Palestine: Investing

FDI in Figures

Due to the political and security situation of the territory, Palestine attracts scarce FDI beyond aid from the EU, the U.S., and Arab countries. However, Palestine has a market economy in which the private sector plays an important role. Its strategic location and need for the development of large-scale infrastructure make Palestine a largely unexploited market with good investment potential. According to UNCTAD's World Investment Report 2023, FDI flows to Palestine accounted for USD 233 million in 2022, down from the USD 353 million recorded one year earlier but still at a historical high level. At the end of the same period, the total stock of FDI stood at USD 3.1 billion, representing around 16.6% of GDP. According to the latest available data from the Palestinian Central Bureau of Statistics, the majority of foreign investments are allocated to the financial intermediation sector (64.3%), followed by services, transport, storage, communications, and internal trade (30%), industry (3.5%), and construction (2.2%). Jordan has more than four-fifths of the total stock, ahead of Qatar (8%), Saudi Arabia (5.5%), and Egypt (3%). According to the same source, at the end of 2022, the total foreign investment stock in resident enterprises in Palestine (liabilities) was distributed as follows: FDI amounted to USD 2,144 million, representing 58% of total liabilities; portfolio investments were USD 856 million, accounting for 23% of total liabilities; and other investments (including currency and deposits, trade credits, loans, and other liabilities) totaled USD 693 million, making up 19% of total liabilities. According to the World Bank, net foreign direct investment inflows were estimated at 1.1% of GDP in 2023 (down from 1.3% one year earlier); however, against the backdrop of the Israel-Palestine conflict, FDI is expected to plummet in 2024.

To attract foreign investment, the government has established a regulatory framework favorable to investors. Following the principle of non-discrimination, all benefits guaranteed by law are offered to both local and foreign investors, including protection against expropriation, guarantees for repatriation, tax incentives, and exemptions. Palestinian businesses are known for their professionalism and quality products. In the West Bank and Gaza, 99% of firms are family-owned small and medium-sized enterprises with fewer than 20 employees. Most private sector firms exhibit moderate productivity, low investment, and limited competition, predominantly operating in retail and wholesale trade. Large enterprises, making up just 1% of Palestinian companies, dominate certain sectors and maintain international connections with partnerships in Asia, Europe, the Gulf, and the Americas. However, Israeli government restrictions on the movement and access of goods and people between the West Bank, Gaza, and external markets—justified by Israel as necessary for security—continue to hinder the growth of the Palestinian private sector. The Palestinian labor force is well-educated, with a 98% literacy rate. Despite poor internet service and limited access to modern, high-speed mobile networks, the West Bank and Gaza have high technology penetration. However, Palestine lacks a monetary policy due to the absence of its own currency, and budget revenues depend on international aid and relations with Israel, which have worsened drastically since the Hamas attack on October 7th, 2023, and the subsequent invasion of Gaza by Israeli troops. To enhance its foreign direct investment policies, the Palestinian Authority enacted a new Companies Law in 2021, effective April 2022. This law, updating the 1964 Jordanian law, facilitates online business incorporation and eliminates costly bureaucratic practices. It marks a significant improvement in the business climate by removing foreign investor restrictions, such as foreign equity limits and local partner requirements. The law also introduced new business types, including sole proprietorships and limited liability companies, and established a legal framework for mergers, divisions, and transformations, allowing businesses to adapt and grow.

Since October 2023, the Palestinian economy has faced one of the most significant shocks in recent history. In Gaza, the loss of life, extensive damage to fixed assets, and reduced production flows are unprecedented. The West Bank has also been affected, experiencing massive job losses and a spiraling fiscal crisis for the Palestinian Authority. The resumption of FDI flows depends on the conflict's progression and the extent of future restrictions imposed by Israel.

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Latest Update: May 2024