Palestinian workers continue their daily wait to cross into Israel. Demotix/Hussain Abdel Jawwad. All rights reserved.

In his address to Davos last week, US Secretary of State Kerry described his vision of Palestinian and Israeli business people returning the following year and pitching ideas to investors from the Palestinian Economic Initiative, an economic plan which his office designed to run in parallel with on-going peace talks.

But the US-backed Initiative will struggle to meet expectations, because its overarching political purpose is based on the mistaken premise that prosperity will lead to peace. Both at Davos and in other international forums, John Kerry has continually emphasised the importance of an economic track for the Israel-Palestinian peace process. The $4 billion Palestinian Economic Initiative, announced last May, aims to increase the GDP of the West Bank and Gaza by 50% over three years, primarily by driving private-sector led growth.

The Palestinian economy does badly need change. Unemployment is up to 21%, and in Gaza more than 40% of people do not have adequate access to food. Strict restrictions on the movement of people and goods continue to stifle economic activity, and up to half of the Palestinian population still rely for their basic services on UNRWA, the UN agency that administers for Palestinian refugees. 

Similar economic plans in the 1990s and 2000s have attempted this before, most famously after the 1993 Oslo peace agreement and from 2008-2010 under former Palestinian prime minister, Salam Fayyad. The economic booms achieved during these years were shortlived, leading donors like the World Bank to conclude that growth could only be made sustainable through a vibrant Palestinian private sector. Persistent Israeli restrictions on Palestinian imports, exports and travel, together with unfulfilled aid pledges, are two additional reasons often cited in explaining why these plans failed to propel lasting economic growth. Economic plans to develop Palestine are designed for a political purpose.

Many supporters of the peace process believe that improving Palestinians’ lives will make them more willing to support peace with Israel. An official report on the Palestinian Economic Initiative by the Quartet on the Middle East declares that practical, visible changes to the lives of Palestinians will boost the credibility of the political negotiations. In the 1990s the World Bank president James Wolfensohn, linked the success of the peace process to improved job prospects for Palestinians. But an economic plan will not improve Palestinians’ opinions of the peace process or of Israel, even if it is successful in improving their quality of life.

Rather, in the eyes of many people in Gaza and the West Bank, development and investment projects are part of a larger trend that they disagree with: a corrupt and unfair situation in which a privileged few benefit disproportionately from the money that is donated to or invested in Palestine. Corruption and inequality in the Palestinian territories are a significant factor behind public scepticism and cynicism about the aid and investment that economic plans bring. Palestinians are well aware of corruption in business, and their negative views are exacerbated by socioeconomic divisions. Economic inequality is high: the richest 20 per cent of the population hold over 40% of the income share in the West Bank and Gaza, according to the latest World Bank data. Most of the population will be conscious that investment in sectors such as tourism and energy will first benefit the wealthy. Both aid work and private sector activity are associated with an elite group who dine in expensive restaurants, receive their education in Europe and the US and frequently visit Israel for meetings and leisure.

High levels of inequality and negative associations with foreign aid are far from unique to Palestine, but in this context they mean that an economic initiative will not win Palestinians over to support a peace agreement. If plans like the Palestinian Economic Initiative are to succeed in improving prospects for peace, then Palestinian scepticism about aid and investment has to be addressed. 

This will require greater transparency, accountability and equality of opportunity in the way that investment and aid funds are channelled into Palestine. Many Palestinians, if they are familiar with the initiative, are upset that they were not adequately consulted when it was being conceived. Feeling that their input has not been valued will make Palestinians far less inclined to take note of the plan’s positive aspects, and conversely makes them more likely to believe that the US-backed peace talks are not a legitimate process.

A high profile consultation with the public in the West Bank and Gaza should take place, and the conversation needs to involve a wider range of people, including academics, activists and labour representatives – not just business leaders. Finally, diplomats must continue their current efforts to ease Israeli restrictions on Palestinian mobility, trade and employment. Greater freedom of movement can have a powerful symbolic meaning and positive impact on public attitudes, just as it will be essential to lasting economic development.