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04.10.2010
 
The following is a summary of an article that will appear in the forthcoming issue of Recent Economic Developments (No. 128), MayAugust 2010:
Sales by Israel to the Palestinian Authority
 
To the summary in Hebrew - Click here
 
  Direct sales by Israeli companies in the manufacturing, electricity and water, agriculture, transport, banking and finance industries to Palestinians in 2008 yielded direct added value of about NIS 1.5 billion, about 0.15 percent of Israel's GDP.
  Direct sales by Israeli manufacturing companies to the Palestinian economy in 2008 yielded direct added value of some NIS 540 million, about 0.6 percent of the industry's total added value, and less than 3,000 employee posts.
  A significant share of the sales consists of the transit of imported goods: in 2008 about 58 percent of Israel's sales to the Palestinian economy was by trading companies, and about 20 percent of the latter were fuel sales.
Sales by Israel to the Palestinian economy in 2008 reported to the VAT authorities totaled some $3.2 billion (about NIS 12 billion), second only to Israel's exports to the US (excluding diamonds), and more than the exports to any single European country. This gives the impression that those sales are of great importance to Israel's economy, but a more detailed analysis of the sales by industry presents a different picture, because a significant share of the sales consists of transit trade of goods imported into Israel, or goods with low added value to Israel's economy. Estimating the value added to Israel's economy yielded by sales to the Palestinian economy can lead to a better understanding of the economic consequences of political and economic policies that effect those sales.
An analysis of the importance of sales to the Palestinian economy by industry of the exporting companies shows that over half of the reported sales (58 percent) were by trading companies, whose exports to the Palestinians totaled NIS 7 billion (see table), of which about NIS 2.4 billion were sales of fuelabout 20 percent of total sales to the Palestinian economy. Non-fuel sales by trading companies totaled NIS 4.6 billion, about 38 percent of the total sales to the Palestinian economy. The data on sales by trading companies to the Palestinian economy do not differentiate between sales of Israeli produced goods and transit trade of goods imported into Israel, but it may be assessed that the latter, whose contribution to Israel's GDP is limited, constitutes a significant share of the total.
 

 
Direct sales of the manufacturing industry (NIS 1.8 billion) and the electricity and water industries (NIS 1.4 billion), whose contribution to GDP exceeds that of trading, constituted 15 percent and 12 percent respectively of total reported sales to the Palestinian economy. Sales of the transport and communications industry and of agriculture were relatively modest, about 4.3 percent of total sales to the Palestinian economy. It may reasonable be assumed, however, that those sales figures are biased downward because some of the products are sold by trading companies that are not classified in those industries, and because some other goods and services are sold directly to Palestinians and are not reported for VAT purposes as transactions with the Palestinian economy.
The limited dependence of Israel's economy on sales to the Palestinian economy can be seen from the low share of those sales in Israel's total revenue, 0.9 percent, and in the revenue of the agriculture, insurance and banking industriesless than 2 percent. Reported sales of the manufacturing industry to the Palestinian economy were about half a percent of total manufacturing sales (see Column III in the table). Those sales were mainly from the low-tech industries such as food, drink, and wood, paper and metal products, and they accounted for between 1 and 2.5 percent of the sales of those industries. The main exceptions were the electricity and water industries, with about 4.8 percent of their sales being to the Palestinian economy. However, it appears that those sales are sometimes a burden to the electricity and water industries in light of their limited capacity.
The direct added value to Israel's manufacturing industry of sales to the Palestinian economy is estimated at about NIS 540 million, about 0.6 percent of the industry's total added value (see table) The total number of employee posts that may be attributed directly to those sales is estimated at less than 3,000. The added value of electricity and water sales is NIS 461 million. The total added value of direct sales of the manufacturing, electricity and water, agriculture, transport, banking and insurance industries to the Palestinian economy is about NIS 1.5 billion, about 0.15 of Israel's GDP in 2008.
It is important to bear in mind that these figures do not include sales of Israeli goods by companies in the trading industry, nor do they include VAT, wages, or employee posts in the providers of ancillary services and sellers of intermediate goods to companies selling to the Palestinian economy. Nevertheless, even if the contribution of Israel's sales to the Palestinian economy is twice that estimated herein, the contribution to Israel's GDP and employment is still not a large one.