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The economics of Oslo, 20 years later: A snapshot

There is much to say about the justness (or unjustness) of the Oslo process, specifically the economic and human impact it has had over the last two decades in Israel and Palestine. What follows is a snapshot.

By A. Daniel Roth

Israeli Prime Minister Yitzhak Rabin, U.S. president Bill Clinton, and PLO chairman Yasser Arafat at the signing of the Oslo Accord (photo: Vince Musi / The White House)

Twenty years ago this week Yitzhak Rabin and Yasser Arafat signed the historic Oslo Accords. A few months later, in the spring of 1994, the Paris Protocol – the blueprint that would define the economic relationship between the Palestinians and Israelis for the next two decades – was signed.

Continued violence and events such as the assassination of Prime Minister Rabin ensured that the conditions for a just peace between the two peoples would worsen over the next two decades. Despite the above, the power imbalance that gives Israel the vast majority of control over the Palestinian people and economy, and the intention that the protocol was only supposed to be valid for five years, the Paris Protocol remains central to the two peoples’ shared economic system. It’s a system that places the Palestinians almost entirely under the economic control of Israeli policy.

Read more: The festering legacy of Oslo: Jerusalem as ‘indivisible’ as ever

Israelis and Palestinians both use the shekel, but the difference in their economies is enormous. Israel’s per capita GDP is about $32,600, while Palestine’s is listed as $2,900. The Palestinian economy is small and relies almost entirely on Israel. About 72 percent of imports to Palestine come from Israel and about 90 percent of Palestinian exports wind up inside Israel.

In addition, the protocol ties the value added tax (VAT), a vital source of revenue for the PA, to Israel’s VAT. When Israel raises its VAT as it did, to 18 percent in June of this year, the PA must as well. The PA VAT sits at 16 percent. The agreement also led to the establishment of a Palestinian Finance Ministry and Central Bureau of Statistics. Still, Israel controls all ports of entry to Palestinian markets and population centers and collects the majority of import taxes on goods heading there, leaving Israel responsible for a great deal of PA government revenue. It’s a responsibility they don’t always follow through on.

One of the central components of the agreement stipulated that workers and goods would be able to flow throughout Israel and the occupied territories, but the flow of labor and goods significantly diminished in the fallout of the Second Intifada, before which about 110,000 Palestinians worked in Israel and Jewish settlements in the occupied territories. Today the number of Palestinians with Israeli work permits hovers around 35-40,000.

Indeed, a report from the UN’s conference on Trade and Development notes that restrictions on movement have contributed to the Palestinian trade deficit, which grew from 44 to 47 percent of GDP in 2012.

The report also notes that the building of the separation barrier, which began in 2003 – another measure in the wake of the Second Intifada – has led to $1 billion in losses to Palestinians in Jerusalem with $200 million added to that number each year. Commercial trade between Israelis and Palestinians was valued at $20 billion this year.

A recent International Monetary Fund report forecasts a dim outlook for the Palestinian economy. Two years ago the growth forecast for 2013 was 12 percent; now that number is set at 4.5 percent. About a quarter of Palestinians live below the poverty line. Meanwhile, a look at the Israeli side of things doesn’t reveal much better news: the Israeli poverty rate sits at 21 percent and further austerity measures are in the works.

As the occupation continues and as economic outlooks worsen for most people in Israel and Palestine, the economies of the two peoples remain intertwined. Whether the current round of negotiations can bring about a just solution – economic and otherwise – for both Israelis and Palestinians is yet to be seen. What is certain is that the Oslo process didn’t achieve it.

Related:
Oslo years, a view from the ground

A. Daniel Roth is an educator and journalist living in south Tel Aviv. He was born and raised in Toronto and lived in a commune of the Hashomer Hatzair movement in New York City. Daniel is a member of the All That’s Left collective. You can find more of his writing and photography at allthesedays.org. Follow him on Twitter @adanielroth.

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    1. Kolumn9

      This article seems a little forced. The Israeli economy has done extraordinarily well over the past 20 years. Israeli per-capita GDP just about doubled and the Israeli economy is growing at a rate of 3.4% a year. The unemployment rate is low and the poverty rate is more a reflection of the failure to integrate Arabs and Haredim into a successful economy than a valid indication of the overall health of the economy.

      The Palestinian economy has indeed suffered, primarily as a result of the second intifada which caused it to be disconnected from the Israeli one. It has also suffered under a horribly corrupt government more interested in creating a large public sector dependent on the leadership than in a growing private sector.

      Reply to Comment
      • Danny

        The Israeli economy has indeed done very well for itself in the last 30 years, since the days of double-digit inflation. This was due in no small part to Israel’s high tech sector, which has become a driving force for the economy. That is a real achievement, though I would hazard a guess that considering the rather shabby state of Israel’s education system of the last few years, the future supply of qualified engineers should be expected to decrease.

        It was also due to monies Israel has received from the U.S. and holocaust-guilt-ridden European nations that have amounted to tens of billions of dollars (some estimates peg American and European contributions to Israel at no less than $100 billion all told). Subtract that value, and you’ll arrive at a less flattering picture of the economy.

        But I think what the article tries to get at is that Israel holds the Palestinian economy well under its thumb, and has gone to great lengths to keep it small and vulnerable by limiting its scope and reach (usually by shutting border crossing to any trade). That is the point of the article.

        Reply to Comment
        • Kolumn9

          Don’t know about the first part. The problem is not that the supply of quality engineers is shrinking. Every year 8200 and other units produce quite a few, as do the universities. The problem is that there is even faster growing demand for them. The second part, about American and European aid, is generally exaggerated. You and I know that most of the aid that Israel gets is military aid that is spent in the US and doesn’t stimulate the Israeli economy. Also, as you point out the growth in the Israeli economy in the past 20 years is primarily the result of the high tech sector and it would be pretty hard to explain that growth by pointing to American or European aid.

          The article quite explicitly tries to connect the ‘continuation of the occupation’ with poor economic prospects for the Israeli economy. This is a very difficult position to support given the impressive historical performance of the Israeli economy over the past 10, 20, or 30 years. The Palestinian economy is certainly not doing as well, but as I pointed out already, that is primarily the result of the disconnect between the Israeli and Palestinian economies due to the suicide bombings of the second intifada which interrupted the flow of commerce and labor. Absent the second intifada the Palestinians would almost certainly have been economically better off. As such it isn’t the Oslo Accords that caused the Palestinian economy to underperform. It is the mismanagement of the Palestinian economy by the Palestinian Authority combined with the lost wealth and income that is the result of Palestinian violence against Israel.

          Reply to Comment
          • Danny

            Israel is one of the poorest countries in the OECD, with socio-economic gaps that easily top that list. While Israel’s high tech sector has been highly successful, it isn’t be enough to pull average Israelis out of the mud, as the article clearly shows the poverty rate in Israel is actually not far from neighboring countries.

            Also, seeing Israel’s education ministry continually lowering the bar for matriculation results just so the average Israeli student doesn’t fall too far from his peers is nothing short of embarrassing.

            Lastly, the absence of that $3 billion Israel receives every single year from the U.S. would have had to come from someplace else had it not been forthcoming. If there is one thing Israel will never compromise on, it’s its high tech military. That $3 billion would have come out of your paycheck!

            Reply to Comment
          • Kolumn9

            You mean the OECD, which is the club of the 34 most economically developed countries on the planet of which pretty much every one is at peace with their neighbors and trades extensively with them? Seems like a great success for Israel to have joined that club in 2010 in the first place. Put another way, Israel has a more successful economy that 80% of the countries in the world. And again, the poverty statistics is the result of the lack of integration of the Haredim and the Arabs.

            The Israeli education system produces graduates with far better knowledge of most subjects than the US and most European countries. It isn’t keeping up with Finland or South Korea, but like with misleading comparisons to OECD economies, let’s keep our indignation and disappointment within reason. From my personal experience the quality of human resources available here for businesses, especially those focused on science and technology, is second only perhaps to the US.

            Lastly, the absence of the $3B may have been resolved with a more efficient military that isn’t obligated to spend all that money on hugely overpriced and extremely expensive to maintain American hardware. Perhaps instead of relying on expensive American equipment which is functionally “cheaper” because of the aid, Israel could have developed more efficient and cheaper native equivalents and marketed them on the world market as competition for American hardware. It wouldn’t exactly be the first time that happened.

            Reply to Comment
          • Danny

            You are making life very easy for yourself by idealizing Israel rather than looking at it objectively. I have a challenge for you: Get in your car and take a drive out from your little town (doubtless you live in a very nice town like Ra’anana or Kfar Saba, etc), and drive to what is known in Israel as the periphery. This is where the bottom 50% of Israeli society live, and includes places like Ramle and Lod in the center of the country, Sderot and Netivot in the south, Naharia and Acre in the North. Don’t even bother with any of the Arab towns, as these have been systematically neglected since 1948 and lack even the most basic infrastructure. The aforementioned places are towns I happened to pass through and felt very happy to leave at the first available opportunity. Naharia especially struck me as a very depressing place, even without the Katyushas that fall there whenever the IDF decides to ignite the northern border. Israel is full of places like these that are close to being 3rd world towns. From my experience as a reserve soldier, most of these towns do not get visitors other than reserve soldiers, which somewhat helps to prop up the local economy, especially if there is a large military base nearby. In my honest opinion, Israel has too many of these kinds of towns for it to be considered a bonafide 1st world country.

            Reply to Comment
          • Kolumn9

            I don’t think either one of us truly looks at Israel objectively. I have visited most of the places you mentioned (including those you suggest not visiting), though yes, I live in a very nice place. Yes there is poverty in Israel, and yes, it is higher than in most of Western Europe. To you that is sufficient to ignore the major achievements of the Israeli economy. For me it isn’t. I believe it is possible to both say that Israel has economically succeeded and to argue that more should be done to extend that economic prosperity to those that have up until now have not enjoyed it. You see Lod and Ramle, I see Modi’in and Raanana and Kfar Saba. You see the development towns of 10 years ago. They were depressing. I see the new malls, new construction and new cars in those same places. Netivot depresses you? Have you been there lately? When did you leave Israel? 2002?

            What you see as some sort of structurally fixed socio-economic gaps I see as temporary problems that are being gradually worked out. I would go even as far as saying that with the introduction of express highways (6) and the growth of the number of rail lines (to Akko, Nahariya and soon to Sderot and Netivot for example) the ‘periphery’ is gradually being pushed out further and further until at some point the entire concept will stop making sense. Oh, and if you ever find yourself in the US with a car and a month to spare I could give you a nice list of places to visit in that first world country.

            Reply to Comment
    2. inspector

      “The report also notes that the building of the separation barrier, which began in 2003″– another measure in the wake of the 2nd Intifada – has led to $1 billion in losses to Palestinians in Jerusalem with $200 million added to this number each year”

      Do you even pay attention to what you’re writting ??

      Reply to Comment
      • Kolumn9

        I don’t think he is a numbers guy.

        Reply to Comment
      • Andrew

        What’s the problem with that sentence?

        Reply to Comment
    3. Dave Boxthorn

      I would love it if the Palestinians had their own currency. And since the Arabs invented it I’d call it the ‘Zero’.

      Anyhow I’m so glad that the US and the guilt ridden European nations have given so much to Africa. No wonder that continent is a high-tech marvel.

      Reply to Comment
    4. Kolumn9

      And another thing. The Palestinian economy is expected to grow at *JUST* 4.5% ???

      The Jordanian economy is growing at 3%. The Syrian economy is shrinking. The Egyptian economy is stagnant. The Lebanese economy is growing at 2%. The Israeli economy is growing at 3.4%.

      So, I repeat. *JUST* 4.5% ??? And this is bad, compared to who precisely?

      Reply to Comment
      • Andrew

        4.5% of $10 billion (Palestinian GDP) is next to nothing when you are talking GDP.

        Reply to Comment
      • Andrew

        … compared to say 73 Billion for Syria or 242 Billion for Israel. The difference is huge.

        Reply to Comment
        • Kolumn9

          I am flustered. I have no idea how to reply to such economic ignorance.

          4.5% is the growth rate of the Palestinian economy. I have already compared that with the growth rates of their neighbors. The article seems to pretend that 4.5% is a low growth rate, which it isn’t. It is an extremely high growth rate. European policy makers would give their left testicle for that kind of growth rate. The Palestinian economy also did manage to grow at 12% in 2011 which is a growth rate unmatched in the world. Either number puts to lie any claims made here and elsewhere that the current political situation makes it impossible for the Palestinians to enjoy economic growth.

          Then you try to compare absolute GDP numbers. This is silly. Monaco has a lower absolute GDP than Palestine. So what? The US has a vastly higher GDP than Israel. Again, so what? These kinds of comparisons of absolute GDP numbers are basically meaningless.

          Reply to Comment
        • The Trespasser

          > 4.5% of $10 billion (Palestinian GDP) is next to nothing when you are talking GDP compared to say 73 Billion for Syria or 242 Billion for Israel. The difference is huge.

          Typical “leftist-progressive” idiocy.
          $10 000 000 000 divided by 3 900 000 = $2 564 Palestinian GDP per capita
          $73 000 000 000 divided by 22 400 000 = $3 258 Syrian GDP per capita
          $35 650 000 000 divided by 26 261 000 = $1 357 Yemeni GDP per capita
          $257 300 000 000 divided by 80 720 000 = $3 187 Egyptian GDP per capita

          No brain – no pain, right?

          Reply to Comment
          • Andrew

            On the surface, the GDP seems to bea t a fine growth rate as a % and the per capita seems normal as a comparison to other nations. But simple GDP comparisons won’t suffice here given the marriage of the Israeli and Palestinian economies through the Paris Protocol, which is a situation that Yemen, Syria, and others are not in (though they all have various other major issues to deal with), the enormous difference in Israeli and Palestinian economic power in relation to one another both mimics and reinforces the power dynamic already at work through occupation. The uniqueness of the economic situation of the Palestinians should not be taken for granted no matter how it looks at first glance when looking at GDP. The 2000 GDP per capita of Palestine in relation to the 30000 per capita of Israel is where the interest lies in this discussion. Here, read about the report to understand why things look “dim” and why it has to do with the occupation from the “Leftist-Progressive” IMF in the “Leftist-Progressive” Wall Street Journal. The link is up there in the article or here. http://blogs.wsj.com/middleeast/2013/09/12/palestines-economic-outlook-dim-says-imf/

            Reply to Comment
          • The Trespasser

            I don’t really need to read any reports to realise why Palestinian – or any other Arab economy looks dim.

            You see, primitive, semi-barbaric, illiterate societies can not possibly have prosperous economies.

            Reply to Comment
          • andrew r

            “You see, primitive, semi-barbaric, illiterate societies can not possibly have prosperous economies.”

            That’s not a nice thing to say about your ancestors from the Pale of Settlement.

            Reply to Comment
          • The Trespasser

            Everyone’s ancestors were illiterate savages at some point.

            Yet some societies were managed to advance, while others did not.

            Reply to Comment
          • Kolumn9

            You mean the growth rate is excellent but still you would rather come up with some other nonsense to complain about which you don’t even understand. So, again, here come out the usual complaints. Israel is strong, the Palestinians are weak. True. Israel is rich, and the Palestinians are at the same level of development as the surrounding Arab states. True. Now we go looking for someone to blame and voila, its amazing, we have come back to what you wanted to do all along – blame Israel.

            But, when a comparison is shown to you in which the Palestinians are basically in the same economic situation as all the Arab surrounding states then you have a problem. Who does one blame for the economic performance of Egypt or Jordan? I mean these are independent states, so I guess no one. How inconvenient. And with a flick of the wrist we are back to – blame Israel. How dare it be rich? How dare it be strong? It must be at fault.

            Reply to Comment
          • Andrew

            You hit the nail on the head. At the core of this is the lack of control that the Palestinians have. They don’t get to decide that their economy will be like other Arab states or like Israel or like China or Indonesia or Venezuela. They don’t get to decide those things because they live under occupation and part of the Oslo accords (the Paris Protocol) explains how that would work in the economic sphere (which you hilariously assert I know nothing about – without any knowledge of me or, it seems, the *actual* economic situation in Palestine). That’s the difference that you fundamentally ignore in your assessment of the Palestinian economic situation. In the final assessment the question (as with all political and economic questions) is about power. Some states lack economic power, some peoples lack political power. The Palestinians lack both in this case and, yes, much of the fault lies with Israel.

            Reply to Comment
          • Kolumn9

            So, the nail on the head is that even though the Palestinians have the same economic situation as the surrounding Arab states it is somehow Israel’s fault. Got it. So, given that, is it then Israel then that gets the credit for the Palestinian economy growing faster than the surrounding Arab countries and faster than Israel itself? No? Why not? How can you assign all the blame and yet none of the credit? There is a fundamental logical inconsistency there.

            And, yes, they did get to decide what kind of economy they wanted and they decided to build a large and corrupt centralized state on the model of the surrounding Arab states which does not encourage private economic initiatives. This is why the Palestinian Authority directly employs somewhere around 150,000 people performing economically useless work while being subsidized by foreign money. No Israeli sat down with Arafat when he came back from Oslo and demanded that the Palestinian Authority become an unsustainable charity-bound organization that gives out contracts to people on the basis of their family relations to Arafat and his cronies.

            And, no, you have no idea what you are talking about. Of that I am hilariously certain given your previous comments trying to compare absolute GDPs. No one with even a basic understanding of economics would do such a thing. When someone says something as stupid as that I need to have no additional knowledge of you to make a determination.

            Have a nice day. I am done here.

            Reply to Comment
          • andrew r

            I wouldn’t be too hard on the other Andrew since you came out with this gem: “You and I know that most of the aid that Israel gets is military aid that is spent in the US and doesn’t stimulate the Israeli economy.”

            Nevermind that’s 2-3 billion less Israel has to spend on hardware, Israeli firms work with US contractors – General Dynamics and Rafael jointly develop armored vehicles, for example. And a good 10-20% of Israel’s exports are military.[1] It doesn’t take much connecting the dots to figure out even if none of the military aid went to Israel directly, it’s still a boon to the Israeli defense industry.

            Anyway, keep on pretending Israel sits in some prosperous little bubble all the making of its Jewish upper-caste. It’s not really stupid so much as cute.


            [1] http://www.aljazeera.com/indepth/features/2013/08/201381410565517125.html

            Reply to Comment
          • The Trespasser

            Fantastic article by Al Jazeera.

            By idiots, for idiots.

            “The film’s release this month in the United States follows news that Israeli sales of weapons and military systems hit a record high last year of $7.5bn, up from $5.8bn the previous year. A decade ago, Israeli exports were worth less than $2bn.”

            Filmmakers did forgot to mention that Israel withstands not only a bunch of Palestinian Arabs, but also a large part of 400 000 000-strong Arab Ummah.

            For some less developed individuals it is totally unthinkable that Evil Jooz were not only able to disperse camel-back riding hordes armed by world’s leading military, but also were able to develop own weapons and even profit from it.

            Well, I suppose that it happened because Evil Jooz are using their heads not only to consume hummus and shwarma with.

            “The Lab also underscores the Israeli arms industry’s success in developing futuristic weapons, such as the gun that shoots around corners. The bullet-bending firearm caught Hollywood’s attention, with Angelina Jolie wielding it – and effectively marketing it – in the 2008 film Wanted.”

            http://en.wikipedia.org/wiki/CornerShot

            No matter that bullets are not “bended” (mwahahahaha), or that similar weapons were employed since WWI
            http://en.wikipedia.org/wiki/Periscope_rifle
            or that most world militaries had tried to create something similar
            http://en.wikipedia.org/wiki/Krummlauf
            http://www.ppsh41.com/serge3.htm
            http://en.wikipedia.org/wiki/M.95_(periscope_variant)
            http://en.wikipedia.org/wiki/POF_Eye

            p.s. Anyway keep on pretending that Arabs are capable of building a successful, developed, prosperous, democratic state. It’s stupid so much as funny.

            Reply to Comment
          • andrew r

            “Yet some societies were managed to advance, while others did not.”

            Jews only managed to advance by giving up their traditional ways and leaving the Pale. Back in the day eugenics thinkers would blame them for their own backwardness and not, say, the forced segregation by the Russians.

            “Anyway keep on pretending that Arabs are capable of building a successful, developed, prosperous, democratic state”

            Remember that GDP per capita thing? Kuwait, Qatar and the UAE have higher GDP per capita than Israel. Of course some Arab states are economically successful. They do it the same way as Israel: By exploiting a lower caste of cheap labor. You know not every Israeli is making 31,000 USD a year nor is every Emirati getting 40,000.

            If Israelis are so smart, let’s see them run a developed economy without migrant workers and Palestinians. Of course that’s too specific: Let’s see anyone develop an economy without cheap Asian and Latin American labor. The real barbarians are the ones who develop so-called modern economies.

            Reply to Comment
          • The Trespasser

            >Jews only managed to advance by giving up their traditional ways…

            Partially, yes. As it has been recently proven, religion is for stupid.

            >and leaving the Pale.

            Not really. Jews took a very large part in Soviet revolution. Also, there were many prominent Jews in Germany and other European countries.

            >Back in the day eugenics thinkers would blame them for their own backwardness and not, say, the forced segregation by the Russians.

            Eugenics is, basically, a primitive form of genetics. I’m not saying that Arabs are genetically inferior – only that Arab society is barbaric and primitive and not able to develop.

            >Remember that GDP per capita thing? Kuwait, Qatar and the UAE have higher GDP per capita than Israel.

            Kuwait, Qatar and UAE economies are based on sales of oil. Their GDP is 99% dependent on oil prices. Should there be an alternative fuel invented, they will eat sand.

            >Of course some Arab states are economically successful.

            Nope. Not even one. Countries with economies which are more than 50% dependent on resources export can not be considere economically successful.

            >They do it the same way as Israel: By exploiting a lower caste of cheap labor.

            No. They do it by selling oil.

            >You know not every Israeli is making 31,000 USD a year nor is every Emirati getting 40,000.

            Irrelevant.

            >If Israelis are so smart, let’s see them run a developed economy without migrant workers and Palestinians.

            Would not be a problem. The difference between what migrant workers are earning and what Israelis would agree to earn for the same job is not more than mere $500 per month.

            >Of course that’s too specific: Let’s see anyone develop an economy without cheap Asian and Latin American labor.

            How is it relevant to the fact that there are no economically developed Arab countries?

            >The real barbarians are the ones who develop so-called modern economies.

            Rubbish. Just rubbish.

            For instance, you are not taking in consideration that migrant workers are seeking employment in other countries because their own economies are not capable to provide enough jobs for everyone, and that due to overpopulation caused by medicine developed by said “barbarians”

            By the way, do you realize amount of high and low skilled work which was necessary to allow you to post on this very website?

            Reply to Comment
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