FEAS Yearbook FEAS Yearbook 2010 | Page 142

ANNUAL REPORT JUNE 2010 FEDERATION OF EURO-ASIAN STOCK EXCHANGES PALESTINE SECURITIES EXCHANGE ECONOMIC AND POLITICAL DEVELOPMENTS Political Developments Government Reforms: The PNA has made substantial progress towards improving its fiscal position since 2007. In January 2010, the PNA launched a plan of priority interventions for 2010 comprising 201 projects identified by PNA ministries. They have a total estimated budget of US$5.5bn. Projects for 2010 require US$667m. Infrastructure projects account for 67% of the requested funding and include: a railway network, a commercial port, at least one international airport, desalination plants and wastewater treatment facilities. The contribution of major economic sectors to GDP has varied little over the past year. In Q3 2009, public administration and defence contributed 14% of value added, wholesale and retail trade 10%, manufacturing 10%, transport storage and communications 9%, real estate, renting and businesses services 9%, agriculture and fishing 3% and construction 6%. The PNA has also focused on developing the institutional and legal framework in recent years. A priority has been the comprehensive reform of the tax system. A new income tax law has been adopted and the VAT rate has been reduced. Foreign Trade: has been severely hindered by Israel’s control over Palestinian borders. Trade indicators have recovered considerably since 2002. Israel is the main trading partner of the Palestinians. The Ministry of National Economy is making efforts to develop public-private sector partnership. Regulations in the Palestinian financial markets are also continuing to improve, with, for example, a new ‘Code of Corporate Governance’ which private sector companies are expected to follow. The PNA has concluded free trade agreements with the European Union, the European Free Trade Association (EFTA), the US, Canada and Turkey. Closure obstacles in the West Bank and Gaza Strip numbered 619 in August 2009 (OCHA data). The Gaza Strip is completely isolated with all exists sealed. Two-thirds of the 723.3 km separation wall between Israel and the Palestinian Territories is complete complications in the Palestinian territory. Economic Developments The Palestinian economy is robust in its capability to function under often harsh conditions. Due to the political situation, however, it has witnessed many ups and downs over the years. GDP growth averaged 6% per year between 1995 and 2000 (World Bank) but ground to a halt at the Second Intifada. The Palestinian economy rebounds when given the chance and with improved movement and access, GDP forecasts are very positive- the IMF reported that GDP in the West Bank could increase by 7% in 2009. Unfortunately, restrictions in 2009 did not significantly improve so more modest growth is expected. CPI: Inflation in Palestine is comparable to rates in Western countries and below the MENA region average. It increased by 2.75% between 2008 and 2009. Total imports were US$3.8bn in 2008 (up 20% since 2007) and total exports were US$0.5bn (up 3% since 2007). 72% of imports came from Israel, an increase of 20% since 2007. In 2008, exports to Arab countries, US and EU increased by 38%, 35% and 25% respectively. There were noticeable increases in the export levels of agricultural, food, metal and plastics products. The trade deficit in 2008 increased to US$3.2bn, up 27% from 2007. The deficit is covered mainly by external assistance and worker’s remittances. Labour Force Perhaps the greatest asset to the Palestinian economy is its human resources. The level of education is the highest in the region, with the exception of Israel. There is well developed entrepreneurial capacity, good language skills and strong social and economic networks. Local Palestinian demand and labour force are expected to grow over the next decades as more than half of the population is below the age of 18. unemployment in the West Bank has been on a downward trend over the past five years. The unemployment rate for the Third quarter of the year 2009 reached to 25.8% recorded an increase by 16.2% compared with the Second quarter of Key Information Contacts Palestine Capital Market Authority: www.cma.gov.ps Ministry of Finance: www.mof.gov.ps Ministry of National Economy: www.met.gov.ps Palestinian Investment Promotion Agency: www.pipa.gov.ps Palestine Monetary Authority: www.pma-palestine.org Palestinian Central Bureau of Statistics: www.pcbs.org.ps Palestinian Economic Council for Development and Reconstruction: www.pecdar.org Palestine Institute for Financial & Banking Studies: www.pifbs.com Palestine Media Center: www.palestine-pmc.com Custodian Bank - HSBC Bank Middle East: www.middleeast.hsbc.com Settlement Bank - Arab Bank Palestine: www.arabbank.ps PAGE 138 the year 2009. The unemployment rate recorded an decrease by6.18% during the Third quarter 2009 compared with the similar quarter of the previous year 2008. The unemployment rate for the full year 2008 was 26.0% compared with 21.5% in 2007. Impact of the economical situation on the PSE Despite the political and economical deteriorations, the PSE stands on solid ground, as it is better on both directions; improving the performance of the market, and improving the investment environment in securities market, which enables the PSE to achieve outstanding results in 2009, as Al Quds Index increase by 11.62% compared to 2008. During 2009 PSE held 246 trading sessions with approximately 89 thousand transactions were executed with a value that goes around US$ 500 million decreasing by 57.78% compared to 2008. While Al-Quds Index was increased by 11.62 during the same period compared with 2008, all indicators show that at any positive development in the political situation in Palestine will be reflected immediately in the economical circumstances and the PSE. Financial Crisis The impact of the global financial crisis on the Palestinian economy was fairly limited. Local banks are conservative in regard to foreign activities and the Palestinian mortgage market is very small. The stock market was mildly affected by foreign investors who became reluctant to trade in the PSE. In 2008, the Al-Quds index dropped 16%, which compared well with other Arab markets. Since mid 2009, the Palestinian index has been stable, (around the 500 mark) and by the end of the year, had increased by 11.62%.* * Information provided by PSE.