Memorandum submitted by the Discovery Analytical Resourcing

















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0.1 Prevailing conditions in the occupied Palestinian territories at the end of 2006 are such that the economic outlook remains disproportionately distorted by political events. A review of the development environment in the occupied Palestinian territories would normally imply that the Palestinian Authority, within these limits, has autonomy for policy evaluation and resource allocation - or, as the World Bank has it,


... that a government faces options and trade-offs in how it uses its financial resources - that it has the flexibility to choose between competing priorities, and to structure its finances in such a way as to free up resources for use elsewhere. It assumes that a government has latitude to develop institutions and deploy human and financial resources in ways that will maximize efficiency while achieving their developmental objectives. On each of these fronts, the PA faces severe constraints, fiscal or otherwise. [1]


0.2 These constraints override in significance the potential of most of the review topics listed under this present enquiry to advance development, as indeed the previous enquiry concluded:


There has to be a sense of realism about what development assistance can achieve. The World Bank told us that removing the "access controls" imposed by the Israelis would have increased real GDP by 21%, whereas a doubling of development assistance - without easing closure - would only reduce the number of people living in poverty by 7% by the end of 2004. The situation in the OPT, in other words, is not one which donor assistance can resolve. [2]


The need for development assistance to be diverted for humanitarian relief rather than sustainable economic and social development persists and has, in many fields, become more urgent since 2003.


0.3 However, these constraints have significant characteristics for evaluating aid effectiveness:

0.3.1 Demand for development aid and humanitarian relief derives from security policy and is not the result of random catastrophe nor negligent governance. Under these conditions, projects that are designed to respond as if to the impact of fortuitous adversity will always be vulnerable to man-made frustration.

0.3.2 The position has further deteriorated since the Committee's last enquiry in that punitive suspension of established disbursements by the Quartet has rendered the provision of international aid an intensely political issue.

0.3.3 The impact of this stance has been:

- to subvert the achievements of past and current development activity;

- to compromise the Quartet's diplomatic impartiality in the broader context of ongoing peace dialogue;

- to result in a dysfunctional policy stance both from a national perspective (where donor government departments find themselves managing conflicting policy imperatives) and in the context of the political reform clauses stipulated by the Road Map for the PA.


A ∑ What are the implications of the Hamas election victory?


A 1.0 Hamas' victory at the polls presented an opportunity to work with an administration commanding popular support and one untainted by allegations of corruption. The organisation's community-based education, healthcare and social welfare programmes were often active in the most deprived areas of the occupied territories not hitherto served by the PA.


A 1.1 The Quartet's refusal to recognise Hamas' democratic mandate and to co-operate with the PA effectively derails the party's election manifesto. Given the inherited structural dependency of the PA budget on external transfers, the fact of a Hamas election victory has been made irrelevant to evaluation of subsequent effectiveness of international development aid.


A 1.2 In these circumstances, the significant question defers to: how effectively have the UK, World Bank and EC responded to the new reality?



D ∑ How effectively have the UK, World Bank and EC responded to the new reality?


D 1.0 It can be argued that Hamas already complied with the Quartet's pre-conditions some time before they were issued as an ultimatum following the January elections, namely:

- Hamas' renunciation of violence: a truce had been maintained since January 2005; Hamas proposed a long-term cessation of hostilities to Israel, which Israel rejected;

- recognition of Israel: this is a rhetorical proposition, Israel having declined to declare its borders:

"Everybody in Hamas says 'Yes' to the two-state solution ... The problem comes from the fact that the Israelis so far [have not said they] accept the 1967 borders... between the two states."[3]

[Hamas parliamentary speaker Aziz Duweik ]

Since at least 2003, Hamas policy on a two-state solution to the conflict had been in the public domain and based on reciprocity:

"If Israel declares that it will give the Palestinian people a state and give them back all their rights then we are ready to recognize them."[4]

[PA Prime Minister Ismail Haniyeh (26/ii/06)]

- Hamas' recognition of existing agreements: the Oslo accords and their satellite agreements, having technically expired in 1999, and having later been publicly repudiated by Israeli Prime Ministers Netanyahu and Sharon, remain for the most part unimplemented (and did not establish Palestinian statehood). The Road Map was never formally accepted by Israel, Sharon presenting fourteen counts of rejection and adopting a strategy of unilateral withdrawal, settlement and border construction. The Road Map had expired at the end of 2005, and it is not clear what the demands for de jure recognition were or are supposed to achieve where these agreements de facto are non-operative.


D 2.0 In February 2006, the Israeli government implemented a freeze in transfers of customs duties to the PA collected from the transit of Palestinian international trade. As had been seen on the previous occasion that these funds were interrupted (2001 thru' 2002), the PA budget is deprived at a stroke of between a half and two-thirds of regular monthly revenues.


D 3.0 "The importance of EU donor support, and in particular its assistance to the Palestinian Authority was fully recognised by the international community, at the Ad Hoc Liaison Committee meeting of international donors (including the EU, US, Norway and the World Bank) in London, 18-19 February 2003.


"Donors and the PA noted the continued critical importance of external budget support, which had prevented a collapse of the PA and injected cash into the Palestinian economy. It has also been instrumental in supporting the PA's implementation of essential reform measures. In addition it was noted that salaries of the PA and international organisations remained one of the few stable sources of income for a broad segment of the Palestinian population, and as such were an important stabilising factor in the Palestinian economy." "[5]


D 4.0 Was there a 'new reality' that required a radical re-evaluation of provision of budget support ? Given the PA's successful implementation of institutional reform under its Road Map obligations, the lifting of Hamas' blacklisting could have rebuilt confidence in the potential for political negotiations to move the peace process forward.


D 5.0 Because of the US Government's classification of Hamas as a terrorist organisation, World Bank operations on behalf of the Palestine Authority - including the Single Treasury Account set up under the Road Map's financial reform programme - have had to cease. The European Union suspended transactions with the Palestinian Authority at the beginning of April 2006.


D 6.0 Under the Temporary International Mechanism (TIM), the EU has undertaken to finance certain essential social and utility services. A contribution of 60mÄ had been allocated to the TIM by the time it was fully operational at the end of September 2006.


D 7.0 The reaction of the EU to punish the Palestinian electorate for, as it were, 'getting the wrong answer' - especially given the EU's past essential role in underwriting secure public finances - has sent the message that delivery of aid is tied to political submission, rather than support for the institution of democratically representative politics.


D 8.0 It has also undermined one of the few achievements of the Road Map by compromising financial reforms implemented by the PA:

- the Single Treasury Account, consolidating revenue inflows, no longer functions;

- key donors are obliged to by-pass the PA;

- unconventional channels are emerging to ensure funds flow involving the Palestine Investment Fund, the account of the President, and manual bulk cash movements.

Deductions from Palestinian customs clearance revenues withheld by Israel are also made without formal reporting to the PA.



B ∑ What has been the impact on poverty / the humanitarian situation?


B 1.0 Due to the pivotal role played by state services in an economy under long-term siege, the annual wage bill by the end of 2005 had exceeded 90% of government revenues. The PA budget requires around £75m per month. Although alternative sources of finance remain available to the PA, international banks have declined to become involved with lending or treasury functions on the PA's behalf for fear of litigation under anti-terror legislation. External funding has been used to settle debt repayments while government has functioned on domestic fiscal receipts and cash deposits brought to Gaza.


B 2.0 The impact of a shock reduction in income on a closed, constricted economy is predictably severe. From the second quarter of 2006, social transfers were being cancelled and Palestinian Investment Fund assets were being used to cover fuel supply bills. Monthly salary payments to government employees were suspended from March 2006.


B 3.0 The World Bank estimates for the West Bank and Gaza in 2006 indicate a -27% recession in real GDP (against 2.7% growth in 2005), an unemployment rate of 40% of the workforce (23%) and a poverty rate of 67% (44%). [6]


C ∑ How best can development be achieved in this context?


C 1.0 The present financial constraints under which the PA is operating are clearly unstable. The immediate impact on specific development projects will depend on the extent to which such projects are externally fully-funded.


C 2.0 While exacerbating an already difficult development context, the international community's fiscal blockade should not divert attention from the more durable barriers to economic growth and integration that have proliferated under political pretexts.



Inquiry issues:



4. The impact on development in the Palestinian Territories of Israel's disengagement from Gaza and the possibility of further disengagement from parts of the West Bank.


Military disengagement and the dismantling of settlements alone, without enabling free access and open frontiers, constitutes neither a legal termination of occupation nor a practical proposition for economic development:

"Gaza Strip, for instance, is a landlocked economy politically, but not geographically. Leaving aside the contentious issue of opening its seaport and airport, a key priority may be to enable the Rafah Crossing to be used for exports through Egypt. This would require agreements with the Egyptian government for a transit regime from Rafah to East Port-Said port or Al-Arish." [7]



6. The impact of the separation barrier and other controls on the movement of goods and people on employment, poverty, economic development and on the delivery of humanitarian assistance.


6.01 The effect of the separation barrier has been inter alia:

- to make the flow of indigenously-produced goods impractical or uneconomic;

- to exacerbate poverty through inflationary costs of trading logistics (due to both security compliance measures and derived transport costs);

- to convert a self-sufficient agrarian market economy into a (literally) captive unskilled labour force dependent on external subsidy;

- to disguise the appropriation of private land by non-commercial means.

Primary source material of the experiences of the West Bank community of Jayyous may be found at:


6.02 Under the Oslo accords, the Paris Protocol (1994) was intended to guarantee equal trade and economic access within the unified customs regime operating in Israel/Palestine. Israel's security measures have the effect of guaranteeing Israeli businesses a competitive advantage in pitching for international orders.


6.03 The most binding constraints on economic activity in the West Bank and Gaza (WBG) are the uncertainty and extra cost of doing business because of the difficulty of access-not only to external markets but also to local markets-resulting from the Israeli security regime. The latter includes special measures affecting imports into WBG: back-to-back system, the system of fixed and mobile checkpoints in the West Bank, and closures (including the separation wall). Closures impinge on all aspects of the movement of goods and people, and disrupt economic links between West Bank and Gaza, within the West Bank, and with Israel and the rest of the world in an unpredictable manner. Back-to-back system and special security screenings of outbound and inbound shipments dramatically raise trading costs. Taken together, they make the WBG a nonviable economy as fragmentation of economic space, both in its internal and external dimensions, makes the development of more advanced forms of division of labor and integration into external markets impossible. [8]



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


7.01 The instruments of control exercised by settlements were outlined in detail in the submission from Discovery Analytical Resourcing to the Committee for the 2004 enquiry. The essentially reciprocal relationship between army and settlers persists, the settler presence creating the need for the military presence in the occupied territories while settlers' undercover antagonism of Palestinians is supervised by the army. Dissolution of this partnership requires that military occupation be put to an end.


- For development of control mechanisms and the political objectives of settlement, see Ev 102-104.[9] The Yesha Council represented settlers in political negotiations and direct action regarding the evacuation of the Gaza colonies in 2005, although the US-activist Americans for Peace Now has suggested that more militant groups no longer support the Council's leadership [].


- For the intense impact of security policies on enclosed Palestinian communities, see Ev110-112.[10] Al-Mawasi has subsequently been evacuated, but the communities' experience is replicated in closed areas across the occupied territories.


7.02 In March 2005, the head of the criminal department at the Israeli Attorney General's office, Talia Sasson, published a report on unauthorised settlements citing "blatant violation of the law by certain national authorities, public authorities, regional councils ... and settlers", revealing that:

- "the unauthorized outposts phenomenon is a continuation of the settlement enterprise in the territories"[11];

- the Israeli government was involved in planning and financing illegal outposts;

- the Civil Administration was involved in allocating private Palestinian land on which outposts were unlawfully established;

- over many years officials at the Ministries of Defence and Housing, the World Zionist Organisation and the Israeli army were implicated in the establishment of over 100 outposts.


7.03 Settlement outposts have continued to multiply. The Peace Now website maintains databases on settlements and outposts under its Settlement Watch project []. Its most recent Ground Survey Report, conducted in August 2006, confirms major construction is taking place in 'settlement blocs' and population creep into uninhabited outposts.


7.04 In spite of their growth and illegality, the Israeli judiciary is reluctant to act. An appeal to evacuate six outposts was turned down in June 2006 because, according to the opinion of the justices, evacuation "is up to the government based on its own security and operational considerations." [12]


7.05 The military enforcement of security regimes accompanying settlements constitutes the foundation for the structural impediments to development in the occupied territories mentioned elsewhere in this memorandum. Overcoming them entails focussing on the political objective of bringing an end to military occupation.


7.06 Some Palestinian communities that have been subject to close attention for settlement activity since the Committee's last report, and references to sources of further information concerning them, are listed below:

∑ At-Tuwani [] - settler intimidation, violence and contamination of the agricultural water supply, logged by the Christian Peacemakers' Team.

∑ Beit Ummar []

∑ Jordan Valley: Wadi al-Maleh [] confiscation, closure, social isolation

∑ East Jerusalem, Jabel Mukhaber - [] - security closure

∑ East Jerusalem, E1/Maaleh Adumim - [] analysis of impact on Palestinian East Jerusalem of planned settlement expansion by Israeli Committee against House Demolitions

∑ Bil'in [] - Palestinians' attempt to reclaim illegally-appropriated land

∑ Tel Rumeida, Al-Khalil (Hebron) [] - settler violence and intimidation

∑ Jayyous - separation barrier used to expand settlement; see 6.01 above.



9. The role of development assistance in supporting political solutions to the conflict.


9.01 The extent of ideologically-induced poverty in the occupied Palestinian territories is such that much development assistance now performs as humanitarian aid and should not in any circumstances be turned on and off subject to tendentious political criteria. Such action would be inconceivable in the case of emergency redevelopment after natural disasters - the same imperative must apply to conflict-driven poverty concerning development projects from professional and governmental intermediaries.


9.02 In extreme cases where exogenous political activity systematically distorts the function of development projects (and especially where economic autonomy is a goal), lobbying to rectify disruptive impacts can be an appropriate use of development resources. The general benchmark to apply is where the cost of corrective work is greater than the cost of diverting resources for preventative or reparative action.


9.03 As a major trading partner for Israel/Palestine, the UK and the EU have leverage to improve reciprocal economic co-operation. Lack of progress in obtaining fundamental freedoms in the occupied Palestinian territories should lead to the suspension of trading concessions with Israel under relevant clauses of the EU's Mediterranean partnership and Association Agreements (see International Development Committee, Development Assistance and the Occupied Palestinian Territories 2003-04, HC230-I, paragraph 88, p43).



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


10.1 From a development perspective, co-operation rather than dependency should be the objective. Co-operation demands that fundamental civil liberties are first established and protected - freedom of movement, residence and association, the right to property and security of the person, equality before the law, access to education, social welfare and health services ... These are political requisites, without which open markets in labour, capital, trade and services do not function in a manner which advances economic, social and cultural development (especially in the case of state formation).


10.2 Alternative options - 'screwdriver' industries or maquiladora-style liberal-tariff zones (such as Turkish-owned Erez on the border of the Gaza Strip) may import low-skilled economic activity of indeterminate duration to fiscally-protected environments, but do not offer meaningful technology transfer for future domestic growth and bring about dependency on temporary exogenous investment.


10.3 A more stable option would be support for business sectors with established small-to-medium-sized concerns such as the Palestinian agro-economy, which, just five years ago, was dominated by family-based farms, employed around a sixth of the labour force and produced about a quarter of total Palestinian exports [PALDIS 2001].


10.4 Israeli insistence on preventing independent access to world markets for Palestinian goods and services is a significant barrier to economic co-operation, as has been the closure of Israeli labour markets to Palestinian workers. Maintenance of import restrictions, export controls, border closures, shipping regulations and internal travel embargoes frustrate policies designed to promote Palestinian development:


"International evidence suggests that economic welfare of small countries goes hand in hand with a country's involvement in the global economy. Palestinian recovery and medium term productivity growth critically depends on establishing stable and reliable foreign trading relations." [13]






[1] The World Bank's Country Economic Memorandum for the West Bank and Gaza, September 2006

[2] International Development Committee - Development Assistance and the Occupied Palestinian territories, Second Report of Session 2003-04, HC230-I, Volume I, para. 10, p11.

[3] "Hamas says ready to accept Palestinian statehood in 1967 border," in China View, 10 May 2006.

[4] "We do not wish to throw them into the sea," Ismail Haniyeh, interviewed by Lally Weymouth, Washington Post, Sunday 26 February 2006.

[5] Paragraph citation from EU External Relations website -

[6] The World Bank's Country Economic Memorandum for the West Bank and Gaza, September 2006

[7] The World Bank's Country Economic Memorandum for the West Bank and Gaza, September 2006

[8] World Bank Report No. 36320 WBG, West Bank and Gaza Country Economic Memorandum, Growth in West Bank and Gaza: Opportunities and Constraints, Volume 1: Chapter II - Israel's Security Regime: Impact On The WBG Economy, paragraph 2.1.

[9] International Development Committee, Development Assistance and the Occupied Palestinian Territories 2003‑04, HC230-II, Volume II, Ev 102-104.

[10] International Development Committee, Development Assistance and the Occupied Palestinian Territories 2003‑04, HC230-II, Volume II, Ev 110-112.

[11] Summary of the Opinion Concerning Unauthorized Outposts Talia Sasson, Israeli Attorney General's office, March 2005

[12] The outposts are: Givat Hadegel, Mitzpeh Asaf, Maale Rechavam, Mitzpeh Lachish, Givat Hapirion, and Mitzpeh Yitzhar. Israeli High Court rejects Peace Now petition on illegal outpost, Saed Bannoura - IMEMC & Agencies - Tuesday, 06 June 2006.

[13] The World Bank's Country Economic Memorandum for the West Bank and Gaza, September 2006


October 2006