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FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT JUNE 2010PALESTINE SECURITIES EXCHANGEECONOMIC AND POLITICAL DEVELOPMENTSPolitical DevelopmentsGovernment Reforms: The PNA has madesubstantial progress towards improving its fiscalposition since 2007. In January 2010, the PNAlaunched a plan of priority interventions for 2010comprising 201 projects identified by PNAministries. They have a total estimated budget ofUS$5.5bn. Projects for 2010 require US$667m.Infrastructure projects account for 67% of therequested funding and include: a railway network,a commercial port, at least one internationalairport, desalination plants and wastewatertreatment facilities.The PNA has also focused on developing theinstitutional and legal framework in recent years.A priority has been the comprehensive reform ofthe tax system. A new income tax law has beenadopted and the VAT rate has been reduced.The Ministry of National Economy is makingefforts to develop public-private sectorpartnership. Regulations in the Palestinianfinancial markets are also continuing to improve,with, for example, a new ‘Code of CorporateGovernance’ which private sector companies areexpected to follow.Closure obstacles in the West Bank and GazaStrip numbered 619 in August 2009 (OCHA data).The Gaza Strip is completely isolated with allexists sealed. Two-thirds of the 723.3 kmseparation wall between Israel and the PalestinianTerritories is complete complications in thePalestinian territory.Economic DevelopmentsThe Palestinian economy is robust in its capabilityto function under often harsh conditions. Due tothe political situation, however, it has witnessedmany ups and downs over the years.GDP growth averaged 6% per year between 1995and 2000 (World Bank) but ground to a halt at theSecond Intifada. The Palestinian economyrebounds when given the chance and withimproved movement and access, GDP forecastsare very positive- the IMF reported that GDP inthe West Bank could increase by 7% in 2009.Unfortunately, restrictions in 2009 did notsignificantly improve so more modest growth isexpected.The contribution of major economic sectors toGDP has varied little over the past year. In Q32009, public administration and defencecontributed 14% of value added, wholesale andretail trade 10%, manufacturing 10%, transportstorage and communications 9%, real estate,renting and businesses services 9%, agricultureand fishing 3% and construction 6%.CPI: Inflation in Palestine is comparable to ratesin Western countries and below the MENA regionaverage. It increased by 2.75% between 2008 and2009.Foreign Trade: has been severely hindered byIsrael’s control over Palestinian borders. Tradeindicators have recovered considerably since2002. Israel is the main trading partner of thePalestinians.The PNA has concluded free trade agreementswith the European Union, the European FreeTrade Association (EFTA), the US, Canada andTurkey.Total imports were US$3.8bn in 2008 (up 20%since 2007) and total exports were US$0.5bn (up3% since 2007). 72% of imports came from Israel,an increase of 20% since 2007. In 2008, exportsto Arab countries, US and EU increased by 38%,35% and 25% respectively. There were noticeableincreases in the export levels of agricultural, food,metal and plastics products.The trade deficit in 2008 increased to US$3.2bn,up 27% from 2007. The deficit is covered mainlyby external assistance and worker’s remittances.Labour ForcePerhaps the greatest asset to the Palestinianeconomy is its human resources. The level ofeducation is the highest in the region, with theexception of Israel. There is well developedentrepreneurial capacity, good language skillsand strong social and economic networks. LocalPalestinian demand and labour force areexpected to grow over the next decades as morethan half of the population is below the age of 18.unemployment in the West Bank has been on adownward trend over the past five years. Theunemployment rate for the Third quarter of theyear 2009 reached to 25.8% recorded an increaseby 16.2% compared with the Second quarter ofthe year 2009. The unemployment rate recordedan decrease by6.18% during the Third quarter2009 compared with the similar quarter of theprevious year 2008. The unemployment rate forthe full year 2008 was 26.0% compared with21.5% in 2007.Impact of the economical situation on the PSEDespite the political and economicaldeteriorations, the PSE stands on solid ground,as it is better on both directions; improving theperformance of the market, and improving theinvestment environment in securities market,which enables the PSE to achieve outstandingresults in 2009, as Al Quds Index increase by11.62% compared to 2008.During 2009 PSE held 246 trading sessions withapproximately 89 thousand transactions wereexecuted with a value that goes around US$ 500million decreasing by 57.78% compared to 2008.While Al-Quds Index was increased by 11.62during the same period compared with 2008, allindicators show that at any positive developmentin the political situation in Palestine will bereflected immediately in the economicalcircumstances and the PSE.Financial CrisisThe impact of the global financial crisis on thePalestinian economy was fairly limited. Localbanks are conservative in regard to foreignactivities and the Palestinian mortgage market isvery small. The stock market was mildly affectedby foreign investors who became reluctant totrade in the PSE. In 2008, the Al-Quds indexdropped 16%, which compared well with otherArab markets. Since mid 2009, the Palestinianindex has been stable, (around the 500 mark) andby the end of the year, had increased by11.62%.** Information provided by PSE.Key Information ContactsPalestine Capital Market Authority: www.cma.gov.psMinistry of Finance: www.mof.gov.psMinistry of National Economy: www.met.gov.psPalestinian Investment Promotion Agency: www.pipa.gov.psPalestine Monetary Authority: www.pma-palestine.orgPalestinian Central Bureau of Statistics: www.pcbs.org.psPalestinian Economic Council for Development and Reconstruction: www.pecdar.orgPalestine Institute for Financial & Banking Studies: www.pifbs.comPalestine Media Center: www.palestine-pmc.comCustodian Bank - HSBC Bank Middle East: www.middleeast.hsbc.comSettlement Bank - Arab Bank Palestine: www.arabbank.psPAGE 138