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Area C and the Future of the Palestinian Economy

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Area C and the Future of the Palestinian Economy Report No. AUS2922 Public Disclosure Authorized WEST BANK AND GAZA Area C and the Future of the Palestinian Economy Public Disclosure Authorized October 2, 2013 Poverty Reduction and Economic Management Department Middle East and North Africa Region Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank Acronyms and Abbreviations CPI Consumer Price Index DOP Declaration of Principles FDI Foreign Direct Investment GDP Gross Domestic Product GOI Government of Israel ICA Israeli Civil Administration ICL Israeli Chemicals Ltd IPCC International Peace and Cooperation Centre ISP Internet Service Providers IT Information Technology ITU International Telecommunication Union JTC Joint Technical Committee JWC Joint Water Committee LRC Land Research Center MCM Million Cubic Meter MoF Ministry of Finance OCHA United Nations Office for the Coordination of Humanitarian Affairs PA Palestinian Authority PCBS Palestinian Central Bureau of Statistics PLO Palestinian Liberation Organization UNESCO United Nations Educational Scientific and Cultural Organization USD United States Dollars Vice President: Inger Andersen Country Director: Mariam J. Sherman Sector Director: Manuela V. Ferro Sector Manager: Bernard Funck Task Team Leader: Orhan Niksic Contents Executive Summary .................................................................................................................................................................. vii Direct Benefits ........................................................................................................................................................................... viii Indirect Benefits ............................................................................................................................................................................ x CHAPTER 1: The Palestinian Economy, Israeli Restrictions and the Potential of Area c .................................. 1 The Palestinian economy: volatility, distorted growth and uncertain prospects ..................................................... 1 Restrictions on movement and access, and the stunted potential of Area C ............................................................. 3 CHAPTER 2: AREA C – Output Potential OF Key Sectors of the Palestinian Economy .................................. 7 I. Agriculture ............................................................................................................................................................................. 7 Area C Restrictions and the Decline of Palestinian Agriculture ........................................................................ 9 Agricultural Potential ..................................................................................................................................................... 10 II. Dead Sea Minerals ............................................................................................................................................................ 11 Potential for Developing Dead Sea Minerals ......................................................................................................... 13 III. Stone Mining and Quarrying ......................................................................................................................................... 13 Potential in Marble and Stone Industries ................................................................................................................. 15 IV. Construction and Real Estate ......................................................................................................................................... 15 Restrictions on Access and Development ................................................................................................................ 15 Land and House Price Inflation .................................................................................................................................. 19 Construction Potential .................................................................................................................................................... 20 V. Tourism and the Dead Sea .............................................................................................................................................. 20 Area C and the Dead Sea .............................................................................................................................................. 21 Value Added to Tourism ............................................................................................................................................... 23 VI. Telecommunications......................................................................................................................................................... 24 Access and Permits ......................................................................................................................................................... 25 Telecommunications Potential .................................................................................................................................... 28 VII. Cosmetics ............................................................................................................................................................................ 28 CHAPTER 3: Indirect Benefits ............................................................................................................................................ 30 Secondary Costs and Benefits Related to Infrastructure ............................................................................................... 30 Movement .................................................................................................................................................................................... 30 Water and Wastewater ............................................................................................................................................................. 30 Telecommunications ................................................................................................................................................................ 31 ii Institutional Infrastructure ...................................................................................................................................................... 32 Secondary Costs and Benefits Related to Spill-Over Effects ...................................................................................... 33 Potential Indirect Benefits ...................................................................................................................................................... 34 Potential Fiscal Benefits .......................................................................................................................................................... 34 ANNEX 1: Methodological Notes ....................................................................................................................................... 36 ANNEX 2: Agriculture Section Tables. ............................................................................................................................. 47 ANNEX 3: Relevant Legal Agreements ............................................................................................................................ 51 ANNEX 4: Bibliography ........................................................................................................................................................ 56 List of Tables Table 1: Significance of Area C in Terms of Natural Resources ................................................................... 6 Table 2: Palestinian Permits in Rural Areas and in Area C .......................................................................... 16 Table 3: Estimated Population Growth and Area C Restrictiveness in the West Bank Governorates 17 Table 4: Selected Dead Sea Tourism Indicators for Jordan and Israel ......................................................... 23 Table 5: The Number of Tourists Has Been Growing Around the World and Is Expected to Continue with Strong Growth by 2020 Worldwide and in the Middle East ........................................................................ 23 Table 6: Revenues Collected from West Bank Sites Managed and Operated by the Israeli Nature and Parks Authority ....................................................................................................................................................... 24 List of Boxes Box 1: Limited access to education for Palestinians who live in Area C ....................................................... 5 Box 2: Agriculture in Israeli Settlements in Area C exemplifies the sector’s potential in the Area ............ 10 Box 3: Fighting the current restrictions to develop a new city ..................................................................... 18 Box 4: Serving the Residents of Marah Rabah and Teqou in Area B .......................................................... 26 Box 5: Suboptimal Transmission paths ........................................................................................................ 27 List of Figures Figure 1: Real GDP Growth Rate 1999-First Half 2013 ................................................................................ 1 Figure 2: The Decline in The Tradable Sectors .............................................................................................
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