22518 WEST BANK A Quarterly Publication of the West Bank and Gaza Office AND GAZA .A>HK=HO  UPDATE The World Bank Group Trade Options for the Palestinian Economy envisaged in this respect, from the adopting a non-discriminatory Overview implementation of a free trade regime with low external tariffs, as Recent events confirm that future agreement, which would maintain opposed to creating a .ree Trade Palestinian trade policy will be preferential trade between the two, Area with Israel which could imply determined primarily by political to the adoption of a non- costly rules of origin. dynamics, in particular, relations with discriminatory regime, in which Israel In sum, the analysis suggests that Israel. It remains essential, precisely would be considered by the PA as liberal trade policies could be very at this time, to inform discussions as any other country. beneficial for the Palestinian to the possible long-term economic The report obviously acknowledges economy. The importance of trade consequences of the different options the negative impact of movement policies are very much a result of the under debate. Summarized below are restrictions on goods on the high Palestinian dependency on the findings and methodology of a Palestinian economy. Nevertheless, imports and the very limited size of recent technical report by two World it also argues that the current trade the domestic market. The analysis Bank economists on trade issues.1 and fiscal regimes significantly further suggests that it is difficult to The guiding principles for the current contributed to the poor trade establish strict superiority of one of Palestinian trade regime are laid out performance observed in West Bank the two options evoked above over in the 1994 Paris Protocol, which and Gaza since 1994. Moving towards the other to liberalize further the formalizes the de facto customs union a more autonomous trade regime trade regime. The main features, as with Israel in effect since 1967. A may, therefore, present some well as the methodology used in the continuation of this system, which advantages, but the final outcome report are presented in the rest of grants preferential access for Israeli will depend on the design of the new this article. goods to the Palestinian market and trade policy, as well as the extent to vice versa, would require a great which transaction costs will be 1 "Trade Options for the Palestinian Economy: Some Orders of Magnitude", by Claus Astrup and degree of harmonization of trade and affected by the new environment for Sébastien Dessus, West Bank and Gaza World fiscal policies between the two trading. A more autonomous regime Bank Office, Al-Ram. economies. On the other hand, may be rewarding if it lowers the granting more autonomy to the domestic price of imported goods, CONTENTS PAGE Palestinian Authority (PA) to develops competitive markets and re- Emergency Response Program (ERP) 4 determine its future trade regime with balances trade flows with Israel and The NGO Channel 6 regard to Israel and third parties, as the rest of the world. In this respect, Recent Economic Developments 8 well as its fiscal policy (VAT, purchase given the low level of tariff duties in Bank Group Operations 13 tax, etc.), would necessitate adopting Israel, West Bank and Gaza might Bank Group News 22 another kind of trade relationship envisage to renounce its preferential New Bank Publications 23 with Israel. Several options could be access to the Israeli market by West Bank and Gaza Update Trade Patterns and Palestinian Ministry of .inance shows It also permits some of the policy that the average tax rate on instruments to be identified and Policies Palestinian imports from countries measured: VAT on domestic products The West Bank and Gaza is highly other than Israel, where the import and on imports, tariff barriers and dependent on imported goods, both tax rate is zero, was 17 percent in purchase taxes. In brief, the model consumer goods and goods used as 1998. In addition, movement distinguishes between 31 economic inputs in production. Total imports restrictions has resulted in transaction sectors, and four different trading amounted to approximately 80 costs for Palestinians which are about partners: (1) Israel, (2) the countries percent of GDP in 1998, the year three times higher than those faced with which Israel has a .ree Trade retained to conduct the analysis. By by producers in neighboring Agreement, (3) the Members of the far the largest share of imports, 75 countries. The current trade regime Arab League, and (4) the rest of the percent, originated in Israel. Of the in practice has thus created a wedge world. remainder, roughly half originated in between the world market price and This model is used to conduct a countries with which Israel has the prices faced by consumers and comparative static analysis, that is to signed a .ree Trade Agreement producers in the Palestinian market. assess the likely impact of a departure (mainly the United States and the The wedge has inflated prices for from the situation observed in 1998. European Union). The Palestinian Palestinian consumers and caused a Positive gains associated with a shift export performance has been rather significant artificial preference for in trade policy would then suggest poor as total exports amounted to Israeli products sold to the Palestinian that the custom union framework less than 20 percent of GDP in 1998. market. currently in place is sub-optimal, and The geographical distribution of could favorably be replaced by the Palestinian exports are even more Methodology one tested. The measure used to one-sided than imports, with more In order to evaluate the impact of assess the desirability of alternative than 95 percent of all Palestinian alternatives to the current Palestinian trade policy is the extent to which it exports destined for the Israeli trade regime, the report makes use generates welfare gains (the latter are market. Data further reveal that of a so-called general equilibrium defined by the amount of money Palestinian foreign trade with the model of the Palestinian economy. required by households after the Arab world is extremely limited. Of This type of model has become a reform to consume the same quantity all imports, only approximately 1 standard tool for integrated than before the reform). Such reform percent originated in the Arab world assessment of trade policies for small will modify prices, wages, taxes, etc. in 1998, while for exports the share economies. Its main advantage lies If, in the end, the purchasing power was around 3 percent. in the possibility of combining of households' income has increased With respect to trade policies, there detailed and consistent databases (that is, if the amount required is are two important features of the with a theoretically sound negative), then positive welfare gains Paris Protocol: (1) free access for framework, able to capture feedback will be observed. The approach used Palestinian goods to the Israeli effects and market here is static, meaning that the market and vice versa was secured interdependencies, that may either amount of productive resources and (2) control over trade policies, mute or accentuate the immediate (labor, capital, natural resources, etc.) i.e., rates of import taxes, standard effects of policy changes. It is built is given once for all in the analysis. requirements, etc., broadly speaking, using a large database, a supply and Therefore, the only means to increase was kept in Israeli hands. In addition, use table, which describes the production is to increase productivity Israel retains control of all external Palestinian economy in 1998. This through a better sectoral allocation market access and has continually database offers a coherent picture of of available resources. Dynamic limited, and often cut off Palestinian the different flows occurring among impacts of trade policies are therefore movement of people, vehicles and economic agents (producers, not considered in the analysis. goods between Gaza and the West consumers, government, trade In order to create welfare gains, a Bank, to/from Jerusalem and within partners) by reconciling the supply new trade policy must reduce the the West Bank through a highly and demand dimensions of the distortions created by the current complex system of check-points and Palestinian economy in each market. trade regime. This may require not permits. Analysis of data from the .ebruary 2001 2 West Bank and Gaza Update only the reduction of import taxes (.TA) between Israel and West Bank would benefit consumers directly currently in place, but also the and Gaza and (2), the through lower prices on imported implementation of alternative fiscal implementation of a non- consumption goods, but also instruments to compensate for the discriminatory Palestinian trade producers as their inputs become likely loss in revenue from import regime, in which all trading partners cheaper. An elimination of taxes on taxes. Positive effects will be are treated like the most favored imports would also lead to shift in observed if the new instruments put (M.N). The important common the geographical structure of imports in place create less distortions than feature of the two alternatives is that by making imports from Israel less the one just removed. This problem they both provide the Palestinian competitive compared to imports of compensation is important in West Authority the opportunity to from other origins as preferences Bank and Gaza, where import taxes unilaterally liberalize trade. The given to Israeli products are (excluding VAT) represent more than differences between the two options eliminated. This would increase the one-sixth of total tax revenue. are (in the case of a .TA) that it is variety of goods to which Palestinian necessary to agree on rules of origin consumers and producers would Results of Simulations and to implement mechanisms to have access. Liberalizing trade would check these rules, which would not increase competitive pressures on the The report explores extreme be necessary in the case of a M.N Palestinian economy, forcing a better scenarios, such as the one of full regime. However, implementing a resource utilization in an economy trade liberalization. There is M.N regime would imply that where the narrowness of the obviously an infinity of possible trade Palestinian producers could lose their domestic market makes domestic policy packages, and we chose to preferential access to the Israeli economic liberalization inseparable assess the impact of the one which market, which they would have from opening up to foreign is likely to produce the largest welfare retained in a .TA. competition. Economic activities gains. In order to do so, we simulate The analysis indicates that there are which are profitable under the the complete abolition of taxes on considerable potential welfare gains current trade regime may become imports from all origin. This implies from liberalizing Palestinian trade less profitable after trade a total removal of tariffs and purchase policies. The isolated effect of liberalization. At the same time, taxes on imports from all origins, eliminating all tariffs and purchase however, access to cheaper inputs including Israel. The implied loss in taxes could result in welfare gains of could increase profitability of other import tax revenue is compensated the order of magnitude of 6 percent activities. Consequently, some sectors by an increase in the VAT rate, of GDP. Taking into account the costs would shrink, while others would calculated so as to leave government of either implementing rules of origin expand. The overall result would be revenue unchanged. (in the case of a .TA) or the loss of increased efficiency in the use of In principle, full trade liberalization resources in the Palestinian economy. preferential access to the Israeli could be achieved within the The analysis suggests that the overall market (in the case of a M.N regime) framework of a customs union gains in productivity could be could, however, halve the gains to 3 between Israel and West Bank and sufficiently large to enable a percent of GDP. Gaza, but this would require significant increase in real wages and willingness on the part of the Israeli There are numerous channels return on capital without authorities to amend the current trade through which liberalizing trade jeopardizing the competitiveness of policy. Alternatively, Palestinian policy would benefit the Palestinian Palestinian exports. control of its own trade policy is economy. The removal of import required - as well as the willpower taxes would lead to a reduction in Caveats and ability to implement the the price of imports. The effect would necessary measures. Two policy be somewhat smaller, but significant, Many factors of potentially great alternatives in a situation in which in the case of a .TA compared with importance for the evaluation of the Palestinian Authority would have a M.N due to the cost of checking alternatives to the current trade control of its own trade policy are whether imports from Israel satisfy regime are nevertheless left out of considered in the analysis: (1) the the rules of origin. In both cases, the analysis. A number of factors may establishment of a free trade area however, the lower price of imports imply that the benefits from changing .ebruary 2001 3 West Bank and Gaza Update the trade regime may be overestimated. Worth mentioning is that the analysis does not consider Emergency Response transitional cost of reallocating factors, notably labor, Program (ERP) and abstracts from the effects of the changes in import taxes which have taken place since 1998. A new regime The present crisis in West Bank and Gaza (WBG) has which departs from the regime put in place with the caused severe economic shocks to the Palestinian interim agreement could require Palestinian customs economy that calls for a rapid response by the donor infrastructures. This physical capacity is presently non- community. At the end of November 2000, the areas of existent. But, on the other hand, a number of issues WBG under the jurisdiction of the Palestinian Authority which may enhance the beneficial effects of trade (PA) were subject to tight closure due to security related liberalization have not been accounted for, suggesting concerns. As a result, approximately 125,000 Palestinians that the results obtained should probably be considered previously working in Israel (nearly 20 percent of the as lower bound estimates. Our results suggest that trade labor force) were unable to access work opportunities. liberalization could have a strong deflating impact on At the same time, the domestic economy has been the price of investment and a positive impact on the crippled by closures and work stoppages due to capital rate of return, which once combined should inadequate supplies of materials, movement restrictions provide strong incentives for additional investment. and other related transaction costs. To address the Similarly, trade liberalization appears to have a positive growing crisis, the donor community is considering a impact on real wages in West Bank and Gaza, which variety of steps to accelerate the flow of assistance to could encourage a larger labor participation of the the Palestinians. The World Bank has provided a grant working-age population. Moreover, it is likely that an contribution in the amount of US$ 12 million out of the increased diversification in the origin of imports, and accrued interest income of the Trust .und for Gaza and therefore a larger variety of accessible inputs, would the West Bank (T.GWB) through the Bank-administered allow producers to increase productivity through Johan Jorgen Holst Peace .und to the Palestinian selection of intermediate inputs that match more closely Economic Council for Development and Reconstruction their production requirements. Other advantages of trade (PECDAR). It would provide funding for emergency autonomy not dealt with in this report would be the employment generation programs in WBG through an opportunities created to trade new products with new Emergency Response Program (ERP). partners, as well as the opportunity to import goods The overall objective of ERP is to alleviate hardships to with lower standards than those required to enter Israel, thousands of families through the provision of temporary which should expand further the variety of available employment for unskilled and semi-skilled laborers. inputs. Unilateral liberalization from West Bank and Gaza Local suppliers and contractors would also benefit could also encourage third parties to further open their through the increased demand for materials and works. markets to Palestinian products. .inally, trade liberalization could help re-balancing trade flows with The ERP is characterized by: Israel and the rest of the world, and therefore help reduce n .ast disbursement. the dependency of the Palestinian economy on all kinds n High labor content. of economic shocks occurring in Israel, as well as on n Simplified procurement procedures (shopping, Israeli security concerns. If the new trade regime could direct hire and force account). reduce transaction costs associated with such security n High local labor and material content to void concerns, the positive effects of trade liberalization mobility and material availability constraints. already observed would be significantly magnified. n Other poverty-alleviation interventions addressing communities most adversely hit by the crisis. The ERP is the most expedient instrument currently in place. To achieve transparent and accountable results, the Bank relies on existing on-site accounting and auditing mechanisms now in place. These existing arrangements, in which a Bank-contracted auditor monitors program implementation on a day-to-day basis, .ebruary 2001 4 West Bank and Gaza Update provide greater assurance of the proper use of funds approved projects provides the basis for the transfer of than alternative options, given the need to disburse funds from PECDAR to the Welfare Association relatively large sums of money in a very short time frame Consortium, which in turn transfers funds to NGOs, over a large number of small sub-projects. To achieve according to agreed plans of actions and time frames. quick results, the ERP involves expedited procurement NGOs have full responsibility for execution of projects, procedures (see below), including the use of direct hiring using procurement arrangements agreed for this project through municipalities and Non-Govermental by the Bank and PECDAR. WAC staff in the field are Organizations (NGOs). responsible for monitoring the progress on the ground. The implementing agencies include: 1) the Ministry of All projects funded under the NGO component will be Local Government (MLG), 2) the Local Government Units subject to the final audit of the ERP. (LGUs) and NGOs and 3) PECDAR. PECDAR has the Due to the current emergency situation in the West Bank overall monitoring responsibility. A responsibility matrix and Gaza, the Bank has agreed to specify for this project has been agreed upon between MLG, PECDAR and the the most flexible terms available under the World Bank Bank. The LGUs identify their short list of micro projects Procurement Guidelines. This procurement arrangement from a long list. MLG reviews and endorses the short will speed up the procurement of works, goods and list based on a pre-agreed selection criteria and budget. services. However, procedures will be transparent and The budget is based on the population of each respective reliable and prices will be monitored routinely. All LGUs. The Bank reviews the selection criteria and procurement will be subject to post review by the Bank. endorses it as a basis for budget distribution and micro As below, recipient will include municipalities, village project selection. The process, starting with preparation councils or NGOs. Consulting firms in the West Bank and of short lists, until the Bank gives its formal endorsement Gaza would be hired by PECDAR (subject to review by on the budget and shortlist micro projects would the Bank) to monitor progress, quality, to report on workers normally take about a week. LGUs would use the employment, social (including gender issues), technical procurement procedure suitable to them to procure the and environmental assessment and on procurement. micro project. The procurement process would take .or each sub project, the recipients will prepare a bill about two days. Once the contract or agreement is of quantities, simple technical specifications, and general signed, work starts within a day or two and contractors conditions to ensure that the contractor will supply the would have to submit weekly invoices to enable them required number of workers during the period of to get payment directly from PECDAR within six working execution of the project (PECDAR and MLG has prepared days. An independent international auditor has been one page in this regard). appointed by the Bank. Technical consulting local firms Three different procurement methods could be used by (one in Gaza and four in the West Bank) have been by the recipients and can be applicable to works, goods PECDAR to monitor progress in the field and also advise and consulting services. The emergency response in each on quality improvement directly to the municipalities case will determine the most appropriate method to be and village councils. used. The three available methods are: 1) National The responsibility for the management of the NGO Shopping by getting three price quotations in sealed component of the project is handled by the Welfare envelops from at least three local contractors/suppliers/ Association Consortium (WAC), which manages and consultants and the winner is the one with the least implements the Bank's PNGO Program. Project proposals cost, 2) by Direct Hire/Contracting, and 3) by .orce funded under this Program have been solicited by the Account (by using municipality or other Palestinian Welfare Association Consortium, using their network of Authority employees/equipment to execute the project). NGOs. A Technical Appraisal Committee reviews project The project became effective on the day of the World Bank proposals according to specific criteria agreed with the Board approval. The closing date is set as the same closing Bank and the final approval is made by an Ad Hoc date of the Holst .und March 31, 2001. The total available Committee established especially to oversee the funding is US$ 12 million as a grant from the Bank. Total implementation of this emergency project sub- commitment now stands at US$ 3.33 million, or about 28 component. The Ad Hoc Committee includes percent of the available funding. This commitment has been representatives of the NGO networks, the PA and the made to some 51 micro-projects including technical Welfare Association. The Bank's "no-objection" of assistance sub projects in Gaza and the West Bank. .ebruary 2001 5 West Bank and Gaza Update The NGO Channel due to economic hardships. Community organizations have played a substantial role in providing food supplies and basic support to families that have lost their source of Background livelihood and, in many cases, their shelter, as a result of Since the 1960s, and in the absence of a government the Israeli army shelling and the destruction of property providing services, the Palestinian community has primarily by settlers. relied on Non-Governmental Organizations (NGOs) for The NGOs' response to economic hardships imposed by the provision of basic services in a wide range of sectors, the internal and external closures of the West Bank and including health, agriculture, education, psychological and Gaza and the associated disruption of people and goods physical rehabilitation, community services, and economic mobility, particularly in rural areas, has also been very development. With the establishment of the Palestinian significant. Examples of successful interventions include: Authority in 1994, NGOs have had to adjust their programs assistance in the provision of water supply; agricultural to meet the demands of the new situation. While some inputs and extension services; marketing of NGOs had to phase out their activities, others had to adjust agricultural produce; and employment of people to their service provision to ensure a complementary role to undertake land rehabilitation, terracing, and the digging that of the public sector. of wells, all of which are labor-intensive activities. Today, NGOs provide 60% of primary health care services, It is important to highlight, in the context of an overview manage 42% of the hospitals, 90% of handicapped of the Palestinian NGOs' response to the emergency rehabilitation centers and 95% of preschool education. situation, the double impact that NGOs' activities have They serve more than one million people in agriculture, had in terms of: i) providing basic services; and ii) creating have rehabilitatted 25,000 dunums of land threatened with job opportunities. As many of these NGOs have scaled confiscation, and employ an estimated 25,000 citizens. up their programes to meet rising needs, they also have NGOs continue to benefit from the experience had to hire additional staff, contributing, albeit modestly, accumulated over many years of active involvement in to creating further opportunities for income generation. It Palestinian development. They have networks reaching remains unlikely, however, that these NGOs will be able out to some of the poorest groups and most marginalized to sustain their programs in the absence of a systematic areas.They have broad constituencies and they have the source of financing. Many NGOs, particularly the larger flexibility to adapt swiftly to changing conditions and ones including the Union of Palestinian Medical Relief emergency situations. The NGOs' response to the latest Committee (UPMRC) and the Palestinian Agricultural Relief crisis that erupted in the West Bank and Gaza in September Committee (PARC), have drawn on their annual budgets 2000 is a good illustration. to timely respond to the crisis. Therefore, even an improvement of the overall situation is likely to leave them NGO Response to the Current Crisis with far less resources to pursue their regular Since the beginning of the "Al-Aqsa Intifada" in late developmental programs. As many of these NGOs work September, NGOs have shouldered an enormous through a large network of field and community-based responsibility in responding to the basic emergency needs organizations, the impact of reduced funding is likely to of the affected Palestinian population. In the health sector, be more wide-spread than anticipated, particularly on the the NGOs have been at the forefront providing first aid, well-being of a population that is slipping very rapidly absorbing large numbers of injured in their emergency into higher levels of poverty. centers, providing medical supplies, and sending out appeals for donor support in the humanitarian sphere. World Bank Program of Support to NGOs The role of NGOs has equally been vital in providing Since 1997, the World Bank Palestinian NGO Program services that only they typically provide, including services (PNGOP) has provided a total of US$ 7,138,000 in grants in mental health and social and psychological counseling. to NGOs. These grants, totaling 262, have been financed The demand for the latter has become enormous as through funding from the World Bank, and the families, children and mothers have been in dire need of Governments of Saudi Arabia and Italy. They have covered support to cope with the effects of the political and socio- eight sectors, including: non-formal education (43%), economic dimensions of the crisis. In camps and rural rehabilitation of people with special needs (22%), health areas, NGOs and community-based organizations have and social services (9%), economic development (7%), also been covering the running costs of community centers agricultural services (7%), formal education (5%), housing such as kindergartens and rehabilitation facilities, as the (4%) and environmental education (3%). The grants users of these services have not been able to pay for them covered all regions of the West Bank and Gaza, including .ebruary 2001 6 West Bank and Gaza Update (through Saudi and Italian funds), activities in the area of that are close to the communities and are thus able Jerusalem (16%). to identify their priority needs. n Employment opportunities created are longer-term and employ people for one to six months, providing Kalandia Camp Women's Cooperative a more steady source of income to needy families. With a budget of US$ 160,000, the cooperative will Mechanisms for Quick Disbursement and implement a project which will create 210 workdays Close Monitoring and Evaluation for women to work in producing blankets and clothes that can be distributed to the poor and needy. The World Bank Palestinian NGO Program (PNGOP) is managed by the Welfare Association Consortium (WAC), a consortium of three NGOs comprised of the Welfare The World Bank is now planning a second phase of the Association, the British Council and the Charities Aid PNGOP, for which the World Bank will provide a total of .oundation (CA.). The WAC was established in 1997 to US$ 7 million. The new phase will continue to extend undertake the review, selection, disbursement and grants to NGOs. The program, however, will focus on monitoring and evaluation of grant funded NGO projects. funding larger projects that target the most impoverished It employs highly professional staff who work through regions, marginalized social groups and sectors particularly in need of additional support. The new phase will also Palestine Hydrology Group/Palestine allocate larger amounts of funding to capacity building, Agricultural Relief Committee networking and information sharing within the NGO sector With US$ 160,000 the organizations will plant 6,000 to allow for increased strategic planning, vision and olive trees and rehabilitate irrigation networks effectiveness in the continuation of its role in development. creating 180 jobs for a total of 20 days for a total of 3,600 person workdays. World Bank's Emergency Response Through the NGO Channel three offices, with headquarters in Al-Ram and regional On December 6, 2000, the World Bank approved a grant offices in Nablus and Gaza. WAC has put in place to the Palestinian Authority in the amount of US$ 12 million professional systems and procedures that facilitate the for an Emergency Response Program designed to help tracking of projects by sectors, regions, disbursements, offset the current economic crisis in the West Bank and beneficiaries, providing the necessary mechanisms for Gaza through labor-intensive employment generation catering to the special interests of donors who fund projects. Of this US$ 12 million, US$ 1 million was development projects through NGOs. Responding to the earmarked to fund NGO employment generation projects. emergency need for quick disbursement of funds, the WAC A total of US$ 600,000 had been approved so far to fund established a system that guarantees that projects are 13 projects, 40% of which will benefit the population in reviewed, approved and funds are transferred for Gaza. The projects approved are expected to generate an disbursements within a period of less than two weeks. estimated 17,000 workdays. An average of 60% of approved The review and selection of projects is done by a Technical budgets will directly pay for salaries of newly created jobs. Assessment Committee, which puts forward Why the NGO Channel? Employment generation projects recommendations for approval by an Ad Hoc Emergency implemented through NGOs are characterized by their Committee whose members include representatives of the focus on addressing communities' essential social and NGO networks, the Welfare Association, and the Palestinian economic needs. In particular: Authority. n While creating jobs, projects are responding to NGO Emergency Database socio-economic needs, including the need for alternative water resources, land rehabilitation, and Through its network of NGOs, the WAC is preparing an marketing of agricultural produce. Emergency Database that will compile all proposals put n Most projects do not rely heavily on inputs and so forth by NGOs in response to the emergency situation they are less affected by imposed restrictions on and to meet the needs of hard-hit communities. The travel and movement of goods. database will be established as a service to donors and n Unlike typical infrastructure projects, projects help NGOs and it will be organized by categories, thereby generate employment for women. facilitating selection and targeting by sector, region, target n Projects are developed and implemented by NGOs group and locality. .ebruary 2001 7 West Bank and Gaza Update Income earned by Palestinians working in Israel has Recent Economic Developments almost dried up during the last quarter of 2000. Therefore, n Economic Output. the impact on real Gross National Product (GNP), which includes income earned by Palestinians abroad, is larger By the beginning of 2001 West Bank and Gaza (WBG) than the impact on real GDP. Real GNP is expected to was entering its fourth month of almost continuous tight decline by almost 9 percent from the level in 1999. closures. Most of the approximately 135,000 Palestinian workers usually employed in Israel have not been able In the absence of closures, GNP per capita was expected to go to work since the closures were implemented to have reached US$ 1,900 in 2000, but due to the around October 1, 2000. .urther, continued severe closures the figure is reduced to around US$ 1,630, restrictions on the movements of people and goods, approximately equivalent to the level in 1994, see .igure 2. both between towns and villages within West Bank and Gaza and between Israel and West Bank and Gaza was .igure 2. GNP per Capita, US$ in place. 2,000 The negative impact on economic activity, and in turn 1,900 living standards and confidence in the future, has undoubtedly been considerable. However, hardly any 1,800 economic statistics for the final quarter of 2000, 1,700 corresponding to the period of closures, have been released. Therefore, it remains difficult to precisely assess 1,600 the impact of the closures. 1,500 Consensus among observers and researchers suggest 1994 1995 1996 1997 1998 1999 2000 that the closures have reduced economic activity within Business as Usual Incl. Closures West Bank and Gaza by approximately 50 percent during their period of implementation. Data, in particular for employment, for the first three quarters of 2000 indicated solid growth. In the absence The outlook for 2001 remains bleak and highly uncertain. of tight closures ("Business as Usual"), growth in real A continuation of the tight closures will have grim Gross Domestic Product (GDP) per capita is estimated economic consequences. Many households' savings have to be around 2-3 percent. The closures during Q4 of been depleted in order to compensate for the drop in 2000 imply however, that growth in real GDP per capita incomes. Lost market shares for Palestinian exporters for the year 2000 will be negative, see .igure 1, thereby will be more difficult to regain as their absence from reversing part of the gains in real GDP per capita export markets is prolonged. This may lead to inefficient experienced during 1998 and 1999. inward orientation of Palestinian production. .urther, there are no incentives to invest as long as the current situation prevails - already before the current situation, .igure 1. Growth in Real GDP per Capita political instability and uncertainty was quoted by 5% Palestinian businesses as the greatest obstacle to investment. .inally, even if the current restrictions are 0% lifted in the near future, it must be emphasized that it will take a long time before the losses to the Palestinian -5% economy already incurred are regained. -10% n Labor Markets. The Palestinian Central Bureau of Statistics (PCBS) has -15% recently released Labor .orce Survey No. 18 covering 1994 1995 1996 1997 1998 1999 2000 Q3, 2000. The data collection ended October 6, 2000 Business as Usual Incl. Closures which almost exactly coincides with the date of Note: Estimates exclude the annexed part of East Jerusalem. implementation of the closures. Therefore, the data does .ebruary 2001 8 West Bank and Gaza Update not provide any indication of the possible labor market consequences of the closures. It does, however, provide .igure 4. Unemployment Rate the basis for a fairly robust estimate of labor trends for 25% the year 2000 as a whole in the absence of closures. 20% The average labor force participation rate in WBG was 15% 43.5 percent in Q3, 2000. This is the highest labor force 10% participation rate recorded in any of the labor force 5% surveys carried out by PCBS since 1995, see .igure 3. 0% Q2 98 Q3 98 Q4 98 Q1 99 Q2 99 Q3 99 Q4 99 Q1 00 Q3 00 Q2 00 .igure 3. Labor .orce Participation Rate WB G WBG 50% 45% The considerable increase in the labor force coupled 40% with an observed decrease in unemployment implies 35% that employment growth has been strong during the first three quarters of 2000, see .igure 5. Compared to 30% the same period in 1999, the total number of employed Q2 98 Q3 98 Q4 98 Q1 99 Q2 99 Q3 99 Q4 99 Q1 00 Q3 00 Q2 00 persons increased by 8.8 percent. WB G WBG .igure 5. Employment and Unemployment 700,000 650,000 During Q1-Q3, 2000 the labor force participation rate 600,000 has however only increased by 0.5 percentage point, 550,000 when compared to the same period in 1999. 500,000 Approximately 35,000 persons have been added to the 450,000 labor force, equivalent to an increase of 5.6 percent, 400,000 during Q1-Q3, 2000 compared to 1999. The increase Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 has been stronger in Gaza, where the growth in the 98 98 98 99 99 99 99 00 00 00 labor force was almost 10 percent. The strong increase Employment Unemployment in Gaza reflects both a high growth rate in the population aged above 15 years, and an increase in the average The increase in employment has been significantly participation rate of almost two percentage points. stronger within WBG, where employment growth was Unemployment was 10 percent in Q3, 2000, up from 9 9.7 percent, than among Palestinians working in Israel, percent the previous quarter. But the average rate of where the growth rate was only 4.6 percent. unemployment was still 2.4 percentage points lower The modest growth in the number of Palestinians during Q1-Q3, 2000 than during the same period in working in Israel - down from a growth rate of 13.5 1999, see .igure 4. percent in 1999 - is an indication of the low growth prospect in the demand for Palestinian labor in Israel. During 1997-1999 Palestinian employment increased annually by 25 percent as the number of Palestinian workers gradually returned to the level prior to 1993. The rapid increase should, however, be seen at the backdrop of an equivalent rapid decrease in previous years as a result of extensive closures. Thus, the increase .ebruary 2001 9 West Bank and Gaza Update merely amounts to a re-capturing of most of the market may partly be attributable to better access to the Israeli share in the Israeli labor market the Palestinian workers market through more efficient security checks at the lost during 1993-1996. As an illustration of the poor border crossings between Gaza and Israel. There are growth prospect in the demand for Palestinian labor in other noticeable differences between West Bank and Israel, data shows that total employment in the Israeli Gaza with respect to sectoral employment trends, e.g., private sector increased by less than 1.5 percent annually that employment in construction increased in the West from 1997-1999 and that employment in the Israeli Bank while it decreased in Gaza. construction sector, which employs the bulk of Palestinians working in Israel, actually shrunk n Prices. approximately 7 percent annually from 1997-1999. The tight closures imposed on WBG do not seem to The increase in employment within WBG during Q1- have had a strong immediate impact on consumer prices Q3, 2000 has been broad based, as improvements in all in WBG. Inflation continued at a very moderate pace; sectors are reported, see .igure 6. the most recent figures, covering October and November 2000, show an increase of 1.8 and 1.5 percent when compared to the same months in 1999. .ollowing a hike in Gazan inflation rates in April and May 2000, inflation .igure 6. Employment Growth,1999-2000 in Gaza and in the West Bank has been running very 25% much in parallel since June 2000. 20% The WBG inflation rate has moved almost in parallel 15% with the Israeli inflation rate. But on average during 10% 2000, the rate of inflation in WBG has been 5% approximately 2 percentage points higher than in Israel, see .igure 7. 0% Manuf. Service Constr. Trans. Agric. Comm. .igure 7. Inflation Rates 12 Note: Average number of employed within WBG during Q1-Q3, 10 2000 compared with average 1999. 8 6 4 2 Job creation in manufacturing, which includes mining 0 and quarrying, has been lagging behind the other sectors. May-98 May-99 May-00 Nov-98 Nov-99 Nov-00 .eb-98 .eb-99 .eb-00 Aug-98 Aug-99 Aug-00 During the first three quarters of 2000 employment in manufacturing only increased by approximately 2 percent compared to 1999. Job creation in manufacturing Israel WBG was also sluggish in 1999. Note: Monthly Consumer Price Index compared to same month The largest increase in employment, more than 15 one year earlier. percent, was in the transport sector, possibly reflecting an improvement in the mobility of goods in the first part of 2000. Also employment in the service sector, The recent years have witnessed a considerable decrease driven in particular by continued public hiring, increased in WBG inflation - from approximately 7.5 percent in considerably. .inally, employment in agriculture, 1997 to less than 3 percent in 2000, see .igure 8. construction and commerce increased by approximately 8 percent. The growth in agricultural employment was a result of a very strong increase in Gaza, where approximately 40 percent more people were reported to be employed in agriculture in 2000 compared with a year earlier. The increase in agricultural employment .ebruary 2001 10 West Bank and Gaza Update .igure 8. Annual Increase in .igure 10. Real Average Daily Consumer Prices Wage, q395=100 15% 105 100 10% 95 90 5% 85 0% 80 1996 1997 1998 1999 2000 75 Israel WBG 1995 1996 1997 1998 1999 2000 Note: 1996 figure for both WBG and Israel is based on Israeli CPI data. WBG WB G ISR A contributing factor to the reduction in inflation has Workers in the West Bank have experienced the largest been a tight Israeli monetary policy, which has brought increase in real wages in 2000, on average approximately the Israeli inflation down to historically low levels. The 3.5 percent. In particular, employees in the transport tight monetary policy has shored up the otherwise sector have enjoyed a large increase in real wages. permanently depreciating Shekel, which has been stable Among Palestinians working in Israel, real wage growth vis-à-vis the US dollar during the last year, see .igure 9. has amounted to approximately 2 percent on average. This has, in turn, helped curb imported inflation. Real wages have, however, decreased among Palestinian workers in the Israel construction sector. As was the case in West Bank, employees in the transport sector .igure 9. Inflation and Change in NIS/US$ have had the largest increase in real wages. Percent 6 Real wage growth in Gaza is lagging behind that of West Bank, and has actually been negative in 2000 - the 4 purchasing power of an average daily wage in Gaza was approximately 2 percent lower in 2000 compared 2 to 1999. The poor real wage performance is an indication 0 of the difficulties of creating high value added jobs in Gaza. -2 n Private Consumption and Investment. -4 The large drop in average incomes is expected to be -6 reflected in average consumption. Households with Nov-99 Jan-00 Mar-00 May-00 Jul-00 Sep-00 Nov-00 sufficient savings may, at least in the short run, try to Israel WBG Change in NIS/US$ mitigate a reduction in income partly by reducing savings. But for many Palestinian households, the only option is to reduce consumption in line with income. In n Wages. a "Business as Usual" scenario, i.e., in the absence of Real wages have still to recover fully from the sharp the tight closures imposed during the last quarter of decrease experienced in 1996, especially in Gaza, see 2000, it was expected that private consumption in real .igure 10. terms would grow 3-4 percent in 2000, but following After very large increases in real wages in 1998 and the events since October 1999, it is now expected that 1999, data for the first three quarters of 2000 show, real consumption will drop approximately 10 percent however, a considerable deceleration in the growth in compared to 1999. rate of real wages. As mentioned earlier, private investments are expected .ebruary 2001 11 West Bank and Gaza Update to be especially negatively affected by the tight closures, families through the provision of temporary employment Partly as a result of the reduction in aggregate savings, for unskilled and semi-skilled laborers. Local suppliers but also - and probably more important - because of and contractors will also benefit through the increased the poor prospects of obtaining a reasonable return on demand for materials and works. It is hoped that the investment in the current situation. The drop in total grant will serve as a catalyst for other donors to investments in 2000 is estimated to be in the range of participate through parallel or joint contributions. .urther, 15-20 percent, compared to 1999. to directly compensate the PA for the shortfall in revenue, the EU has put in place a cash facility to ease budgetary n External Trade. problems whether these are due to irregularities in the Export activities are among the first to be hit by the transfer of payments from the clearance system or policy of closures. Competition in most export markets difficulties in revenue collection. A substantial part of are fierce and interruptions in the supply of goods from the shortfall experienced since October 2000 has been Palestinian producers will quickly be replaced by goods covered through this facility. from other origins. n .inancial Sector. In the absence of closures it was expected that export growth could have reached approximately 15 percent Resident consumers' bank deposits have grown rapidly in 2000, but following the developments in the last during the first seven months of 2000. Compared to the quarter of 2000, export is now expected to fall by same period in 1999, deposits are approximately 25 approximately 5 percent compared to 1999, making 2000 percent higher. In June 2000, for the first time ever, yet another year of disappointing export performance. deposits exceeded US$ 3 billion, see .igure 11. The growth in deposits may reflect both an increased The impact on imports are somewhat smaller, but still confidence in banks operating in WBG and the relatively noticeable, as total imports are expected to be favorable economic conditions during the first half of approximately 10 percent lower than what would have 2000. The Palestinian Monetary Authority has not yet been the case in the absence of closures. published data covering the second part of 2000, so the effect on deposits of the current situation is still to be n .iscal Accounts. seen. As no dramatic changes in deposits have been The stream of fiscal revenues received by the Palestinian reported, it appears, however, that confidence in the Authority (PA) has been highly irregular during the last banking sector is intact. three months of 2000. Payments through the clearance system, which transfers tax revenues accrued to the PA (in particular VAT and import taxes) from the Israeli .igure 11. Deposits and Credits 1,000 US$ Ministry of .inance to the PA, have been delayed and 3,500 reduced compared to what was expected. .urther, 3,000 2,500 domestic tax collection has also suffered, due to the 2,000 difficulties in moving around within WBG. Consequently, 1,500 there has been a considerable shortfall of revenues. 1,000 500 Public finances in WBG was already under pressure 0 prior to the latest disruptions in revenues, primarily 1/1/98 7/1/98 1/1/99 7/1/99 1/1/00 7/1/00 because of the failure of the PA to control public hiring. The events in recent months have intensified the pressure from the Palestinian population on the PA to increase Deposits Credit transfers and public employment in order to moderate their income loss. Credit expansion has been more sluggish than that of Several initiatives have been taken within the deposits during the first seven months of 2000. By July international donor community to address the severe 2000 total credit extended to resident consumers stood situation among the Palestinian population, e.g., the at US$ 875 million. The loan-to- deposit ratio was 29.5 approval of a US$ 12 million grant from the World Bank. percent during the first seven months of 2000, down The grant aims to alleviate hardships for thousands of from 30.5 percent during the same period of 1999. .ebruary 2001 12 West Bank and Gaza Update Bank Group to encourage the growth of the private sector. The World Bank and PECDAR clinic has been built, fully furnished, and equipment installed. The Operations jointly administer the TAT.. construction of the extension for Rafidia Hospital and Yatta Hospital is in The TAT. has initiated a number of new progress. In Gaza, three clinics and one activities. New activities under contract community hospital have been built, A. Multi-Donor .und are as follows: (1) .inancial fully furnished, and equipment installed. Intermediation Training (.IT) - Contract Administration Value: US$250,000; (2) Publication of The construction of the Ministry of Health's department-building is not n Holst .und. Due to the current crisis Technical Studies .acility - Budget progressing because of the shortage of in West Bank and Gaza and the related Allocation: US$160,000; (3) The construction material due to Israeli negative impacts on the poor and Palestinian ITT Center - Budget closures. Under the Italian Grant in Gaza, marginalized, the World Bank has Allocation: US$930,000; (4) PNA the Ministry has approved the final initiated a Emergency Response Program Institutional Building .acility-Budget version of the Pilot Master Plan for Al (ERP) which aims to provide much Allocation: US$450,000. The value of Nasser Hospital in Khan Younis. The needed employment opportunities currently running activities under the rehabilitation works for the existing through small labor intensive civil works. TAT. is about US$4.3 million. The hospital, the existing sewage system, The US$12 million grant from the World closing date of the TAT. is June 30, 2001. and the construction of a corridor link Bank is being channeled through the between the existing and the new Holst .und. Hence, as of January 2001, hospital will soon commence. the Holst .und has received US$281 B. Investment Projects million from 27 donor countries Education Component: Under the As of January 2001, the World Bank (including the World Bank), of which IDA .und in Gaza, 11 new schools and Group has 20 projects under US$264 million has been disbursed by the extensions for 11 existing schools implementation, three completed the Bank to the Palestinian Authority have been built and the schools have projects, and seven projects under (PA). Of the total disbursed, US$213 been fully furnished. Under the Saudi preparation through the World Bank, million was for recurrent budget support Grant in the West Bank, all of the MIGA, and I.C Programs. and the remaining for employment planned eight schools have been generation projects. Since the initiation constructed and fully furnished. Three of the Employment Generation Program World Bank Ongoing Projects new schools are ready for tendering. In (EGP) in 1996, over 700 microprojects n Education and Health Rehabilitation Gaza, all of the planned three schools have been completed and over three Project (EHRP). [US$20 million credit have been constructed and fully million labor days of employment have from the International Development furnished. Construction of two new been created. The Holst .und is Association (IDA); US$20 million grant schools is complete. Under the first scheduled to be closed by March 31, from Saudi Arabia; three grants totaling Italian Grant in the West Bank, all of the 2001. US$8.65 million from Italy; and US$0.40 planned six schools have been million grant from Australia]. The Project constructed, fully furnished and one n Technical Assistance Trust .und sanitary unit has been completed. Under (TAT.). As of January 2001, the TAT. is well advanced and is progressing satisfactorily. The IDA .und is 100% the second Italian Grant in the West has received donor contributions of Bank, construction of two community US$24.07 million (including interest committed and 98% disbursed; the Saudi Grant is 85% committed and 65% centers has been completed and that of money earned), of which a total of four schools and two community centers US$21.2 million has been disbursed to disbursed; the Italian Grants are 61% committed and 29% disbursed; and the is progressing well. .urniture, books, the Palestinian Authority. The objectives and laboratory equipment have been of the TAT. are: (a) to assist in building Australian Grant is 100% committed and 100% disbursed. The Project is being supplied. Under the Australian Grant, Palestinian institutions and to enhance strengthening of policy-making, the Palestinian capacity for self- implemented through PECDAR, the Ministry of Health, and the Ministry of planning, and research capacity within government; (b) to facilitate the the Ministry of Education, establishment implementation of investments in the Education. of a school mapping database, and a Palestinian authorities; (c) to assist the Health Component: Under the IDA maintenance scheduling system for the Palestinian authorities in the design of .und in Gaza, all of the planned 10 Ministry have all been completed. integrated policies and programs; (d) to clinics have been built, furnished, and assess the feasibility of proposed physical the software programs installed. Under n Health System Development Project investments for the longer term; and (e) the Saudi Grant in the West Bank, one (HSDP). (US$7.9 million credit from the .ebruary 2001 13 West Bank and Gaza Update World Bank.) The development rehabilitating high priority municipal municipality. A state-of-the-art computer objectives of the Project are to enhance infrastructure networks and systems in center and network have been the management capacity of the Ministry the West Bank and Gaza (WBG) through completed for Gaza municipality, are in of Health (MOH) and improve access to working directly with five selected the implementation stage for Jenin high-quality and affordable services for municipalities (Gaza, Nablus, Hebron, municipality. primary healthcare (PHC), especially in Rafah and Jenin); the Ministry of Local n Second Municipal Infrastructure rural and underserved areas. The Project Government (MLG); the Ministry of Project (MIDP II). [US$26 million total components are: Public Works (MoPW); the Palestinian Project cost, US$7.5 million credit from Water Authority (PWA); and PECDAR. Component 1 will: (i) develop the the International Development The implementing agencies are MLG, functional standards for Level II PHC Association (IDA) and US$5 million grant PECDAR, MoPW, and PWA. .ocus is on facilities (small clinics that can serve the from Saudi Arabia]. This Project was initiating institutional reform and basic needs for approximately 8,000 to approved by the World Bank Board on capacity building at the local government 12,000 people); (ii) build MOH's capacity June 20th, 2000 and declared effective level. So far, 89% of available funding to plan and design PHC clinics; and (iii) on December 19th, 2000. The main has been committed to some 252 replace approximately 40 substandard objective of MIDP II is to improve physical sub-projects, including 170 PHC facilities, including equipment and infrastructure services (roads, water, and micro-projects. A total of 235 physical furniture, with clinics that meet the drainage), including high priority sub-projects have been completed, quality standards. sections of the regional road network including 165 micro-projects US$1 and rehabilitation of village and Component 2 will establish a Health million was taken from the Project for municipal water networks in WBG. Information Center (HIC) that would the preparation work for Bethlehem support the development and 2000. So far, more than 220 km of roads The Project will also provide support to maintenance of the Management and 100 km of water and sewage the Ministry of Public Works to establish Information System (MIS) functions of pipelines have been constructed. Also, a road maintenance management system MOH, and provide technical assistance upgrading of three neighborhood areas for the first time in the Palestinian for the development of a basic clinical in Gaza City have been completed. All Authority. In addition, it will continue information system and a unified health other components with the Ministry of to provide support to the Ministry of insurance information system. The Local Government and the five selected Local Government for an accounting clinical information system will also municipalities for capacity building are system and institutional reform, and will provide the monitoring tool for the currently active. However, due to the extend the capacity building component activities of the Quality Improvement current crisis in the West Bank and Gaza, of MIDP I to six additional municipalities Program (QIP) supported in the capacity building component is in WBG including: Jabalia, Khan Younis Component 3. moving slowly. As a response from the in Gaza, Tulkarem, Jericho, Tarqumia, World Bank to the current economic and Al Ram in the West Bank. This Component 3 will expand the scope crisis in the West Bank and Gaza, the subcomponent will provide support to of the QIP in order to establish quality Bank has reallocated US$2 million from improve municipal investment and standards and introduce quality IDA share to labor intensive projects. development programming. The Ministry improvement measures for selected Three-year investment plans have been of Public Works, Ministry of Local priority health interventions. Technical completed for Hebron municipality and Government, and the Palestinian Water assistance will also be provided to for Gaza municipality, are under Authority will implement this Project. promote rational drug use and improve implementation for Rafah municipality, both quality and expenditure controls and under R.P preparation for Jenin and In response to the current crisis in the in terms of contracts with overseas Nablus municipalities. Diagnostic West Bank and Gaza, US$1.0 million has providers. The QIP will also include studies in Rafah municipality and in Jenin been reallocated from the project budget the development of clinical and municipality have been completed. A to employment generation. This sum will operational standards for PHC services. revenue management information be used primarily to rehabilitate small The Project is being implemented by system for municipalities in the WBG stretches of roads, open agricultural MOH. was awarded and is in the roads, and to do road maintenance implementation stage. A Geographic utilizing intensive labor. n Municipal Infrastructure Development Project (MIDP I). (US$40 million credit Information System (GIS) is under n Gaza Water and Sanitation Services from the World Bank; US$1.74 million implementation for Gaza municipality Project (GWSSP). (US$25 million credit from Greece; and EURO3.67 million and under R.P preparation for Hebron from the World Bank; US$50 million in from Italy.) This Project aims at and under tendering for Nablus parallel financing from EIB/EU.) The .ebruary 2001 14 West Bank and Gaza Update Project consists of: (a) the provision of Governorates of Bethlehem and Hebron rehabilitation in small villages and an international Operator [Lyonnaise des in the West Bank; (b) the provision of municipalities, are under various stages Eaux, Khatib & Alami (LEKA)] under a operating investment funds for the of implementation. Of the 135 projects four-year management contract to Operator built into the management under contract, 55 have been completed. implement a service improvement contract, to finance essential operations A total of US$6.9 million has been program; (b) the provision of operating and maintenance expenditures not disbursed to the projects by PECDAR. investment funds for the Operator built covered by the revenues collected and The menu of projects includes into the management contract, essential which are required to achieve the yearly rehabilitation of: roads, clinics, schools, to fund goods, equipment, works and performance targets in the management water supplies, and sanitation networks. services required for improving services contract; (c) the provision of funds (by In addition, the new Project pays special and attainment of performance targets; EIB) to finance design, implementation attention to targeting the poor and and (c) the provision of technical and supervision of capital improvements marginalized communities, including assistance to strengthen the newly such as system rehabilitation and funding projects in refugee camps within created Palestinian Water Authority improvement of water supply services, West Bank and Gaza. Most of the funds (PWA), to support implementation and bulk transmission mains, distribution financed through the World Bank and monitoring of the Project, and to provide systems restructuring and rehabilitation, OPEC .unds have been committed. A independent auditors to monitor the as well as, an investment in rural water mid-term review of the Project is Operator's technical and financial supply; and (d) the provision of technical expected to be undertaken in .ebruary performance. The implementing agency assistance to support strengthening the 2001. is the PWA. Some of the main institutional capacity of PWA and WSSA, n Legal Development Project (LDP). achievements after four years of to support implementation and (US$5.5 million from the World Bank, implementation of the Project as audited monitoring of the Project and provide parallel financing of US$1 million for by an independent auditor are: over independent auditors to monitor the legislative drafting from the United 1,200 km of pipe have been surveyed Operator's technical and financial Kingdom.) The Project is a start to a for leaks and over 16,000 illegal performance. The implementing agency long-term process of assisting the PA to connections identified; over 22,000 is PWA. The audit of the Operator's first modernize and harmonize existing service connections have been replaced, year performance is expected to start in legislation, to give rise to a legal over 20,000 meters repaired, and a total January 2001 -- this delay is attributed framework adequate to support a of over 30,000 meters replaced; to the inability of the auditors to travel modern market economy, and to Unaccounted .or Water (U.W) has been because of the closures. Preliminary encourage the growth of the private reduced from around 48% to 30%; unaudited data indicate that there is sector. The Project also supports the reliable disinfectant (96% of water progress. As an example, around 400 training of judges and court personnel samples have positive chlorine residual). unregistered connections were detected in order to increase the efficiency and The existing management contract has in Bethlehem. Surveys and procedures transparency of the judicial process. been extended through March 31, 2001 are being undertaken to identify and The Project is well underway. As part to maintain progress until a new operator correct weakness in the existing water of the overall program of legal is procured under the proposed Gaza II and wastewater systems. Commitments development in WBG, construction of Project. As of December 31, 2000, the have slowed down since September two courthouses is planned--one each Credit is fully committed and 2000 because of the security situation. in the West Bank and in Gaza, to be disbursements are approximately Disbursements, as of December 31, 2000, funded by the Kingdom of Saudi Arabia. US$23.9 million. The closing date of are approximately US$4.1 million the Project is June 30, 2001. representing about 20% of the Credit. n Palestinian Expatriate Professional The closing date of the Project is set for Program (PEPP). (US$3 million credit n Southern Area Water and Sanitation June 30, 2003. from the World Bank and US$0.3 million Improvement Project (SAWSIP). (US$21 from the Netherlands.) The PEPP million from the World Bank and n The Second Community Development supports the recruitment of expatriate EURO30 million in parallel financing Project (CDP II). The success of the first Palestinians to key management and from EIB). The Project consists of: (a) CDP has resulted in the PA requesting a senior technical positions in PA the provision of an international follow-up project.The CDP II is funded institutions as an institution-building Operator [General des Eaux, Khatib & through the World Bank (US$8 million), measure. Since the program started in Alami (GEKA)] under a four-year OPEC .und (US$8 million), and EIB late 1997, 17 persons have been performance based management (EURO10 million) and has been under successfully recruited for positions at 11 contract to implement a service implementation since June 1999. About ministries and agencies of the Palestinian improvement program for the 200 projects, focusing on infrastructure .ebruary 2001 15 West Bank and Gaza Update Authority, including the Ministries of: Agriculture, Education, been disbursed. 26 of the 39 sub-projects financed under .inance, Health, Higher Education, Housing; the Insurance Cycle 1 of the Development Grant Scheme has successfully Controller's Office; the Palestine Broadcasting Corporation; been completed (96.4% of cycle allocation disbursed). In July Palestine Monetary Authority; State Information Service; and 2000, 31 grants were awarded under Cycle 3 of the the Bethlehem 2000 Committee. Qualified persons have been Development Grant Scheme for a total value of US$2.2 million; identified for other positions but recruitment has not been of which 21% has been disbursed to date. The first cycle of consummated. The current crisis is seriously affecting the the Block Grants is progressing well with seven Block Grants ability of current participants in the program to continue their Managers awarding US$3.5 million in the form of grants to work effectively and have caused nine other participants to small community-based organizations for a maximum value defer starting work until conditions become stable and the of US$25,000 (40% of cycle allocation disbursed). Two future outlook clearer. research studies were awarded: one to assess the effectiveness of the Block Grant Scheme in reaching the poor and marginalized, and the other to identify the scope and quality PEPP Project Expatriate Profiles of NGO capacity building programs in the West Bank and Dr. Durgham Abu Ramadan is a Palestinian expatriate from Gaza, as well as existing needs. The latter two studies are Germany who has been working at the Ministry of Health commissioned in preparation of the Project's second phase. since April 2000, under the auspices of the PEPP. In view of the success of the current Project, the continued Dr. Abu Ramadan is presently the Cardiovascular Surgeon need for NGO support to the disenfranchised, and the at the Ramallah Government Hospital. In this challenging opportunities for enhancing the contribution of Palestinian position, he is responsible for conducting cardiovascular NGOs through additional technical support and financing, surgeries at the hospital and upgrading the structural and the Bank decided to carry out a second phase of the NGO functional capacities of the existing Departments of Project. Cardiovascular Surgery in government hospitals in both (See details under section "World Bank Projects Under Gaza and the West Bank. This institution building mandate Preparation".) covers staffing, conducting needs assessments for training medical specialists and technicians in cardiovascular n MIGA Investment Guarantee .und. (Total of US$20 surgery, training nursing staff to patients for operations million, which consists of US$10 million from the PA through and recovery in dedicated intensive care units, as well as a credit from the World Bank, approximately US$5 million developing standard post-operative follow-up procedures from EIB and US$5 million from Japan.) This .und, which for all patients discharged from hospital after cardiovascular is administered by MIGA, provides guarantees in the form of surgery. Achievements to date include 150 successful insurance against political risk for private investments in WBG. cardiac surgeries for adults and children (congenital heart Under the terms of the .und, investors who are nationals of, disease) as well as 30 -50 vascular surgeries at the Ramallah or companies incorporated in a MIGA-member country, or Government Hospital. Since the beginning of the Intifada, who are Palestinian residents of WBG, are eligible to obtain Dr. Abu Ramadan conducted several cardiovascular guarantees, provided that investment is brought in from surgeries for injured Palestinians who were shot in the outside WBG. The .und currently has the capacity to issue chest and brought out from all areas of the West Bank and guarantees for up to US$5 million per project. If a project Gaza to the nearest checkpoints. It is worthwhile requires more insurance capacity, when requested by the mentioning also that Dr. Abu Ramadan saved the life of a project sponsor(s), MIGA will explore the possibility of .rench journalist who was shot in the chest by operating obtaining coinsurance with public and private underwriters, on him and stopping the bleeding. The Ministry of Health including coinsurance under MIGA's Cooperative has appointed one new specialist in Cardiovascular Surgery Underwriting Program. During .Y99, MIGA issued its first who is a recent graduate from Turkey. He started training Contract of Guarantee on behalf of the Trust .und for a project under Dr. Abu Ramadan in early September 2000. in the tourism industry. However, this contract has been cancelled in .Y01. The Trust .und remains open for n Palestinian NGO Project. (US$10 million credit from the applications. Since inception of the .und, over 20 applications World Bank and US$4.5 million in co-financing by Saudi have been received for almost US$400 million in investments Arabia and Italy.) Managed by the Project Management in WBG's infrastructure, manufacturing, real estate, services, Organization (PMO); Welfare Association Consortium. and tourism sectors. The interest of seeking investment guarantees from the Trust .und continues to be strong. The Project consists of 105 sub-projects implemented under the Development Grant Scheme (Cycles 1, 2, and 3). 88.2% n Bethlehem 2000 Project (B2000). [US$25 million credit percent of the allocated funding for the first two cycles has from the International Development Association (IDA), US$1 .ebruary 2001 16 West Bank and Gaza Update million grant from Norway and US$2 Authority's work for the remainder of anticipated from the PA). This Project million grant from Italy]. The IDA .und the Project. has been approved by the World Bank is 71% committed and 67% disbursed; Board on October 10th, 2000 and has Municipal Capacity Building: After the Norwegian .und is 100% committed been declared effective on December some delay, progress is now being and 88% disbursed; and the Italian .und 11th, 2000. The proposed US$14 million made. An implementation workshop is 100% committed and 85% disbursed. Project's objective is to finance was held in August 2000. Discussions The Bethlehem 2000 Project Authority, interventions in solid waste collection, are now ongoing with Bethlehem area the Ministry of Local Government, the transfer, and disposal of waste for the municipalities to help them establish the Ministry of Tourism and Antiquities, and district of Jenin. The Project will also necessary working groups in order to the Ministry of Culture are implementing assist in institutional-building within the develop the three-year investment this Project. Ministry of Environmental Affairs program. (MEnA). The Project feasibility studies Celebrations Support: The B2000 Cultural Heritage Reform: Little progress and conceptual design for the solid Project Authority was effectively has been made, mainly due to waste component have been completed. consolidated under the leadership of Dr. weaknesses at the Ministries of Tourism Nabil Kassis and has performed very In addition to activities in the Jenin and Culture which have joint well. However, the sponsorship, District, the European Investment Bank responsibility for implementation. An marketing, and private sector department (EIB) is keen to finance solid waste implementation workshop was held in were never effectively staffed and not management interventions, including August 2000. At this workshop, it was much was achieved. Until the recent construction of a landfill in the Hebron agreed that one ministry should take the closures, efforts were underway to District. The World Bank is working in lead and that managerial assistance consolidate these achievements by: (1) partnership with the European would be sought from UNESCO. institutionalizing key elements of the Investment Bank, the European Union, events program on an annual basis; (2) n Electric Sector Investment and and the Italian Cooperation in assisting mobilizing the private sector to Management Project (ESIMP). (US$15 the Palestinian Authority prepare the consolidate and build on the million from the World Bank, US$38 Project. The proposed Bank-financed improvements that have been made; and million from EIB, US$35 million from Project for Jenin District has been (3) embarking on a realistic marketing Italy, and US$3 million financed by approved by the Board of the World program in coordination with the beneficiaries.) The objectives of this Bank and signed on October 10, 2000. Ministry of Tourism. US$91 million project are to rehabilitate Capacity building activities as part of the power distribution systems in the project preparation has been completed Infrastructure Progress: (1) Roads- central and southern West Bank and to through a multi-donor TAT. managed the planned IDA components are now address the institutional structure for jointly by PECDAR and the World Bank. 100% complete. The Artas Road co- longer-term sector management. The Additional training will be conducted financed with Italy is complete. The Executive Directors of the World Bank during implementation of the capacity Shepherds .ield Road co-financed by approved the Project on August 31, 1999 building component of the Project. Norway is complete, with some and the Trust .und Credit Agreement landscaping work to be undertaken Rehabilitation and closure of (T.CA) signed at the time of the Bank/ from a small remaining balance. The uncontrolled open dump sites is a first IM. Annual Meetings. Despite the IDA balances remaining are mainly due priority and is currently being addressed present unrest, the implementation of to the substitution effect of other donors by the Jenin Joint Service Council for the main activities (JDECo and PEA (as noted above). It is expected that Solid Waste Management (JSC) Project components) is progressing satisfactorily. these balances will be fully committed Implementation Unit (PIU). While over Effectiveness conditions are yet to be by January 2001 and that all works will 54 open dumps will be rehabilitated and completed for the HEPCo and SELCo be completed by April 2001; (2) Water- closed in the coming six to eight months, components. A supervision mission will the components here (all IDA) are 100% only six large dump sites are expected take place as soon as the situation complete; (3) Cultural Heritage- three to be rehabilitated and maintained to permits. About US$2.9 million of the of the four sub-projects are complete. receive wastes until the new landfill site US$15 million has been disbursed to The fourth has been delayed pending in Zahrat Al-.anjan is made operational date. a clarification of the availability of mid to late 2002. Access roads to these Austrian co-financing. n Solid Waste and Environmental temporary dump sites will be improved Management Project (SWEMP). (US$9.5 as part of this Project. Public awareness New B2000 Business Plan: A revised million from IDA; US$3.25 million grant will be an important component of the Business Plan has been prepared which from the EU; US$1.25 million is SWEMP. The JSC is in the process of provides the basis for the B2000 Project .ebruary 2001 17 West Bank and Gaza Update developing an environmental awareness World Bank Projects Under Municipalities Water Utility (CMWU) strategy utilizing the expertise of Preparation under the ownership of the local specialized local Non-Governmental governments representing those n .inancial Institutional Development Organizations (NGOs). communities, as well as by enhancing Project (.IDP). This Project aims to assist and deepening the involvement of the with the development of the legal, World Bank Completed Projects private sector through a competitively institutional, and regulatory framework for bid operating contract, and n Emergency Rehabilitation Project more efficient financial intermediation. strengthening the regulatory and (ERP I). (US$30 million from the World The Project seeks to expand the pool of institutional capacity of the Palestinian Bank and US$63.5 million in co- assets that can be used as collateral, Water Authority (PWA); and (b) to financing by Saudi Arabia, Denmark, thereby improving access to credit for continue improving the water and Switzerland, and Kuwait.) The Project small- and medium-size businesses. It sanitation services by rehabilitation, (that was implemented by PECDAR) would also support measures to upgrading and expansion of the existing financed a total of 140 infrastructure modernize and expand land survey and systems and facilities. This Project is projects, resulted in building 418 registration, particularly in central urban under early stages of preparation. The classrooms, paved 260 km of roads in areas where property values are high. request for pre-qualification for cities and villages, constructed Banks operating in WBG and the PMA prospective international operators has approximately 410 km of water supply have pledged nearly US$1.5 million in been launched. Like the GWSSP, this pipelines, 80 km of sewer lines and equity in the Banking Sector Services Project is part of a larger parallel capital storm water lines, and five water Company to provide electronic banking program to improve water and sanitation reservoirs. services. Negotiations and presentation services in Gaza. The program includes of the project to the World Bank's Board n Second Emergency Rehabilitation substantial investments in the of Executive Directors is stalled waiting Project (ERP II). (US$20 million from establishment of a bulk water supply for a return to peaceful conditions in the the World Bank and US$3.5 million in network connecting the various WBG. co-financing by the Italian Government.) municipalities in Gaza, in the sewerage All available funding has been n Institutional Development Project network, and in wastewater treatment committed to 77 sub-projects in the road, (IDP). The proposed Project will be plants. These investments, totaling about water, wastewater, and school sectors demand-driven and will provide a US$340 million for 2000-2005, will be (including 42 labor-intensive flexible instrument to respond to a financed by soft loans and grants from microprojects). All sub-projects have variety of different PA ministry/agency EIB, USAID, and K.W. been completed. The Project, closed capacity-building needs. Its underlying n Education Action Project. (US$7 on June 30, 1999, was implemented objective is to further the development million from IDA.) The Palestinian through PECDAR in coordination with of a transparent, efficient, and lean Ministry of Education has requested the municipalities in the West Bank and public sector by reducing transaction project support to reinforce the work Gaza. Approximately 123 km of roads costs and creating a regulatory already undertaken in the development and about 110 km of water and sewage environment that is conducive to private of a .ive Year Plan and the development pipelines have been constructed. An sector development. The Project is on of a long term education strategy. Over implementation completion report for hold until such time as the discussion the next three years the Project will the Project has been completed. on the Public Management Review and support planning for, and the Comprehensive Development n Community Development Project implementation of, five year plan .ramework (CD.) has been completed (CDP I). This community infrastructure activities. The Project has two with the PA, at which point the scope of rehabilitation program was started in complementary components, plus the Project will be finalized in 1997, and as of June 2000, over 250 support for the Project Management consultation with the PA. infrastructure microprojects have been Unit. The first component provides completed. In addition to the US$10 n Gaza Water and Sanitation Services support to strategies that assist policy million financed by the World Bank, the Project (GWSSP II). (US$25 million from making, planning, and budgeting across Project has been successful in attracting the World Bank). It is a follow-up to ministry departments; the second co-financing of nearly US$13 million. the ongoing GWSSP. The development supports specific investments in The Canadian and World Bank-financed objectives of this project are: (a) to education. The Project is designed to components have been completed and develop a sustainable institutional complement efforts being made by the the Project has been closed. The OPEC- structure of the water and wastewater Ministry and the Donor Community to funded projects are expected to be sector in Gaza by supporting the make the best use of available funding closed by the end of the calendar year. functional establishment of a Coastal for the education sector. .ebruary 2001 18 West Bank and Gaza Update Activities in Component 1 include: (a) from the World Bank; total Project cost systems; strengthening health insurance computerizing the financial management US$52 million.) administration; and Project management system; (b) further developing an EMIS support. The Project objectives are to improve system; (c) a vertical extension to the the quality, access and cost-effectiveness n Palestinian NGO II Project. (US$7 MOE building to rationalize space; and of essential secondary and tertiary care million credit from the World Bank. (c) technical assistance and training to health services for the population Expected total budget US$12 million.) support the above activities. Other residing in northern Gaza and northern The World Bank is currently undertaking investments include: (a) a program to West Bank regions. The Project the preparatory work for the design of provide school-based grants to be used components are: a Phase II of the Palestinian NGO for training and management Program (PNGOP). The upcoming development; (b) studies to develop Component 1: Replacement and project is expected to continue to standards for head-teachers, and design Upgrading of Hospital Systems. support, through a grants scheme, a prototype credential for head-teachers; Sub-Component 1.1 (US$23 million): Palestinian NGOs providing basic (c) the development of pilot secondary This component will finance the services to the poorest and most vocational curriculum and the preparation of hospital masterplans for marginalized. Moving away from being construction of additions to existing the four MOH hospitals in Gaza City a source of funding for a large number general secondary schools to increase which will provide a long-term strategy of NGO projects, the new Project will opportunities for both boys and girls in for upgrading and rationalizing the place increased emphasis on impact and a combined general/vocational public hospital system in Gaza. In longer-term sustainability of projects education system. addition, it will support the preparation being supported. It is, therefore, likely The Project will be carried out by the of the detailed medical brief and the to fund a fewer number of projects in a Ministry of Education over three years design and construction of a medical selected number of priority sectors/ (2001-2004). .ollowing negotiations, it building which will replace the existing regions. In an increased effort to build is anticipated that the Project will substandard Lung and Oncology NGOs' professional and technical become effective in early 2001. Building, Dialysis Unit and Medical capacity, the Project will encourage Building at Shifa Hospital in Gaza City. partnerships between NGOs, particularly n The Proposed Integrated Community The new medical building will be between central and field-based NGOs. Development Project. (US$10 million accommodated within the existing This should also help address the from the World Bank and co-financing hospital site. ultimate objective of the Project; namely, by other donors). to help NGOs expand their reach out to Sub-Component 1.2 (US$25 million): communities most in need and to ensure The overall Project objective is to This component will finance the that the services provided are indeed implement an integrated community preparation of a hospital masterplan, responsive to those needs. .inally, the development project in poor and medical brief and detailed design and Project is expected to support a number marginalized areas of the West Bank and construction of a new Watani Hospital of key initiatives that are intended to Gaza. This objective would be pursued (internal medicine, pediatrics, oncology, promote and facilitate information through identification of target areas, and and dialysis) to replace the substandard sharing and learning within the NGO the development and implementation of Watani Hospital in Nablus. A new site sector, on the one hand, and between a multi-sectoral program which would will be selected and evaluated for the the NGO sector, the public sector and include technical assistance. The Project new hospital, since the current hospital civil society at large, on the other. will include the following proposed is located on a site which has no room components: (a) community for further expansion. In addition to US$7 million allocated by infrastructure upgrading; (b) natural the Bank, the Project hopes to attract resources management including Component 2: Capacity Building. additional donor funding in the amount agricultural components; (c) technical This component will build upon the of US$5 million. The Project is expected assistance to local government units in experience of the first Health System to become operational by June 2001. integrated development planning; and Development Project to extend the (d) introduction of information development of an integrated technology in communities through information and management systems World Bank and I.C Joint Projects provision of community centers with to improve the productivity and quality n Housing Project. (US$25 million hardware and software facilities. of health care services in the targeted credit from the World Bank, up to US$19 hospitals. This will include upgrading million in equity and loans from I.C.) n Second Health Systems Development of the hospital management information The largest component of this Project Project (HSDP II). (US$18 million credit .ebruary 2001 19 West Bank and Gaza Update supports the creation and initial Commitments and Disbursements1 operations of the Palestine Mortgage and Disbursements Under World Bank Projects (In US $ Million) - As of January 16, 2001 Housing Corporation (PMHC) which is designed to facilitate the flow of private Current Allocated Amounts Disbursed Total capital into the housing sector in WBG. Projects T.GWB Joint T.GWB Joint Disbursed The World Bank loan was declared EHRP 20.00 29.10 20.00 17.76 37.76 effective in March 1998 after which, MIDP 40.00 5.41 35.00 3.31 38.31 private investors, including I.C, decided Gaza to provide equity to PMHC. Water/San. 25.00 23.86 23.86 Microent. 5.00 2.35 2.35 PMHC commenced operations by Housing 25.00 0.70 0.70 issuing the first loan in September 2000, Legal 5.50 15.00 2.11 2.11 however, the current situation slowed PEPP 3.00 0.32 1.01 0.32 1.33 down the Project's progress and NGO 10.00 4.60 8.18 3.32 11.50 marketing plans. PMHC currently GIE 10.00 3.06 3.06 operates through two affiliates, the Beth. 2000 25.00 2.91 20.10 2.71 22.81 Liquidity .acility (L.) providing long- CDP II 8.00 5.32 5.32 term funds for lending by banks and other primary mortgage lenders in WBG, SAWSIP 21.00 4.06 4.06 and the Mortgage Insurance .und (MI.) ESIMP 15.00 2.97 2.97 providing partial risk coverage for Health 7.9 0.58 0.58 primary lenders. Canada Mortgage and MIDP II 7.50 5.00 0.00 0.00 Housing Corporation (CMHC) is the Solid Waste 9.50 0.00 technical partner for the PMHC and has Completed Projects prepared the business plan, as well as ERP I 30.00 71.24 30.00 71.24 93.48 much of the operational documentation. MIGA .und 10.00 10.00 10.00 CMHC continues to provide PMHC with ERP II 20.00 3.57 20.00 3.86 23.53 technical assistance and capacity CDP I 10.00 2.81 10.00 2.73 12.73 building support. The borrower has also Total 307.40 139.95 199.30 105.25 296.46 requested that a portion of the Bank loan Multi-Donor Trust .und be applied to the Housing Assistance Donor Total .und which has been designed to Allocation Disbursed provide targeted assistance to low- and The Holst moderate-income households for the .und 274.67 266.71 purchase of a primary residence. TAT. 22.77 21.04 Restructuring of the Project to Total 297.44 287.75 accommodate this request is presently US$3 million of the Saudi funds for the Legal Development Project are to date unallocated. being processed. Another component of the Project, the Institutional and Policy 1 These figures do not include parallel and I.C financing. Development Program, addresses issues related to the functions and structure of the Ministry of Housing, in addition to its technical, administrative, and on the land, amount to a further US$65.5 others. The GIE is managed and managerial capabilities. million.] The GIE, on a 50 hectare site operated by Palestine Industrial Estate n Gaza Industrial Estate (GIE). [US$10 at Al-Muntar in the northeast of Gaza Development and Management million from the World Bank for off-site (adjacent to the Israeli border), is the Company (PIEDCO), a private sector infrastructure and public institutional first largely export-oriented industrial company. Regulatory oversight, as well development, US$9 million in equity estate established to generate sustainable as offsite infrastructure, is provided by (US$1 million) and loans (US$8 million), employment and stimulate industrial the Palestinian Industrial Estate and .ree and up to US$7 million in syndicated development in Gaza. The Project is Zone Authority (PIE.ZA). The GIE is loans from I.C to the developer/ expected to attract foreign and local being developed in three phases; Phase operator. EIB and USAID parallel investment, and to facilitate joint II construction was well underway by financing, and the PA long-term lease ventures between Palestinians and September 2000, but completion has .ebruary 2001 20 West Bank and Gaza Update Project, with an estimated project cost been delayed. It is now anticipated that I.C Projects Phase II, which should double the of US$52 million, became fully industrial sites available for lease at the operational in September 2000. It was GIE, will become available in the first I.C Portfolio the first international standard hotel in half of 2001; potential investors have, Including the joint-projects above, under the West Bank. I.C invested US$1.35 however, become scarce in recent the Mainstream Program, eight million in equity and US$8 million in months due to the general situation, projects worth US$75.78 million have long-term loans. EIB provided about under which closure has also been been approved to date. Under the EURO12 million in a parallel loan. Both applied to the GIE. Prior to September Extended Reach Initiative, which I.C and EIB loans have been fully 2000, some 34 firms had leased space at supported projects in the US$0.25-5 disbursed. Because of the ongoing crisis the GIE, filling all space made available million range, seven projects were in the WBG, tourism is one of the hardest under Phase I; of these, about 30 firms approved for US$7.42 million, out of hit sectors. The Project's operating level were operating, and over 1,200 people which US$4.47 million has been has been drastically reduced, and were employed at the GIE. The number disbursed. The Extended Reach occupancy rates are insignificant. of firms operating, and the number of Initiative has recently been people working, at the GIE has discontinued. Extended Reach Projects fluctuated considerably based on All I.C financed projects have been n Arab Concrete Products Company. evolution in the closure and security affected by the ongoing political crisis. This Project enabled Arab Concrete situations since October 2000. More However, it remains difficult to quantify Products Company to utilize fully its information on firms operating at the GIE the magnitude of the impact on the production capacity of ready-mix can be found at "www.piedco.com". projects and the private sector at large. concrete, and expand its distribution n Microenterprise Project. (US$5 Most business activity has been reduced capacity. I.C provided a long-term loan million from the World Bank; US$7.5 noticeably, and most WBG companies of US$0.8 million out of a total project million each from the I.C and the are facing liquidity and severe cost of US$2.6 million. Due to the crisis participating banks; US$3 million from operational difficulties. and mobility problems of labor and raw the Netherlands). The Project has materials, the Project has witnessed a initiated a program to finance significant drop in operational levels, and Mainstream Projects at certain times it has come to a complete microenterprises in WBG through the banking system in order to: (a) promote n Arab Palestine Investment Bank. standstill. employment through private sector The Arab Palestine Investment Bank n Jericho Motels Company. Developed development; (b) achieve commercial (APIB) was established in 1996 by Arab on 31,000 m2 of land, the Jericho Resort viability and sustainability for Bank, DEG, Enterprise Investment Village consists of a 60-room hotel, 48 microenterprise lending; and (c) build Company and I.C. As of December 31, bungalows, a health center, and includes capacity in both the participating banks 2000 APIB approved 26 loans worth outdoor restaurants, coffee shops, a and the microenterprises by providing US$11.5 million, and had an outstanding swimming pool, as well as recreational technical assistance. As of September portfolio of US$9.3 million. Due to the facilities. At a total cost of US$8.1 million, 30, 2000, over 1,000 projects for ongoing crisis, the pipeline for new I.C provided a 10.5-year US$1.17 million approximately US$11.2 million were lending has disappeared, and focus has loan and the financing plan included approved, of which 946 projects for shifted to managing the existing long-term loans from two local banks approximately US$10.5 million were portfolio. and two international lending disbursed. The disbursed loans were n Peace Technology .und. The Peace institutions. The complex opened for estimated to have created over 1,400 Technology .und was set up with a commercial operations in late 1998. new full- and part-time jobs. The committed capital of US$63.2 million to However, due to the ongoing crisis, the resident advisors, financed under the provide equity capital for productive Project was forced to cease operations Dutch Trust .und for technical assistance investments in the WBG. Prior to in early October 2000. The complex to the three participating banks, left in September 2000, PT. invested US$11.0 remains closed. October 2000, about three months early, million in three projects, but because of due to the prevailing circumstances. n Al-Ayyam Printing Press. This Project the ongoing crisis all pipeline Since late September 2000, the pipeline assisted Al-Ayyam, one of the largest investments have been put on hold. for new lending has declined sharply, private sector companies in the WBG, and focus has shifted to managing the n Palestine Tourism Investment to upgrade its printing line, refinance its current portfolio. Company Ltd. (PTIC). The 250 keys short-term debt, and perform Bethlehem Intercontinental Hotel construction improvements. I.C .ebruary 2001 21 West Bank and Gaza Update provided a loan of US$1.8 million, which number of studies and for conference n US$9.5 Million Credit from the was fully disbursed. Al Ayam's organization. 15 sector studies had been World Bank for the Solid Waste and commercial printing and advertising undertaken including studies on tourism, Environmental Management Project. activities have been significantly affected textile, technology, agribusiness, small The overall Project cost is US$14 million. by the ongoing crisis. and medium size enterprises, among The credit is accompanied by others. counterpart financing from the n Arab Palestinian Storage Company. Palestinian Authority of US$1.25 million The Project consisted of establishing a Due to the ongoing crisis however, the and through parallel funding of US$3.25 cold storage facility in Gaza with a conference and all preparations for the million from the European Union on capacity to store about 5,000 tons of conference have been postponed grant terms. perishable food products. The storage indefinitely. The sector studies are in method includes both freezing, as well various stages of completion, and a See details on the Project on p. 17 under as chilling to preserve the products for significant number of the studies will not "World Bank Ongoing Projects". long periods of time. The Project also be completed since foreign consultants involves trading in fruits and vegetables, are hesitant to travel to the WBG under n Report on the Italian Aid Administered by the World Bank. mainly for resale in the off-season. I.C the current circumstances. provided a loan of US$0.2 million out The report, published by the of a total project cost of US$5.9 million. Organization for Economic Co-operation The Project started operations in and Development (OECD), assesses the September 1999. However, the border viability and the effectiveness of the closures in Gaza, and the ongoing crisis, management of Italian aid to the West have significantly reduced the Project's Bank Group News Bank and Gaza administered by the volume of operations, and in some World Bank. The report can be found instances, operations were brought to a n US$12 Million Grant from the World at the World Bank PIC/Library. complete stop. Bank for an Emergency Response Program. New Projects The World Bank Board of Directors I.C Technical Assistance approved the grant for the Emergency See more details on the new projects I.C's technical assistance efforts were Response Program on December 6, mentioned below on p. 19 under "World aimed at supporting the Palestinian 2000. Bank Projects Under Preparation" Authority's efforts to further broaden and The program is designed to help offset n The Second Health Systems deepen the Palestinian financial sector. the effects of the current economic crisis Development Project (HSDP II). Also, I.C has worked closely with the in the West Bank and Gaza. It aims to The Project ' s objectives are to improve Palestinian Authority and the private alleviate hardship for thousands of the quality, access and cost-effectiveness sector to encourage the emergence of families through the provision of of essential secondary and tertiary care new instruments and players in the temporary employment for unskilled health services for the population financial sector and capital markets and semi-skilled laborers. Local suppliers residing in northern Gaza and northern through the development of framework and contractors will also benefit through West Bank regions. laws and institutions. I.C was involved the increased demand for materials and with the preparation of draft laws for n Palestinian NGO II Project. works. The grant is intended to serve as Insurance, Securities, Capital Markets a catalyst for other donors to participate In view of the success of the current Authority, Mutual .unds, Mortgage, Tax through parallel or joint contributions NGO I Project, the continued need for and Competition. for further activities. NGO support to the disenfranchised, and the opportunity to enhance the The grant will be channeled through the Private Sector Development contribution of Palestinian NGOs Holst .und, a multidonor trust fund Conference through additional technical support and facility administered by the Bank, for financing, the Bank decided to carry out Over the past year and a half, I.C, in which all the institutional arrangements a second phase of the NGO Project. The collaboration with the private sector and and procedures are in place, thus Bank will continue to finance the Project the Palestinian Authority, had enabling expedited transfer and up to US$7 million, while an additional undertaken work to support a disbursement of this urgently needed US$10 million will be sought in the form Palestinian Investment Conference. assistance. of co-financing. Donors generously contributed to the initiative by providing funding for a .ebruary 2001 22 West Bank and Gaza Update Staff News The World Development Report market economy in Eastern Europe, 2000/2001: Attacking Poverty argues Central Asia, and East Asia gave no n Mr. Saba's New Appointment as nevertheless that major reductions in all warning signals. Against this backdrop, Country Director for Iran, Iraq, Jordan, these dimensions of poverty are indeed the Bank has reconfirmed its Lebanon and Syria. possible - that the interaction of markets, commitment to fighting poverty while Joseph Saba who has been Country state institutions, and civil societies can changing its strategy significantly. Director in WBG since 1997 will depart harness the forces of economic in .ebruary 2001 for his new assignment This Report examines the direction set integration and technological change to as Director for Iran, Iraq, Jordan, for the Bank by the 1990 strategy and serve the interests of poor people and Lebanon and Syria effective March 1, recommends better monitoring and increase their share of society's 2001. He will reside in Washington, D.C. evaluation techniques. prosperity. His replacement is expected to be n Reforming Public Institutions announced in late .ebruary 2001. Would you like to get information by and Strengthening Governance. n Judith Press Returns To HQ. EMail on recent World Bank publications, (BB21439 2000) please send your EMail address to: This strategy paper takes stock of the Ms. Press, Senior Private Sector "mkoussa@worldbank.org". Banks' recent work on governance, Development Specialist, has been public sector institutional reform, and working in the WBG office since 1997. capacity building (particularly in core As a Task Team Leader, she worked n European Union Accession: public institutions) and addresses what closely with her Palestinian and other Opportunities and Risks in Central the World Bank can do to enhance its counterparts to prepare the Gaza European .inances. (.S 21436 2000) ability to help client countries implement Industrial Estate Project. She was also This report presents the findings of two this agenda. This paper focuses primarily closely involved in the Electricity Sector seminars organized by the European on reforms of core public sector Investment and Management Project and Commission and the World Bank for institutions and their interface with the Microenterprises Project. She also Central European countries and sectoral institutions. It touches only had overall responsibility for issues pertinent to European Union accession. lightly on institutional concerns within related to the development of the private The Paris Seminar (January 1999) specific sectors (for example, in health, sector in the WBG in general. Ms. Press focused on "Private Capital .lows and education, and rural infrastructure), and recently returned to HQ in Washington, EU Accession: Implications for Sovereign it does so primarily to point out generic DC where she continues to work on Liability Management." The Prague issues that concern many sectors. The private sector development issues for the Seminar (June 1999) focused on last section of Part I of this paper WBG and other countries in the Middle "Integrated .inancial Sector Regulation summarizes specific goals for the next East and North Africa region. and Supervision in the Context of EU three years and a set of specific actions Accession." to be taken to help achieve them. Part n Poverty Reduction in the 1990s: II includes strategies and short An Evaluation of Strategy and descriptions of innovative initiatives Performance. (OES 20944 2000) prepared by each of the Bank's regional New Bank Publications In 1990, when the Bank prepared its Vice-Presidencies, by the Development World Development Report (WDR) on Research Group, and by the World Bank Read the World Bank's latest on Institute. poverty, the prospects for global poverty promoting economic opportunities, reduction looked bright. The context in facilitating empowerment, and which the Bank operates has altered New Series : enhancing security for poor people. significantly since then, as has the international economic environment. "A World .ree of Poverty" Recommended While there have been significant n Balancing Protection and improvements in social indicators in "World Development Report 2000/ Opportunity: A Strategy for Social most regions, the absolute number of 2001: Attacking Poverty." Protection in Transition Economies. poor has continued to rise. Many of the At the start of a new century, poverty remains significant events of the following n Hidden Challenges to Education a global problem of huge proportions. Of decade could not have been predicted. Systems in Transition Economies. the world's 6 billion people, 2.8 billion live The onslaught of the AIDS epidemic, on less than US$2 a day and 1.2 billion on n Anticorruption in Transition: A outbreak of civil war, rash of natural less than US$1 a day. Contribution to the Policy Debate. disasters, and the difficult transition to a .ebruary 2001 23 West Bank and Gaza Update n .rom Commissars to Mayors: Cities in the Transition Economies. Contact Numbers n The Determinants of Enterprise West Bank Office Numbers: Mission Coordination Restructuring in Transition: An Switchboard 02 - 2366500 .ifi Antar Assessment of the Evidence. .ax 02 - 2366543 02 - 2366507 n Progress Toward the Unification of Europe. Country Director Accounting Joseph Saba Samira Hemsi n The Evolution of Pension Systems in 02 - 2366503 02 - 2366506 Eastern Europe and Central Asia: Policies and Eastern Europe and the External Affairs & Aid Coordination Public Information Center .ormer Soviet Union. Ma'moon Sbeih Mary Koussa 02 - 2366511 02 - 2366529 n Maintaining Utility Services for the Poor: Policies and Practices in Central Economic Department Gaza Office: and Eastern Europe and the .ormer Sebastien Dessus Coordinator Soviet Union. 02 - 2366549 Husam Abu Dagga n Cleaner Transport .uels for Cleaner Infrastructure Development Administrator Air in Central Asia and the Caucas. Kingsley Robotham Samira Hillis n Who is Paying for Health Care in 02 - 2366522 Tel. 07-2823422, 07-2824746 Europe and Central Asia? .ax. 07-2824296 Projects Disbursments n Rural, Environment, and Social Adel Odeh International .inance Corporation Development Strategies for the Europe 02 - 2366515 02-2366517 and Central Asia Region. Information Technology Country Coordinator Abdallah Nasr Tamara Lansky 02 - 2366527 West Bank and Gaza Update editorial team Ma'moon Sbeih - Editor Mary Koussa Sebastien Dessus Claus Astrup Rami Khoury With special thanks to Mary Saba .or further information contact: Ma’moon Sbeih Tel. (972) 2 2366511 email: msbeih@worldbank.org The ‘West Bank and Gaza Update’ can also be found on the Internet at: http://www.worldbank.org .ebruary 2001 24