Palestine is located on the eastern coast of the Mediterranean Sea. It comprises two non-contiguous areas – the Gaza Strip and the West Bank. Gaza, the smaller of the two, is bordered by Egypt and Israel, while the West Bank is surrounded by Jordan and Israel.
The services sector accounts for the largest proportion of Palestine’s GDP. Its economy is also highly dependent on Israel, which controls the movement of goods and labour inside and out of Palestinian territories. With limited access to resources, Palestine has suffered from a lack of inward investment, causing the local authorities to depend on international aid for budget and development projects.
In Hamas-controlled Gaza, its three wars with Israel over the past eight years have caused high unemployment and sharp private-sector contraction, ravaging much of its industrial infrastructure. The Palestinian Central Bureau of Statistics (PCBS) reported that the overall unemployment rate in Q3 2015 was 43%. The 2014 war also displaced more than half a million of people from Gaza, effectively exiling its middle class and touching off a recession. Reconstruction work in 2015 was patchy and slower than expected. According to the IMF, the Gaza economy is not expected to reach its 2013 annual level until the end of 2017. In September 2015, a UNCTAD report warned that Gaza could become uninhabitable in five years if the conditions persisted.
On the West Bank, which is under the control of the Fatah-led Palestinian Authority (PA), economic growth has decelerated due to a decline in donor aid and cuts in government spending. This is despite attempts to implement economic and security reforms. Customs revenues are collected by Israel on behalf of the PA, though the monthly repatriation was withheld for months in 2015 due to growing bilateral tensions, which further negatively impacted the economy. The World Bank estimated that the PA would suffer an annual revenue loss of US$285 million under the current arrangement with the Israeli government.
Palestine has also suffered from persistent trade deficits, largely due to the limited access to key resources and Israeli restrictions. Palestine mainly exports limestone, fruit and vegetables. Its primary imports are oil, food, consumer goods, machinery and metals. Israel, China, Turkey, Germany, Italy and France constitute its primary trading partners.
In his recent visit to Palestine, China's Special Envoy on the Middle East Issue said that the Belt and Road Initiative could play an important part in any future Middle East peace process, hopefully bringing peace and economic opportunities to the Palestinians.
Palestine has attracted limited foreign investments apart from foreign aid. According to UNCTAD statistics, cumulative FDI in Palestine totalled US$2.45 billion in 2014, little changed from 2013. China’s FDI in Palestine is far from significant.
The Palestinian Investment Promotion Agency (PPA) is responsible for investment promotion and has earmarked ICT, food and beverage, textiles and garment, tourism, drug and pharmaceuticals, manufacturing and agriculture for investment promotion. Information on investment climate and incentive schemes offered can be found on the PPA website.