Palestinian territories

Situation and cooperation

Palestinian school children ride a donkey cart in al-Maghazi refugee camp market, central Gaza strip.

The economic situation in the Palestinian territories reflects political developments there. Restrictions on the free movement of people and goods, and on their access to the territories; Israel's control over the outside borders; the Palestinian Authority's lack of a customs regime; and the strict import regulations imposed by Israel are a considerable barrier to foreign trade. The scope for successful and sustainable business activities is reduced to a minimum. This has a direct impact on the labour market and economic development.

The economy in the Palestinian territories is very dependent on the Israeli market and international donors. A study commissioned by the World Bank has estimated that the Palestinian economy in fact loses 3.4 billion US dollars annually because Palestinians cannot develop the economic potential of the Israeli administered areas (Area C) in the West Bank. After years of strong growth, in particular in manufacturing and construction, the economy collapsed in 2013. According to the World Bank, gross domestic product (GDP) fell by 4.3 per cent in 2013 and by 1.1 per cent in 2014. Not until 2015 did GDP grow again by a healthy 12.4 per cent.

As a result of these erratic swings, unemployment and poverty have increased – in particular among children and young people up to the age of 24, who make up 62 per cent of the population, and among women and people with disabilities. Donor-financed expenditure by the Palestinian Authority remains the strongest driver of growth. The budgetary situation is correspondingly fraught.

Since Hamas took over the Gaza Strip in 2007, that area has become almost entirely closed off by Israel and Egypt. Unemployment in the Gaza Strip is among the highest in the world, according to World Bank figures. Because of the closure, sustainable economic development in Gaza is virtually impossible. The population remains dependent on international aid.

Priority areas of development cooperation

Barrier between the Palestinian city of Bethlehem and Israeli territory

The unresolved conflict between Israelis and Palestinians has an adverse impact not only on the Middle East. Because of Germany's special historical responsibility for the security of Israel, the conflict also plays a key role in our country's foreign relations.

Germany and its partners are convinced that the conflict can only be resolved long term through negotiations leading to a two-state solution. Improving the living conditions of the Palestinian population and further strengthening Palestinian institutions at the central and local levels are key prerequisites for achieving such a solution. Only if people have the prospect of a better future, will it be possible to achieve peace and build a viable Palestinian state.

That is why Germany is using its development cooperation programme to help the Palestinian territories advance their social, economic and political development. To this end, the two sides have agreed on three priority areas which cover the key policy priorities of the Palestinian's National Development Plan, namely:

  • Water/sanitation/waste management
  • Sustainable economic growth/education/creation of jobs
  • Institution/state building and civil society promotion (governance)

In terms of per-capita contributions received, the Palestinian territories are one of the main recipients of German development cooperation funding. To date, Germany has committed more than 1.1 billion euros for bilateral projects in the Palestinian territories and is thus currently one of the biggest donors there.

Government negotiations, which take place annually, were last held in Ramallah in June 2016. On that occasion, Germany pledged 85.72 million euros for Technical and Financial cooperation. On top of that, Germany is supporting refugees in the Middle East within the framework of a strategic partnership with the United Nations Relief and Works Agency for Palestine Refugees in the Near East, UNRWA.

In order to streamline German inputs, the German government established the German-Palestinian Steering Committee in May 2010. Committee meetings involve the foreign, interior, economic, education and development ministers of both sides, or their representatives.


Sewage treat­ment plant in Gaza City that has been repaired and extended with German support.

The Middle East counts among the most water-poor regions of the world. The issue of water supply is very closely linked to the Israeli-Palestinian conflict. The scarcity of water in the Palestinian territories has very serious consequences: not only is drinking water scarce but the agricultural sector is also suffering from water shortages and increasing soil salinity. Due to the difficult economic situation, particularly in the Gaza Strip, wastewater disposal has become a problem with serious consequences for humans and the environment, for example in terms of the spread of infectious diseases and increasing contamination of soil.

Efforts to maintain scarce water resources are therefore at the centre of German-Palestinian cooperation. Along with the USA, Germany is the largest and most important bilateral donor in the water and sanitation sector. The combined volume of the projects currently being implemented in the Palestinian water sector is 300 million euros.

In order that water is used more efficiently and effluent is disposed of without harm to human health, Germany assists the Palestinian territories by providing advice on water resources management and by repairing and constructing piping networks and sewage treatment plants. Particular attention is given in this work to the social acceptability of the reforms launched: all sections of the population must gain access to a functioning water supply and sanitation system over the long term.

Impressive advances have already been achieved. For instance, Germany has financed the restoration of a sewage plant in Gaza City and is assisting the construction of a new plant in East Nablus. Thus, thanks to Germany's development cooperation support, some 1.5 million people will be connected to the central wastewater disposal network.

Sustainable economic development

Palestinian school children attending a maths lesson in a class at UNRWA Gaza Elementary School in Gaza city

The development of an effective private sector is a key prerequisite for economic growth and the creation of new jobs in the Palestinian territories. German development cooperation is promoting private sector development on various levels.

Together with its Palestinian partners, the German government has initiated comprehensive job creation schemes designed to improve the situation in life of the population. One of the programmes has provided for the construction and rehabilitation of more than 100 schools for around 80,000 male and female pupils. All the building contracts have been awarded locally, so that small and medium-sized Palestinian companies have benefited, creating more than 6,000 temporary jobs in the process.

With the expansion of primary and secondary schools, poor people in particular will gain better access to education and social infrastructure. A programme designed to improve the vocational training system is meant to create better prospects of qualification for young people from all sections of society. In addition, the German government is working with four other European donors to support the development of functioning administrative bodies for the education system and, specifically, the improvement of basic and in-service training for teachers.

Many Palestinian entrepreneurs cannot obtain loans because of the difficult environment and so a loan guarantee fund has been established. The European-Palestinian Credit Guarantee Fund, or EPCGF as it is called, takes part of the credit risk away from the banks, thus increasing their willingness to lend to small and medium-sized enterprises. The banks decide which loans they want the EPCGF to secure. The borrowers are not told whether their credit is being guaranteed or not, so as not to undermine their willingness to pay back what they owe.

The Fund is making a significant contribution towards revitalising the Palestinian economy. Up to now, the EPCGF has guaranteed more than 2,500 small-scale loans with an overall volume of around 83 million US dollars.

Institution/state building and civil society promotion (governance)

Registry office in Bethlehem

In principle, democratic structures already exist in the Palestinian territories. However, due to internal conflicts and the difficult overall political and economic setting, government institutions have limited capacity to perform their functions. Stability can only be achieved if citizens are able to participate in the political process and are legitimately represented by the State.

Therefore, there is a need to improve the legitimacy, transparency and performance of central and municipal institutions. Measures that will help build a functioning state and cement the principles of good governance are therefore key elements of German-Palestinian cooperation. The various activities address both the state and municipal level. Furthermore, in order to strengthen civil society, activities are coordinated and conducted together with local non-governmental organisations.

A national municipal development programme has been drawn up in cooperation with an array of international partners. It is to help build the capacity of municipalities to perform their tasks more efficiently. The programme is being implemented through the Palestinian Municipal Development and Lending Fund (MDLF). Germany contributes to the financing of this programme through the KfW development bank.

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