banks, inter-view with authors, Ramallah, West Bank, October 24-26,2015.

58 Leila Farsakh, “Palestinian Labor Migration to Israelsince Oslo and Beyond,” Topics in Middle Eastern and

North African Economies 4 (2002), available at https://pdfs.semanticscholar.org/ec08/5e8cc8cd7795226546eaaaf7d844ad157d0e.pdf .

59 Ibid.

60 Sebnem Akkaya and others, “Economics of ‘Policy-Induced’ Fragmentation: The Costs of Closures Regimeto West Bank and Gaza.” Working Paper 50 (World BankOffice of the Chief Economist, 2008), available at http://www.gla.ac.uk/media/media_84244_en.pdf.

61 Ibid.

62 International Labour Organization, “ILO: Unemploy-ment among Palestinians up by over 25 per cent,” May28, 2015, available at http://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_371179/lang--en/index.htm.

63 Bank of Israel Office of the Spokesperson and EconomicInformation, “Expansion of Palestinian employmentin Israel and its characteristics” Press release, March 3,2015.

64 Senior representative of a Palestinian investment com-pany, interview with authors, Amman, Jordan, Oc tober17–22, 2015.

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65 Office of the Quartet, “Strategy and Priorities 2015-16.”

66 Ibid.

67 Chairman of major Palestinian real estate company,interview with authors.

68 Padico Holdings, interview with authors, Ramallah,West Bank, October 24–26, 2015.

69 Leading Palestinian businesswoman, interview withauthors, Ramallah, West Bank, October 24–26, 2015.


71 Quds Bank senior board member, interview withauthors, Amman, Jordan, October 17-22, 2015.


73 World Bank, “West Bank and Gaza: Area C and theFuture of the Palestinian Economy” (2013), available athttp://www-wds.worldbank.org/external/default/WD-SContentServer/WDSP/IB/2014/01/23/000442464_20140123122135/Rendered/PDF/AUS29220REPLAC0EVI-SION0January02014.pdf.

74 Ibid.

75 Ibid.

76 Anthony and others, “The Costs of the Israeli-PalestinianConflict.”

77 Senior United Nations official based in the Middle East,interview with authors, Washington, D.C., March 21,2016.

78 Israeli political analyst, interview with authors, Wash-ington, D.C., March 21, 2016.

79 Padraig O’Malley, “It’s too late for a two-state solutionin Israel-Palestine,” The Conversation, January 7, 2016,available at http://theconversation.com/its-too-late-for-a-two-state-solution-in-israel-palestine-48803.

80 Senior Padico Holding official, interview with authors,Ramallah, West Bank, October 24–26, 2015.

81 The Portland Trust, “Beyond Aid: A Palestinian Private

Sector Initiative for Investment, Growth and Employ-ment” (2013), available at http://www.portlandtrust.org/sites/default/files/pubs/beyond_aid.pdf; Office ofthe Quartet Representative, “Initiative for the Palestin-ian Economy” (2014), available at http://quartetrep.org/files/image/initiative.pdf .

82 Hotel owners and other leaders in the Bethlehemtourism sector, Bethlehem, West Bank, interviews withauthors, October 2015.

83 Office of the Quartet Representative, “Initiative for thePalestinian Economy: Agriculture,” available at http://www.quartetrep.org/files/server/agriculture.pdf(lastaccessed April 2016); Office of the Quartet, “Strategyand Priorities 2015-16.”

84 Padico Holding, interview with authors; Arab Palestin-ian Investment Company, interview with authors.

85 Founder of leading regional tech company and Dubai,United Arab Emirates-based internet venture capitalfirm, interview with authors, Amman, Jordan, October17–22, 2015.


87 Isabel Kershner, “West Bank’s Emerging SiliconValley Evades Issues of Borders,” The New YorkTimes, July 29, 2012, available at http://www.nytimes.com/2012/07/30/world/middleeast/palestinians-building-tech-hub-in-west-bank.html?_r=2&partner=rss&emc=rss.

88 Palestinian investors and entrepreneurs, interviewswith authors, Jordan and West Bank, October 2015 andJanuary 2016.

89 Wilf and Omari, “Roundtable: Preserving a Path to a

Two-State Solution.”

90 Leading regional entrepreneur and Palestinianbusinessman, interview with authors, Amman, Jordan,October 17–22, 2015.

91 Adam Rasgon, “First, an Economic Peace: RevisitingIsrael and Palestine’s Paris Protocol,” Foreign Affairs,November 17, 2015, available at https://www.foreignaf-fairs.com/articles/israel/2015-11-17/first-economic-peace.

92 Amos Harel, “Military Wants 30,000 More Palestin-ians Working in Israel,” Haaretz , February 8, 2016,available at http://www.haaretz.com/israel-news/.premium-1.702003.

93 Neri Zilber, “The business end of Palestinian despair,”The Times of Israel , March 3, 2016, available at http://

blogs.timesofisrael.com/the-business-end-of-palestin-ian-despair/.

94 Office of the Quartet Representative, “Report for theMeeting of the Ad-Hoc Liaison Committee on Actionin Support of Palestinian State-Building” (2015), avail-able at https://unispal.un.org/DPA/DPR/unispal.nsf/0/DCA80249053CD09085257E4D00503B81.

95 Office of the Quartet, “Report for the Meeting of theAd-Hoc Liaison Committee on Action in Support ofPalestinian State-Building,” p. 23.

96 Palestinian-diaspora investors, interviews with authors,Amman, Jordan, October 17–22, 2015; Jordanian Busi-ness Council, interview with authors.

97 B’Tselem, “Checkpoints, Physical Obstructions, andForbidden Roads,” May 20, 2015, available at http://

www.btselem.org/freedom_of_movement/check-points_and_forbidden_roads.

98 Founder of one of the largest Palestinian real estatecompanies, interview with authors, Amman, Jordan,October 17–22, 2015.

99 Office of the Quartet, “Report for the Meeting of theAd-Hoc Liaison Committee on Action in Support ofPalestinian State-Building.”

100 Mayor of Bethlehem, interview with authors, Bethle-hem, West Bank, March 2013.

101 Chairman of one of the largest Palestinian banks,interview with authors.

102 CEO of a leading technology firm, interview withauthors, Ramallah, West Bank, October 24–26, 2015.

103 Founder of leading regional tech company and Dubai,United Arab Emirates-based internet venture capitalfirm, interview with authors.

104 CEO of a leading technology firm, interview withauthors, Amman, Jordan, October 17–22, 2015.

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