AHLC Meeting, London

1
STATE OF ISRAEL Ministry of Defense Coordination
of Government Activities in the Territories
AHLC Meeting, London - 13-14/12/05
Part I
December 2005
2
Table of contents

• Palestinian Economic Tendencies in the year
  2005......................................3
• The Terror Against Israel Humanitarian
  Arteries39

3
Palestinian EconomicTendencies in the year 2005
4
The Macro-Economics Picture in the PA - General

• the recovery process in the Palestinian economy
  continued in the year 2005 but in a more moderate
  rate, following the year 2004 which was a year of
  significant improvement.
• The improvement in Judea and Samaria continued in
  the year 2005 but in a more moderate rate, after
  the significant improvement in the last year.
  Moreover, signs of progress in the economy of the
  Gaza Strip become evident after signs of decline
  in 2004.
• The year 2005 is characterized by a direction
  shift due to the political-security situation
• The first half was characterized by trend of
  economic improvement due to the policy of
  concessions taken by Israel expansion of
  employment in Israel, removal of road
  blocks/slicing in Judea, Samaria, and Gaza Strip.
  Also, the expectations of the Palestinians from
  the implementation of the disengagement plan
  created positive atmosphere that encouraged
  economic progress.
• The second half was characterized by a trend of
  economic slowdown due to the deterioration of the
  security situation and the restrictions imposed
  by Israel, mainly on the entrance of workers and
  on the operation of the Karni Crossing.
  Nevertheless, November and December are expected
  to be positive and return the economy back to the
  recovery track.
• Uncertainty regarding the year 2006 the
  political-security situation, investment by the
  international community and the private sector,
  and the budgetary distress of the PA (economy of
  elections).

5
The Macro-Economics Picture in the PA Main
Trends

• Increase in the Palestinian product by 8-9 and
  in the product per capita by 4-5.
• Increase in the volume of trade between Israel
  and the PA (12) compared with the year 2004 (8
  in Judea and Samaria, and 20 in Gaza Strip).
• Decrease of the unemployment rate in the entire
  PA (3.4) compared with the previous year. At the
  regional level decrease of about 3 in Judea
  and Samaria and 4 in Gaza Strip.
• Slight decrease of employment of Palestinians in
  Israel and the settlements in 2005 (decrease of
  3, 133 thousands work days) compared with the
  previous year. A significant differentiation
  between the regions was noticed (significant
  increase of employment from Judea Samaria and
  decrease from Gaza Strip).
• Increase in the volume of permits to merchants
  and businessmen (17).
• Sharp increase in the volume of tourists in
  Bethlehem (180) compared with the year 2004.
• Sharp increase of 240 in the Al-Quds
  Palestinian shares index.

6
The Macro Economic View of the PA Since 2000 and
Forecast to 2005
The economic breakdown in the PA through the
violence since year 2000, created a Tough
economic distress and an increase in the
unemployment. Since year 2003 there is a
positive tendency in the economic situation.
7
Macro Economic picture forecast for GNI\GDP

• We estimate that the GNI in the year 2005 will
  grow by 8 and will return back to 90 of its
  value in the year 2000 The GDP will grow by 9
  and will return to 95 of its value in year 2000.
  The recovery during the years 2003 2005 came
  after a decrease of 30-35 in the years
  2001-2002, the first two years of the
  confrontation.
• Due to the population grown in the PA (4 a
  year), the GNI per capita is expected to grow by
  4, and the GDP per person will grow by 5.

"Defense Shield"
Disengagement
beginning of current conflict
Data of product in the PA
GNI The estimation is based on the last World
bank report.
8
Trade and Merchandise Movements
9
Israel P.A. Reported Trade
Israel is the main partner of the PA as for
import and export
The reported trade between Israel and the P.A.
continued its recovery and has increased by 26
during 2004 (according to Israeli Tax V.I.T
Department estimations).
Reported Trade between Israel the P.A.
(excluding agricultural products)
Unreported Trade Seam City trade and pirate
trade. The unreported trade has drastically
decreased from 500 million a year to almost
zero since the beginning of the current conflict.
10
Trade and merchandise movements in the PA by
areas

• The merchandise movements during 2005 in the W.B.
  is expected to grow (8) compared to last year.
• The merchandise movements is expected to grow in
  the G.S. as well, in comparison with last year
  (20). This growth is significant due to the
  fact that Raffa passage was closed since
  September and Karni passage was closed twice for
  about a month, once on January following the
  terror attack which resulted in 6 Israeli
  civilians murdered and once on October following
  the deterioration in the security situation, the
  holydays and the Ramadan.

11
Trade and Commercial Movement between Israel and
the PA
Source COGAT data.

• The cause for the decrease in truck movements
  through Adam Bridge is safety problems and as a
  result its closing.
• The cause for the decrease in truck movements
  through Rafah passage is the disengagement plan
  and as a result its closing and transferring to
  the PA responsibility.
• The data related to reported merchandise.

12
Back to Back platforms in the West Bank (trucks
in months)
13
(No Transcript)
14
Trucks movement at the "Karni" Passage (Monthly
data, Since 2002)
15
Total movement at Karni passage
Transportation of containers through Karni
passage
16
Aggregates movement to G.S.Thousand truck per
year
Total 101.6
28
13
Total 79.5
Total 70.1
23
Total 56.9
17

• Iron movements to the G.S.
• through Karni and Rafah passages
• (yearly truck movements)

Cement movements to the G.S. through Karni and
Rafah passages (yearly truck movements)
18
Karni passage operation - Truck movements on
November
19
Improvement and advancement the movement at
Karni passage
20
Improvement and advancement the movement at
Karni passage
21
Employment and Unemployment in The PA
22
Employment in Israel and the settlements by
areas
Palestinian employment from WB (thousands of
working day per year)

• The total number of employed Palestinians in
  Israel and the settlements is expected to reach
  4.8 million working days a slight increase
  (-3, which are 133 thousand workings days)
  compared to last year (4.9 million working days).
  
• The total number of Palestinians employed from
  the W.B. is expected to grow by 14 (459 thousand
  working days), due to the assistance steps policy
  of Israel.
• The total number of Palestinians employed from
  the G.S. is expected to decrease by 40 (592
  thousand workings days). The significant decrease
  happened due to the Disengagement plan and as a
  result the ending of the employment in Gosh-Katif
  and the closing of Erez I.E.

14
Palestinian employment from GS (thousands of
working day in a year)
40
23
Unemployment - by areas
Unemployment rate in the PA () ILO standard
compared to Relaxed definitions
Disengagement
The decrease trend in unemployment rates is
continuing. The average unemployment rate in the
year 2005 is 23 compared to 27 in the year
2004. The improvement in the unemployment is seen
in the G.S. (unemployment rate of 31 compare to
35 in the year 2004) as well as in the W.B.
(unemployment rate of 20 compare to 23 in the
year 2004).
24
Main activities in the employment area - Details
Source COGAT data.
Source PCBS Data
25
Permits Issued for Workers from the W.B. (Since
2003)
26
Palestinian entries from G.S. into Israel Erez
I.E. (daily average, actual entries) 2001-2005
27
Permits for traders and businessmen

• The average Number of permits (which were issued
  and valid) for traders in the P.A. is expected to
  increase by 17 in the year 2005.

Disengagement
17
Thousands permits
BMCs given
28
Tourism in Beth-Lehem
The year 2005 is expected to conclude with an
increase of 180 compared with 2004 (290
thousands versus 103 thousands). This increase
effectively continues the significant recovery of
the tourism sector in Bethlehem that begun at the
beginning of 2004.
180

• The forecast is based on the first eleven months
  of 2005, while taking into consideration the
  seasonal trends by using the seasonal coefficient
  of the previous year. Source of the data the
  Palestinian Ministry of Tourism.

29
The Capital Market The Palestinian Stock
Exchange in Nablus
The Palestinian Bourse recorded raises for the
last three consecutive years, with the increase
of 240 in 2005 (until 31.10.05) being
significantly higher than the increase recorded
in 2004 and 2003 (increase of 54 and 19 in the
Al-Quds index respectively).
Disengagement

• The raise in 2005 is probably due to several
  reasons
• Expectations for a positive turn due to the
  disengagement plan.
• The economic recovery that took place in the
  PA in 2004, provided a fertile ground for the
  growth of the stock exchange.
• Positive adjustment of the decline during
  three consecutive years (2000-2002).

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Poverty in the P.A.
31
Poverty

• The bread line the bread line in the Occupied
  Territories is generally defined in accordance
  with the UN definition (2.2 per person per day)
  and is calculated for a family of 2 adults and 4
  children.
• As of September 2005 the bread line is NIS 1,934.

The Bread Line

• Poverty based on the consumer index is defined
  based on the family consumption level and
  expenses (6 members) with regards to various
  consumer components food, housing, clothing,
  health, household outgoings etc. This is based on
  the basket of products determined in the income
  and expenses survey conducted in 1997.
• Poverty according to the income index the
  poverty index according to the income index is
  the same bread (poverty) line defined according
  to the consumption index, relating to the level
  of income compared with consumption.

Poverty Index
32
Poverty data according to the consumption index
(Angels poverty index)

• Measuring poverty in the PA based on the consumer
  index, according to the 2004 costs and consumer
  survey. We believe the survey is very reliable in
  view of the coverage of the sample and the
  professional testing methods employed.
• The survey findings indicate that in 2004 the
  Palestinian economy managed to return to a level
  of consumption and costs similar to that of 1998
  (prior to the high growth rate of 1999 and 2000).

• The poverty rates according to this survey
  indicate that the level of poverty in the PA is
  far lower than early predictions. The level of
  poverty did not change substantially during the
  period of conflict partly due to Israeli efforts
  to sustain the standard of living.
• The poverty rates according to this survey are
  substantially lower than the poverty rates
  indicated in the impact of the conflict surveys
  (which examine the poverty rates according to the
  income index) and are highly reliable.
• The poverty level is greater in the Gaza Strip
  than in Judea and Samaria. The poverty level in
  the Gaza Strip during the years of conflict was
  very high, although this was alleviated with the
  improvement in the security situation in 2004. We
  estimate, despite the fact that the 2005 costs
  and consumption survey has yet to be completed,
  that there was not a drastic deterioration in
  2005 compared with 2004.

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Poverty levels according to the income index
Source of data The impact of the conflict on
Palestinian households surveys of the Palestinian
Central Bureau of Statistics up to the first
quarter, 2005

• Examination of the above figures indicates that
  the poverty level in the first quarter of 2005
  stood at about 66.7, compared with 60 in the
  previous quarter and 66 in the last year
  corresponding quarter. These figures also
  indicates that the poverty level was high, and
  exceeded 60, throughout all the years of
  conflict. We believe these figures are distorted
  and do not accurately reflect reality for the
  following reasons

• The level of income is the principal index for
  measuring poverty rates (around the world),
  however use of this index for the Palestinian
  economy is problematic, in view of the difficulty
  in measuring the income of households (as some
  Palestinian households include several
  breadwinners while the survey is based on just
  one breadwinner per family and will generally
  estimate the family income as low). There is also
  difficulty in equating the populations methods
  of managing (such as defaulting on debts), along
  side the fact that the poverty line is defined in
  accordance with the consumer index and this
  creates a problematic mix that inflates the
  poverty line.
• We believe that macro-economic parameters in
  2005, such as the rise in trading and employment
  levels, decline in unemployment, constitute a
  good indication that there was no significant
  deterioration in the poverty levels compared with
  the end of 2004.