ECONOMIC OUTLOOK FOR THE JORDANIAN WEST BANK

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001600010010-9
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 16
• Document Creation Date: December 22, 2016
• Document Release Date: October 1, 2009
• Sequence Number: 10
• Publication Date: June 1, 1968
• Content Type: IM

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 Confidential
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
Economic Outlook for the Jordanian West Bank
Confidential
ER IM 68-60
June 1968
Conv MO 48
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
June 1968
INTELLIGENCE MEMORANDUM
Economic Outlook
for the Jordanian West Bank
Summary
After an initial sharp decline following the
June 1967 war, the economy of the West Bank* has
stagnated. Economic development is unlikely to re-
sume until the area's future political status is
clarified. The current level of economic activity,
plus foreign aid, is sufficient to support the re-
maining West Bank population. Per capita annual in-
come of about $250 has remained at about prewar
levels largely because of the exodus of refugees to
the East Bank. This year the West Bank will receive
$24 million in aid from Israel for civil administra-
tion and public works and an additional $10 million
for balance-of-payments needs. The UN Relief and
Works Agency for Palestinian Refugees (UNRWA) and
other private organizations will supply $9 million
for refugee assistance. The area, extent, and
principal cit.-Les of the West Bank are shown on the
map, Figure 1.
The 1967 war and its aftermath have greatly
affected the West Bank economy. Industrial produc-
tion and construction activity have dropped sharply.
Tourist income and remittances from West Bank citi-
zens working abroad have also declined greatly, and
investment (both public and private) has nearly come
to a halt. On the other hand, almost unaffected by
The term West Bank, as used throughout this memo-
randum, comprises the part of Jordan west of the
Jordan River but, unless otherwise stated, excludes
the City of Jerusalem.
Note: This memorandum was produced solely by CIA.
It was prepared by the Office of Economic Research
and was coordinated with the Office of Current
Intelligence.
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the war and profiting from favorable rains, agri-
cultural production set a record in 1967, and the
traditional Arab markets for West Bank agricultural
products have been maintained with the encourage-
ment of the Israelis. The economic links to Jordan
are still much s,trcnger than the new links to
Israel, from which the West Bank economy has been
largely insulated.
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JORDAN: The West Bank
DOUNDARY REPRESENTATION IS
NOT NECESSARILY AUTHORITATIVE
0 10 20 Miles
0 10 20 Kilometers
Spot heights in feet
TEL AVIV-
YAFO
Figure 1
GOLAN
HEIGHTS
`, (Israeli.
-686 occupied) SYRIA
I'iGrLl,p
1
Janin.
EAST
BANK
AMMAN.)
GAZA
STRIP
I S R A E l
I
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The West Bank Economy
1. In spite of the rugged terrain and semiarid
climate, agricultural land is the only natural
resource of major importance on the West Bank. Agri-
culture dominates the West Bank economy and prior
to the war provided up to 35 percent of gross
national product (GNP) and employed 60 percent of
the labor force. Agricultural production consists
primarily of fruits and vegetables, most of which
are exported to the East Bank for consumption or
reexport. Most grain needs are filled through
imports which probably account for some 60 percent
of the population's caloric intake.
2. Industry consists almost entirely of very
small plants and handicrafts that produce consumer
goods and tourist items. Prior to the June war,
tourism on the West Bank was centered in the City
of Jerusalem and was of only moderate importance
to the rest of the West Bank. Prior to the war,
income earned on the West Bank was supplemented by
transfers of funds from abroad -- consisting of
remittances from Jordanians living abroad and
UNRWA aid for large numbers of refugees -- and from
the Jordanian government, whose expenditures on
the West Bank greatly exceeded the revenues collect-
ed there. Together these transfers amounted to
about 20 percent of available income on the West
Bank. The estimated percentage distribution of
income, by source, in 1966 was as follows:
a. Exc7 ing US-aid and other in-
come from abroad channeled through
the government.
Percent
Agriculture
24
Commerce
17
Government
12
In.ome from abroad a/
12
Rent -
8
Services
8
Industry
7
Construction
6
Transportation
4
Utilities
1
Banking and finance
1
Total
100
3 -
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General Economic Development
3. The economy of the West Bank grew substan-
tially during the several years immedie.tely prior to
the June 1967 war. GNP is estimatedc to have in-
creased about 6 to 7 percent annually, a rate higher
than that in most nvnoil-producing Arab countries,
and to have amounted to approximately $180 million
in 1966.,
4. The West Bank was important to the economy
of Jordan primarily for the tourist income earned and
as a market for East Bank products. Although the
West Bank had nearly 50 percent of the population of
Jordan, it provided a little less than 40 percent
of total GNP. The larger share of agricultural out-
put, manufacturing, trade, banking, government
activities, construction, and transportation indus-
tries is on the East Bank.
5. Output and income on the West Bank were
reduced greatly by the June 1967 war. Sharp declines
took place especially in remittances, income from
services, and government expenditures. Agricultural
production in 1967, however, was at an all-time high
and, with the decline in other sectors, may have
amounted to 50 percent of GNP. The movement of more
than one-fifth of the population to the East Bank
probably resulted in per capita GNP remaining at or
near its prewar level of about $250. The people who
fled were largely unemployed and unskilled, and
their loss did not result in a proportional loss of
production,
Agriculture
6. Agriculture, which dominates the economy
and employs 60 percent of the employed labor force,
did not suffer significantly from the war. Cultiva-
tion and harvesting were disrupted only in the
Jericho and Jordan flood plain areas where labor
shortages occurred. Few of the refugees who fled
the West Bank were engaged in agriculture; in most
cases, the farmers stayed with their land.
7. Much of the West Bank is not well suited to
agriculture; about 609,000 acres are cultivated out
of a total area of some 1.4 million (see the photo-
graphs, Figure 2).
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Figure 2
TypJcat Cu.2t,ivated H.LU in the OutSFz.itt.6 0
the City o{c Jetuzatem
The West Bank Southea4t o6 Nabutus; Such
Rugged Tenna.in Covets a Lange Pont.ion
oU the Weh- Bank
A V.Le!-,., o4 the Jotdan VaUey Ja Above Jen.ieho.
The anew neat the n.iven Uunthen upztneam
.i6 v en y U en.t.L.2 e .
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some additional land could be cultivated with crops
suitable for rocky hillsides, and irrigated land
probably could be doubled to about 10 percent of the
cultivated area. About 70 percent of the farmers
cultivate their own land, and there is little pres-
snre for land reform.
8. Although agriculture still is carried out by
relatively primitive methods, the use of machinery,
fertilizer, insecticides, and pesticides has in-
creased in recent years. The Jordanian government
supplied long-term credit at 5 percent interest so
that farmers could undertake long-range projects such
as the development of orchards. In addition, the
government built irrigation facilities and village
roads, established cooperatives, and provided exten-
sion services. As a result, agricultural output was
increasing noticeably before the war ard should con-
tinue to do so for some time in the future, even
without additional investments.
9. The Israeli government has continued the
programs started by Jordan. Farm extension services
are provided by the same personnel employed previously
by Jordan, and some demonstration projects have been
carried out by Israeli personnel. Interest rates for
agricultural credit supplied by the Israeli govern-
ment, however, have risen to between 8 and 9 percent.
At present, Israel does not import most agricultural
goods produced in the West Bank because of competi-
tion with Israeli products. Almost all exports of
harvested crops are sold to the East Bank.
10. Half of the value of total crop production
consists of fruit, including grapes, olives, citrus,
figs, and bananas. Continued expansion of fruit
production is assured since many orchards have not
yet matured. Production of melon, tomatoes, cucum-
bers, and potatoes has increased in recent years as
irrigation has been developed, but new irrigation
projects are unlikely to be undertaken until a politi-
cal settlement is made, and only small increases in
output will come from better use of fertilizers and
pesticides. Grain production is small because of
the rough terrain, and almost all grain products,
including large amounts of wheat, which is the major
source of food, must be imported.
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Industry
11. West Bank industry is tiny. Prior to the
war, industry employed only about 7 percent of the
labor force, contributed only slightly more than $10
million annually to GNP, and received less than $1
million annually in investment. Only two plants, a
margarine plant in Nabulus and a plastics plant in
Bethlehem, employ more than 100 workers. Most other
establishments are handicraft shops, which produce
and sell their own products in the local bazaar.
12. Approximately 60 percent of industrial out-
put in 1965 consisted of food, textiles, and other
basic consumer goods. Most of the inputs for the
manufacture of textiles and consumer goods must be
imported and are now obtained through Israel. Souve-
nir products, especially jewelry and religious items
associated with the tourist industry, made up 30 per-
cent of total industrial output, and the remainder
came largely from the mining of limestone and ot:-r
stone for construction purposes.
13. The June 1967 war brought industrial produc-
tion to a near halt. A very slow revival has taken
place since the war in some industries, such as the
manufacture of glass and consumer goods, but even in
these industries unemployment remains high. Israel
has permitted the export of manufactured products to
both the East Bank and Israel, but industries that
compete with Israeli industry have shown few signs of
life.
14. The failure of industry to recover more
fully since the war stems largely from a lack of
demand. This decrease in demand was caused by un-
employment in the construction and service sectors,
a major reduction in income from tourists, the
closing of commercial banks, and the decrease in
population resulting from the flight of refugees.
Revival of industry also has been hindered by the
need to pay high Israeli taxes and import duties on
inputs for production. industries producing goods
in competition with Israeli industries are especially
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Construction
15. The construction industry was the third
largest employer on the West Bank, engaging between
20,000 and 25,000 persons in 1966, or more than 11
percent of total employment. The construction sec-
tor also accounted for about 80 percent of total
investment, mostly for housing.
16. The construction industry almost came to a
complete halt after the June 1967 war. Only a few
of the projects under way prior to the war have been
resumed, and still fewer new projects have been
initiated. Construction activity has remained dor-
mant because of economic and political uncertainty
and lack of funds for long-term loans as a result
of the closing of Arab banks.
Banking and Currency
17. The banking system prior to June 1967 con-
sisted of 22 branch banks representing seven parent
banks in Amman. Four of the parent banks and 13 of
their branch banks ore Jordanian owned. Three of
the parent banks and their nine branches were foreign
banks. Since the war, all of the former banks have
remained closed, but a few branches of major Israeli
banks have been established on the West Bank.
18. Closing of the Arab banks reduces prospects
for an increase in economic activity. Long-term
loans have been especially hard hit, with the result
that long-term investment has practically ceased.
The Israeli batiks have been used very little because
of distrust and high Israeli interest rates. Arab
depositors may draw up to $560 a month from their
West Bank accounts at the commercial bank headquarters
in Amman. The use of banking facilities in Amman
has increased since early March 1968, when new regu-
lations eased travel between the West Bank and the
East Bank.
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19. Both the Israeli pound and the Jordanian
dinar serve as legal tender. The official exchange
rate, first set by the Israeli government at 8.4
Israeli pounds for one Jordanian dinar, was raised
after the November 1967 Israeli devaluation to 9.8
pounds per dinar.
Prices
20. Prices have increased greatly on the West
Bank since the 1967 war, primarily because most
goods now imported are higher priced Israeli goods.
As of February 1968, prices of basic foodstuffs,
with the exception of flour, appear roughly to have
doubled. Prices of manufactured consumes goods,
increasingly obtainable only from Israel, are also
higher. By contrast, in the last few years before
1967, prices were relatively stable. Some year-to-
year variation in the price of foodstuffs reflected
changes in agricultural production.
Foreign Trade*
21. The West Bank consistently has had a large
trade deficit; the value of imports in 1966 was
approximately five times the value of exports. The
West Bank is a food deficit area, and even in years
of high agricultural output, large imports of wheat
and wheat products are required. Almost all of the
machinery purchased and a large part of the raw
materials used by industry must be obtained from
abroad. The trade deficit has been financed through
export of services, tourism, remittances from abroad,
and large amounts of foreign assistance.
22. Prior tc the June 1967 war, all exported
goods went to the East Bank; about 50 percent were
consumed there and the remainder reexported to near-
by Arab countries. Since June 1967, nearly all
commodity exports have continued to go as before to
the East Bank and only small amounts have been sent
The term foreign trade, as used throughout this
memorandum, includes trade with the East Bank and
Isra;,Z.
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to Israel. The trade deficit of the West Bank in
1967 was much smaller than in previous years.
Agricultural exports were larger because the loss
of one-fifth of the population did not result in a
comparable drop in production and rains were unusual-
ly favorable. Imports of capital goods and industrial
raw materials were less because of uncertainty caused
by the war, higher costs of imports Under Israeli
tariffs, and the slowdown in development projects.
Tourism
23. Tourism was one of the major activiti,3s in
the West Bank economy before the June war when the
West Bank included the City of Jerusalem. Revenues
increased fourfold, from about $5 million in 1960
to about $25 million in 1966, about two-thirds of
which was received in Jordanian Jerusalem. Even
with this high rate of growth, the tourist industry
was just beginning to reach its potential and would
have exceeded agriculture in importance to the econ-
omy by 1970.
24. The June war, however, brought a dramatic
halt to the growth of tourism and a large decline in
tourist earnings. Two-thirds of the West Bank's
tourists prior to the war .,,ere Arabs who will not
visit the West Bank while it is under Israeli con-
trol. The influx of Israeli tourists has compensated
only to a small degree for the loss of Arab trade be-
cause the Israelis spend little and tend to leave the
West Bank at night for the safety of Jerusalem or
their homes in Israel.
25. The future of tourism on the West Bank depends
on both the long-term political status and peaceful-
ness of the West Bank. Until the status of the West
Bank is determined, further investment in the tourist
industry is unlikely. Israeli investment probably
will be concentrated in the Israeli section of Jerusa-
lem, increasing its position as the major tourist
center in the area. The number of tourists from
Europe and the United States probably will remain low
as long as terrorism continues.
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Balance of Payments
26. In the last few years prior to the Arab-
Israeli War, the West Bank, in spite of ~.ts large
trade deficits, experienced balance-of-payments
surpluses. In 1966 the surplus amounted to $8 mil-
lion and was due largely to transfer payments totaling
$36 million, including substantial foreign aid. In
addition, the excess of Jordanian government expendi-
tures over revenues amounted to $17 million. An
increase in tourist earnings also was an important
factor in the balance-of-payments surplus in the last
few years.
27. In 1967 the West Bank's balance of payments
was in deficit. Even though the normal trade deficit
was cut in half, tourist earnings, transfer payments,
and remittances from abroad were cut even more.
Many persons migrated to the East Bank because of
the difficulty of receiving remittances from an
Arab country in territory occupied by Israel. The
projected balance of payments of the West Bank with-
out Jerusalem ir,. 1368 is shown in the accompanying
table.
Economic Aid
28. The West Bank can maintain its present level
of economic activity but cannot expect any additional
development: with the amount of economic aid that is
now expected. During fiscal year 1968/69, Israel
plans to spend about $24 million for payment of civil
servants and public works in the West Bank. In addi-
tion to direct aid, Israel will contribute about $10
million in foreign exchange to finance the balance-
of-payments deficit. UNRWA and private relief
agencies will contribute about $9 million. Until
the political disposition of the area is resolved,
however, additional foreign aid for economic develop-
ment probably will not be forthcoming.
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Balance of Payments for the West Bank
Excluding Jerusalem
1968
Million US $
Commodity trade account
Import of goods
-42
Export of goods
14
Trade balance
-28
Services ac count (net)
Tourism
Other
Balance on services
Unilateral transfers
UNRWA
Private transfers
Remittances from abroad
Balance on unilateral transfers 12
Deficit
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