BoI: Dependence on sales to Palestinian economy is limited

Israel’s economy has a limited dependence on sales to the Palestinian Authority economy.

By SHARON WROBEL
economy 311 (photo credit: ASSOCIATED PRESS)
economy 311
(photo credit: ASSOCIATED PRESS)
Israel’s economy has a limited dependence on sales to the Palestinian Authority economy, whose share of total revenue was 0.9 percent in 2008, including less than 2% in the agriculture, insurance and banking industries, the Bank of Israel reported Monday.
Sales by Israel to the PA economy in 2008, as reported to the VAT authorities, totaled $3.2 billion, or about NIS 12b., which is second only to the country’s exports to the United States (excluding diamonds). However, a great part of exports is estimated to consist of imported goods to Israel.
“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,” the central bank wrote in a summary of an article that will appear in the forthcoming issue of Recent Economic Developments (No.128), May-August 2010.
“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,” the report said.
The Bank of Israel suggested that estimating the value added to Israel’s economy generated by sales to the PA economy could lead to a better understanding of the economic consequences of political and economic policies that effect those sales.
More than half of the reported sales, or 58%, consisted of the transit of imported goods by trading companies, whose exports to the PA totaled NIS 7b., of which about NIS 2.4b. were fuel sales, about 20% of total sales to the PA economy. Non-fuel sales by trading companies totaled NIS 4.6b., about 38% of total sales to the PA economy.
Direct sales of the manufacturing industry (NIS 1.8b.) and the electricity and water industries (NIS 1.4b.), whose contribution to GDP exceeds that of trading, were 15% and 12%, respectively, of total reported sales to the PA economy. Sales of the transport and communications industry and of agriculture were relatively modest, about 4.3% of total sales to the PA 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 report said.
Reported sales of the manufacturing industry to the PA economy were about half a percent of total manufacturing sales and were mainly from low-tech industries such as food, drink, wood, paper and metal products; they accounted for 1%-2.5% of sales.
The direct added value to Israel’s manufacturing industry of sales to the PA economy was estimated at about NIS 540 million, about 0.6% of the industry’s total added value. The total number of employee posts that are attributed directly to those sales was estimated at less than 3,000. The added value of electricity and water sales was NIS 461m. The total added value of direct sales of Israeli companies in the manufacturing, electricity and water, agriculture, transport, banking and insurance industries to the PA economy was about NIS 1.5b., or 0.15% of Israel’s GDP in 2008.
The figures did not include sales of Israeli goods by companies in the trading industry, nor did 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, the report said.
“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,” the report said.