Unleashing the Benefits of Digital Transformation for Palestinian Economic Growth

Jerusalem, February 9, 2022- Despite progress, the potential of the digital economy in the Palestinian territories is not fully realized, says new World Bank report. The Palestinian Digital Economy Assessment evaluates the state of the digital economy, identifies opportunities, and provides recommendations on reforms that can help accelerate digital transformation and, ultimately, economic growth.

“Investing in the Palestinian digital economy is more important than ever. Not only does it enhance its competitiveness and access to the global markets, providing jobs and a source of fiscal revenue, but it has also become vital in times of crisis. We have witnessed the significant move of many Palestinian businesses toward online channels during the COVID-19 pandemic,” said Kanthan Shankar, World Bank Country Director for West Bank and Gaza.

The Palestinian economy has not been creating enough jobs and over a quarter of the population was unemployed in the second quarter of 2021 (17 percent in the West Bank and 45 percent in Gaza). Women are particularly disadvantaged with only 17 percent participation in the labor market versus 68 percent for men. According to the report, accelerating the Palestinian digital transformation and building a well-connected Palestinian economy will help create new jobs, bridge the gender divide, and improve economic growth.

Despite recent progress, the report found that there is still room for significant improvements in several parts of the digital economy in West Bank and Gaza. Ranked below the average of other Arab countries in the World Bank’s MENA Tech Digital Economy Assessment, the digital transformation in West Bank and Gaza has been relatively slow in recent years.

The Israeli restrictions on ICT equipment imports, spectrum allocation (currently limited to 2G in Gaza and 3G in the West Bank), and rights of way in Area C have been a major impediment to the establishment of digital infrastructure, connectivity, and high-speed broadband access. These measures have delayed network connectivity within the Palestinian territories and with the rest of the world. According to the global ICT Development Index, West Bank and Gaza is placed below the developing country average in broadband penetration rate.

Strengthening the Palestinian digital economy will require a sustainable political resolution with the Government of Israel to remove current restrictions. At the same time, internal policy reforms and financial resources by the Palestinian Authority (PA) to implement a full-fledged digital transformation of the economy will be needed. The report recommends reigniting the work of the Israeli-Palestinian joint technical committee and calls on the Government of Israel to allocate the needed spectrum for Palestinian 4G and 5G deployments prior to the completion of 5G deployments in Israel.

Palestinians have all the capabilities needed to leapfrog into the digital economy. Development of the digital economy is among the PA’s national priorities. It is thus important to ensure continued strong political leadership on the digital agenda to facilitate institutional and cross-sector coordination,” added Shankar.

Addressing deficiencies in the Palestinian regulatory environment and improving coordination among agencies on the digital agenda are within the control of the PA. Among the regulatory reforms, the report calls for strengthening competition in the market, updating the law on e-transactions, and developing the laws on consumer protection and cybersecurity. Equally important is the implementation of the recently signed Telecommunications Law and Companies Law. The report recommends establishing an inter-ministerial committee on digital development and ensuring institutional coordination and resource mobilization for cross-cutting and sectoral priorities.

Increased investment and adoption of digital financial services is crucial to take full potential of the digital age. Cash and checks still dominate the economy, and e-commerce continues to operate largely via cash-on-delivery. The report notes how increased adoption of digital payments holds a large potential for improving the efficiency of government agencies and digital businesses and easing the everyday life of Palestinians.

Digital transformation will require upgrading the skills of Palestinians and supporting the growth of digital businesses. The COVID-19 pandemic has accelerated the demand for digital skills as more businesses and PA agencies have started using digital solutions. Improving digital skills will necessitate updates to curriculum and teacher training, as well as stronger linkages between tertiary educational institutions and industries. Furthermore, digital businesses can create new jobs and increase productivity. Promoting the growth of digital businesses will require support programs to increase international market reach, enhance the capacity of support organizations (such as incubators and venture capital funds) and strengthen access to finance.

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