Dr. Mohammed Samhouri is a former senior economic advisor in the Palestinian Authority, and a former senior research and teaching fellow at Brandeis University’s Crown Center for Middle East Studies. In this comprehensive essay, which draws on the author’s many essays on the Palestinian economy, Samhouri examines why Oslo failed to deliver on its promise of a bright economic future for the Palestinians and what lessons can be learned, not least for the ‘economic component‘ of the Trump administration’s yet-to-be-fully-revealed peace plan.  He finds that the problem lay not with the Oslo economic vision per se, but rather the wider political, security and territorial context within which the vision was implemented.

Introduction

At no time since its creation in May 1994 has the Palestinian Authority (PA) been on the verge of financial collapse, and its economy so fragile as it is today, twenty five years after its establishment. An Israeli government decision in February 2019 to deduct part of the Palestinians’ tax revenues that Israel collects on their behalf, and the subsequent refusal of the PA to receive any tax money unless Israel reverses its one-sided act and transfers the money in full, has triggered an unprecedented financial crisis that continues to push the PA to the edge of bankruptcy. On 30 April, reports by the World Bank and the UN presented to the biannual meeting of PA’s donor community (Ad Hoc Liaison Committee, AHLC) voiced concerns over the increasingly anemic state of the Palestinian economy and the continued diminishing of sources of growth. According to the reports, real GDP growth in 2018 was estimated at a meager 0.9 per cent, with future growth prospects projected at an average of 1 per cent annually, implying a decline in real per capita income and increase in unemployment and poverty rates. Failure to address dire economic conditions, particularly in Gaza, the reports warned, could lead to sever political and security unrest in the West Bank and Gaza (WBG).

The Oslo Economic Vision

This was not supposed to happen; not if one compares it to the vision for the Palestinian economy as envisaged during the heydays of Oslo peace process in the 1990s. At the time, the economic aspect of Oslo seemed straightforward and consistent with the euphoric spirit of the early days of Arab-Israeli peace making. Oslo’s economic vision was predicated on an ostensibly simple proposition, or so it seemed at the time: providing international financial and technical support to the fledgling PA would help rebuild the debilitated infrastructure of the occupied Palestinian territories (OPT),[1] set up PA’s governing institutions, and attract domestic and foreign investment. By the end of the stipulated five-year transitional period (1994-1999), the ingredients of success would all be in place and the Palestinian economy would be on the road to prosperity. The prospects of success, it was believed then, would be enhanced by the newly negotiated economic arrangement between Israel and the Palestine Liberation Organization (PLO) in April 1994, commonly referred to as the Paris Protocol (PP) and by regional political stability and economic cooperation spawned by the spirit of the 1991 Madrid peace conference to build a New Middle East.

This sharp contrast between the high expectations that accompanied the signing of the Declaration of Principles (DOP) in September 1993 and other subsequent 1994 and 1995 agreements and today’s bleak socioeconomic reality in WBG, inevitably raises the question of what went wrong? Why did Oslo fail to deliver on its promise of a bright economic future for the Palestinians? What happened over the past two and half decades to produce this radically different outcome? And what lessons can be learned from this failure? More importantly, perhaps, is the question of what implications that failure could, and should, have on the ‘economic component‘ of the Trump administration’s yet-to-be-fully-revealed peace plan, dubbed ‘the deal of the century,’ to end the Israeli-Palestinian conflict.

The Political Contexts of Economic Failure

In an attempt to provide some answers to these questions, and in order to set the stage for the discussion that follows, this essay argues that it was not the Oslo economic vision per se that was unrealistic or overly simplistic, rather it was the wider political, security and territorial context within which the vision was implemented that ultimately led to its failure. This context, this essay will show, was so restrictive and so damaging to the Palestinian side, that it greatly undermined the Palestinians’ ability to take full advantage of the two most important factors that could have made a crucial difference to the performance of the Palestinian economy and its ability to generate high and sustained growth rates. Both of these factors were a direct outcome of Oslo peace process: (1) the international community’s generous financial assistance to the PA, and (2) the negotiated Protocol on Economic Relations between Israel and the PLO. The first factor intended to provide financial resources and technical expertise to help jumpstart the Palestinian economy, while the second factor, although partially flawed, was still good enough as an interim arrangement to give the OPT free and direct access to the much stronger, more developed and highly advanced Israeli economy (more on this point later).

This essay argues that had the Palestinian economy – small and largely underdeveloped on the eve of the Oslo process, with a population of about 2.5 million in the WBG in 1993 – been given the chance to take full advantage of the opportunities presented by the above two factors, it would have been able to build its productive base and embark on a road of sustained growth, therefore building a strong economic foundation for a lasting peace. That, however, did not happen for several reasons.

Part 1: Post-Oslo – A Restrictive Setting

Broadly speaking, ‘setting’ refers to three things: (1) the restrictive nature of the political and territorial arrangements that were negotiated between Israel and the PLO; (2) the deterioration in political and security conditions during the 1994-2019 period; and (3) the Israeli system of constraints, complex and multilayered, that was imposed on the access and movement of Palestinian people and merchandise trade in and out of WBG. A brief account of this context will be presented below, with its adverse impact on the Palestinian economy discussed later in the essay.

The point of departure in this discussion is the sui generis nature of the territorial-security setting produced by the May 1994 Gaza-Jericho agreement (Oslo I) and September 1995 interim agreement on the West Bank and Gaza of (Oslo II). This setting was inherently incompatible with the conduct of restriction-free economic activities in OPT; a sine qua non condition to implement Oslo’s economic vision. There are three things to note in this regard.

(i) While Oslo I and Oslo II transferred civil powers and responsibilities from Israel to the PA in the areas in WBG from which the Israeli military forces had redeployed, Israel nonetheless, as Joel Singer, the legal advisor of the Israeli negotiating team, stated: ‘continued to exercise control over the entire West Bank and Gaza […] even in those parts where local autonomy has been transferred in full to the Palestinians, such as in most of Gaza and the big cities in West Bank’ [emphasis added].

(ii) Oslo II, which carved the occupied West Bank into three areas of different jurisdictions (A, B, and C), had left 60 per cent of the West Bank (area C) under the Israeli full control. Areas A where the PA was given civil and internal security control, and area B where the PA assumed civil responsibilities, by contrast, both were territorially fragmented terrain, with 7 large cities and 227 small Palestinian towns and villages, all disconnected and scattered across the West Bank.

(iii) According to Oslo II (Chapter 2, Article XI.3.c), Israel’s control over Area C was originally intended to be a temporary arrangement, and ‘except for the issues that will be negotiated in the permanent status negotiations,’ control ‘will be gradually transferred to the Palestinian jurisdiction in accordance with this agreement.’ The transfer should have been completed by July 1997. That, however, did not happen.

This hardly favorable territorial context, in which the Israeli military continued to exercise full control of WBG, became even more damaging due to the deterioration in security conditions in 1996 as a result of a series of suicide bombings inside Israel by Hamas and other Islamic militants, and the subsequent tightening of Israeli constraints on the mobility of Palestinian people and trade. These restrictions were frequent, prolonged and capricious, and applied to movements to, from, and within the OPT. The Israeli closure policy, as it came to be known, was detrimental to the Palestinian economy.

In addition to the above impediments, the 1994-1999 transitional period was marked by the continued shrinking of the Palestinian economy’s territorial space which dealt another heavy blow to the Oslo vision. Throughout the interim period, there was continued Israeli confiscation of private Palestinian land; unceasing expansion of Jewish settlements across OPT (an issue that Oslo failed to address, and which would later prove fatal to the peace process); the construction of an advanced grid of roads and highways inside the West Bank primarily for settlers’ use; severe restrictions on Palestinian access to, and construction in, Area C; and continued shortages in, and restrictions on access to water resources in WBG.

With the interim period ending without a negotiated final settlement as originally envisaged by the Oslo accords, and the subsequent failure of the US-sponsored Camp David summit (July 2000) to achieve tangible progress on core final-status issues (Jerusalem, settlements, refugees, borders, and security), the prospects of confrontation between Israel and PA/PLO loomed large on the horizon.

And the speed of the downward spiral in conditions was dramatic. Following the collapse of the Camp David talks, the second Palestinian intifada broke out in late September 2000, with armed confrontation and violence quickly dominating the scene. In late March 2002, and in response to continued suicide bombings, Israel reoccupied all of area A of the West Bank from which it had previously redeployed. In June 2002, Israel started the construction of a projected 712 kilometers separation barrier/wall, mostly located inside the occupied West Bank. In December 2003, the Israeli government announced its intention to unilaterally evacuate Gaza; a plan that was completed in September 2005. The drama continued on the Palestinian front with the seismic shock of Hamas’s triumph in the legislative elections in January 2006, and culminated with the Islamist movement’s armed takeover of the entire Gaza Strip in June 2007.

Palestinian economic performance in the post-2007 period continued to be hampered by the restrictive political-territorial setting produced by the Oslo arrangements, and by the Israeli restrictions on Palestinian movement and access which were intensified further during the second intifada. Developments in mid-2007 in Gaza, however, added two more complicating factors to the already parlous and highly intricate milieu: (1) the internal Palestinian political schism that followed the unexpected events in Gaza, and (2) the selective Israeli – and donor community – policy response toward a politically divided Palestinian house (Hamas-ruled Gaza Strip and Fatah-led government in the West Bank), a policy known as ‘West Bank first’ which aimed to isolate Hamas in Gaza and indulge the Fatah-led PA in the West Bank.

According to this ‘carrots-for-the-West-Bank/sticks-for-Gaza’ policy, Israel tightened its restrictions on the Gaza Strip, firmly closed its commercial crossings with the Palestinian coastal enclave, and suspended the ‘customs code’ which was used to identify imported goods en route to Gaza through Israeli ports. In September 2007, Israel officially declared Hamas-run Gaza as a hostile entity, further intensified its restrictions on movement of people and goods, and imposed a sweeping economic blockade on Gaza. With this policy firmly in place, virtually no exports could exit Gaza, and only essential international humanitarian assistance, along with very limited range of basic consumer goods and fuel, were allowed to enter. On the security front, and in response to Hamas’s continued military build-up and the firing of rockets on southern Israeli towns, Israel launched three major military campaigns against Gaza in less than six years; in December 2008/January 2009; November 2012, and July/August 2014. In addition to the human suffering caused, these wars, especially the last one, destroyed much of Gaza’s already-debilitated civilian infrastructure and besieged economy.

In the West Bank, several developments ushered in a period of policy shift by the PA, the international community and Israel. These included: the convening of a summit in Annapolis Maryland in November 2007, to reignite the peace process; the meeting of donor countries in Paris pledging $7.7 billion in support of the West-Bank based PA in December 2007; the re-instating of security coordination between Israel and the PA; the deployment of US and EU-trained Palestinian security forces in major West Bank cities; and an easing of Israeli restrictions on movement. Despite these positive developments, the overall setting continued to be dominated by the complex Israeli closure regime, and relentless settlement expansion in the West Bank, with the Israel armed forces conducting regular incursions inside Palestinian cities and refugee camps. As a result, post-2007 economic recovery was slow and short-lived (2009-2011), and continued to be subdued by the heavy weight of Israeli constraints. As the World Bank elucidates: ‘The fact that the West Bank economy is dramatically failing to fulfill its potential, even in periods of relative stability in the security situation, only underlines the extent to which economic restrictions are still preventing any real upturn in economic activity’ [emphasis added].

With the failure of the ‘West Bank First’ policy to produce tangible and sustained economic results, the overall territorial and political setting in the West Bank – particularly after the collapse of a last-ditch US effort to revive Israel-PA peace talks in April 2014 – became tense and characterised by political stalemate, increased settlement activities and settlers’ violence and continued restrictions on Palestinian mobility. A sharp decline in donor financial assistance to the PA, from $1.24 billion in 2013 to $516 million in 2018, has added to the West Bank’s economic troubles.

Part 2: Oslo’s Dismal Economic Record

As a direct outcome of the grossly inauspicious political, territorial and security setting outlined above, the Palestinian economy today is in a state of stunted growth, structurally weak and increasingly fragmented, and chronically dependent on foreign aid for its fiscal survival, and Israel for trade and waged employment. Public institutions are far from efficient or properly managed while the Palestinian private sector remains weak and incapable of generating high and sustained growth and employment rates.

Two and half decades after the signing of DOP, Palestinian living standards do not show substantial improvement. A third of the Palestinian workforce in 2018 was unemployed (youth unemployment is much higher), and a similar percentage of the population is languishing in poverty. One third of WBG households (1.6 million people) are food insecure, and over half the population (2.4 million people) are in need of some form of humanitarian assistance. For each of these socioeconomic indicators, the figures for the Gaza Strip, where one third of the OPT population resides, are alarmingly much higher.

More importantly still, the Palestinian economy, whose future potential hinges crucially on expanding its manufactured output and on its active engagement in regional and international trade, finds itself substantially de-industrialised, with its capacity to generate high economic growth eroded.

The erosion of the Palestinian economy’s productive capacity since 1994 is evidenced in five major areas.

(1) The sharp fall of manufacturing sector share in GDP, from 19 per cent in 1994 to 10 per cent in 2017, with the agriculture sector share in total output dropping from 13 per cent to 4 per cent during the same period. These are the two sectors that have the greatest potential contribution to long-term GDP growth and employment in WBG.

(2) The substantial decline in the share of private investment which, at 16.5 per cent of GDP in 2017, is not only low, but mostly concentrated in residential housing, retail trade, and services, rather than investment in productive assets. During the Oslo years, gross capital formation in plant and equipment declined sharply from 12.9 per cent of GDP in 2000 to 4.8 per cent of GDP in 2014.

(3) The share of merchandise exports declined from 10 per cent of GDP in 1996 to 8 per cent in 2017, with exports concentrated mostly in low value-added products, and mainly destined for Israel, which accounted for a huge 83 per cent of Palestinian exports in 2017.

(4) The rate of youth unemployment has been increasing over time, reaching 25 per cent in the West Bank and a staggering 67 per cent in Gaza by the end of 2018.

(5) The diversion, since 2000, of a big chunk of foreign aid to finance recurrent budget deficits and humanitarian interventions at the expense of financing growth-enhancing investment in human capital and infrastructure projects. The low level of PA’s public investment, at 4.5 per cent of GDP in 2017 is too low even to maintain the existing level of its decrepit infrastructure.

Part 3: The Ten Factors That Caused Economic Failure

That this was the outcome 25 years after Oslo, however, need not be surprising and should not be difficult to explain. Ten major underlying factors have contributed to this dismal, but largely inevitable failure, all of which are quite unique to the Israeli-Palestinian context. Each offers a lesson to policy-makers today, and policy implications that will be presented at the end of this essay.

(1) Occupation

First, throughout the Oslo period, the Palestinian economy has been operating in the context of continued military occupation (which Oslo failed to end), in which Israel has held the upper hand in dictating its development. Palestinian economic interests, as a result, were constantly compromised in favor of the Israeli ones. On this point, note the views of respected Israeli economists Arie Arnon, Israel Luski, Avia Spivak, and Jimmy Weinblatt who concluded that: ‘After researching the Palestinian economy for several years, we are convinced that its links with the Israeli economy were the most important factor in determining the course of its economic development. The formation of these links and the nature of the labor, goods, and capital flows between the Palestinian and Israel economies, were determined almost exclusively by Israel.’ As long as this extremely adverse setting (further detailed below) remains unchanged, there is no reason to believe that the future of the Palestinian economy will be any different than what it is today.

(2) Restricted Movement

Second, throughout the entire post-Oslo period, the Palestinian economy operated in an environment of an Israeli-imposed web of physical and administrative constraints and security measures, designed to control Palestinian movement of people and trade. The nature, scope, and intensity of these constraints became more stringent, entrenched, and institutionalised. These severe restrictions on movement have reduced the supply capacity of OPT economy, increased transportation time and costs, deprived Palestinian enterprises from the benefits of economies of scale, lowered factor productivity and industrial capacity utilisation, and rendered Palestinian exports uncompetitive. Israel has repeatedly maintained that restrictions are imposed on security grounds, though the World Bank challenges this argument: ‘it is often difficult to reconcile the use of movement and access restrictions for security purposes from their use to expand and protect settlement activity and the relatively unhindered movement of settlers and other Israelis in and out of the West Bank.’

(3) Resource access and utilisation

Third, over the entire period, Palestinians’ ability to access and utilise their land and water resources, import raw materials and machinery, and freely reach regional and international markets (and at times their own domestic markets) had been severely limited. This lack of control over resources and borders was a direct outcome of the nature of the Oslo agreements, and the constraints imposed on Palestinian economic activities. This was further complicated by the unabated construction and expansion of Jewish settlements in the West Bank; the construction of the separation barrier/wall; restrictions on the use of modern telecommunications technologies and their related equipment and infrastructure; and the lack of access to the resource-rich Area C (which amounts to 60 per cent of the West Bank land), including the Jordan Valley and northern Dead Sea. The Palestinian economy cannot be developed when the economic space of OPT is continuously shrinking, its natural resource base is steadily corroding, and its growth prospects are repressed and persistently frustrated.

(4) Lost Income

Fourth, Palestinian inability to freely access their national natural resources has been very costly in terms of lost income. Two examples here are sufficient to illustrate the point. The first is related to area C, where less than 1 per cent of this resource-rich area is currently accessible to Palestinian economic use. A 2013 report by the World Bank conservatively estimated that the combined direct and indirect economic benefits from allowing the Palestinians free access to Area C (excluding the areas subject to final status negotiations) to be at least $3.4 billion a year (approximately 35 per cent of GDP in 2011), which would provide the PA with $800 million annually in additional tax revenues, and cut its fiscal deficit by half. Another example is from the Jordan Valley, which is equally inaccessible to the Palestinian economic use. A 2010 study by an Israeli-Palestinian economic group, The Aix Group, had estimated the benefits of allowing Palestinians access to the Jordan Valley to utilise 50,000 dunums (which is just 1.5 per cent of Area C) to be $1 billion annually, or about 10 per cent of GDP.[2] Allowing Palestinians to farm additional 100,000 dunums there, the study showed, would create between 150,000-200,000 new jobs.

(5) Loss of economic policy tools

Fifth, Palestinian economic policy space was limited, if not totally absent. After Oslo, the Palestinian side lacked a whole host of policy tools (e.g., fiscal, monetary, exchange rate, and trade) crucial for short-term stabilisation and long-term growth. With no policy tools present, the OPT economy during the post-Oslo era was made vulnerable; with Palestinian policymakers’ ability to adjust to frequent fiscal shocks being extremely limited, and their capacity to successfully implement economic recovery plans, let alone construct long-term growth strategies, highly constrained. Even if economic policy instruments were to be available to PA policy makers, one should note that in the Palestinian case, for economic policy tools to be effective and economic management to be possible, other conditions must also be met; namely, freedom of internal movement, control over national natural resources, and unfettered access to outside world; all of which were (and still are) lacking during the Oslo years.

(6) Loss of decision-making capacity

Sixth; worse still, and as a captive economy that continues to operate under military occupation, Palestinian policy makers even lack the freedom to undertake decisions, however minor, without the prior approval of the Israeli military authority. In this regard, an Israeli NGO reported that the division of the West Bank into three areas of different jurisdictions ‘had created the illusion that the PA is the main body responsible for the lives of most Palestinian residents in the West Bank [who live in areas A and B]; in truth, any decision the PA makes, however insignificant, necessitates the consent (even if tacit) of the Israeli authorities.’

(7) The failure of the Paris Protocol

Seventh; Israeli-Palestinian economic relations, based on the 1994 PP, also suffered during the post-Oslo period, and failed to develop and mature in a way that would have benefited the much smaller and less developed Palestinian economy from its trade connections with the much stronger Israeli economy. As the experience of the post-Oslo years demonstrated, the problem was not so much in the content of PP, imperfect and lopsided as it was. Rather, it was in the context that ensured its poor and selective implementation. This context was so restrictive and damaging that any alternative economic arrangement which could have been negotiated between Israel and the PLO in 1994 would have been equally incapable of delivering a different outcome, irrespective of the terms and nature of the deal reached. Furthermore, given the circumstances that surrounded its negotiations, the vast imbalances in negotiating power favoring Israel, and the dominance of the Israeli economy over OPT, one could not realistically have expected a major shift in economic relations between the two sides or drastically different terms than those set out in the PP. That said, and as an interim five-year economic arrangement, despite many of its inherent shortcomings, the PP did represent an improvement when compared with the pre-Oslo period (1967-1993) of Israel’s total dictation of the terms of its economic relations with OPT.

(8) Conflict Conditions

Eighth; throughout the post-Oslo period, the Palestinian economy has been operating in an environment dominated by continued conflict conditions, heightened political instability, and, at times, renewed armed confrontation and violence. This setting had introduced elements of uncertainty to the conduct of private sector activities in WBG, caused frequent disruption to, and variation in, economic ties between Israel and OPT, and – in the context of high degree of WBG dependency on Israel for trade, wage employment, and the transfer of tax revenues – proved to be very costly for the Palestinian side. As one study put it, ‘a relationship between two neighboring economies, in which measures taken by one party can cause the other to lose the income of one third of its labor force, and interrupt 70 per cent of its imports and 90 per cent of its exports, is simply untenable.’

(9) The Separation Barrier / Wall

Ninth, the post-Oslo period also witnessed the construction of the West Bank separation barrier/wall; a one-sided Israeli act that proved to be costly to the Palestinian economy. The building of the barrier began in June 2002, with only 15 per cent of its tortuous rout built along the 1949 Armistice Line, the internationally recognised border between Israel and the occupied West Bank, also known as the Green Line. The rest is constructed inside the West Bank. The damaging impact of the barrier is most obvious on the Palestinian agriculture sector since the land situated between the barrier and the Green Line, known as ‘seam zone,’ constitutes (along with the economically-inaccessible Jordan Valley) some of the most fertile agricultural land in the West Bank. Furthermore, the seam zone, with a total land area of about 9.4 per cent of the West Bank, and harboring most of the Palestinian water resources and aquifers, is effectively detached from the West Bank. Access to Palestinian land and water wells inside the seam zone (which was declared a ‘closed zone’ in October 2003 by a military order) is severely restricted for the Palestinians, and had resulted in a sharp reduction in both irrigated agricultural output and agricultural exports from that area.

(10) Gaza Disengagement

Tenth, Gaza disengagement was another unilateral Israeli project that turned out to have disastrous economic and humanitarian consequences for Gaza (and be a security nightmare for Israel). Conceived and implemented as a unilateral Israeli move uncoordinated with the PA, disengagement, in essence, has sealed and delivered Gaza to Hamas; first as a result of its electoral victory in January 2006 and later, in mid 2007, when Hamas violently took over Gaza. With Hamas becoming the de facto authority in Gaza, all national and international plans to give post-disengagement Gaza a decent shot at a better economic future went down the drain. These plans included: US-sponsored Agreement on Movement and access; World Bank technical studies to modernise Gaza border crossings with Israel and establish industrial parks and export zones; and private sector initiatives to invest in former Israeli settlements’ green houses in southern Gaza and in Erez industrial estate at the northern tip of the Gaza Strip. None of these plans materialised, and the former World Bank head James Wolfensohn, who was appointed as the ‘Middle East Quartet Special Envoy for Gaza Disengagement’ in April 2005, left his post a year later brokenhearted.

Taken together, the ten factors listed above represent the main reasons behind the failure to develop the Palestinian economy during Oslo. These factors, it should be emphasised, are not a mere background noise or a distracting sideshow. Rather, they are the main event. Their detrimental impact is the chief reason behind the continued erosion of the Palestinian economy’s productive capacity, and their excessive adverse weight is the main obstacle that stands in the way of the realisation of Palestinian economic potential. This heavily distorted political-territorial-security context has far-reaching implications.

Part 4: Blame It All on PA Corruption?

No discussion about the performance of the Palestinian economy during Oslo can be complete without a reference to the frequently-talked-about subject of perceived or real PA corruption. Throughout the post-Oslo period, Israel maintained that the chief reason behind continued Palestinian economic and financial troubles is flagrant corruption in the PA. Millions of US dollars of donors’ money, the Israeli argument goes, have been squandered due to PA mismanagement and embezzlement. While this essay does not rule out the presence of corruption in PA institutions, there is a strong reason to believe that this claim, repeated ad nauseam, is highly exaggerated, and that the impact of corruption pales in comparison with the adverse impact of the restrictive Israeli policies and practices in OPT throughout the entire post-Oslo period.

One needs only take a careful second look at what this essay has identified as the ten major underlying factors behind the PA dismal economic record during the post-Oslo period to understand that it was the extremely unfavorable setting within which the Palestinian economy has been operating over the past 25 years that has been responsible, to a great extent, for the gross ineffectiveness of the official international financial assistance (estimated by OECD at $36.2 billion between 1994 and 2017) to make a sustained positive impact on WBGS economy. As a 2003 UNCTAD report showed, the skewed Palestinian trade structure with Israel had caused a big chunk of foreign aid to the PA to benefit the Israeli economy, not OPT. Using 2002 figures, the report showed that the large Palestinian trade deficit with Israel that year, both as a percentage of OPT total trade deficit (estimated at 70 per cent) and as a percentage of WBG’s GDP (estimated at 45 per cent), had, respectively, caused some 70 per cent of donor funds to be diverted to pay for imports from Israel, and some 45 cents of every dollar produced in WBGS to be channeled to the Israeli economy. In 2017, these trade balance percentages, according to data from Palestinian Central Bureau of Statistics (look here and here), were 49 per cent and 17 per cent. Under these circumstances, it is difficult to see how donor funds injected in the captive Palestinian economy would have a noticeable domestic multiplier effect. ’On the contrary,’ UNCTAD report concluded, ‘a positive income multiplier effect of these funds would be felt in the Israeli economy [emphasis added].’

Conclusion: Lessons and Implications

The preceding discussion has attempted to demonstrate that Oslo’s political failure to end the Palestinian-Israeli conflict has led to its parallel economic failure. Political crisis meant that the propitious setting needed for the Palestinian economy to grow and prosper was absent. With Oslo failing on both fronts, and under the overbearing weight of continued Israeli military occupation, the Palestinians in OPT are still denied free access to their national resources; lack the freedom to reach regional and global markets, and are deprived from the freedom to exercise their basic economic rights to make the choices they want concerning their future.

As long as this extremely adverse political-territorial setting remains unchanged, no amount of foreign aid will be able to make a sustained positive economic impact in OPT, and no initiative, national or international, to strengthen the Palestinian economy will succeed. The failure of PA’s donor-supported State Building Project of 2009-2011 under Prime Minister Salam Fayyad, and the failure of the 2013 Quartet/Kerry $4-billion Initiative for the Palestinian Economy are a stark reminder of this impossibility. (Note: the PA’s project of state building reached a dead-end, and the Quartet/Kerry’s initiative for the Palestinian economy was never implemented).

The implication is clear: only by ending the 52-year long Israeli domination over OPT (which Oslo conspicuously failed to do), and only by instating Palestinian sovereignty over the land, borders, and national resources of an independent Palestinian State can the Palestinian economy regain its lost ground, restore its ability to function and grow, and have the necessary requisites to proceed on the path of sustainable development. Measured by its potential economic benefits, a negotiated settlement on the basis of permanent two-state solution to the conflict has been shown to be a win-win solution for both Israelis and Palestinians. A 2015 study by the RAND Corporation has conservatively estimated the post-conflict cumulative potential economic gains that could be generated over a ten-year period (2014-2024) as a result of resolving the Palestinian-Israeli conflict on the basis of permanent two-state solution to be $123 billion for Israel and $50 billion for the WBG Palestinians.

The same implication applies to the White House senior advisor Jared Kushner’s plan for the Palestinian economy. With the unveiling on June 22, 2019 of the ‘Peace to Prosperity‘ blueprint as an economic component of the Trump administration much-anticipated ‘deal of the century,’ we are presented with yet another ambitious economic vision for Palestine. The politics implicit in this latest economic vision aside, one can only wonder how this plan, which promises $28 billion over a ten year period to develop the Palestinian economy, can be implemented successfully in the largely damaging territorial-political-security context which has been the main cause of the failure of past, less ambitious initiatives?

[1] Throughout this essay, the terms OPT and WBG are used interchangeably.

[2] A dunum is a unit of land that equals 1,000 square meters, or approximately one-fourth of an acre, or one-tenth of a hectare.