EXECUTIVE SUMMARY
The West Bank and Gaza are home to approximately 3.64 million Palestinians and population growth is estimated to be 3.5%. Despite relatively low incomes, there is a sizeable middle/upper-middle class. The influence of Palestinians familiar with American commercial culture opens the door to numerous opportunities for U.S. companies in establishing agents, distributors and partners to sell U.S. goods and services. There has, of course, been a drop in consumer demand due to income loss resulting from violence. (See Ch. 5 for Best Prospects for U.S. Exports).
Despite current travel warnings related to the current level of violence in the Israeli-Palestinian conflict, the U.S. government (USG) encourages U.S. companies to explore commercial opportunities in the WB/G and supports the development of bilateral commercial relations. For example, the USG allows duty-free entry of items produced in or imported from the West Bank and Gaza. Correspondingly, the Palestinian government welcomes U.S. companies and has pledged to the USG that it will provide, to the extent of its authority, duty-free entry for all U.S. products into WB/G. An exchange of letters between the USG and the government of Israel has affirmed Israeli support for these duty-free arrangements. U.S. products entering the WB/G via Israel are subject to Israel’s Valued Added Tax (VAT) of 18%, which must be paid at port of entry and is usually paid by the importer and absorbed into retail price.
The civil unrest that began in the fall of 2000 has significantly damaged the economic and commercial situation in the West Bank and Gaza. Movement of goods has been heavily restricted and the volume of trade within the areas themselves, and with the outside world, has dropped significantly. These shocks have pushed the WB/G into severe economic crisis: according to the International Monetary Fund, real Gross Domestic Product fell by 14.5% in 2002 after falling 15% in 2001 and 5.4% in 2000. From its peak in 1999, real per-capita Gross National Income (Palestinian GNI takes into account the significant share of Palestinians’ wages earned in Israel) had contracted by over 40% by the end of 2002. (See Ch. 10.)
As the political relationship between Israelis and Palestinians evolves, so too will the commercial and economic environment in the WB/G. U.S. firms should be aware that various Israeli and Palestinian responsibilities are likely to change, based on ongoing bilateral discussions at both the political and technical levels. U.S. companies interested in establishing or expanding business relationships in the WB/G should contact the U.S. Commercial Service in Tel Aviv or the Consulate General in Jerusalem (see Chapter 11 for contact info.) for the latest information on Palestinian commercial regulations and assistance.
U.S. companies such as Checkers, Coca-Cola, Culligan, Enron, Hewlett Packard, InterContinental Hotel, Microsoft, Motorola, Oracle, Pepsi, Procter and Gamble, and Xerox have been operating in WB/G since before the latest events either by opening franchises or setting up operations. Some American companies have suffered physical damage from Israeli military activities. The Israeli government has not compensated American companies for this damage. Most American companies continue to operate but at substantially reduced levels. InterContinental Bethlehem closed down while the one in Jericho is partially open and guests are mostly Palestinians traveling to Jordan who get stuck when unexpected closures are imposed on the city by the Israeli army. Both hotels were damaged during the course of the current Intifada.
The Palestinian Authority (PA) has encouraged commercial activity in the WB/G through regulations that require foreign companies to establish local agents and distributors in the WB/G. Major issues, such as conflicting import standards and the movement of goods through Israeli ports, continue to inhibit foreign trade.
Certain industry sectors have weathered the economic distress better than others. The relatively robust Palestinian information technology sector not only serves an inelastic core local market demand but also has begun diversifying to markets beyond its traditional export market of Israel, e.g. the Gulf States. Despite transportation difficulties, stone and marble exports have remained strong, in particular to Italy and the United States. The handicraft market, though very severely impacted by the collapse of the tourism sector, has become less passive. Handicraft producers have now begun actively exploring export markets for a range of products.
International donor investment in basic and social infrastructure in WB/G will continue to present opportunities for U.S. contractors and amount to several billion dollars over the next five years. For example, the U.S. Agency for International Development (USAID) has appropriated over $1 billion for WB/G projects over the past eight years - much of it focused on infrastructure - and is slated to commit approximately $425 million in funding over the next five years. USAID’s projects include basic infrastructure (water, sewage treatment, roads, etc.) and support of the private sector through investment and policy interventions. In particular, the Gaza Industrial Estate offers U.S. companies interested in establishing a regional presence a place to start, although Israeli restrictions have made it more difficult to operate on the GIE since September 2000.
Complete Country Commercial Guide 2004