MAS discusses import substitution policies for the most important imported goods
Ramallah, Wednesday, June 12, 2024
The Palestine Economic Policy Research Institute (MAS) held a roundtable meeting entitled "Import Substitution Policies for the Most Important Imported Commodities" with the participation of a group of specialists, experts and interested parties, in person at the institute's headquarters and via Zoom technology. The background paper was prepared by Mr. Misyef Jamil, Research Coordinator at the institute, while Mr. Jawad Al-Moati, representing the Ministry of National Economy, Mr. Salah Haniyeh, Chairman of the Consumer Protection Association, Eng. Khader Daraghmeh, representing the Ministry of Industry, Eng. Ghazi Al-Harbawi, Chairman of the Palestinian Precious Metals Association, and Eng. Ziad Anabtawi, Chairman of the Board of Directors of Al-Ard Company, presented their interventions and comments on the discussion paper.
The session was opened by Mr. Raja Khalidi, Director General of MAS, emphasizing the importance of the topic and its implications. He stated that the topic of this paper is among the priorities of the institute and is part of a group of activities implemented by the institute in the context of the effects of the Israeli aggression on the Palestinian territories, recalling that the institute has worked since its inception to study ways to enhance national industries and their market share and replace imports from Israel, and today this matter has become imposed on the Palestinian economy and it is necessary to accelerate the response to it politically and organizationally. Khalidi thanked the Heinrich Böll Foundation (Palestine and Jordan) which supported this meeting, and a number of other meetings planned for the year 2024, and which despite the difficulty of the current political situation, renewed
its funding for the institute’s activities, believing in the importance of open economic policy dialogue. He pointed out that the institute will work on preparing a policy paper after the session and submit its recommendations to the relevant official bodies.
The researcher explained that the aim of the paper is due to the sharp deterioration in Palestinian economic indicators, especially trade indicators, weak local demand, declining revenues, and rising unemployment, which requires adopting a trade and industrial policy to limit this deterioration and bring about a structural change in the national economy, by redirecting consumption towards the local product by replacing part of the imports that can be produced locally.
The researcher indicated that there is a decline in the Palestinian GDP in the West Bank by 19% during the year 2024 and this decline is expected to increase, and he indicated that there is an almost complete paralysis in the Gaza Strip, disrupting economic, social, health and educational life and it has become an unlivable place, in addition to the cessation of employment in Israel, which has led to major repercussions on household spending, revenues, declining local demand, declining imports, and rising unemployment to 45% in the West Bank, and imports are expected to decline by 30% by the end of 2024, and these imports constitute about 50% of consumer spending.
The researcher indicated that imports declined significantly due to tightening Israeli restrictions, the high cost of imports, the decline in consumer capacity, and importers' expectations of a decline in purchasing power due to high unemployment. As a result, the figures for the last quarter of 2023 and the first month of 2024, compared to their counterparts, indicated a decline in total imports by 28% and 34%, respectively, while quarterly and monthly exports declined by 23% and 15%, respectively, while exports in December 2024 did not decline significantly due to the increase in the percentage of exports in this month to third world countries, despite the noticeable decline in the percentage of exports to Israel.
The researcher called for changing trade and industrial policies to achieve the goal of one-third for imports from Israel. The third here means replacing imports worth approximately $1.6 billion, through three tracks and trade policies that support reducing imports from Israel, whereby the first and most comprehensive track aims to establish immediately implementable customs trade policies towards the commodity lists included in the Paris Economic Agreement that have not yet been exploited, and to establish protective customs policies, as well as to enhance work to encourage direct imports, import strategic goods from outside Israel such as petroleum, and create new industries related to the agricultural sector. While the second track proposes influencing the importer and consumer to change the import and consumption patterns of ordinary goods imported from Israel, as it is not necessary to import and consume goods from the Israeli market, especially if they are not strategic or sensitive goods (such as sweets, chocolate, soft drinks, etc.) and these goods need to be monitored and examined to take appropriate policies and measures towards them, while the third track refers to working on a specific list of goods (only 36 goods) to expand the productive capacity of the Palestinian economy, i.e. working to replace part of the goods currently imported from the Israeli market, especially sensitive and important goods whose production can be increased locally as an alternative to Israeli goods.
The researcher indicated that there are 36 commodities that can be replaced by local products, either partially or completely, of which 22 commodities are imported exclusively from Israel, and 14 commodities are imported from Israel and other countries. He pointed out that some of these commodities come exclusively from Israel and can be replaced by local products, such as mineral and carbonated water, some food products, eggs, vegetables and fruits, feed and fertilizers. Another part of these commodities is imported from Israel and other countries and can also be produced locally or imported directly from other countries, such as live animals, cement, telephones, chocolate and sweets, wheat and rice. As for the other part, there are commodities that are easy to replace and easy to manufacture, and there is an abundance of local production and a high capacity to cover them from
Palestinian production, such as mineral and carbonated water, some agricultural commodities, and dairy products. The researcher indicated that the paper presents a number of policy recommendations, interventions and implementation mechanisms.
Al-Moati indicated that This paper intersects in its importance with the work of the Ministry of National Economy. He said that there was a decision in 2015 by the Council of Ministers, a list was prepared to work on the subject of substitution, and he indicated that measures cannot be taken at the governmental level, and he called for establishing an internal mechanism in the Ministry of Economy to restrict the entry of these goods, and to organize the domestic market, and the need to develop recommendations so that some policies are reviewed, especially with regard to attracting investors.
In turn, Haniyeh spoke about three levels in the subject of import substitution, the first related to the popular dimension in the trend towards boycotting Israeli products and supporting Palestinian products, and the necessity and importance of continuing awareness initiatives and institutionalizing them and using research and scientific institutions to support them with accurate numbers and information. As for the second level, it is related to Palestinian companies, through increasing the focus on quality, and also that the first variable factor is not the rise in prices, while preserving workers’ rights. As for the third level, it is represented by the Palestinian government through accelerating the completion of the Palestinian code and joining the International Numbering Organization, and accelerating the completion of the Palestinian Packaging Institute in partnership with the private sector, and other procedures required by the government. Haniyeh pointed out that municipalities have a vital role in supporting Palestinian products and encouraging investment, as there is a system for joint investment between municipalities and investors, which allows for expanding investments and promoting Palestinian products, in addition to having a pivotal role in developing industrial zones in cities in terms of infrastructure and encouraging investment opportunities.
While Daraghmeh pointed out that the issue of import substitution is a crucial issue for the industrial sector in Palestine, and that there are simple consumer goods that can be exported, and the partnership file with the private sector must be revived, and he indicated that the law firm was revived in order for Palestine to be granted the barcode.
Al-Harbawi said that it is difficult to reformulate this trade relationship with the Israeli side, especially since Israel is not committed to any of these clauses, and this relationship must be broken at the popular level, and the relationship with the Palestinians inside must be strengthened, and he called for strengthening industry within a strategy to increase the share of the Palestinian national product in the Palestinian market so that its percentage is between 10-12% and must be raised to 20% in the first phase, and he indicated that industry needs special components with regard to industrial zones, which in turn reduces the cost of production.
Anbatawi called for the necessity of establishing a relationship of regional cooperation, encouraging research and development, creating a state of international companies, and establishing real partnerships between the government and the private sector. He called for the necessity of popular support, and for there to be a national decision and plan and support from the political level for that. While the attendees agreed on the importance of the issue, they stressed the necessity of studying this issue carefully, and that it is a strategic issue that must be given attention, and this requires the Palestinian authorities to take the initiative, with a focus on the necessity of starting to implement the 36 commodities that can be replaced with local products, whether partially or completely. It is noteworthy that the institute will issue a policy paper in the coming days on the recommendations contained in the background paper and the session and ways to follow up on this vital file.