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2011 Investment Climate Statement - West Bank and Gaza


2011 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2011
Report
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Overview of Foreign Investment Climate

Palestinian businesses have a reputation for a high level of professionalism and product quality, and large Palestinian enterprises are internationally connected, with partnerships extending to Asia, Europe, the Gulf, and the Americas. The Palestinian economy is small, relatively open, and dependent on access to foreign markets for trade. However, restrictions on the movement and access of goods and people between the West Bank, the Gaza Strip, and external markets imposed by the Government of Israel (GOI) continue to have a deleterious effect on the private sector and limit economic growth. The de facto rule in Gaza of Hamas, a designated Foreign Terrorist Organization (FTO), combined with GOI restrictions on imports and exports, constrains private sector opportunities in Gaza.

The West Bank’s economic outlook has improved noticeably over the past three years, driven primarily by improved security, economic reforms implemented under Palestinian Authority (PA) President Mahmoud Abbas and Prime Minister Salam Fayyad, and international donor support that has enabled the PA to pay salaries and arrears. Additionally, the GOI eased restrictions on the movement and access of people and goods within the West Bank over the past two years, which has helped boost economic activity. Foreign investment has increased substantially over the last several years, and the International Monetary Fund estimates that growth in the West Bank and Gaza reached 6.8% in 2009 and predicts growth of 8% in 2010. This growth scenario, however, is dependent on continued easing of movement and access restrictions and the facilitation of external trade.

Palestinians have a young population, and the work force in the West Bank and Gaza is expected to expand significantly over the next several decades. The labor force is well-educated and familiar with technologies and practices in overseas markets. Wages are low relative to Israel, but higher than in neighboring Arab countries. The service sector is the largest contributor to the economy (largely driven by government expansion), representing 37% of GDP in 2010, according to the Palestinian Central Bureau of Statistics (PCBS). The information and communications technology sector is one of the fastest growing sectors in the Palestinian territories, with an average growth rate of 25-30% since 2000, according to PA statistics. With a growing number of high tech-focused college graduates, one of the highest Internet penetration rates in the Middle East, and competitive salaries, software development and outsourcing are considered attractive sectors for potential investors. Multinational companies working with Palestinian companies enjoy lower costs and lower attrition rate than operations in similar markets.

Since June 2007, the PA has demonstrated a renewed determination to improve the investment climate and to attract foreign investments. The PA undertook a number of significant reforms and prepared the 2008-2010 Palestinian Development and Reform Plan (PDRP) in December 2007, a set of broad economic policies that focus on stimulating growth through private sector investment and consolidating public finances. Prime Minister Fayyad then expanded on the PDRP through his two-year plan for statehood in August 2009, which also emphasized the role of the private sector and the importance of an enabling investment environment. A revised multi-year reform and development framework, re-named the Palestinian National Plan (PNP) for 2011-2013 is in draft form as of January 2011 and is expected to focus on the same themes. The PA has identified agriculture, tourism, and information communication technology as priority sectors. The PA has also focused on legal reforms as a means of improving the investment environment, and is currently drafting a new competition law, a trademark/copyright law, a company law, a bankruptcy law, and various amendments to the investment law. Since the Palestinian Legislative Council (PLC) has not met since April 2007, the draft laws must be issued by presidential decree, a process that has proven to be time consuming and resulted in lengthy delays for many key pieces of legislation. The United States Government, through the U.S. Agency for International Development and other assistance agencies, is working closely with the PA to improve the investment climate through legislative reforms, improved regulations, and capacity building.

The PA has hosted several large investment conferences, most recently in June 2010. The June conference in Bethlehem attracted over 1,000 potential investors and business representatives. Over 100 projects were presented at the conference, and further information on these and other projects is available at www.pic-palestine.ps.

Since 1995, the PA has taken steps to facilitate and increase foreign trade by signing free trade agreements with the European Union, the European Free Trade Association (EFTA), the United States, Canada, and Turkey. The PA has finalized other trade agreements with Russia, Jordan, Egypt, the Gulf States, Morocco, and Tunisia. The PA is actively pursuing observer status in the World Trade Organization (WTO), and participated in the 2005 and 2009 WTO Ministerial meetings as an ad hoc observer.

This report focuses on investment issues related to areas under the administrative jurisdiction of the PA, except where explicitly stated. Given the changing circumstances on the ground, potential investors are encouraged to contact the PA Ministry of National Economy (www.mne.gov.ps), Palestinian Investment Promotion Agency (www.pipa.gov.ps), the Palestine Trade Center (www.paltrade.org), and the Palestinian-American Chamber of Commerce (www.pal-am.com), as well as the U.S. Consulate General in Jerusalem and the Foreign Commercial Service for the latest information.

Where applicable, this report addresses issues related to investment in the Gaza Strip, although there are few opportunities for meaningful private investment in Gaza due to Hamas's control and Israeli restrictions on the flow of imports and exports. As of the time of this writing, the easing of Israeli restrictions on commodity imports into Gaza, and an Israeli announcement that small scale exports would be allowed, have had a limited impact on economic activity.

The legal framework for foreign investment in the West Bank/Gaza is based on the PA Investment Promotion Law, as amended in 1998. All business entities must be registered with the Palestinian Investment Promotion Agency’s registry of investments either in the West Bank or Gaza. According to existing PA company laws, there are three different types of companies which may be incorporated:

- General Partnership: The liability of each partner in a general partnership is unlimited. All partners are personally responsible for the liabilities of the partnership. The name of at least one of the partners must be included in the title of the General Partnership.

- Limited Partnership: This includes two different types of partners: general and limited. A limited partnership must have at least one general partner who is personally responsible for the liabilities of the company. There is also at least one limited partner whose liability is limited to the amount of the capital.

- Local Companies (Limited Liability Company (LLC) and Public Liability): Most investors prefer to use LLCs for the purposes of conducting commercial affairs. The procedures that have to be followed to register this form of company are as follows:

1. Search for company name and reserve proposed name.

2. Obtain signature of company documents by a local lawyer.

3. Submit company incorporation papers and obtain temporary copy of certificate of registration from the Ministry of National Economy.

4. Deposit initial capital, which is 25 percent of the capital plus official bank fees (1/1000 of stated capital).

5. Register with the Companies Registry.

6. Pay registration fee.

7. Register for income tax and value added tax.

7. Register with Chamber of Commerce.

8. Obtain business license from the municipality.

8. Obtain approval from fire department.

9. Obtain and legalize special company books.

Certain investment categories require the Council of Ministers' pre-approval. These include investments involving (1) weapons and ammunition, (2) aviation products and airport construction, (3) electrical power generation/distribution, (4) reprocessing of petroleum and its derivatives, (5) waste and solid waste reprocessing, (6) wired and wireless telecommunication, and (7) radio and television. Purchase of land by foreigners also requires the approval of the Council of Ministers.

Measure

Year

Index/Ranking

TI Corruption Index

N/A

 

Heritage Economic Freedom

N/A

 

World Bank Doing Business

2011

135 (-2)

MCC Gov’t Effectiveness

N/A

 

MCC Rule of Law

N/A

 

MCC Control of Corruption

N/A

 

MCC Fiscal Policy

N/A

 

MCC Trade Policy N

N/A

 

MCC Regulatory Quality

N/A

 

MCC Business Start Up

N/A

 

MCC Land Rights Access

N/A

 

MCC Natural Resource Mgmt

N/A

 

Conversion and Transfer Policies

The 1998 Investment Law guarantees investors the free transfer of all financial resources out of the Palestinian territories, including capital, profits, dividends, wages, salaries, and interest and principal payments on debts. No Palestinian currency exists, but the New Israeli Shekel (NIS) is the accepted currency, and U.S. dollars and Jordanian dinars (JD) are widely used in business transactions. There are no other PA restrictions governing foreign currency accounts and currency transfer policies.

Expropriation and Compensation

The 1998 Investment Law prohibits expropriation and nationalization of approved foreign investments, except in exceptional cases for a public purpose with due process of law, which shall be in return for fair compensation based on market prices and for losses suffered because of such expropriation. The PA must secure a court decision before proceeding with expropriation.

PA sources and independent lawyers say that any Palestinian citizen can file a petition or a lawsuit against the PA. While general confidence in the judicial system is improving and businesses are increasingly using the courts and police to enforce contracts and seek redress, alternative means of arbitration are still used to resolve some disputes.

Dispute Settlement

The 1998 Investment Law provides for dispute resolution between the investor and official agencies by binding independent arbitration or in Palestinian courts. It has been reported that some contracts contain clauses referring dispute resolutions to the London Court of Arbitration.

The PA is not a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention).

Commercial disputes are resolved by way of conciliation, mediation, or arbitration. Arbitration in the Palestinian Territories is governed by Law No. (3) of 2000. International arbitration is permitted. The law sets out the basis for court recognition and enforcement of awards. As a general rule, every dispute may be referred to arbitration by the agreement of the parties, unless prohibited by the law. Article 4 of the law states that certain disputes cannot be referred to arbitration, including those involving marital status, public order issues, and cases where no conciliation is permitted. In the event that parties do not agree on the formation of the arbitration panel, each party may choose an arbitrator and arbitrators shall choose a casting arbitrator unless the parties agree to proceed otherwise.

Judgments made in other countries that need to be enforced in the West Bank/Gaza are honored, according to the prevailing law in the West Bank, mainly Jordanian Law No. (8) of 1952. The law covers many issues in relation to the enforcement of foreign judgments.

Performance Requirements and Incentives

The 1998 Investment Law provides a number of incentives, including exemptions from value added and income taxes, for certain categories of PA-approved domestic and foreign investment. An amendment currently awaiting the PA President’s signature would extend these incentives to new development on existing projects and, in an effort to attract business in the information and communication technology sector, all companies that employ at least five college graduates. To benefit from these incentives, investors must apply to the Palestinian Investment Promotion Agency (PIPA), a department of the PA Ministry of National Economy, and present it with a completed investment application and feasibility study. PIPA is composed of both public and private sector members.

Article 22 of the 1998 PA Investment Law provides that fixed assets are given the following exemptions:

a. ‘The project’s fixed assets shall be exempted from customs duties and taxes provided that they are brought in within a period specified by the Authority’s decision approving the lists of fixed assets of the project ……’

b. ‘The spare parts imported for the project shall be exempted from customs duties and taxes, provided that the value of such spare parts does not exceed 15 percent of the value of the fixed assets and that they are brought in or used in the project within a period specified by the Authority …..’

Article 23 of the law provides that the projects approved by the PA and which have obtained the licenses required under the law shall be granted the incentives mentioned in this law in the following manner:

a. Any investment with a value ranging from USD 100,000 to USD one million shall be granted an exemption from income tax for a period of five years beginning from the date of commencement of production or commencement of activity and shall be subject to income tax on the net profit at a nominal rate of 10 percent for an additional period of eight years.

b. Any investment with a value from USD one million to USD five million shall be granted an exemption from income tax for a period of five years beginning from the date of commencement of production or activity and shall be subject to income tax on the net profit at a nominal rate of 10 percent for an additional period of 12 years. Any investment with value of USD five million and above shall be granted an exemption from income tax for a period of five years beginning from the date of commencement of production or activity and shall be subject to income tax on the net profit at a nominal rate of 10 percent for an additional period of 16 years.

Article 24 of the Law provides that the Palestinian Council of Ministers may extend the exemption periods up to five years, depending on the nature and location of the enterprise. The exemption period may be extended an additional two years if the local input in equipment, machines, and fixtures exceeds 60%.

The PA income tax law is intended to incorporate both West Bank and Gaza. The corporate tax rate is 15 percent. Personal income tax is specified according to the following (though additional factors such as dependents and exemptions affect the base rate):

- 5 percent for income up to NIS 10,000;
- 10 percent for income between NIS 10,001 - 25,000; and
- 15 percent for all incomes above NIS 25,001.

Custom duties – The Palestinian territories are in the same customs envelope as Israel, so all customs and tariffs are in line with Israeli rates:

Base: On the value of imports.
Rates: From zero to 340 percent for food, animal and agriculture products; and zero to 22 percent for all other products.

Purchase tax:
Base: Value of imports plus customs fees.
Rates: five to 200 percent.

Value added tax:
Base: all imported goods.
Rates: 16 percent.

A 20 percent tax is withheld at source from dividends distributed in the West Bank/Gaza to shareholders of a foreign company. There are no taxes due on dividends distributed to shareholders of Palestinian companies regardless of where they live or their nationality, and regardless of whether they are an individual or a company. An automatic deduction at the source of 25 percent is withheld from companies, unless they obtain a "Deduction at the Source Certificate," which grants a reduced rate that ranges between zero and five percent. Applications for these certificates are available from PA district tax offices.

While the PA does not require foreign nationals working in the West Bank to seek work permits, the GOI does require foreigners to obtain Israeli visas in order to enter the West Bank and Gaza. Foreign passport holders of countries that have diplomatic relations with Israel are generally granted three-month tourist visas upon arrival. According to the GOI, foreign nationals working in the West Bank should either apply for work visas to Israeli embassies in their country of origin, or through the Israeli Coordinator of Government Affairs in the Territories (COGAT) after their arrival in the West Bank for an adjustment of status. This process, however, is opaque, time consuming, and generally does not result in a work visa. As a result, many foreign passport holders depart and reenter the West Bank every three months in order to receive a new three-month tourist visa upon re-entry. There also have been cases of foreign nationals working in the West Bank who have been prohibited from traveling to Israel and Jerusalem from the West Bank because of their ties to the Palestinian territories.

Right to Private Ownership and Establishment

Jordanian law in the West Bank, as amended by PA regulations, guarantees the right to private ownership. Similarly, the right to private ownership in Gaza is guaranteed by British Mandate law, as amended by regulations issued by the PA. Foreigners must obtain permission from the PA before purchasing property in areas under PA civil authority and from the appropriate Israeli authorities before purchasing property in West Bank areas under Israeli control. (Under the terms of the Oslo Accords, nearly 60% of the West Bank is designated “Area C” and remains under Israeli control for security, construction, and planning.) PIPA outlines the following concerning foreign ownership of property:

The Acquisition Law in the West Bank, which regulates foreign acquisition and the rental or lease of immovable properties, classifies foreigners into three categories:

-- Foreigners who formerly possessed Palestinian or Jordanian passports shall have the right to own certain properties sufficient to erect buildings and/or for their agricultural projects.
-- Foreigners who hold other Arab passports have the right to own certain property that suffices for their living and business needs only.
-- Other foreigners must receive permission from the PA Cabinet to own buildings or purchase land.

It is critical that potential purchasers of land or buildings perform a title search to ensure that no outstanding violations or unpaid penalties exist on the property. Under current law, violations and penalties are transferred to the new owner.

Accurate title search can only be obtained from the PA Land Authority (al-Taboh). Land registration is done through the Land Registries in Hebron, Ramallah, Qalqilya, Tulkarem, Nablus, Bethlehem, Jericho, Jenin, and Gaza City. In order to purchase land in the West Bank or Gaza, an application that includes supporting documents, such as deeds to the property and powers of attorney, should be submitted to the land registry office having jurisdiction over the land.

Protection of Intellectual Property Rights

The West Bank and Gaza do not have a modern intellectual property rights (IPR) regime in place, and IPR legislation originates from a combination of Ottoman-era, British Mandate, and pre- 1967 Jordanian laws. The PA was indirectly committed to the GATT-TRIPS agreement when it signed the 1995 Interim Agreement on West Bank/Gaza according to Annex III (Protocol Concerning Civil Affairs), Appendix 1, Article 23.

Currently, intellectual property is governed by the Civil Claims Law of 1933 and the Palestinian Trademark and Patent Laws of 1938 in Gaza, and the Commercial Law No. (19) of 1953 and the Patent Law No. (22) of 1953 in the West Bank. Registration is very similar, and, despite different authorizing legislation, there are few substantive differences between IPR laws in the West Bank and Gaza Strip.

In order to register a trademark, four copies of the proposed trademark must be attached to the application, one of them in color, along with a copy of the company’s Certificate of Registration. A foreign company is entitled to register its trademark in the Palestinian territories by giving power of attorney in this regard either to a trademark agent or to a lawyer. Trademarks can be registered unless they fall within the recognized prohibition, such as being similar to or identical to an already registered trademark, are likely to lead to deception of the public, or are contrary to public morality. Trademark protection is available for registered trademarks for a period of seven years, which may be extended for additional periods of 14 years. The proprietor of a trademark in the West Bank/Gaza owns the sole right to the use of the trademark in association with the goods with which the trademark is registered. The trademark is open for opposition after being published in the Gazette for a period of three months. The holder of a trademark retains the right to bring civil action against any perpetrator in addition to criminal proceedings.

Trade names are registered in the Palestinian territories according to specific procedures and conditions that are laid out in the Jordanian Trade Names Registration Law No. (30) of 1953, which is still applicable in the West Bank, and Law No. (1) of 1929 in Gaza.

The Patents and Design Law No. (22) of 1953 is applicable in the West Bank and the Patents Design Law No. (64) of 1947 is applicable in Gaza. A foreign company is entitled to have a patent or design registered by giving power of attorney in this regard to a patent agent or to a lawyer, with the requisite documents. Patent protection is provided for a period of 16 years from the date of filing the patent application.

Copyright in the Palestinian territories is governed by the Copyright Laws of 1911 and 1924. The protection lasts for a period of 50 years after the death of the author of the work. The law also deals with infringements, compulsory licenses, and many other procedural issues as well.

The law prescribes imprisonment for a maximum period of one year or a fine not exceeding 100 Jordanian dinars for infringement of a registered mark.

There is minimal enforcement of IPR laws for music and movies in the West Bank/Gaza, while the PA has enforced some of these laws to protect the Palestinian pharmaceutical industry. The PA has drafted a modern law that will encompass IPR, including copyright, patents and designs, trademarks, and merchandise branding, but the law will likely be difficult to adopt without a functioning legislature. The PA is keen to obtain membership in the different organizations and agreements concerned with intellectual property, such as the World Trade Organization (WTO) and the World Intellectual Property Organization, where it has held observer status since 2005.

Transparency of the Regulatory System

The PA has worked to erect a sound legislative framework for business and other economic activity in the areas under its jurisdiction since its creation in 1994; however, implementation and monitoring of implementation needs to be strengthened, according to many observers. The PA Ministry of National Economy, with the assistance of international donors, is in the process of drafting a number of proposed laws related to business and commercial regulation, including regulation of competition, bankruptcy, trademark and copyright, and amendments to the investment law. The Ministry of National Economy regularly holds stakeholder meetings for draft commercial legislation, in order to gather input from the private sector, and publishes drafts of the proposed law. Because the PLC has not met since April 2007, each law must be adopted as a presidential decree, an effort that often delays reform efforts. The proposed laws and amendments will likely need to be approved by the PLC, should it reconvene in the future.

There is a regulatory body that governs the insurance sector, and the PA has adopted a telecom law that calls for establishment of an independent regulator. However, establishment of the telecom regulator has stalled due to disagreement over its proposed members and authorities.

Efficient Capital Markets and Portfolio Investment

Major progress was achieved in 2004 with the passage by the PLC of the Capital Markets Authority Law, the Securities Commission Law, and the establishment of the Capital Market Authority, the regulator of the stock exchange and insurance industries. A banking law was adopted in November 2010 to bring the Palestinian Monetary Authority’s (PMA) regulatory capabilities in line with Basel recommendations and international financial reporting standards. The law provides a legal framework for the establishment of deposit insurance, management of the Real Time Gross Settlement (RTGS) system established in late 2010, and treatment of weak banks in areas such as merger, liquidation, and guardianship. It gives the PMA regulatory authority over the microfinance sector.

The PMA regulates and supervises 18 banks with 212 branches in the Palestinian territories, several of which are foreign banks, mostly Jordanian; the top three banks have assets of more than USD 4 billion combined. No Palestinian currency exists, and, as a result, the PA places no restrictions on foreign currency accounts. The PMA is responsible for bank regulation in both the West Bank and Gaza. Palestinian banks are some of the most liquid in the region, with more than USD 8.5 billion in assets at the end of 2010 and total deposits of USD 6.7 billion.

Palestinian banks have remained stable despite the global economic crisis, but have suffered from deteriorated relations with Israeli correspondents since the Hamas takeover in Gaza in 2007, at which time Israeli banks cut ties with Gaza branches and gradually restricted cash services provided to West Bank branches. All Palestinian banks were required to move their headquarters to Ramallah in 2008. Israeli restrictions on the movement of cash between West Bank and Gaza branches of Palestinian banks have caused intermittent liquidity crises in Gaza for all major currencies – U.S. dollars, Jordanian dinars, and Israeli shekels.

Credit is limited by concerns over uncertain political and economic conditions and limited availability of real estate collateral due to non-registration of most West Bank land. The PMA has taken steps to improve the sector’s loan to deposit ratio from 28% in 2008 to 42% in 2010 by encouraging banks to participate in loan guarantee programs sponsored by the United States and international financial institutions, supporting a national strategy on microfinance, and putting in restrictions on foreign placements. The Ministry of National Economy has drafted legislation that would allow the use of moveable assets, such as equipment, as collateral for loans.

In early 1997, the Palestinian Securities Exchange (PSE) started operations on a limited scale as a fully virtual exchange. The PSE has grown, and as of October 2010, 40 companies spanning a wide range of sectors, including telecoms, banking, services, and insurance are listed on the Al Quds index with a market capitalization of $2.4 billion. More are expected to be listed when the Securities Law and the Capital Markets Authority strengthen the legal framework of the PSE.

Competition from State-Owned Enterprises (SOEs)

Although there are no state-owned enterprises, some have noted that the Palestine Investment Fund (PIF), an investment fund that essentially acts as a sovereign wealth fund, enjoys a competitive advantage in some sectors, including housing and telecom, due to its close ties with the PA.

Political Violence

In June 2007, Hamas violently seized control of the Gaza Strip, effectively removing the PA from government facilities. Following the Hamas takeover, the GOI implemented a closure policy that restricted imports to limited humanitarian and commercial shipments and cut off exports. The economic situation and investment outlook in Gaza further deteriorated following Israeli combat operations there during December 2008 and January 2009 (“Operation Cast Lead”). Even before the substantial physical damage sustained by the private sector during the military operation, the World Bank estimated as many as 90% of private sector businesses had closed. The closure was eased in July 2010, when the GOI expanded the list of allowed imports to all goods not on a “black list” of dangerous or dual use items. In December 2010, the GOI announced limited exports of agricultural and light industrial exports would be permitted beginning in January 2011. Economic activity in Gaza has fallen precipitously over the last three years, but the lifting of some import and export restrictions is expected to encourage limited improvements in the private sector.

The State Department, at the time of this writing, has in place a travel warning that urges American citizens to avoid all travel in the Gaza Strip and to exercise caution when traveling in the West Bank.

Corruption

Corruption is criminalized under the Anti-Graft Law (AGL) of 2005, and the State Audit and Administrative Control Law and Civil Service Law both aim to prevent favoritism, conflict of interest, or exploitation of position for personal gain. The AGL was amended in 2010 to establish a specialized anti-graft court and an anti-graft commission tasked with collecting, investigating, and prosecuting allegations of public corruption. However, the PLC, which is the body responsible for oversight of the PA’s executive branch, has not met since April 2007. This lack of oversight and accountability of the executive branch has raised transparency concerns. Palestinian civil society and media are active advocates of anti-corruption measures, and there are also international and Palestinian non-governmental organizations that work to raise public awareness and promote anti-corruption initiatives. The most active of these is as the AMAN Coalition for Integrity and Accountability, the Palestinian chapter of Transparency International. There have been some reports of potential foreign and domestic investors being asked to include well-connected persons in their business arrangements to help secure a contract. There are no reliable means of determining where or to what extent this kind of activity occurs.

Bilateral Investment Agreements

The Palestine Liberation Organization (PLO), on behalf of the PA, has signed international trade agreements, which refer implicitly or explicitly to WTO rules. These include:

1) Paris Protocol Agreement with Israel (1994) – free trade in products between Israel and Palestinian markets

2) Technical and Economic Cooperation Accord with Egypt (1994)

3) Trade Agreement between the PA and Jordan (1995)

3) Duty Free Arrangements with the United States (1996)

4) The EuroMed Interim Association Agreement on Trade and Co-operation (1997)

5) Interim Agreement between European Free Trade Area (EFTA) states and the PLO (1997)

6) Joint Canadian-Palestinian Framework for Economic Cooperation and Trade (1999)

7) Agreement on Commercial Cooperation with Russia – extends MFN status

8) Greater Arab Free Trade Area, to which PA is a party (2001)

9) Free Trade Agreement with Turkey (2004)

10) Unilateral acts by other Arab trade partners extending preferential treatment to trade with Palestine.

Since 1996, duty-free treatment has been available to all goods exported from the West Bank/Gaza to the United States, provided they meet qualifying criteria as spelled out in the U.S.- Israel Free Trade Area (FTA) Implementation Act of 1985, as amended. The duty-free benefits accorded under the FTA exceed those benefits which would be provided under the Generalized System of Preferences (GSP). It is worth noting that the benefits for imports provided in the trade agreements listed above are subject to application by the GOI, since all goods destined for the West Bank or Gaza must enter through Israeli-controlled crossings or ports. The GOI generally applies duties and tariffs consistent with its trade agreements, not with the PA’s trade agreements.

OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC) provides a variety of services to qualified U.S. investors in emerging economies and developing nations. During the early stages of investment planning, U.S. investors may contact OPIC for insurance against political violence, inconvertibility of currency, and expropriation in the form of an insurance registration letter. OPIC insurance is not available after the investment has been irrevocably committed. OPIC has initiated a number of programs in the West Bank and Gaza to support private sector development, including a loan guarantee facility.

The World Bank, via a $20 million fund administered by its Multilateral Investment Guarantee Agency (MIGA), provides guarantees in the form of insurance against political risk for private investments in the West Bank and Gaza. Under the terms of the Fund, investors who are nationals of companies incorporated in a MIGA member country, or who are Palestinian residents of the West Bank or Gaza, are eligible to obtain guarantees for up to 15 years. The Fund currently has the capacity to issue guarantees for up to $5 million per project.

Labor

With its growing youth population, the Palestinian territories have an abundant labor supply with a high level of education and skills. (The total population of the Palestinian territories in mid-2010 was about 4.05 million, 2.51 million in the West Bank and 1.54 million in Gaza Strip. PCBS estimates 1,063,200 people over age 15 are participants in the labor force.) As the GOI has restricted the number of labor permits available to Palestinians, areas adjacent to the “Green Line” boundary between Israel and the West Bank, such as Jenin, Tulkarem, and Qalqilya have seen their unemployment rates increase substantially above the West Bank average.

PCBS reported the following unemployment levels for the third quarter of 2010:

West Bank – 20.1 percent
Gaza Strip – 40.5 percent

As of December 2010, PCBS reported that 24.7 percent of jobs in the West Bank/Gaza were in the public sector (16.9 percent in the West Bank and 47 percent in Gaza Strip.) The results showed that the highest percentage of unemployment was concentrated among youth aged 20-24 years. The average daily wage in the West Bank is NIS 102 (about USD 28) and NIS 58 (about USD 16) in Gaza.

Labor force distribution by sector is as follows. (Source: PCBS labor force survey, November 2010)

West Bank
10.9 percent - Agriculture, Forestry, Fishing, Hunting
13.6 percent - Mining, Quarrying, Manufacturing
17.2 percent - Construction
21.1 percent - Commerce, Hotels, Restaurants
5.6 percent - Transportation, Storage, Communication
31.6 percent - Services and other

Gaza
8.0 percent - Agriculture, Forestry, Fishing, Hunting
5.1 percent - Mining, Quarrying, Manufacturing
4.0 percent - Construction
16.2 percent - Commerce, Hotels, Restaurants
6.8 percent - Transportation, Storage, Communication
59.9 percent - Services and other

Foreign Trade Zones/Free Ports

There are no foreign trade zones or free ports in West Bank or Gaza.

Foreign Direct Investment Statistics

The PA released a survey of foreign investment in October 2010 that showed the stock of foreign investment in the Palestinian territories had reached USD 1.58 billion by the end of 2009, an 18% increase over 2008 figures. This includes foreign direct investment, portfolio investments, and other investments. Stocks of foreign direct investment reached USD 1.15 billion in 2009, an increase of 34.9% over the previous year.

A list of foreign investments in the Palestinian territories is not publically available. The largest foreign company in the West Bank/Gaza is the Palestine Development and Investment Company (PADICO), which has invested over $300 million in the economy. Key PADICO investors include Diaspora Palestinians from Jordan, Great Britain, and the Gulf. PADICO has made significant investments in telecommunications, housing, and the establishment of the Palestinian Securities Exchange. Arab Palestinian Investment Company (APIC), headquartered in Ramallah, is a large foreign investment group with authorized capital of over USD 100 million. Other significant potential foreign investments include Qatari mobile operator QTel’s projected USD 600 million investment in Wataniya Mobile over a 10-year period, and Qatari Diar’s projected USD 500 million investment in Rawabi, a mixed use/affordable housing real estate development.



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