Select Committee on International Development Written Evidence

Written evidence

Taken before the International Development Committee

Memorandum submitted by the Department for International Development


  DFID's programme of assistance seeks to help reduce poverty among Palestinians during the process towards statehood, and to contribute to a successful peace process that will resolve the conflict which causes poverty. We provide assistance to the Palestinian Authority (PA), civil society, and the United Nations Relief and Works Agency for Palestinian refugees (UNRWA). Our programme has been between £30 million to £40 million for the last three years.

  The potential for the Palestinian Territory is considerable, but conflict with Israel over more than 50 years has severely constrained economic growth. Following the Oslo Accords in 1993 and 1995, the area enjoyed a period of relative peace and prosperity. But the cycle of violence and Israeli closures since September 2000 has badly affected Palestinian livelihoods. Poverty has increased dramatically with some 60% of Palestinians (75% in Gaza) now living on less than $2 a day. Unemployment has rocketed and many families are now dependent on food aid. Families have sold their assets, borrowed from friends and neighbours and cut their intake of food. Palestinian refugees—in Lebanon, Syria and Jordan, as well as the West Bank and Gaza Strip—are often among the most disadvantaged communities.

  The overriding challenge for Palestinians is achieving a just settlement through the Middle East Peace Process, and the creation of a viable, democratic Palestinian state. Without peace, the prospects for economic growth and improved quality of life are negligible.

  Along with the rest of the international community the UK re-engaged significantly on development issues immediately after Oslo period when Israel granted the Palestinians a degree of autonomy, and allowed the creation of the Palestinian National Authority. Prior to that development partnerships were exclusively with Palestinian civil society, while the Israeli government provided basic services.

  Since Oslo, expenditure on our bilateral aid programme to the West Bank and Gaza Strip has grown from £3 million to £20 million a year. We have funded a range of development initiatives to help the PA build its capacity as an efficient and accountable government, while also promoting the development of a vibrant civil society. Our assistance has focused on institutional strengthening rather than the development of infrastructure. Since October 2000 we have responded significantly to the urgent needs arising from the Intifada.

  We have provided core funding for UNRWA since its creation shortly after the 1948 war and the exodus of Palestinian refugees from their homes in what is now Israel. Over the last five years we have sought to develop a positive and productive partnership that encourages UNRWA to increase its efficiency and effectiveness. UK annual contributions have risen commensurately. In 2002-03 we expect to provide approximately £19 million (including an additional £5 million recently agreed to support Roadmap implementation).

  Lately the international development effort has concentrated on shorter-term support for the immediate needs of the Palestinian people. Activities have included EC budgetary support for the PA and employment generation and basic services support programmes. But despite the short-term pressures, efforts have been maintained to ensure that longer-term building of Palestinian institutional capacity continues. This twin-track approach is essential; providing for immediate needs, and maintaining medium term development efforts in anticipation of peace. There is no humanitarian solution to the current suffering of the Palestinian people. Only a political solution will provide the environment to reverse their severe social and economic decline.

  Our programme must remain responsive to the volatile political, social and economic environment. Support for the implementation of the Roadmap is a current priority. We are assisting the Palestinian Authority's Quick Impact Intervention Programme (QIIP), which aims to build public confidence in the peace process by responding to people's urgent needs. As part of this process we are considering the case for some form of direct budget support to the PA. Reform of the PA is another Roadmap priority for DFID. A three-year technical assistance programme for public administration and civil service reforms will begin in the autumn in partnership with the PA's Ministerial Committee on Reform, and the World Bank. This follows initial diagnostic work and pilot reform projects, also funded by DFID. Funding has been provided to the Palestinian civil police; it is envisaged that this will support public order training as well as basic equipment and infrastructure.

  We remain committed to UNRWA in alleviating the plight of Palestinian refugees, whose future is central to the peace process. We will continue to work closely with UNRWA and international partners to help ensure appropriate levels of support, encourage UNRWA's institutional reform, and improve its effectiveness.

  Aligning our assistance effectively with that of other donors is a central objective of DFID's work with Palestinians. Through co-ordination in Jerusalem and member state discussions in Brussels, we play a full part in contributing to EC policy. The EC committed

326.59 million of assistance to Palestinians in 2002, of which approximately 19% came from DFID's budget. We work closely with the World Bank and UNSCO who provide leadership to the aid community.

  The International Development Committee has listed a number of issues that the inquiry will seek to address. We offer views and comments on these issues as follows:

1.   The effectiveness of aid from UK and EU sources on Palestinian poverty levels: how it is targeted and what could be done to prevent it from being wasted or destroyed?

  Poverty reduction can only be addressed significantly in the West Bank and Gaza Strip in the context of a just peace settlement and the creation of a viable Palestinian State. DFID's support is focused on ways to support the Middle East Peace Process and institutional development. Our support for service delivery through UNRWA and NGOs has also been important in mitigating the effects of a worsening humanitarian situation and rising poverty levels during the current intifada. However there are limits to what development assistance can achieve. In their recent analysis "27 Months—Intifada, Closures and Palestinian Economic Crisis" the World Bank estimates that even if donor disbursements were to double in 2003 and 2004, this would only reduce the poverty rate by 7%. What is most needed to reduce poverty is relaxation of Israeli curfews, closures and checkpoints, and eventual withdrawal, so the economy can grow again.

  We work closely with other donors, particularly the World Bank and European Commission who have played leading roles in determining and supporting strategic donor responses as the conflict has deepened. EC assistance during the Intifada has primarily been channelled as emergency budget support, which has offset the decline in domestic revenue and the budget deficit that resulted from Israel's withholding of Palestinian tax revenues. To mitigate risk and prevent wastage this support was explicitly linked with the Ministry of Finance's financial reform programme, with strict conditionality attached to improve accountability. According to World Bank analysis, direct budget support has proved to be the most effective aid instrument in the Palestinian context, allowing the PA to maintain basic service delivery, while providing significant macro-economic benefits. The welfare impact of this support has been significant: as poverty and unemployment levels have risen, the extended coverage of public sector salaries (increasing from an average of eight people dependent on each income to 18) has provided an essential safety net for many families and communities.

  The Intifada has resulted in an increasingly volatile working environment. Our response to this has been to maintain as much flexibility as possible. There has been extensive damage to public and private infrastructure during the Intifada. Where infrastructural damage or other obstacles have occurred we have discussed with our project partners the necessary steps, including additional funding, to ensure projects still meet their objectives. The EC has compiled a costed audit of damage to EC-funded infrastructure, and reserves the right to seek compensation from the Israeli authorities.

2.   The impact on Palestinian trade, employment and economic development of customs duties and taxes, and controls on the movement of goods and people at Israeli ports and airports and points of entry to the West Bank and Gaza

  The terms of Palestinian trade and economic development are largely determined by the 1994 Paris Protocol and the 1995 Washington Agreement, which set the procedures and regulations governing economic relations between the Palestinian Territory and Israel during the interim period. These agreements have led to a high level of economic dependence on Israel, leaving the Palestinian economy particularly vulnerable to closures. Israeli security measures have had a negative impact on Palestinian trade, employment and economic development, inhibiting the free flow of imports and exports to and from the Palestinian Territory. Delays at points of entry and exit have had disastrous consequences for perishable goods. The withdrawal of permits for Palestinian labourers to work inside Israel has had severe repercussions on an economy heavily dependent on workers' remittances. The government of Israel has also withheld monies (customs, excise) due to the PA on the grounds of security concerns during the Intifada, contributing to a significant PA budget gap.

  DFID support in this area is focused at the strategic level, aiming to influence trade and economic development in the longer term. The Economic Policy Programme, implemented by the London School of Economics, aims to provide the PA's Ministry of National Economy with the legal and technical capacity to establish an autonomous foreign trade regime at the point of statehood. The project is also providing an analysis of the economic impacts of different trade policy options that the PA may choose to implement at the point of statehood.

3.   The impact of the wall of separation for Palestinian farmers and for employment, movement of people and delivery of humanitarian assistance

  The security fence[1] is having serious economic, social and political consequences. In some places the projected route reaches up to 7 km into the West Bank, creating isolated Palestinian settlements on the western side. This physical separation will mean that these Palestinians are effectively cut off from their workplaces, land, school and social services. The number of Palestinians isolated in this way during phase one of construction is thought to be in the region of 12,000 [2]Access to land and communities on the western side is likely to be tightly controlled by the Israeli authorities. As with checkpoints and closures during the Intifada this will potentially restrict the movement of people and goods, including humanitarian access.

  Construction has already severely disrupted the lives of many Palestinians living on the eastern side of the fence, separating them from their land, water and communities. Palestinian land is currently being seized for construction and cultivated farmland is being destroyed. In some places an 8 metre high concrete wall has been erected, and a corridor of up to 40 metres has been cleared for construction. When the fence is completed it is expected to be 360 km long, with approximately 10% of the West Bank lying to its west. Current estimates indicate that the northern and Jerusalem sections of the fence (215 km) will leave 290,000 Palestinians between the fence and Israel. 70,000 of these people do not have Israeli residency permits and may therefore feel it necessary to move east of the fence in order to retain access to basic services. The fence will encircle some communities to the east, creating five Palestinian enclaves. This will affect 128,500 people. [3]36 Palestinian communities (72,200 people) to the east of the fence own land on the western side. [4]They will, at best, have restricted access to their land. Israel has said it will grant permits to owners of land to pass through gates in the fence. It is not clear whether their employees/relatives will be allowed to cross and help them work the land or whether they will be able to cross with agricultural machinery; without such access it will be impossible to harvest agricultural products.

  The Israeli Government sees the fence as a necessary security measure, and argues that it need not be permanent. However, the extent and nature of the fence's construction, its cost, and in particular its location inside the Green Line suggest to many that the project has more permanent implications. The psychological impact for Palestinians is significant. They view it as a political border that encroaches on their land, pre-empting final status negotiations and imposing restrictions on their freedom of movement.

4.   The control that the network of settlements in the occupied territories has over the basic conditions for the development of the Palestinian economy: agricultural land, water, movement of persons and goods, environmental impacts

  A sizable, contiguous territory is a prerequisite for the economic, social and political viability of a Palestinian state. The building of nearly 200 settlements scattered throughout the West Bank and the Gaza Strip has fundamentally compromised the Palestinian Authority's ability to control its borders, to provide for the security of the Palestinian people, and to facilitate economic growth and development.

  Settlements and bypass roads severely constrain the natural growth of Palestinian cities, towns and villages and fragment Palestinian territory. For example, settlements around Arab East Jerusalem threaten to cut the city off from the rest of the West Bank, while Ramallah is prevented from growing northward and eastward by the Bet El and Psagot settlements. Settlements also dilute the economic resources of the Palestinian Territory, prejudice its access to natural resources such as water, reduce its ability to absorb immigrants, destroy its agricultural character and physical cohesion, and weaken its capacity for self-defence—ultimately disabling its survival. Protection of settlers by the Israeli Defence Force, and sometimes action by settlers themselves, has led to the destruction of Palestinian olive tree plantations and other natural resources

5.   The accountability of Palestinian government institutions and the technical capacities of the public and private sectors to build an autonomous and viable economy

  Long-term viability of a Palestinian state will require continued attention to economics, governance (institutions and democracy) and security. The Palestinian Territory does have the potential to prosper. It has a large middle-class, a well-educated population, a long tradition of commerce and intellectual activity and a wealthy and sophisticated diaspora. It also has important tourist and pilgrimage sites and a potentially lucrative gas field off the Gaza shore. With the right political and economic environment and policies it should eventually be able to deliver growth, security and prosperity. Significant progress has been made since Oslo in establishing Palestinian institutions and policies. Donors and international financial institutions have worked with the PA to implement reforms necessary for medium term stability and growth, but there is more to do. Much emergency donor assistance is being managed through PA institutions. This helps to maintain the Government's legitimacy and will remain important during the transition to statehood. The future state of Palestine will start from a low point economically, politically and socially. Politics, society and the private sector have been constrained by years of Israeli restrictions on the movement of Palestinians and damage to infrastructure.

  Assuming a Final Status Agreement gives the Palestinian Territory the economic contiguity, control of borders and economic policy independence needed to make its way, and offers a refugee settlement which removes the threat of a major new economic burden, then there is the capacity for broad based and sustained growth. A consequent improvement in social conditions is likely. However, the Palestinian government will have to take action to ensure the transition from current interim economic arrangements with Israel does not derail the economy. They should build on reforms already underway to build the domestic economy, and stimulate investment.

  The PA has adopted a major programme of policy and institutional reform, which aims to weed out corruption by enforcing full public fiscal accountability, as well as creating a predictable and transparent legal environment and building a modern, merit-based civil service. Implementation of these reforms is essential to the evolution of a viable Palestinian state. A good start has been made to the reform process—particularly in the area of financial accountability—and this is already improving the PA's credibility in the eyes of the public and the international community.

  Minister of Finance Salaam Fayyad's reforms have been critical in increasing the financial accountability and transparency of the of the PA's budget process. This has increased the confidence of both the donor community and the Government of Israel in the PA's finances and has led to the resumption of payment by Israel of tax revenues to the PA. These transfers are vital in helping the PA improve its budget situation and deliver core services.

6.   The role of civil society, including NGOs, in ensuring a broad popular participation in the development of Palestinian society

  Civil society and local NGOs in the Palestinian Territory have a long track record of social service provision and are more highly developed than elsewhere in the region. The role of NGOs during the current Intifada has been crucial. Many local and international organisations have been forced to shift their focus away from development work to meet humanitarian needs where closures or budget constraints have obstructed the delivery of public services. The PA has relied on NGOs to deliver primary healthcare, even when it has been unable to reimburse costs.

  Civil society is also playing a role in the longer-term development of Palestinian society. This is an important part of the PA's reform agenda, which includes a medium term objective of greater empowerment of civil society to deepen the democratisation process in Palestinian society. Some in civil society are sceptical about the PA's commitment to involving them, and in improving accountability to the Palestinian people. But there are some encouraging signs that PA Ministers are increasingly open to civil society views—such as the creation of the National Reform Committee.

  We work with local and international NGOs, and academic institutions, across a range of projects. Support to civil society includes helping to fund a World Bank Palestinian NGO project that gives financial and technical support to NGOs delivering services to the poor and marginalised. We are also discussing a second phase of the Palestinian Participatory Poverty Assessment in partnership with UNDP and the Ministry of Planning. This project focuses on promoting community participation in local level planning processes and influencing policy makers to respond to the needs and priorities of poor people.

7.   Priorities for UK aid through bilateral and multilateral channels to strengthen the infrastructure of Palestinian development

  Opinions on the role of donor assistance in Palestine are diverse. At one extreme is the view that humanitarian suffering is caused by Israeli negligence of its Geneva Convention obligations as an occupying power, for which donors should not substitute. This view holds that all aid is political, and that donors should support the institutions they want to see survive. At the other extreme is the pragmatic pessimism, which sees as futile the building of Palestinian institutions that may face future destruction (political and physical) by the Israelis, and thus prioritises relieving immediate Palestinian suffering. A third view downplays the significance of aid—even the unprecedented provision of $315 of donor assistance per Palestinian per year since the Intifada started has not prevented poverty tripling.

  Our approach is balanced between these perspectives. We maintain a poverty perspective in all we do, and are helping the PA to do the same. We spend a significant proportion of our programme on basic services (notably health and water), including humanitarian assistance for the most vulnerable. This is complemented by governance and reform work, building the capacity of Palestinian institutions to deliver public services. Refugee support, through UNRWA, is a particular focus—and arguably an obligation. But we also support other activity that has no direct impact on poverty reduction, but may help advance the peace process (building Palestinian negotiating capacity, supporting the police, civil service reform).

  DFID works increasingly with the World Bank, European Commission, International Monetary Fund, and other bilateral donors. We promote joint support for key development issues and to enable funds to be channelled more rapidly and flexibly, in particular to support social service delivery and livelihoods. For example we have recently contributed with other donors to three programmes with the World Bank focusing on:

    (i)  emergency employment generation;

    (ii)  enhancing the capacity of NGOs providing basic services; and

    (iii)  the provision of non-salary running costs for PA ministries and municipalities.

8.   The role of aid in supporting political solutions to the conflict

  DFID aims to strike a balance between the political, developmental and humanitarian aspects of international aid. We cooperate closely with the FCO (in London and Jerusalem) on links between development and the political process, in the belief that sustainable progress with the former is not possible without a breakthrough on the latter. But until there is a political solution—and to help achieve one—we see a significant role for aid. Several of our programmes aim to advance the peace process, such as support to the civil police and civil service reform.

  DFID's most strategic programme is our support for the Negotiation Affairs Department's Negotiations Support Unit (NSU). The NSU's objective is to provide professional legal, technical and communications advice to the Palestinian authorities in preparation for, and during, permanent status negotiations with Israel. Following the collapse of formal negotiations nearly three years ago the NSU has broadened its role. It encourages the resumption of negotiations by contributing to a variety of diplomatic peace initiatives. The Palestinians appreciate its work and it is well regarded by others involved in the diplomatic process, and DFID support has encouraged other donor funding. NSU's contribution is now critical. It is playing a lead role in trying to advance the Roadmap and lobbying against construction of the security fence.

9.   Future development needs of a Palestinian state and the potential for its economic cooperation with Israel

  The future development needs of a Palestinian state will be determined to a significant extent by the terms of a final settlement, and what it means for its size, population, refugee influx, access to natural resources and security arrangements. An inadequate settlement may risk continuing conflict or a later return to conflict. The potential for economic cooperation with Israel is large. Prior to the Intifada, over 25% of Palestinian GNI was in the form of remittances from Palestinian workers in Israel. Most of these workers have been denied access to Israel since the start of the Intifada, with a severe impact on the Palestinian economy. This dependence has created structural problems for longer term Palestinian economic development. Domestic labour prices have been influenced by wages paid to Palestinian workers in Israel, exceeding underlying growth in productivity and undermining Palestinian capacity for competitive export. It is clear that economic dependence on Israel leaves the Palestinian economy in a vulnerable position. Long-term sustainable growth will require economic diversification to allow more exports of goods and services, as well as of labour. Gas from the Gaza offshore field could be a major area of economic cooperation if Israel decides to buy it from the Palestinians.

  Continuing institutional development will also be important in the transition from interim authority to sovereign state. Donor funding and technical assistance will continue to be important for a few years after Statehood. But if the Palestinian economy can return to the double-digit growth of the late 1990s and there is a decreasing risk of conflict, donor assistance could fall rapidly.

September 2003

1   Terminology is the subject of much debate. In some places the fence takes the form of an 8m high wall. Back

2   "The Impact of Israel's Separation Barrier on Affected West Bank Communities" Report of the Mission to the Humanitarian and Emergency Policy Group of the Local Aid Coordination Committee, 30 April 2003. Back

3   B'Tselem, "Behind the Barrier" March 2003. Back

4   IbidBack

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