Overview of The Palestinian Private Sector June, 2011

Chronological development of the Palestinian private sector The Palestinian private sector is a recent phenomenon. The business community was nascent in the period between 1967 until the Oslo agreements and deeply connected with Israeli suppliers. The number of private Palestinian companies was low and the depth of know- how was shallow. Export-focused activities were almost non-existent given Israeli restrictions and constraints.

Nevertheless, the seeds of the locally grown private sector, which was able to maintain itself through the hardest times became the foundation on which the Palestinian business community was built. With the advent of the Oslo Peace Accords the Palestinian private sector took on a new complex dynamic. A handful of investment firms were established thus facilitating the flow of capital into the economy. Many Palestinians returned to Palestine to work, bringing skills and expertise into the market.

New private sector firms were established: the first Palestinian telecommunications company, new hotels, banks, an information technology sector&more. The Palestinian economy, although tiny, was a rapidly shifting economy. It started moving from traditional practices to modern ones, from an agricultural base to a service sector and became more export-orientated. Donors assisted in the creation of sector associations and provided firm level assistance to some extent, but a strategic approach to the private sector never materialized.

The Second Intifada which started in 2000 and the unilateral Israeli implementation of separation lead to the deterioration of the Palestinian private sector.

General Economical Indicators GDP (2009): 5,147.2 M. USD GDP per Capita: 1,389.9 USD GNI (2008): 5,249.0 M. USD GNI per Capita: 1,459.4 USD GDI (2008): 2,271.3 M. USD GNP (2007): M. USD Total Palestinian Deposits in Banks (2009): M. USD Population(2008): 3,937,309

Services Internal Trade, Tourism, Transportation, ICT, Financial Private Sector Overview 44.1% of GDP 63.6% of total employment Agriculture, Forestry, Fishing Livestock production, Fruits & Vegetables, Olive Oil, Cut Flowers, Export Oriented cash Crops 5.6% of GDP 13.4% of total employment 6.2% of GDP 10.9% of total employment Construction Manufacturing & Mining Quarrying and stone, Textile & Garments, Chemical Industries, Pharmaceuticals, Food Processing, Furniture 13.8% of GDP 12.1% of total employment Around operating establishments The vast majority (over 95%) of the private firms operating in the private sector are small firms with less than 10 employees; most are family owned and run.

Palestinian Export Markets & Sectors

Destinations of Palestinian Exports 1.Israel (90%) “Most of Palestinian exports to Israel are re-exported to 3 rd countries;mainly Europe and USA” 2.Arab Countries: Jordan, Saudi Arabia, Yemen, Oman, Bahrain. 3.EU: France, Netherlands, UK, Germany, Italy, Belgium, Spain, Austria, Greece, Cyprus, Ireland. 4.USA 5.Other: Switzerland, Turkey, Japan, China

Stone & MarbleProcessed Food Garments & TextileFurniture Cash CropsOlive Oil PharmaceuticalsHandicrafts Leather & Shoes Services : Tourism, Construction, Industrial Estates, ICT. Export Sectors / Investment Opportunities

Bethlehem Industrial Zone

Key Strengths Services:Industrial Export Products:Agricultural Export Products: High potential and capabilities in IT, outsourcing to major international companies Attractive tourism sites and products. Strong construction / real estate potentials, high demand and rapid expansion in WB, rebuilding Gaza Cumulative experience of production for international brands. Subcontracting. High quality, competitive costs, and good factory conditions. Availability of skilled laborers and workmanship skills. Newly emerged Palestinian original designs. New production methods and products. Off-season cultivation. Proximity to major markets. High quality of crops in terms of taste, scent and shape. Global GAP quality standards.

Trade Agreements The PNA benefits from preferential trade arrangements with: – United States of America – Canada – European Union (EU) – European Free Trade Association (EFTA) – Turkey – Russia – GAFTA

Why Invest in Palestine? Exemptions on custom duties on the fixed assets of an enterprise needed for developing, establishing or enlarging an existing enterprise. Special exemptions or incentives for investments in hospitals or hotels. Exemptions and incentives may be granted to enterprises engaged in export activities. Income tax exemptions granted for investments exceeding US 100,000$, with nominal tax rates charged on net profit thereafter, for a given period.

Why Invest in Palestine? US$ 100,000 – million  5 years tax holiday  10% income tax on net profits for an additional 8 year period US$ 1 – 5 million  5 years tax holiday  10% income tax on net profits for an additional 12 year period Over US$ 5 million  5 years tax holiday  10% income tax on net profits for an additional 16 years period Special Investment Approved by the council of ministries  5 years tax holiday  10% income tax on net profits for an additional 20 year period

Special Incentives for Investment – MIGA The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank group. It promotes foreign direct investment in emerging economies to support economic growth, reduce poverty and improve people's lives by providing guarantees (Political risk insurance) to investors and lenders.

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