Technical cooperation: Operational activities for development

The policy orientation as well as the focus of UNCTAD´s technical assistance activities were first conceptualized over the period 1990-1994 within the context of an intersectoral research project.

The findings of this forward-looking project remain more relevant than ever, and are met with growing resonance in the evolving debate on the pre-requisites for the sustained development of the Palestinian economy under and after occupation.

UNCTAD technical assistance to the Palestinian people has since evolved into a multifaceted programme that seeks to bolster Palestinian development and institution-building efforts. Drawing on the experience of the secretariat as a whole, programme activities are tailored to support the achievement of national development objectives within four clusters:

1. Trade Policies and Strategies

The challenge for Palestinian policy-makers is how best to re-orientate Palestinian trade to allow for restructuring the economy towards a greater specialization in high value-added products, and more balanced relations with Israel. UNCTAD´s technical assistance projects under this programme cluster provide tangible contributions to addressing this challenge.

The Palestinian trade sector has historically been characterized by:

  1. poor export capacity, with exports concentrated in a limited range of labour-intensive products;
  2. unrestrained import growth;
  3. widening trade deficit; and
  4. heavy concentration of trade with Israel.

Notwithstanding the lack of political stability, this performance is attributed to the Palestinian trade regime under occupation, as defined under the terms of the 1994 Protocol on Economic Relations between Israel and the Palestinian Liberation Organization (also known as the Paris Protocol).

The protocol provides a narrow base for Palestinian sustained economic growth, and entails measures that effectively limit the Palestinian Authority´s policy-making space.

While these measures impose on the war-torn Palestinian economy trade policies identical to those of the more advanced Israeli economy, they expose the economy to all the costs of trade liberalization inherent in Israel´s World Trade Organization (WTO) membership with no access for the Palestinian Authority to the benefits of WTO accession.

2. Trade Facilitation and Logistics

Efforts to diversify the Palestinian economy and develop the trade sector are undermined by prohibitive transaction costs, which erode the competitive edge of Palestinian exports and therefore pose trade barriers of greater significance than import tariffs.

This is particularly the case in view of the occupied Palestinian territory´s landlocked status, which restricts the enterprises´ participation in international trade to their ability to use neighbouring overland and maritime transport facilities in Israel, Jordan and Egypt.

Notwithstanding the lack of adequate physical infrastructures, Palestinian merchandise trade is obstructed by the absence of coordination mechanisms in the subregion with regard to transport and customs clearance. Active coordination mechanisms between the Palestinian Authority and its immediate neighbours are either nonexistent or translate into complex procedures entailing several institutions and exhaustive documentation requirements.

This not only undermines the possibility of exploiting existing and future trade agreements, but also discourages investment in productive sectors. Indeed, Palestinian preferential and free trade agreements with regional and international partners remain largely unexploited due to prohibitive maritime and overland transport costs.

Technical assistance projects under this programme cluster seek to support Palestinian trade facilitation efforts, with strategic frameworks, automated systems and streamlined procedures that incorporate internationally recognized standards and best practices.

3. Finance and Development

The deepening of the economic crisis and political instability in the occupied Palestinian territory since 2000 has aggravated Palestinian fiscal imbalances, with adverse consequences for the economy´s development prospects.

Revenue mobilization is constrained not only by the erosion of the tax base, but also by the lack of economic diversification and growing de-formalization, rendering taxation of limited benefit in improving the Palestinian Authority´s fiscal position.

This means that the Palestinian Authority will have to continue to rely on international aid for financing its expenditures, at least for the immediate future.

The Palestinian Authority is also seeking other sources of funds to cover its capital expenditures, particularly loans from multilateral and bilateral sources. This trend is likely to intensify in light of the marked shift in donors´ preferences from grant-based to loan-based assistance, thereby running the risk of increasing the Palestinian Authority´s public debt obligations.

While the management of Palestinian Authority finances has been revitalized in recent years, there remains much room for improvement, particularly in relation to fiscal planning and budget management systems and processes.

The Palestinian Authority lacks the required tools and expertise for linking economic and development planning to the budgetary process, as well as the institutional capacity to monitor, control and forecast debt and debt-related problems.

Technical assistance projects under this programme cluster seek to assist the Palestinian Authority in developing efficient, effective and transparent fiscal management systems and processes.

4. Investment, Enterprise Development and Competition

Following the signing of the 1993-1994 peace accords between Israel and the PLO and the establishment of the Palestinian Authority, the Palestinian economy achieved remarkable growth rates, especially after 1998, with real GDP growth estimated at 8.8 per cent in 1999.

However, this growth masked the enterprise sector´s structural imbalances and weaknesses inherited from the occupation period, including:

  • A stagnant level of private investment and its concentration in construction activities.

  • The dominance of micro-enterprises with fewer than five employees (90 per cent of total establishments).

  • Small and medium-size enterprises (SMEs) have a paucity of managerial skills and a limited experience in international trade.

  • An inward-looking focus of enterprise, with the majority preoccupied with satisfying local demand. (Those involved in export activities are in the minority and are heavily reliant on Israel as the main export market)

  • Labour-intensive manufactured goods constitutes the largest segment of merchandise exports.

  • Limited absorption capacity: the domestic economy engages only 60 per cent of new entrants into the labour force.

Since October 2000, the deepening economic crisis has further aggravated the Palestinian enterprise sector´s structural problems. UNCTAD also estimates that the Palestinian economy has lost at least one third of its productive capacity since 1998 as a result of the Israeli destruction of infrastructures, overuse and poor maintenance. The situation in Gaza is much worse, as a result of the economic blockade imposed since mid-2007.

Technical assistance activities under this programme cluster seek to contribute to the development of a dynamic Palestinian private sector capable of creating new job opportunities for the growing labour force, and competing in regional and global markets.

Since late 2000, the programme has been geared to addressing the harsh economic realities generated by the intensification of the Israeli restrictive measures and closure policy, within the context of a dynamic approach that links interventions targeting immediate needs to strategic, long-term development objectives. Interventions focus on fostering the economy´s resilience in the face of the widespread economic crisis, and seek as their ultimate objective to accumulate development gains, no matter how modest, through creating the required institutional and productive capacities for sustained economic growth.

To date, UNCTAD´s operational activities of assistance to the Palestinian people have included 25 technical cooperation projects/activities in response to requests by the Palestinian Authority and civil society institutions.

The projects have been implemented in close cooperation with relevant national and international institutions, with financial support from the donor community in the form of extrabudgetary resources.