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					Social and Economic Policy Globalization, Growth and Poverty Creating an Economically-Enabling and Competitive Business Environment in the West Bank and Gaza Strip (WBGS)
(IDRC project No. 103280)

Project Profile
The circumstances under which the Palestinian economy operates are unique and tightly constrained. Palestine is not a sovereign state and is subject to Israeli occupation. Policy decision-making by the Palestinian Authority (PA) is circumscribed, and economic life for Palestinians is subject to frequent and often unpredictable exercise of Israeli powers of search, delay and blockage of movement of people and goods. These actions impede internal and local cross-border trade and have reduced the ability of Palestinian citizens to hold down jobs inside Israel where wage rates exceed those in Palestine. The current high rate of closures and controls dates from September 2000. The impact on the level of economic activity has been severe. Unemployment is an intractable problem and real GDP per capita was 31 percent lower in 2005 than in 1999. The composition of public expenditure has changed significantly as the authorities have attempted to manage the steep reduction in the share of donor support allocated to development as opposed to humanitarian support. The situation worsened even more after the Palestinian elections in January 2006. The withholding of customs revenues, together with the suspension of much foreign assistance and the restriction - perhaps, according to some observers, prospective termination - of labour flows to Israel has radically cut the main sources of finance for the PA and for Palestinian families. The prospect of indefinite Israeli occupation of the WBGS and realisation of extreme dependence on foreign assistance and Israeli-controlled customs revenues had already been leading policymakers to seek ways of delinking the Palestinian from the Israeli economy. The unsustainability of that pattern of economic relations has been amply demonstrated over recent months. Policy change requires promotion of domestic trade and development and reorientation of trade and economic relations towards other countries (especially neighbouring Arab countries). Whereas the establishment of a new network of international economic relations will take time and needs to be pursued at intergovernmental level, improving the domestic operating environment for business is urgent and feasible using available policy instruments and regulatory provisions. This two-year project aims to reduce poverty in the West Bank and Gaza Strip (WBGS) by assisting in the establishment of an economically enabling and competitive environment for the private sector, with special reference to the small enterprise sector. The project addresses the need to upgrade the policies and

regulations that govern the scope of operations of private sector enterprises in the Palestinian territories of WBGS. Expansion and productivity growth in the private sector are crucial as a means to setting the Palestinian economy on a sustainable track and to improving the livelihoods of the Palestinian people. This is true in general but especially so for small and medium enterprises, which provide employment for nearly 60 per cent of the private sector workforce. The project will therefore pay special attention to those features of the business environment that affect small enterprises. Approval for this project was being negotiated at the time when donor funding was being withdrawn from Palestine after the landslide victory of the Hamas party in the Palestine elections in January 2006. The subsequent increase in tensions between the parties and cessation of external resource flows and withholding of normal sources of revenue to Palestine have made the need for changes in policy direction, which the project will support, ever more evident since then.

Specific Objectives
  To examine specific components of the legal and regulatory, economic and political environment in the WBGS facing private businesses, especially small businesses. Conducting a number of studies with high empirical content, develop policy options and recommendations for improvements to those aspects of the operating environment that need reform to encourage expansion and productivity growth of the private sector and analyze and comment on drafts of relevant legislation. Provide businesses and individuals in the private sector with data and advice to enable them to improve their competitiveness. Provide private sector support organizations, in particular the Palestinian Private Sector Coordinating Council (PPSCC), with effective tools to lobby the executive and legislative branches of the Palestinian government, set the agenda and influence the policy-making process in a way that promotes an enabling business environment.

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Expected Results
The tangible results of the project will be the series of written outputs mentioned as second specific objective of the project. Other outputs will be the organization of a series of topic-specific, public and well-advertised workshops for discussion of these outputs in draft and in final versions. Evidence-based policy dialogues, even under difficult circumstances, are intrinsically valuable for promoting a culture of democratic decision-making. The production of empirically strong written papers to be made available in the public domain will add significantly to knowledge of the policy space available to the Palestine Authority, the regulatory structure of the Palestinian economy, the conditions under which private enterprises operate and their contribution to production and support for livelihoods in Palestine. Another category of output, that would be measurable in principle, will be the greater understanding by private sector actors and representatives of the contribution that

enterprises make to growth, development and welfare in Palestine, the determinants of increased productivity and profits, and ways of engaging with the economic policy process in order to improve the context within which they operate. The general objective of the project is to contribute to the revision, formulation and passage into legislation of policies, laws and regulatory instruments to promote the economic viability and productivity of private enterprises, especially small enterprises, in Palestine. Beyond this objective lies the twin goal of seeing the actual adoption of improved legislation and consequent improvement in the performance of the private sector. However, the passage of improved legislation or policies cannot be ensured. Therefore, the project will provide the privates sector with analytical tools and evidence-based materials to assist it to advance its interests within the policy-making process.

Project Duration
Duration: June 2006 – June 2008 Amount : 359,600 CAD

For additional information, please contact:
Samir Abdullah Palestine Economic Policy Research Institute (MAS) Tel : +970-2-298 7052/3/4 Fax : +970-2-298 7055 e-mail: Susan Joekes Senior Program Officer IDRC-Cairo Office P.O. Box 14, Orman, Cairo, Egypt Tel: +20 2 336 7051/2/3/4 Fax: +20 2 3367056 e-mail:

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