Can Industry Save What Remains of the Palestinian Economy?

Author: د. سعيد صبري

At a time when the production wheel is slowing down, workshops are closing their doors in the cities of the West Bank from Jenin to Hebron, passing through Jerusalem, and the dominance of imported goods in the Palestinian market is increasing, Palestinian industry emerges as a realistic and urgent opportunity to save what remains of the national economy. Industry is no longer just an economic sector, but a project for survival and sovereignty, betting on self-capabilities and restoring the local production cycle. It is the only one capable of creating jobs, reducing dependency, and achieving economic security at a time when external aid is shrinking, and the trade deficit gap is widening.

The Reality of Palestinian Industry Today:

Data from the Central Bureau of Statistics for 2024 indicates that the contribution of the industrial sector to GDP does not exceed 13%, which is an indicator of the limited production activity compared to other sectors. Also, more than 70% of daily consumer products are imported from Israel, reflecting the extent of economic dependency on basic needs. This excessive reliance weakens the economy's immunity to shocks and restricts the state's ability to manage its resources effectively.

Despite this reality, less than 5% of bank financing is directed towards industry, while industrial exports do not exceed 18% of total Palestinian exports. This raises questions about the lack of financial and commercial incentives for this vital sector.

A scene from reality: reports from the Leather Industries Union indicate that more than 200 factories and workshops for shoe manufacturing in Hebron are at risk of closure or have reduced their production due to the flooding of goods, as imported shoes are sold at prices lower than local production costs, making market competition nearly impossible.

Why is Industrial Replacement Important?

Industrial replacement is not just a developmental term; it is a strategic pillar for achieving economic independence and reducing dependency. Betting on local products means investing in the Palestinian people and enhancing the internal economic cycle. This approach is gaining increasing importance under the current circumstances:

First, reducing dependence on the occupation by building local production systems capable of meeting basic needs, as indicated by World Bank reports for 2024-2025 as a lever for sustainable growth.

Second, addressing the high unemployment crisis, where its rate has reached over 25%, making industry one of the most capable sectors for absorbing labor, especially among youth.

Third, reducing the Palestinian trade balance deficit which shows a sharp gap between exports and imports, leading to depletion of foreign currency, rising debt, and weakening the government's ability to fund its priorities.

Fourth, enhancing food and industrial security by developing local value chains and achieving gradual self-sufficiency in several vital sectors.

Fifth, enabling the Palestinian economy to withstand crises by relying on local resources and reducing external exposure.

Positive examples of this direction include the success of Palestinian food industries, especially in the dairy sector, where data from the Central Bureau of Statistics indicates that local products have managed to cover about 86% of the local market over the past ten years. However, continued imports from Israel, particularly in the dairy sector and its derivatives, present additional challenges to comprehensive replacement that require stronger government support, an update of industrial infrastructure, and a redirection of public demand towards national products.

Major Challenges:

Despite the importance of shifting towards replacing local products with imported ones, the road is still filled with structural obstacles. The weak industrial infrastructure, especially the high costs of electricity and water, is a barrier to the competitiveness of local products, especially in the absence of tax incentives and production exemptions.

On the financing side, banks remain cautious in financing industrial projects, limiting factories' ability to expand or modernize, while the sector suffers from weak innovation and research and development systems, which are essential tools for any industrial revival. Additionally, the complexities of the occupation related to the entry of raw materials and the transport of goods are among the prominent logistical impediments that diminish Palestinian industries' flexibility and multiply their costs.

Moreover, the limited marketing channels and the weak connection between industrial areas and local markets increase the difficulty of selling production, especially amid the decline in purchasing power among Palestinian consumers due to the economic contraction.

▪︎ Challenges in Jerusalem: A Microcosm of the General Situation

Data from the Union of Industries and Chambers of Commerce indicate a decline in the number of industrial workshops in Jerusalem from 420 to only 180 over a decade, due to the accumulation of several factors; most notably the increasing Israeli restrictions on operating permits, the rise in operating costs by more than 45% due to continuous increases in electricity and water bills, and the decline in institutional and financial support for this sector. Field testimonies from Al-Eizariya, Abu Dis, and areas of West Jerusalem show that industrial workshops operate an average of no more than two to three days a week due to exorbitant costs and fierce competition from settlement goods entering the market at preferential prices. This sharp erosion of the industrial base in Jerusalem reflects a microcosm of the entire Palestinian industrial reality, highlighting the urgent need for government intervention to ensure the continuity of this sector, and to support it with sustainable financial, administrative, and operational plans.

What Should the Government Do?

To transform the vision of industrial replacement into reality, the government must adopt practical and comprehensive steps, including:

Preparing a national strategy for industrial replacement that begins with identifying 10 goods that can be produced locally within 3 years.

Redirecting bank financing towards the industrial sector with facilitated interest rates and involving development funds.
Settling the government's debts to the industrial sector, amounting to 1.7 billion shekels, to ensure the continuation of production.
Establishing specialized industrial zones and linking them to logistical networks, as in the Jenin model.

Supporting food industries, led by the dairy sector, which has succeeded over the last decade in covering about 86% of the local market, despite continued imports from Israel, which necessitates a review of customs policies and expanding technical support.

Implementing World Bank recommendations to shift aid towards local production instead of funding deficits.

Launching a national campaign to support local products starting from official institutions and extending to the community.

Industrial replacement today is not a luxury but a national duty, and a tool for economic liberation amidst political challenges and financial contraction. Political will, designated funding, and effective partnership with the private sector are required to transform this ambition into reality.

It is time to return to production... not just settle for consumption and justification.