Palestine Economic Policy Research Institute Tourism in the Palestinian Territory: Analysis of Significance and Impact Belal Al-Falah 2012
The Palestine Economic Policy Research Institute (MAS) Founded in Jerusalem in 1994 as an independent, non-profit institution to contribute to the policy-making process by conducting economic and social policy research. MAS is governed by a Board of Trustees consisting of prominent academics, businessmen and distinguished personalities from Palestine and the Arab Countries. Mission MAS is dedicated to producing sound and innovative policy research, relevant to economic and social development in Palestine, with the aim of assisting policy-makers and fostering public participation in the formulation of economic and social policies. Strategic Objectives Promoting knowledge-based policy formulation by conducting economic and social policy research in accordance with the expressed priorities and needs of decision-makers. Evaluating economic and social policies and their impact at different levels for correction and review of existing policies. Providing a forum for free, open and democratic public debate among all stakeholders on the socio-economic policy-making process. Disseminating up-to-date socio-economic information and research results. Providing technical support and expert advice to PNA bodies, the private sector, and NGOs to enhance their engagement and participation in policy formulation. Strengthening economic and social policy research capabilities and resources in Palestine. Board of Trustees Ghania Malhees, Ghassan Khatib (Vice Chairman), Jawad Naji, Jihad Al Wazir, Lana Abu-Hijleh, Luay Shabaneh (Secretary), Magda Salem, Mohammad Mustafa, Nabeel Kassis (Chairman), Nafez Al-Hussieni, Radwan Shaban, Raja Khalidi, Sabri Saidam, Samir Huleileh (Treasurer), Samir Abdullah (Director General). Copyright 2012 Palestine Economic Policy Research Institute (MAS) P.O. Box 19111, Jerusalem and P.O. Box 2426, Ramallah Tel: ++972-2-2987053/4, Fax: ++972-2-2987055, e-mail: info@mas.ps Web Site: www.mas.ps
Palestine Economic Policy Research Institute Tourism in the Palestinian Territory: Analysis of Significance and Impact Belal Al-Falah 2012
Tourism in the Palestinian Territory: Analysis of Significance and Impact Researchers: Dr. Belal Al-Falah, Researcher and Economic Consultant Reviewers: Dr. Nu man Kanafani, Research Director, MAS Dr. Mohammad Ghadia, Palestinian Economists Association Layout: Lina Abdallah Funding: This study was funded by the Arab Bank for Economic Development in Africa (BADEA) Islamic Development Bank (IDB) Al-Aqsa Fund Palestine Economic Policy Research Institute (MAS) Jerusalem and Ramallah ISBN 978-9950-374-28-7
Foreword Palestine, being the cradle of the three Abrahamic religions and a lineage of many civilizations whose footprints and influence remain vivid till this day, is endowed with bountiful touristic fortunes. Despite its small area, the Palestinian landscape offers diverse climates and encourages biodiversity, which adds to its touristic value as a year round vacation and recreational destination. However, since 1967, the Palestinians were impeded from exploiting the land s touristic potential as the Israeli occupation forces paved the way for their companies to control, exploit, and monopolize the tourism sector and market it as purely Israeli. Furthermore, after the establishment of the Palestinian Authority in 1994, Israel used direct mechanisms, such as movement restrictions, to stifle the Palestinian tourism sector in areas controlled by the PA such as Bethlehem, Gaza, and Nablus. Despite all the Israeli obstacles, the PA, along with the private sector, heavily invested in providing the proper infrastructure for a healthy tourism sector. The zenith of these investments came in preparation for the Bethlehem 2000 celebrations. However, the occupation forces invaded Bethlehem and all other Palestinian cities in the West Bank and Gaza Strip right after, which inflicted heavy damage to all sectors of the Palestinian economy. The tourism sector was especially affected by this aggression because it is very vulnerable to instability and closures. This study is an attempt to unearth the status of the Palestinian tourism sector in terms of its absorptive capacity, level of services, expertise, marketing capabilities, and its contribution to GDP and employment. The study also attempts to identify potential policies that would increase the contribution of tourism within the Palestinian economy. I would like to thank Dr. Belal AlFalah, the main researcher, and his research team for their meticulous and good work. I would also like to extend my thanks to the editors and the peer reviewers of the study as well as the discussants in the public workshops. Their contributions were imperative to refine the end result. Finally, I would like to extend my gratitude to the Arab Bank for Economic Development in Africa, and The Islamic Development Bank- The Aqsa Fund- for funding this study, which represents one of the studies in the priorities of the PA research program. i Dr. Samir Abdullah Director General
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Executive Summary The influence of tourism on national economies has globally received a growing interest by the public and private sectors alike. Given its dynamicity as an economic industry (its role in developing local resources, as well as its ability to promote economic growth), tourism has become a priority in decision-making circles. Statistics and reports released by the World Tourism Organization reveal that international tourist movement is growing at rates that are by far greater than some other economic activities. The Mandatory Palestine geographical and historical variety is a significant tourist attractor. Despite the geopolitical changes and distortions created by the Israeli occupation over the past four decades, it still has broad prospects for tourism growth and development, making this sector's significantly possible contribution to economic growth significant. Thus, conducting an analytical, in-depth study of the economic significance and returns of the tourism sector in Palestinian Territory- is vital to inform wise tourism policies, capitalizing on available tourism resources, and assessing the payoff of government spending (as well as the related policies).this is mainly important in light of the current political situation and the faltering political settlement of the Israeli-Palestinian conflict. This study aims at shedding light on the status of Palestinian tourism sector through assessing and analyzing the marginal impact of tourism activities (measured by the number of nights stayed in hotels)on real GDP as well as sectoral employment rates in Jerusalem, Bethlehem, Ramallah and Jericho between 1998 and 2010.The study also examines the development of tourism activities and the main obstacles that deter proper performance, so as to provide recommendations aimed at enhancing the economic contribution of the tourism sector. Furthermore, the study highlights the structure of this industry and its GDP share and compares that with several regional countries. To achieve its objectives, the paper discusses related theories addressing the positive as well as the negative effects of tourism. The paper then proceeds to utilize secondary data related to the change in tourism activity and the structure of the industry, so as to show the prospect of this sector in the Palestinian Territory. Also, data of hotel activity, real gross domestic product (GDP) and cross-sectoral employment rates were projected into regression analysis models to estimates tourism economic impact. 1
The study excluded (especially in the analysis of economic impact) tourism activities that do not involve hotel accommodation (mostly nonresident tourists and locals and Palestinian visitors with Israeli citizenship or residents in Arab and foreign countries). Therefore, the assessment of the economic outcome pertains only to the marginal change of hotel tourist activity, and that is why the figures published in this study are likely to be lower than those expected for the total marginal change of tourist activities which, apart from hotel activities, include shopping, restaurant services and others. The primary data used in this study are obtained from some interviews that meant to identify the most important obstacles facing the Palestinian tourism sector. The data analysis of hotel activities show that the OPT tourism industry is traumatized by political and security unrest, particularly with the outbreak of the second intifada and the deployment of the Israeli security forces in the Palestinian cities. The number of tourists (hotel guests) in the Palestinian Territory fell from 335,771 at the end of 2000 to 51,357 in 2002. However, with the decline of violence and restoring security in the West Bank, tourist activity grew steadily, standing at 577,383 hotel guests at the end of 2010. With a 4% direct contribution to GDP, the tourism sector in the OPT still lags behind the immediate region economies (6% in Israel, 20% in Jordan, 13% in Egypt and 37% in Lebanon). This weakness also applies to the contribution of the tourism sector in total employment. With barely 2%, the employment rate in the OPT tourism sector is the lowest compared to the immediate region economies (8% in Israel, 19% in Jordan, 11% in Egypt, and about 4% in Lebanon). At the local level, statistics reveal a low economic performance of the tourism sector compared to other Palestinian economic sectors such as the industrial sector whose labor's productivity is 20% larger than its tourism counterpart. The estimates of the regression models indicate a positive impact of tourism activity (number of nights stayed in hotels) on real GDP. In particular, an increase of 1000 in the number of nights (equivalent to 385 guests) adds about $ 1.41 million to real GDP. A great deal of this contribution is achieved in the same period (quarter), i.e. synchronic to the increase in number of nights stayed. This can probably be attributed toa limited tourism multiplier effect due to leakages related to financing import activities. 2
The study also suggests positive impact of hotel activities on employment rates in nine economic sectors However, the magnitude of the effect is not uniform: the study finds that the largest beneficiaries are food products and beverages; garments; and processing and dyeing of fur, respectively. In contrast, the study detects a negative impact of tourist activity on two sectors: tanning and processing of leather; and manufacturing of luggage, handbags, saddles, bridles and shoes; as well as other non-metallic products. The channels of the contractionary effect are not empirically investigated. However, increases in tourism activities are expected to be a catalyst in increasing import of goods relating to these two sectors and, thus, reducing their domestic production and the demand for labor. The study identifiedsome obstacles facing the growth of the tourism sector. The main obstacle is the continued Israeli occupation and its outlawed procedures that foil the exploitation of the Palestinian tourism resources, especially in Jerusalem and areas under Israeli control (Area C). Any tourism policy seeking sustainable economic development under the Israeli occupation is less likely to effectively yield. However, what is needed, given unresolved Israeli-Palestinian conflict, is policies that boost the competitiveness of the tourism sector to maximize the economic direct and indirect returns. That is why most of the recommendations proposed in this study focus on overcoming tourism sector's own obstacles that hamper the development of the Palestinian tourism sector. Based on the finding of this study, one can safely conclude that developing and impelling policies aimed at increasing the number of hotel guests can positively impact economic development. Probably, the most important policies are enhancing promotion of this sector in international markets and diversifying tourism scope, allowing for cultural, historical and archaeological dimensions. Palestine contains hundreds of historical sites and landmarks built by different civilizations that can be an attractive destination for millions of tourists. The study brings to light the economic worth policies aimed at maximizing the share of domestic tourist products, which will, in turn, optimize the economic returns of tourism and minimize dependence on imports to meet the growing demand for tourist final products. Other policy recommendations involve promoting tourism in the Palestinian Territory through the development and expansion of tourist facilities. This entails promoting tourism investment; development of infrastructure in areas rich with tourism resources; development of professional individuals and agencies in such a way that furthers the competitiveness of tourism 3
enterprises at the regional and international levels; and updating laws and regulations governing the work of the tourism sector, which would give an oomph to this industry and ensure the competitive advantage of various tourist enterprises, especially small ones. 4