Economic Reconstruction

The physical reconstruction of Gaza will generate a massive economic stimulus in the short-and medium-term. This will require an order-of-magnitude increase in the size of the construction sector compared to the pre-war level. In addition, it will generate secondary activity across a range of other sectors (such as manufacturing, transportation and services). This assumes the availability of international finance for reconstruction, easing of trade restrictions, and capacity-building and skill development to scale the construction sector to the size required.

Recovering Basic Economic Functions

Due to the historical constraints on Gaza’s economy, a range of basic economic functions that serve Gaza’s population were, even before the war, undersized in comparison to a ‘typical’ urban economy. This includes local commerce, basic business services and transportation. As constraints are lifted and the broader economy develops, such basic sectors would be expected to expand, contributing to economic growth.

Emerging Sectors

Beyond immediate reconstruction and recovery, a range of tradable sectors within Gaza can develop a comparative advantage, driving meaningful long-term development. These include agriculture, manufacturing, trade and transportation, tourism, services and the digital economy.

Without a rapid improvement in economic conditions, the region is likely to experience a continued, vicious cycle of conflict. Research (including UNDP, 2007) provides vast evidence of the close relationship between economic underdevelopment and the likelihood of observing armed conflict: weak economic performance makes conflict more likely; in turn, armed conflict destroys productive assets and interrupts economic activity, resulting in long-lasting negative consequences for economic development. The risks of conflict are heightened in countries with low per capita income, weak and volatile growth, high unemployment (particularly among youth) and horizontal inequalities, conditions which are all prevalent in Gaza.

Figure 21 shows the statistical correlation between GDP per capita and conflict, based on the Conflict Index of ACLED for a large sample of countries. As shown in the Figure, Palestine has one of the lowest GDP per capita figures and one of the highest conflict intensity scores, higher than that of Ukraine. 

Modeling Results

Gaza’s population is projected to increase from around 2.2 million in 2022 to 3.5 million by 2050. This accounts for demographic factors (e.g. age structure and fertility rates). It also assumes a level of economically-driven emigration, including to the West Bank, as restrictions on movement are eased.

Under the assumed conditions, Gaza’s employment base could grow to nearly 900,000 by 2050, eventually bringing unemployment down to sustainable levels. This requires creating 610,000 additional jobs by 2050, more than tripling the size of the pre-war employment base. This also assumes a share of the Gazan labor force working outside Gaza (West Bank or Israel) in the longer term.

Sectoral Change

Figures 24 and 25 demonstrate the sectors underpinning employment growth.

• Construction could increase massively in the medium-term to meet reconstruction needs, and remains a large sector going forward to support population growth. 
• Commerce, Hotels and Restaurants are currently undersized relative to Gaza’s population. This could grow significantly in the long term to reach a more typical size relative to population, eventually contributing the largest absolute number of jobs.
• Tradable sectors – including Industry and Professional and Technical Services – will grow consistently in the medium-to-long term as Gaza develops international competitive advantage.  
• Social, Personal and Community Services, Public Administration and Education and Health grow as a function of population.
• Agriculture remains constant as it is limited by available land, though productivity within the sector could increase.

GDP

If the scenario above can be achieved, while also growing productivity within sectors, Gaza’s per capita GDP could reach over USD 9,000 by 2050, achieving the status of a middle-income economy. Following immediate recovery from the war, this would require sustaining a total GDP growth rate of 10% per year between 2030 and 2050. 

Strategic Economic Sectors

The following strategic sectors have particular potential to drive Gaza’s economic transformation and long-term competitive advantage. 

Construction

Rebuilding from the current conflict and addressing pre-existing deficits of housing and infrastructure will require upscaling of the construction sector beyond any past historical level. Gaza will need to construct more than 540,000 dwellings by 2050, or more than 20,000 per year on average (comparable to annual housing completions in London); this effort will require an extraordinary capacity-building and upskilling program. The construction sector will expand in the short-to-medium term and remain large in the long term to support ongoing population growth.

Manufacturing

Developing manufacturing will require re-investing in facilities and capital which have been severely damaged during the war. Reconstruction and rehabilitation will create significant demand for construction materials, which will stimulate the local manufacturing sector. There will also be natural growth across many light manufacturing activities, including food and drink processing and basic consumer goods serving local needs.

In addition, Gaza can recover and develop historic, craft intensive industries such as furniture and garments, though these are likely to remain relatively small and niche. In the longer term, Gaza can seek to develop export-oriented manufacturing, leveraging its latent strengths including labor cost advantage and a high skills base. 

Trade and Transportation

In the earlier phases, lifting of restrictions will induce significant growth in trade, logistics and transportation. It will re-establish basic functions necessary to bring goods to the population, connect manufacturers to raw materials and export markets, and service passenger transport. The Gaza Port and the Gaza West Bank Link will be the largest stimuli for trade.

In the long-term, amid greater regional openness and interconnection, Gaza could take on a broader role as a transportation gateway serving the region. Such a role has great historical resonance for Gaza, which has been a trading hub on the Levantine corridor for much of the last 5,000 years. 

Digital Services

The tech sector has high potential to drive economic development in Palestine. It builds on Palestine’s key comparative advantage (its young, entrepreneurial and skilled population),
to generate high value-added enterprises, and support high female participation rates. Palestine can leverage its advantageous time zone, English and Arabic proficiency and competitive cost base to export services across the Middle East, wider region and the world. In the short term, the growth will focus on recovery of the outsourcing sector, secured by loss guarantee instruments
to attract investment. Further investment in education will be required to unlock the potential of these sectors, which will accelerate in the longer term. 

Tourism

Palestine has rich tourism assets stemming from its history, culture and Gaza’s mediterranean coastline, which could support growth of the tourism sector following re-construction and the easing of movement restrictions. These assets will attract regional and international interest;
the sector has potential to support 160,000 jobs and generate USD 2bn pa by 2030.  It will be important to address safety perceptions and movement restrictions to support a world-class medium-term tourism offer, drive small businesses, and create jobs. Initially the main drivers are likely to be domestic and Palestinian diaspora visitors (for example, there is a strong desire for West Bank residents to visit Gaza’s coast). International tourism could increase in the longer term, attracting wealthier independent tourists and young adventurers in the rapidly-growing “ESG” global tourism segment who seek experiences related to social justice, authentic culture, economic development and sustainability. 

Agriculture

Gaza is notable for having an agricultural sector with high yields, although at the expense of depleting the aquifer that supplies water for domestic needs. While the absolute size of the sector is limited by available land and water, Gaza can continue to increase productivity, and rationalize crop selection. Doing so will help Gaza develop associated value chains for domestic consumption and high-value export. The agricultural sector is important for its contribution to food security. Managing water consumption to avoid unsustainable extraction from the aquifer will be critical. 

GAMECHANGER 

TRADE, CURRENCY AND STANDARDS PIVOT

As power and water are for existence, so money and trade are for the economy. Even with a smoothly functioning internal market, Palestine is a small inward-looking economy with a high trade deficit; more trade is a central requirement for economic progress.

Create leverage over key macroeconomic factors to re-orient the Palestinian economy towards stronger long-term economic growth. Reform existing customs union arrangements; create monetary stability and adopt a set of common, export-oriented, standards across Gaza and the West Bank.

Focus on international trade with a “Made in Palestine” brand, creating a strong ‘trade-not-aid’ push. Attract investment through bilateral goodwill trade agreements with the EU, US and the Arab world of some 500m customers. To increase value from trade, create a new framework that removes restrictions on the free movement of goods. Prioritize financial support to export-oriented sectors and activities.  

To support international trade, reduce currency risk and pivot away from the Shekel. Regular and severe cash challenges caused by the current monetary arrangements create systemic risks and impede the availability of local credit; an alternative monetary framework may offer significant benefits and an additional lever of economic policymaking, provided the arrangements replacing it are at least as strong. Global experts are prepared to inform and support this discussion.