The State of Palestine, which constitutes about 23% of the total Palestinian area, comprises two territories, the West Bank and the Gaza Strip. According to the Economist Intelligence Unit, the population of the West Bank and Gaza totaled 2,8 million residents, of which 1 million live in the Gaza Strip. Population growth is estimated at around 6% . The territories have no mineral resources and the Palestinian economy suffers from an important number of structural imbalances.

Since 1967, the territories have been cut off from their traditional markets and the restrictions imposed on the territories have drastically reduced economic activity and living standards of the population. The economy's small agricultural and manufacturing bases make it dependent on imports, which accounted for 81% of nominal GDP in 1999, while exports of goods and services reached only 18%. Expectations that the agricultural export could boom have been dashed by the implementation of non-tariff barriers by Israel. Prolonged closures have also raised farmer's costs and created huge surpluses, further discouraging agricultural investment and forcing many formers to focus on subsistence farming or less profitable local markets.
Construction has been an important sector for the Palestinian economy, as many alternative outlets for investment have been blocked. However, its contribution to real GDP does not exceed 12%. Industry's share of GDP stood at 21% in the 1990s and services formed the largest economic sector, contributing some 60% to the GDP.
There is currently no private investment and donor countries are hesitant to invest in the Palestinian economy unless there is some progress in the peace process. Unemployment has risen to 65% and approximately 80,000 Palestinians have lost their jobs in Israel, while another 60,000 jobs were lost inside the territories due to a decrease in demand. Almost half of the households live on 50% of what their income was before the second Intifada began. Average per capita real income is currently 30% below the level in 1994.
The economic recovery which started in 1998 came to an abrupt end in 2000.
The Palestinian Authorities have been committed to restoring the economy to achieve a reasonable growth and has made progress in some sections.
Physical damage due to the conflict is however estimated at US$ 2,4 billion. Some 60% of Palestinian exports have been lost and government spending is halved. Before the Intifada, the Palestinian Authority spent over US$ 100 million a month.
Agriculture accounts for more than one-third of the GDP and employs 25% of the labour force. Production of fruit and vegetables generally exceeds local demand. In due course, easier access to European and Arab markets can provide potential for higher exports. Scarcity and over-exploitation of water resources are an important constrain to the sector and it is highly unlikely that the agricultural sector will play a leading role in the economic recovery of the territories.
Restrictions imposed on industry during the occupation have made manufacturing the least productive sector of the economy. Its contribution to GDP has never exceeded 21% , below that of economies of a similar national income. Rates of growth have slackened markedly , reflecting variation in demand and rising import costs. Licensing restrictions and trade procedures, as well as the lack of financial mediation, have deterred private investors. Patterns of production have changed little, with producers focusing on textiles, food processing and leather. The Palestinian Authority devised the concept of industrial estate, with the close co-operation of the World Bank. The first was the Gaza Industrial Estate, opened in 1999 and developed by a private sector investment company. Manufacturing in the estate could take advantage of favourable trade agreements with the US and the European markets.
Extra efforts will have to be made to attract future investors. The authorities place high hopes in the special incentives offered by the 1998 Industrial Estates and Free Zones law and the 1998 Encouragement of Investment in Palestine law. Provisions include income tax and export exemptions together with preferential access to regional and international market.

Source.: Economic Intelligence Unit