The Israeli occupation is exacting a high price on the Palestinian economy, according to a report by the Palestinian Ministry of National Economy and the Applied Research Institute - Jerusalem - which puts the damage at $6.9 billion a year - what it calls a conservative estimate. The figure is about 85% of the Palestinian GDP for 2010, $8.124 billion.

The calculation includes the suspension of economic activity in the Gaza Strip because of Israel's blockade, the prevention of income from the natural resources Israel is exploiting because of its direct control over most of the territory and the additional costs for the Palestinian expenses due to restrictions on movement, use of land and production imposed by Israel.

Open gallery view A Palestinian clearing an olive tree knocked down by Israeli bulldozer. Credit: AP

The introduction to the report states that the blocking of Palestinian economic development derives from the colonialist tendency of the Israeli occupation ever since 1967: exploitation of natural resources coupled with a desire to keep the Palestinian economy from competing with the Israeli one.

The report was published at the end of September, a few days after Palestinian President Mahmoud Abbas applied for full membership at the United Nations.

Its publication during the period of the High Holidays meant that it was hardly mentioned in the Israeli media.

By quantifying the losses caused by the Israeli occupation, the authors of the report wished to dispel the mistaken impression that has developed over the past two or three years that the Palestinian economy is flourishing naturally, whereas it is in fact supported by donations that make up the cost of the occupation.

The largest chunk of losses to the Palestinian economy is due to the policy of the blockade on Gaza, which is preventing all production and exports. The calculation was made on the basis of a comparison of the rate of growth in the GDP in the West Bank, which in the years prior to the blockade was similar to the growth rate in Gaza. Thus, the authors of the report estimate that in 2010 the gap between the potential GDP in Gaza (nearly $3 billion ) and the actual GDP was more than $1.9 billion. The Palestinian economy, and especially the agriculture sector, is losing a similar sum because of Israel's discriminatory distribution of water between Palestinians and Israelis. Relying on a 2009 World Bank report, the authors of the current study find that not only did the Oslo accords freeze in place a situation of unequal distribution of water pumped in the West Bank (a ratio of 80:20 ), but also that Israel is pumping more from the western aquifer than was alloted it in the agreement.

At the same time Israel is selling water to the Palestinians to compensate for part of what they lack. Israeli control over water resources and access to land in Area C is preventing the Palestinians from developing irrigated agriculture, which today accounts for a mere 9 percent of the cultivated area.

The authors estimate that were it not for the Israeli restrictions it would have been very possible to expand the agricultural sector considerably, up to nearly one quarter of the 2010 GDP.

The Israeli policy of restricting access to water also causes various health problems. The authors of this study added up the costs of treating these heath problems - $20 million - and tacked it on to the total losses.

The Palestinian economy is also losing the potential profits from other natural resources, which Israel is exploiting today or preventing the Palestinians from developing: minerals from the Dead Sea, stone and gravel in quarries, natural gas off the Gaza shore. These erased profits are estimated at about $1.83 billion.

Natural and antiquities sites, as a tourism resource, are being paralyzed by Israel's control over Area C and the restrictions on movements it imposes within the entire West Bank. For example, the losses caused by Israel's control of the Dead Sea alone amount to $144 million annually.

The report also quantifies the damage caused by the uprooting of 2.5 million olive trees and other fruit trees since the start of he occupation in 1967 - an annual loss of $138 million.

The industrial sector is restricted not only in Gaza but also in the West Bank. This, in part, is due to the severe import restrictions Israel imposes on list of 56 items of raw materials and machines because it has defined them as "dual use" - for manufacturing and for fighting.

The list was drawn up in 2008 and includes, among other things, fertilizers, various raw materials, lathes, grinding machines, metal pipes, optical equipment and navigation tools. The report states that these items are still severely restricted despite improvement in the security situation and cooperation between Palestinian security forces and the Israeli army and Shin Bet security service.

These restrictions directly harm a variety of industries like the food, beverage, metal, textile, medications, clothing and cosmetics industries.

The report relies on findings from a study submitted to the National Economy Ministry in 2010 dealing with the possibilities for Palestinian trade. It states, for example, that after Israel prohibited the import of glycerin to the West Bank in 2007, a cosmetics company in Nablus was no longer able to export to Israel. Under Israeli standards, skin care products must contain glycerin.

Because of Israel's control over crossing points and Area C, the Palestinian treasury is not able to fully collect tax and customs duties on all the products sold in the West Bank.

The report estimates that the annual fiscal loss to the Palestinian coffers is about $400 million.

Moreover, the report calculates an indirect fiscal loss: a shrunken GDP relative to the potential means less income from taxes. "According to our calculations, the economy would be 84.9% larger without the occupation, thus it would generate $1.389 billion additional fiscal revenues. Adding this figure to the direct fiscal costs yields total fiscal costs from the occupation of $1.796 billion."

The authors stress this is a conservative estimate of the losses. It does not include various speculative calculations such as losses because of he prohibition on building in Area C, or economic losses caused by the separation fence and restrictions on marketing to East Jerusalem. "Given the total fiscal deficit in West Bank and Gaza of $1.358 billion in 2010," the report states, "the Palestinian economy would be able to run a healthy fiscal balance with a surplus of $438 million without the direct and indirect fiscal costs imposed by the occupation. It would not have to rely on donors' aid in order to keep the fiscal balance and would be able to substantially expand its fiscal expenditure to spur needed social and economic development."